1

Lorenzo v. Posadas Facts: Thomas Hanley died, leaving a will and considerable amount of real and personal properties. His will provided that 10 years after his death, his nephew Matthew Hanley would become owner of his properties. Plaintiff Lorenzo was appointed as trustee. During plaintiffs incumbency as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty and personalty, assessed against the estate an inheritance tax. The defendant prayed that the trustee be ordered to pay the Government the inheritance tax together with the penalties for delinquency in paying such tax. The trustee, plaintiff Loada, paid under protest and however, he demanded that he be refunded for the amount paid. The defendant overruled plaintiffs protest and refused to refund the amount. Issues: 1. When does the inheritance accrue? 2. Should the inheritance be computed on the basis of the value of the estate at the time of the testators death or on its value 10 years later? Held: 1. The tax is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. 2. Based of the value of the estate at the time of the testators death - If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. A transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.

FACTS: Judge Tan was appointed as the executor of the estate of Elsie Gaches. He preliminarily submitted a motion for advance payment of allowances, inheritance, etc. pending the finality of probate of the will. He maintained that there are sufficient assets to cover whatever liability to the government for taxes and other charges. The Commissioner opposed this motion and showed some proof of claims for estate taxes and inheritance taxes. The court then disapproved the motion of Tan. On a later date, Tan paid the taxes due but there was deficiency in payment of the inheritance taxes. Upon payment, he moved again that he be allowed to pay advance inheritance, allowances, etc. This time, the court allowed him to do so. The Commissioner tried to oppose this but to no avail. He then tried to garnish the bank accounts of the estate but wasn't able to do so due to the quick thinking of Tan to have the writ of garnishment discharged. ISSUE: Whether the garnishment is proper.

RULING: Under the provisions of the Rules of Court, together with the provision in the tax code, the distribution of a decedents assets may only be ordered under the following circumstances 1. When the inheritance tax, among others, is paid 2. When a sufficient bond is given to meet the payment of the inheritance tax and all other obligations of the nature enumerated 3. When the payment of the said tax and all the other obligations mentioned in the Rule has been provided for. None of these were present when the questioned orders were issued at the case at bar. On the issue of attorneys fees, these should be shouldered by the heirs and not by the estate. The attorneys fees payable were not for the benefit of the estate and thus, need not be paid by the estate.

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Commissioner of Internal Revenue vs. Gonzales and the CTA G.R. No. L-19495. November 24, 1966. FACTS: Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely, Jose S. Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child. Intestate proceedings for the settlement of his estate were instituted in the Court of First Instance of Iloilo (Special Proceedings No. 459). Jose S. Yusay was therein appointed administrator. On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax return declaring that the gross estate of Matias Yusay was P187,204.00. The return mentioned no heir. Upon investigation, however, the BIR found that several properties were not included in the return filed by Jose Yusay and that the total gross estate of the deceased should be P219,584.32. Based on the foregoing findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively. On July 12, 1957, an agent of the Bureau of Internal Revenue apprised the Commissioner of Internal Revenue of the existence of a reamended project of partition. Whereupon, the Internal Revenue Commissioner caused the estate of Matias Yusay to be reinvestigated for estate and inheritance tax liability. The CIR found a huge underdeclaration of the gross estate of the deceased. In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia Piccio Vda. de Yusay, who succeeded him in the administration of the estate of Matias Yusay. No payment having been made despite repeated demands, the Commissioner of Internal Revenue filed a proof of claim for the estate and inheritance taxes due and a motion for its allowance with the settlement court in voting priority of lien pursuant to Section 315 of the Tax Code. On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality of the assessment dated February 13, 1958. After hearing the parties, said Court declared the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question to have prescribed. Hence, this petition. ISSUE: Whether or not the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in question has prescribed? DECISION: Lilia Yusay claims that since the latest assessment was issued only on February 13, 1958 or eight years, nine months and two days from the filing of the estate and inheritance tax return, the Commissioner's right to make it has expired. She would rest her stand on Section 331 of the Tax Code which limits the right of the Commissioner to assess the tax within five years from the filing of the return. The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running of the prescriptive period under Section 331 of the Tax Code rests on no solid ground. A return need not be complete in all particulars. It is sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3) when it contains information as to the various items of income, deduction and credit with such definiteness as to permit the computation and assessment of the tax. First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares and left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have been the result of an over-sight or mistake. As found in L-11378, supra note 7, Jose S. Yusay very

