Commissioner of Internal Revenue vs Algue Inc.

, and Court of Tax Appeals

GR No. L-28896 February 17, 1988

Facts:
The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent, authorizing it to sell its
land, factories and oil manufacturing process.As such,the corporation worked for the formation of the Vegetable Oil
Investment Corporation, until they were able to purchased the PSEDC properties. For this sale, Algue Inc., received as
agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional fees were paid
to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue Inc., it
held that the said amount had been legitimately paid by the private respondent for actual services rendered. The
payment was in the form of promotional fees.

Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by private
respondent Algue Inc., as legitimate business expenses in its income tax returns.

Ruling:
No, The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive.
The P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees
who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase
by it of the Sugar Estate properties.

The claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore
not have been disallowed by the petitioner.


ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005

Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of Sections 4, 5 and 6
of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;

These provisions contain a provision which authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied.

Issues:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.

Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.

Whether or not there is a violation of the due process and equal protection of the Constitution.

Ruling:
No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, and excise and franchise taxes.

No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what
job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the
only way in which the legislative process can go forward. In this case, it is not a delegation of legislative power but a
delegation of ascertainment of facts upon which enforcement and administration of the increased rate under the law is
contingent.

No, the power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to
be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity.
As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.

Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647 April 15, 2005

Facts:
Respondents operated six drugstores under the business name Mercury Drug. From January to December 1996
respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines pursuant to RA 7432
for a total of 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net losses. On
Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of 904,769.00 allegedly arising from the
20% sales discount. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the Court of
Tax Appeals. The court dismissed the same but upon reconsideration, the latter reversed its earlier ruling and ordered
petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon
Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but
that there are other situations which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a payment of taxes
by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on their
purchase of medicine from any private establishment in the country. The latter may then claim the cost of the discount
as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is subtracted directly from ones total tax liability. It is an allowance
against the tax itself or a deduction from what is owed by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction which is subtraction
from income for tax purposes, or an amount that is allowed by law to reduce income prior to the application of the
tax rate to compute the amount of tax which is due. In other words, whereas a tax credit reduces the tax due, tax
deduction reduces the income subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be
applied. Without that liability, any tax credit application will be useless. There will be no reason for deducting the latter
when there is, to begin with, no existing obligation to the government. However, as will be presented shortly, the
existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While the grant is
mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be applied. For the establishment
to choose the immediate availment of a tax credit will be premature and impracticable.

Mactan Cebu International Airport Authority vs Marcos, et al.,
GR No 120082 September 11, 1996

Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958,
mandated to principally undertake the economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, and such other airports as may
be established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of its Charter:

"Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or
any of its political subdivisions, agencies and instrumentalities."

On October 11, 1994, however, the Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on
several parcels of land belonging to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in
the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the
Local Government Code of 1991 which puts limitations on the taxing powers of local government units:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
a) x x x
x x x
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units"

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a
government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and
234 of the Local Government Code that took effect on January 1, 1992:

"Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x
x x x
(e) x x x
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed
by all persons, whether natural or juridical, including government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code."
Issues:
Whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted
to the petitioner, and

Whether the petitioner is a taxable person.

Ruling:

Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands,
buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and all
assets, powers, rights, interests and privileges relating on airport works or air operations, including all equipment which
are necessary for the operations of air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby
transferred to the Authority: Provided, however, that the operations control of all equipment necessary for the
operation of radio aids to air navigation, airways communication, the approach control office, and the area control
center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence of the Authority. The Authority may assist in the
maintenance of the Air Transportation Office equipment.
It may be reasonable to assume that the term lands refer to lands in Cebu City then administered by the Lahug Air
Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section
involves a transfer of the lands, among other things, to the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic of the Philippines.

This transfer is actually an absolute conveyance of the ownership thereof because the petitioners authorized capital
stock consists of, inter alia, the value of such real estate owned and/or administered by the airports. Hence, the
petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It was only exempted
from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be conceded to be an agency or instrumentality of the
Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.


Commissioner of Internal Revenue vs Burroughs Limited and the Court of Tax Appeals
GR No L-66653 June 19, 1986

Facts:
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch
office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila. Claiming that the 15% profit
remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the
amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim
for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax.

Issue:
Whether or not Burroughs is entitled to any tax credit.
Whether or not Memorandum Circular No. 8-82 should be given a retroactive effect?

Ruling:
Yes. Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of the
Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the
total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the
amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax
actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits of P7,647,058.00.
Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated
March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states
Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base
should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted
abroad.

No. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82
dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue
Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to
the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c)
where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum
Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as
the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.