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well knew of the existence of the ommited properties. Perhaps his motive in under declaring the inventory of properties attached to the return was to deprive Lilia Yusay from inheriting her legal share in the hereditary estate, but certainly not because he honestly believed that they did not form part of the gross estate. Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no occasion for the imposition of estate and inheritance taxes. When there is no heir - the return showed none - the intestate estate is escheated to the State. The State taxes not itself. The return filed in this case was 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 data obtained, not from the return, but from other sources. We therefore hold the view that the return in question was no return at all as required in Section 93 of the Tax Code. The law imposes upon the taxpayer the burden of supplying by the return the information upon which an assessment would be based. His duty complied with, the taxpayer is not bound to do anything more than to wait for the Commissioner to assess the tax. However, he is not required to wait forever. Section 331 of the Tax Code gives the Commissioner five years within which to make his assessment. Except, of course, if the taxpayer failed to observe the law, in which case Section 332 of the same Code grants the Commissioner a longer period. Non-observance consists in filing a false or fraudulent return with intent to evade the tax or in filing no return at all. As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax Code obligated him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code should therefore be reckoned from said date for, as aforesaid, it is from that time that the Commissioner was expected by law to make his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the date of the assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate the Commissioner's right to issue said assessment.

TANG HO V BOARD OF TAX APPEALS 97 PHIL 890 REYES, J.B.L.; November 19, 1955 Apple FACTS -Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and their thirteen children appear to be stockholders of two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. -Examiners of the Bureau of Internal Revenue made an examination of the books of the two corporations and found that each of Li Seng Giap's 13 children had a total investment therein of approximately P63,195.00, in shares issued to them by their father in the years 1940, 1942, 1948, 1949, and 1950 -The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the respective years, and assessed against Li Seng Giap and his children donor's and donee's taxes in the total amount of P76,995.31, including penalties, surcharges, interests, and compromise fee due to the delayed payment of the taxes.

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- The petitioners paid P53,434.50 representing the amount of the basic taxes, and put up a surety bond to guarantee payment of the balance demanded. -On June 25, 1951, they requested the Collector of Internal Revenue for a revision of their tax assessments, and submitted donor's and donee's gift tax returns -Appellants admit that the gifts were not reported; but contend that as the cash donated came from the conjugal funds, they constituted individual donations by each of the spouses Li Seng Giap and Tang Ho of one half of the amount received by the donees in each instance -They also claimed the benefit of gift tax exemptions (under section 110 and 112 of the Internal Revenue Code) at the rate of P2000 a year for each donation, plus P10,000 for each gift propter nuptias made by either parent -The Collector refused to revise his original assessments; and the petitioners appealed to the then Board of Tax Appeals -The Board of Tax Appeals upheld the decision of the respondent Collector of Internal Revenue; hence, this petition for review ISSUE WON the donations made by petitioner Li Seng Giap to his children from the conjugal property are taxable against husband and wife, and therefore, exemptions may be claimed twice HELD No. -Appellants submit that all such donations of community property are to be regarded, for tax purposes, as donations by both spouses, for which two separate exemptions may be claimed in each instance, one for each spouse. -This presentation should be viewed in the light of the provisions of the Spanish Civil Code of 1889. Arts. 1409 and 1415, reading as follows: Art. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by the husband to the children born of the marriage solely in order to obtain employment for them or give them a profession, or by both spouses by common consent, should they not have stipulated that such expenditures should be borne in whole or in part by the separate property of one of them. ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Art. 1409. -In effect, these Articles clearly refute the appellants' theory that because the property donated is community property, the donations should be viewed as made by both spouses. First, because the law clearly differentiates the donations of such property "by the husband" from the "donations by both spouses by common consent" -Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the husband to the common children are valid and are chargeable to the community property, irrespective of whether the wife agrees or objects thereof. Obviously, should the wife object to the donation, she can not be regarded as a donor at all. -Appellants herein are therefore in error when they contend that it is enough that the property donated should belong to the conjugal partnership in order that the donation be considered and taxed as a donation of both husband and wife, even if the husband should appear as the sole donor. There is no blinking the fact that, under the old Civil Code, to be a donation by both spouses, taxable to both, the wife must expressly join the husband in making the gift; her participation therein cannot be implied. -The consequence of the husband's legal power to donate community property is that, where made by the husband alone, the donation is taxable as his own exclusive act. Hence, only one exemption or deduction can be claimed for every such gift, and not two, as claimed by appellants herein

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TOLENTINO vs. SEC of FINANCE

Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. There are various suits challenging the constitutionality of RA 7716 on various grounds. One contention is that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630. There is also a contention that S. No. 1630 did not pass 3 readings as required by the Constitution. Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution Held: The argument that RA 7716 did not originate exclusively in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the law must substantially be the same as the House bill would be to deny the Senates power not only to concur with amendments but also to propose amendments. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the House bill. The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on separate days as required by the Constitution because the second and third readings were done on the same day. But this was because the President had certified S. No. 1630 as urgent. The presidential certification dispensed with the requirement not only of printing but also that of reading the bill on separate days. That upon the certification of a bill by the President the requirement of 3 readings on separate days and of printing and distribution can be dispensed with is supported by the weight of legislative practice.

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ATLAS MINING VS CIR FACTS: Petitioner is a mining corporation, organized and existing under and by virtue of the laws of the Philippines, operates a concession in Toledo City, Cebu. It actually used and/or consumed tax paid extra gasoline and diesel fuel for the mining operation purchased from Mobil Oil Philippines. Sometime in 1978 petitioner filed with the Commissioner of Internal Revenue a written claim for tax credit. It claimed 25% of the specific taxes paid on said fuel oils pursuant to Sec. 5 of Republic Act No. 1435 in relation to Sec. 142 and 145 of the Tax Code There being no action taken on its claim for refund, petitioner filed before the CTA a judicial claim for refund. The CTA granted the claim for refund and ordered the CIR to refund and/or credit amount The CIR then appealed to the CA. Petitioner that Atlas is not entitled to the tax refund because no additional tax was imposed on it under any city or municipal ordinance as provided under Section 4 of R.A. No. 1435. The CA affirmed the decision of the CTA. Its Motion for reconsideration having failed hence, this recourse. ISSUE: Whether or not in the instant case, the petitioner may raise a new issue for the first time on appeal. HELD: The Supreme Court may review such matters as may be necessary to serve the interest of justice. It has ample authority to review and resolve matters not specifically raised or assigned as error by the parties if it finds that the consideration and determination of the same is necessary in arriving at a just resolution of a case. Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the Court has the authority to include them in its discussion of the controversy as well as to pass upon them. Wherefore, the petition is GRANTED.

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CIR vs Philippine Global Communication Facts: Philippine Global (respondent) is a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondents 1990 income tax liability. BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. Respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax. Phil Global filed two letters of protests, in both letters, respondent requested for the cancellation of the tax assessment. More than eight years after the assessment was presumably issued, respondent received from the CIR a Final Decision dated 8 October 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto. CTA rendered a Decision in favor of respondent on 9 June 2004. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax. Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was issued, the CIRs right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 1977. Issues: (1) Whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977 (2) Whether or not the prescription on assessment was suspended by virtue of the alleged request of reinvestigation by Phil Global Held: Petition was denied. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its

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Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers, that is for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court. The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, Among the exceptions, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation. Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars: xxxx For the purpose of protest herein (a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and

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are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent.

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CIR VS ROYAL INTEROCEAN LINES FACTS: Both vessels of petitioner N.V. Reederij Amsterdam called on Philippine ports to load cargoes for foreign destinations. The freight fees for these transactions were paid in abroad. In these two transactions, petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax has been paid by Amsterdam on the freight receipts. As a result, Commissioner of Internal Revenue filed the corresponding income tax returns for the petitioner. Commissioner assessed petitioner for deficiency of income tax, as a non-resident foreign corporation NOT engaged in trade or business. On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification. On the same date, petitioner Royal Interocean Lines, as the husbanding agent of Amsterdam, filed a written protest against the abovementioned assessment made by the respondent Commissioner. The protest was denied. On appeal, CTA modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to the SC. ISSUE: Whether or not N.V. Reederij Amsterdam should be taxed as a foreign corporation not engaged in trade or business in the Philippines? HELD: Petitioner is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch in the Philippines, and it only made two calls in Philippine ports, one in 1963 and the other in 1964. In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation does not amount to engaging in trade or business in the Philippines for income tax purposes. A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand, foreign corporations not doing business in the Philippines are taxable on income from all sources within the Philippines . The tax is 30% (now 35% for non-resident foreign corp which is also known as foreign corp not engaged in trade or business) of such gross income. (*take note that in a resident foreign corp, what is being taxed is the taxable income, which is with deductions, as compared to a non-resident foreign corp which the tax base is gross income) Petiioner Amsterdam is a non-resident foreign corporation, organized and existing under the laws of the Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines.

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LHUILLER VS CIR FACTS: This case stemmed from an assessment for deficiency documentary stamp taxes on pawn ticketsissued by petitioners for the year 1997. The CTA ruled for the cancellation of the assessment by holdingthat a pawn ticket is neither a security not a printed evidence of indebtedness and therefore, cannot besubject to DST. Ruling on the petition filed by respondent, the CA reversed the CTA decision andsustained the assessment issued by the Commissioner. The CA ratiocinated that a pawn ticket, per se isnot subject to DST; rather, it is the transaction involved, which in this case is pledge, that is being taxed Not convinced, petitioner filed with the SC a petition for review on certiorari raising this sole ISSUE: Whether the assessment for deficiency documentary stamp is valid. HELD: True, the law does not consider said ticket as an evidence of security of indebtedness. However,for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is nor said ticket that creates the pawnshopsobligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There istherefore no basis for petitioners assertion that a DST is literally a tax on a document and that notax may be imposed on a pawn ticket.The SC in no certain terms said that contracts of pledge entered into by pawnshops are subject toDST. The DST is essentially an excise tax; it is not an imposition on the document itself but on theprivilege to enter into a taxable transaction of pledge. This is clear under Section 195 of the National Internal Revenue Code.IN a motion for reconsideration that was filed, the SC issued a Resolution on September 11, 2006ordering the deletion of the surcharges and interest on the assessment. It took cognizance of theexistence of earlier rulings issued by the Commissioner that pawnshop tickets are not subject to tax onthe basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest.(citing Connell Bros. Co. (Phil.) vs.Collector, 119 Phil. 40, 1963; Tuazon, Jr. vs. ingad, 157 Phil. 159; and Cir vs. Republic Cement Corporation, 124 SCRA 46)arellano lawissue:Are pawn ticket subject to DST?The SC affirmed the decision of the CA and made the following justification, viz:

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CIR VS. FORTUNE TOBACCO CORPORATION Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands tax classification rates based on their net retail price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also provides that: (1) the excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein shall be increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in force until revised by Congress. The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99 added the qualification that the new specific tax rate xxx shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. In effect, it provided that the 12% tax increase must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail price. FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month of January 2000 and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period, which is contrary to the legislative intent to raise revenue. Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market as outlined in Section 145 of the 1997 Tax Code? Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. The qualification added by RR No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition period and the specific tax under Section 145, as increased by 12%a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant to promote fair competition among the players in the industries concerned and to ensure an equitable distribution of the tax burden.

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CIR VS Lincoln Philippine Life Insurance Company, Inc. FACTS: Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (now called Jardine-CMA Life Insurance Company, Inc.) used to issue policies called Junior Estate Builder Policy. A clause therein provides for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid by Lincoln Philippine only on the initial sum assured. When the clause became effective in 1984, the Commissioner of Internal Revenue assessed an additional tax on the increased amount of the coverage of the said policies. Said tax was to cover the deficiency documentary stamps tax for said year. The Court of Appeals ruled that there is only one policy and the automatic increase is not a separate policy; that said increase of coverage is not covered by another documentary stamp tax. ISSUE: Whether or not there is only one policy. HELD: Yes. Section 49, Title VI of the Insurance Code defines an insurance policy as the written instrument in which a contract of insurance is set forth. Section 50 of the same Code provides that the policy, which is required to be in printed form, may contain any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance. It is thus clear that any rider, clause, warranty or endorsement pasted or attached to the policy is considered part of such policy or contract of insurance. The subject insurance policy at the time it was issued contained an automatic increase clause. Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the junior estate builder policy called the automatic increase clause already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age. The said increase however is imposable with documentary stamp taxes. The original documentary stamps tax paid by Lincoln Philippine covers the original amount of the policies without the projected increase. The said increase was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy.