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Taxation II Case Digests based on Atty.

Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

ASSESSMENT OF INTERNAL REVENUE TAXES


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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

3|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

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

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

Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

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

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

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

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It being undisputed that petitioner failed to file a return for the disputed sales corresponding to the
years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and
that under Section 332 (a) of the Tax Code assessment thereof may be made within ten (10) years
from and after the discovery of the omission to file the return, it is evident that the lower court
correctly held that the assessment and collection of the sales tax in question has not yet prescribed.
CASE SYLLABI:
Taxation; Sales tax; Sale of logs F.O.B., Agusan.Petitioner sold logs to Japanese firms at prices FOB
Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon
delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales being domestic
or local, they are subject to sales tax under Section 186 of the Tax Code, as amended.
Same; Title to goods deliverable to order of seller or his agent may pass upon delivery to the carrier.
The specification in the bill of lading that the goods are deliverable to the order of the seller or his agent
does not necessarily negative the passing of title to the goods upon delivery to the carrier. (Art. 1503, New
Civil Code).
Same; Prescription; Income tax return is not deemed a return for sales tax purposes.For purposes of
computing the period of prescription under Section 331 of the Tax Code, an income tax return cannot be
considered as a return for compensating tax or sales tax purposes. The taxpayer must file a return for the
particular tax required by law in order to avail himself of the benefits of the law. If he does not file such a
return, an assessment may be made within ten (10) years from and after the discovery of the omission to
file the return. (Section 332[a] of the Tax Code; Cf. Bisaya Land Transportation Co., Inc. vs. Collector of
Internal Revenue and Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L12100 & L-11812, May 29, 1959.)
Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd., 14 SCRA 52, No. L -19727.
May 20, 1965
Bengzon, J.P., J.
Facts:
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is
licensed to do business in the Philippines with head office in London. Through its head office, it entered in
London into worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a
portion of premiums received on original insurances underwritten by its head office, subsidiaries, and
branch offices throughout the world, in consideration for assumption by the foreign insurance companies of
an equivalent portion of the liability from such original insurances.
On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income tax for the years 1952
and 1954 against Phoenix Assurance Co, Ltd. The assessment resulted from the disallowance of a portion
of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business
in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross
Philippine income as claimed in the returns.
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Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency
income tax. However, the Commissioner of Internal Revenue denied such protest. Subsequently, Phoenix
Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court
of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net
addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine
business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal
Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd.
from payment of the statutory penalties for non-filing of withholding tax return.
Issues:
(1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines
pursuant to reinsurance contracts executed abroad are subject to withholding tax;
(2) Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for
the year 1952 against Phoenix Assurance Co., Ltd. has prescribed;
Held:
The question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines pursuant to contracts executed abroad are income from sources within the Philippines subject to
withholding tax under Sections 53 and 54 of the Tax Code has already been resolved in the affirmative in
British Traders Insurance Co., Ltd. v. Commissioner of Internal Revenue, L-20501, April 30, 1965.1
Notes:
The question is: Should the running of the prescriptive period commence from the filing of the original or
amended return?
xxx the deficiency income tax in question could not possibly be determined, or assessed, on the basis of
the original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93,
the mere disallowance of part of the head office expenses could not possibly result in said loss being
completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on
August 30, 1955 could the Commissioner assess the deficiency income tax in question.
Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the
amended return.
Considering that the deficiency assessment was based on the amended return which, as aforestated, is
substantially different from the original return, the period of limitation of the right to issue the same should
be counted from the filing of the amended income tax return. From August 30, 1955, when the amended
return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed.
The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed.
CASE SYLLABI:
Taxation; Income tax; Reinsurance premiums subject to withholding tax.Reinsurance premiums ceded
to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed
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abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54
of the Tax Code.
Same; Same; Period of prescription to assess deficiency income tax commences from filing of amended
return.Where the deficiency assessment is based on the amended return, which is substantially different
from the original return, the period of prescription of the right to issue the same should be counted from the
filing of the amended, not the original income tax return.
Same; Same; Taxpayer may claim lesser deduction than allowed by law.For income tax purposes a
taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What
is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein.
Same; Same; Items of income not belonging to Philippines excluded in determining expenses allocable
to Philippines.Since the items of income not belonging to its Philippine business are not taxable to its
Philippine branch, they should be excluded in determining the head expenses allocable to a Philpine branch
of a foreign corporation.
Same; Same; Interest on taxes unpaid due to Commissioners opinion imposed only from failure to
comply with courts final judgment.Where the taxpayers failure to pay the withholding tax was due to
the Commissioners opinion that no withholding tax was due, the taxpayer can be held liable for the
payment; of statutory penalties only upon its failure to comply with the Courts final judgment.

Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757, No. L-19495. November 24, 1966
Bengzon, J.P., J.
Facts:
In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose
was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of
Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the
return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The
estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another
investigation in July 1957 with the same result there was a huge under-declaration. In February 1958, the
Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In
November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was
issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose
in 1949 and so the CIRs right to make an assessment has already prescribed in 1958.
Issue: Whether or not the state and inheritance tax return file by Jose Yusay was defective and hence the
right of the CIR to make an assessment has not prescribe.
Held:
It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation
on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered
that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment
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(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3
years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of
the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be
discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was
well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN,
without prejudice to her right to ask reimbursement from Joses estate (Jose already died).
CASE SYLLABI:
Taxation; Evidence of fraud.Fraud is a question of fact. The circumstances constituting it must be
alleged and proved in the Court of Tax Appeals. And the finding of said court as to its existence or
nonexistence is final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil.
713). As the court 'a quo found that no fraud was alleged and proven therein, the Commissioner's assertion
that the return was fraudulent cannot be entertained.
Same; When tax return is considered sufficient.A return need not be complete in all particulars. It is
sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is
made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3)
when it contains information as to the various items of income, deductions and credits with such
definiteness as to permit the computation and assessment of the tax. (Mertens, Jr., 10 Law of Federal
Income Taxation, 1958 ed., Sec. 57.13).
Same; Sufficiency of estate and inheritance tax return. An estate and inheritance tax return was
substantially defective when it was incomplete; it declared only ninety-three parcels of land, representing
about 400 hectares, and left out ninety-two parcels covering 503 hectares and said huge underdeclaration
could not have been the result 01 an oversight or mistake. Moreover, the return mentioned no heir. Thus,
no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no heir, the estate is escheated to
the State. The State does not tax itself.
Same; Sufficient tax return; Prescription.Where the return was made on the wrong form, it was held
that the filing thereof did not start the running of the period of limitations, and where the return was very
deficient, there was no return at all as required in Section 93 of the Tax Code. If the taxpayer failed to
observe the law, Section 332 of the Tax Code, which grants the Commissioner of Internal Revenue ten
years period within which to bring an action "f or tax collection, applies. Section 94 of the Tax Code
obligates him to make a return or amend one already filed based on his own knowledge and information
obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of
the period of limitations under Section 332(a) of the Tax Code should be reckoned "from the date the
"fraud was discovered.
Republic vs. Ret, 4 SCRA 783, No. L-13754. March 31, 1962
Paredes, J.
Facts:

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On February 23, 1949, Damian Ret filed with the Bureau of Internal Revenue his Income Tax Return for
the year 1948, where he made it appear that his net income was only P2,252.53 with no income tax liability
at all. The BIR found out later that the return was fraudulent since Ret's income, derived from his sales of
office supplies to different provincial government offices, totaled P94,198.76. Defendant Ret failed to file
his Income Tax return for 1949, notwithstanding the fact that he earned a net income of P150,447.32, also
from sale of office supplies. The BIR assessed him P34,907.33 and P68,338.40 as deficiency income tax,
inclusive of the 50% surcharge for rendering a false and/or fraudulent return for the 1948 and 1949
respectively.
On January 13, 1951, the Collector of Internal Revenue demanded from Ret the payment of the above sums,
but he failed and/or refused to pay said amounts. Upon recommendation of the Collector, Ret was
prosecuted for a violation of Sections 45[a], 51 [d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof
After his conviction, on September 21, 1957, the Republic filed the present complaint for the recovery of
Ret's deficiency taxes in the total sum of P103,245.73, plus 5% surcharge and 1% monthly interest. Instead
of answering, he presented a Motion to Dismiss on February 8, 1958, claiming that the "cause of action had
already prescribed".
Issue:
Whether or not appellant's right to collect the income taxes due from appellee through judicial action has
already prescribed.
Held:
The answer is in the affirmative. After going over the law and jurisprudence pertinent to the issues raised,
the Court have come to the conclusion that the cause of action has already prescribed.
Section 332 of the Tax Code provides: "the running of the statutory limitation xxx shall be suspended for
the period during which the Collector of Internal Revenue is prohibited from making the assessment, or
beginning distraint or levy or a proceeding in court, and for sixty days thereafter". As heretofore stated, the
plaintiff-appellant was not prohibited by any order of the court or by any law from commencing or filing a
proceeding in court. In the instant case, there is no such written agreement, and there was nothing to agree
about. The letter of demand by the Collector on January 13, 1951, was made prior to the issuance of the
assessment notice to the defendant-appellee, made on January 20, 1951, from which date, the 5-year period
was to be counted, The letter of demand could not suspend something that started to run only on January 20,
1951.
CASE SYLLABI
Taxation; Income taxes; Prescription of judicial action; Section 332 of Tax Code not applicable if
collection of income taxes will be made by summary proceedings.Section 332 of the Tax Code does not
apply in the collection of income by summary proceedings. But when the collection of income taxes is to
be effected by court action, said provision is controlling.
Same; Same; Same; Alternatives of Collector under Section 332(a) of Tax Code; Effect of assessment
against taxpayer.Under Section 332 (a) of the Tax Code, the Collector is given two alternatives: (1) to
assess the tax within 10 years from the discovery of the falsity, fraud or omission, or (2) to file an action in
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court for the collection of such tax without assessment also within 10 years from the discovery of the
falsity, fraud or omission. An assessment against the taxpayer takes the case out of the realms of the
provisions of the said section and places it under the mandate of section 332(c).
Same; Same; Same; Theory of prescriptibility supported by Sections 331, 332 and 393 of Tax Code.
Sections 331, 332, and 333 of the Tax Code support the theory of prescriptibility of a judicial action to
collect income tax. To hold otherwise would render said provisions idle and useless.
Same; Same; Section 1, Rule 107, Rules of Court not applicable if complaint is not for recovery of civil
liability arising from criminal offense.Where the complaint against the taxpayer is not for the recovery
of civil liability arising from the offense of falsification, but for the collection of deficiency income tax, the
provisions of Section 1, Rule 107, Rules of Court, that "after a criminal action has been commenced, no
civil action arising from the same offense can be prosecuted" will not apply.
Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 473 SCRA 205, G.R. No.
139736. October 17, 2005
Chico-Nazario, J.
Facts:
Petitioner BPI is a commercial banking corporation organized and existing under the laws of the
Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United
States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of
US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice finding petitioner BPI
liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank.
Petitioner BPI received the Assessment, together with the attached Assessment Notice, on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed
with the BIR on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter.
However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy against BPI only on 23
October 1992
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a
letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its
request for reconsideration,.
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review
with the CTA on 10 October 1997
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in
its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR
Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner
only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years
and nine months to deny the protest.

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The CTA held that the statute of limitations for respondent BIR Commissioner to collect on the
Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R.
No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first
issue. It categorically ruled that a protest is to be treated as request for reinvestigation or
reconsideration and a mere request for reexamination or reinvestigation tolls the
prescriptive period of the Commissioner to collect on an assessment. . .
The CA affirmed the decision of the CTA. Hence, the instant case.
Issues:
1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the
alleged deficiency DST for taxable year 1985 had prescribed; and
2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect on
an assessment;
Held:
There is no valid ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of
Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment
No. FAS-5-85-89-002054 had already prescribed.
The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and,
thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits
both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against
unreasonable investigation. The protest filed by petitioner BPI did not constitute a request for
reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of
the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code
of 1977, as amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations
on the assessment and collection of national internal revenue taxes could be suspended, even in the absence
of a waiver,
Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the
Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and
collection of taxes is considered suspended when the taxpayer requests for a reinvestigation which is
granted by the Commissioner.
This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for
reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27
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November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs
the procedure for protesting an assessment and distinguishes between the two types of protest, as follows
(a)Request for reconsideration.refers to a plea for a reevaluation of an assessment on
the basis of existing records without need of additional evidence. It may involve both a
question of fact or of law or both.
(b)Request for reinvestigation.refers to a plea for reevaluation of an assessment on the
basis of newly-discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or law or both.
It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a
request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited
to the evidence already at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter cannot.
Add Notes as Emphasized by Atty. Lock:
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on
royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments,
dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December
1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17
January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or
withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the
BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being
offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a
compromise amount, but subject to certain conditions; though, apparently, the said compromise amount
was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the
assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment
for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to
enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in
favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on
appeal. According to the decision of this Court
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or
by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically
state or use the words reinvestigation and reconsideration, the same are to be treated as letters of
reinvestigation and reconsideration

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These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. The Bureau of Internal Revenue, after having reviewed the re cords of Wyeth Suaco, in
accordance with its request for rein vestigation, rendered a final assessment It was only upon receipt by
Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made
therein that, settled is the rule that the prescriptive period provided by law to make a collection by distraint
or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. It would seem that both petitioner BPI and respondent BIR
Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone
of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the
prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this
statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be
a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in
consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences
in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated
requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the
assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer
prevented or estopped it from setting up the defense of prescription against the Government when the latter
attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for
reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was
indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the
statute of limitations on assessment and collection may be interrupted or suspended, among which is a
request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for
reinvestigation alone does not suspend the period; such request must be granted. The grant need not be
express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response
to the request for reinvestigation.
This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance
with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally
issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as
written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts
Division, wherein he admitted that, [a]s we understand, the matter is now undergoing review and
consideration by your Manufacturing Audit Division The statute of limitations on collection, then,
started to run only upon the issuance and release of the reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is
interrupted or suspended when the taxpayer files a request for reinvestiga-tion, provided that, as clarified
and qualified herein, such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now
rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein.
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As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for
reconsideration, which merely required a review of existing evidence and the legal basis for the assessment.
Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the
matter. After petitioner BPI filed its request for reconsideration, there was no other communication
between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There
was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted
or acted upon by the BIR.
CASE SYLLABI:
Taxation; Distraint; Levy; The Bureau of Internal Revenue (BIR) has three years, counted from the
date of actual filing of the return or from the last date prescribed by law for the filing of such return,
whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the
collection thereof without an assessment.The BIR has three years, counted from the date of actual filing
of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to
assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an
assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at
all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the
falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or tenyear period, whichever is appropriate, then the BIR has another three years after the assessment within
which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding.
The assessment of the tax is deemed made and the three-year period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.
Same; Same; Same; Statute of Limitations; Statutes; Under Section 223(c) of the Tax Code of 1977, as
amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can
suspend the running of the statute of limitations on the collection of the tax.Under Section 223(c) of
the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully
executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is
enough that the proceedings have validly began or commenced and that their execution has not been
suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing
jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of
Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the
prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant
that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
Same; Same; Same; Same; Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation.Though the statute of limitations on
assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer,
it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite
extension of the period for assessment is unreasonable because it deprives the said taxpayer of the
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assurance that he will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.
Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, identifies specifically in
Sections 223 and 224 the circumstances when the prescriptive periods for assessing and collecting taxes
could be suspended or interrupted.In order to provide even better protection to the taxpayer against
unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and
224 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be
suspended or interrupted.
Same; Same; Same; Same; Same; Paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, the prescriptive periods for assessment and collection of national internal revenue taxes,
respectively, could be waived by agreement.According to paragraphs (b) and (d) of Section 223 of the
Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal
revenue taxes, respectively, could be waived by agreement, to witSEC. 223. Exceptions as to period of
limitation of assessment and collection of taxes.x x x (b) If before the expiration of the time prescribed in
the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time the tax may be assessed within the period agreed upon. The period
so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon. . . . (d) Any internal revenue tax which has been assessed within the period agreed
upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in
court within the period agreed upon in writing before the expiration of the three-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of the period
previously agreed upon. The agreements so described in the afore-quoted provisions are often referred to as
waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or
collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather,
an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the
latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the
right to invoke prescription unequivocally.
Same; Same; Same; Same; Same; RMO No. 20-90 mandates that the procedure for execution of the
waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the
prescription of the right to assess and collect shall be administratively dealt with.A valid waiver of the
statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended,
must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration
of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the
ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended
by subsequent written agreement, provided that it is executed prior to the expiration of the first period
agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay
down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90
mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official
who fails to comply therewith resulting in the prescription of the right to assess and collect shall be
administratively dealt with.
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Same; Same; Same; Same; The Supreme Court had consistently ruled in a number of cases that a
request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as required by the Tax Code and implementing rules,
will not suspend the running thereof.This Court had consistently ruled in a number of cases that a
request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will
not suspend the running thereof.
Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, also recognizes instances
when the running of the statute of limitations on the assessment and collection of national internal
revenue taxes could be suspended, even in the absence of a waiver. The Tax Code of 1977, as amended,
also recognizes instances when the running of the statute of limitations on the assessment and collection of
national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224
thereof, which readsSEC. 224. Suspension of running of statute.The running of the statute of
limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or
levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or
a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which
is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the statute of limitations will not be suspended;
when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.
Same; Same; Same; Same; Same; Under Section 224 of the Tax Code of 1977, as amended, the running
of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation,
not a request for reconsideration.With the issuance of RR No. 12-85 on 27 November 1985 providing
the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the
two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It
bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a
request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited
to the evidence already at hand; this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter cannot.
Same; Same; Same; Same; That the BIR Commissioner must first grant the request for reinvestigation
as a requirement for suspension of the statute of limitations is even supported by existing
jurisprudence.That the BIR Commissioner must first grant the request for reinvestigation as a
requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the
case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough
reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal
Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records
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and documents were not at all examined. Considering the given facts, this Court pronounced that. . . The
act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in
order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra).
Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the
latter did one day before. There were no impediments on the part of the Collector to file the collection case
from April 1, 1949. . . .
Same; Same; Same; Same; The burden of proof that the taxpayers request for reinvestigation had been
actually granted shall be on respondent BIR Commissioner.The burden of proof that the taxpayers
request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant
may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR
Commissioner or his authorized BIR representatives in response to the request for reinvestigation.
Same; Same; Same; Same; The Supreme Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not suspend the running of the statute of
limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension
thereof.As had been previously discussed herein, the statute of limitations on assessment and collection
of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as
provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific
instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted
by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one
other exception to the statute of limitations on collection of taxes in the case of Collector of Internal
Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc case, this Court expressly conceded that a
mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the
statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect
suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the
defense of prescription because by his repeated requests or positive acts, he had induced Government
authorities to delay collection of the assessed tax.
Same; Same; Same; Same; The repeated requests or positive acts of the taxpayer prevented or estopped
it from setting up the defense of prescription against the Government when the latter attempted to collect
the assessed tax.The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are
substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation
where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to
delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive
acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the
Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer
Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and,
consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code
of 1977, as amended.
Continental Micronesia, Inc., vs. CIR, CTA Case No. 6191, March 22, 2006
Casanova, J.
Facts:
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The Petitioner is a non-resident foreign corporation. On December 12, 1996 petitioner received a Letter of
Authority to examine the petitioners books of accounts and other accounting records for all internal
revenue taxes.
On March 17, 1998, an invitation for informal conference was sent to petitioner requesting it to submit
whatever documentary evidence in its possession that may support any objection against the proposed
assessment. On March 27, 1998, a conference with the representative of petitioner was held. Petitioner
expressed its willingness to settle the deficiency gross Philippine billings and common carriers tax but
would protest the remaining deficiency taxes upon receipt of the notice of assessment.
On May 15, 1998, an assessment notice of deficiency withholding tax on compensation and deficiency
expanded withholding tax was issues against the petitioner. Instead of attending another conference, the
petitioner opted to file its objection on the assessment and thus, it resulted to the reinvestigation of the case.
After the reinvestigation a PAN was issued, and on December 29, 1999 assessment notices and demand
letters were sent to the petitioner. These letters were received on January 5, 2000. On February 4, 2000,
petitioner filed its administrative protest seeking the cancellation and withdrawal thereof due to
prescription and lack of legal bases.
Issue:
Whether or not the assessments are barred by prescription
Held:
The answer is in the negative. In as much as the assessment notices for both deficiency withholding tax on
compensation and expanded withholding tax were isssues on December 29, 1999, it would appear that both
subject deficiency assessments are time barred. However, since petitioner requested for reinvestigation on
October 15, 1998, and which was granted by respondent in November 9, 1998, the running of the threeyear period to assess was suspended pursuant to Section 223 of the Tax Code.
Settled is the rule that when a taxpayer requests for a reinvestigation of an assessment which was granted
by respondent, the running of the period to assess under Section 203 and 222 is suspended.

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No.
162852. December 16, 2004
Ynares-Santiago, J.
Facts:
In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year 1994. In
1995, a tax audit was conducted by the Bureau of Internal Revenue (BIR) where it was found that PJI
was liable for a tax deficiency. In September 1997, PJI asked that it be allowed to present its
evidence to dispute the finding. In the same month, the Comptroller of PJI (Lorenza Tolentino)
executed a waiver of the statute of limitations whereby PJI agreed waived the running of the
prescriptive period of the governments right to make an assessment. Said right was set to expire on
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April 17, 1998 but due to the additional evidence that PJI sought to present, the government needed
more time.
And so a reinvestigation took place which yielded the same result PJI is liable for tax deficiencies.
In December 1998, a formal assessment notice (FAN) was sent via registered mail to PJI.
Subsequently, a warrant for distraint/levy was issued against the assets of PJI.
PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the waiver
executed by Tolentino was incomplete; that no acceptance date was indicated to show that the waiver
was accepted by BIR; that no copy was furnished PJI; that the waiver was an unlimited wai ver
because it did not indicate as to how long the extension of the prescriptive period should last. As
such, there was no valid waiver of the statute of limitations which in turn make the FAN issued in
December 1998 void.
The Commissioner of Internal Revenue (CIR) argued that the placing of the acceptance date is
merely a formal requirement and not vital to the validity of the waiver; that there is no need to
furnish PJI a copy of the waiver because in the first place, it was PJI, through its representati ve, who
was making the waiver so it should know about it; and that there is no need to place a specific date as
to how long the prescriptive period should be extended because PJI was waiving the prescriptive
period and was not asking to extend it.
The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed the CTA as
it ruled in favor of the CIR.
Issues:
1. Whether or not that the assessment having been made beyond the 3-year prescriptive period is
null and void; and
2. Whether or not the CTA gravely erred when it ruled that failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate
the waiver of the statute of limitations
Held:
The answers are in the Negative. The requirement to place the acceptance date is not merely formal.
The waiver of the statute of limitations is not a unilateral act by the taxpayer. The BIR has to accept
it hence the need for a BIR representative to affix his signature and the date of acceptance. There is
also therefore a need to furnish a copy to the taxpayer for the latter to be apprised that his waiver has
been accepted. It must be noted that the waiver is an agreement between the taxpayer and the BIR
that the period to issue an assessment and collect the taxes due is extended to a date certain and not
to waive the right to invoke the defense of prescription. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection.
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CASE SYLLABI:
Same; Same; A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation
of the taxpayers right to security against prolonged and unscrupulous investigations and must therefore
be carefully and strictly construed; The law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection.A waiver of the statute of limitations under the
NIRC, to a certain extent, is a derogation of the taxpayers right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the
statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held
by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the
taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the
law on prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.
Commissioner of Internal Revenue vs. Kudos Metal Corporation , 620 SCRA 232, G.R. No. 178087.
May 5, 2010
Del Castillo, J.
Facts:
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the
taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served
upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices,
hence, the BIR issued a Subpoena Duces Tecum dated September 21, 2006, receipt of which was
acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the Defense of
Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on
January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant
Commissioner of the Enforcement Service, Percival T. Salazar (Salazar). This was followed by a second
Waiver of Defense of Prescription5 executed by Pasco on February 18, 2003, notarized on February 19,
2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant
Commissioner Salazar.
A Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a
Formal Letter of Demand with Assess-ment Notices for taxable year 1998, dated September 26, 2003
which was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its Protest on Various Tax Assessments on December 3,
2003 and its Legal Arguments and Documents in Support of Protests against Various Assessments on
February 2, 2004.
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Believing that the governments right to assess taxes had prescribed, respondent filed on August 27, 2004 a
Petition for Review7 with the CTA. On October 4, 2005, the CTA Second Division issued a Resolution
canceling the assessment notices issued against respondent for having been issued beyond the prescriptive
period. CTA en banc affirmed the decision of the CTA Second Division. Hence, the present petition.
Issue:
Whether or not the governments right to assess unpaid taxes of respondent has prescribed
Held:
The Government is barred by prescription. The waivers executed by respondents accountant did not
extend the period within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period,
but claims that the period was extended by the two waivers executed by respondents accountant.
Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the
assessments were issued by the BIR beyond the three-year period and are void.
In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that
respondent made any request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver,
which the BIR must strictly follow.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 2090 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a
notarized written authority was given by the respondent to its accountant, and to indicate the date of
acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the
BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute
of limitations, being a derogation of the taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken
against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the threeyear period because with or without the required documents, the CIR has the power to make assessments
based on the best evidence obtainable.
CASE SYLLABUS
Civil Law; Doctrine of Estoppel; The doctrine of estoppel is predicated on, and has its origin in equity
which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel
cannot give validity to an act that is prohibited by law or one that is against public policy.The doctrine
of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of
taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR
must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in,
equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of
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estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It
should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond
them requirements of the transactions in which they originate. Simply put, the doctrine of estoppel must be
sparingly applied.

Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 657 SCRA 70, G.R.
No. 170257. September 7, 2011
Mendoza, J.
Facts:
On August 15, 1996, RCBC received Letter of Authority to examine the books of accounts and other
accounting records for all internal revenue taxes from January 1, 1994 to December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of
Limitations of the National Internal Revenue Code covering the internal revenue taxes due for the years
1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to
December 31, 2000.
On January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices from
the BIR. Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000
and later submitted the relevant documentary evidence to support it. A reinvestigation followed based on
the newly submitted documentary evidence.
On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated
October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount
of deficiency taxes .On the same day, RCBC paid the following deficiency taxes as assessed by the BIR.
RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary
stamp tax
RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not
valid because the same were not signed or conformed to by the respondent CIR as required under Section
222(b) of the Tax Code. The CTA en banc denied the petition for lack of merit ruling that RCBC was
estopped from questioning the validity of the waivers.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the
Court that this petition, relative to the DST deficiency assessment, had been rendered moot and academic
by its payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings Account
(SSA) for taxable years 1994 and 1995 after the BIR approved its applications for tax abatement.
Issue:
Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations,
is rendered estopped from questioning the validity of the said waivers with respect to the assessment of
deficiency onshore tax.
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Held:
Petitioner is estopped from questioning the validity of the waivers. Under Article 1431 of the Civil Code,
the doctrine of estoppel is anchored on the rule that an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person relying thereon. A
party is precluded from denying his own acts, admissions or representations to the prejudice of the other
party in order to prevent fraud and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised
assessments issued within the extended period as provided for in the questioned waivers, impliedly
admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that
the assessments were issued beyond the prescriptive period, then it should not have paid the reduced
amount of taxes in the revised assessment. RCBCs subsequent action effectively belies its insistence that
the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny
rights which it had previously recognized would run counter to the principle of equity which this institution
holds dear.
CASE SYLLABI:
Estoppel; A party is precluded from denying his own acts, admissions or representations to the prejudice
of the other party in order to prevent fraud and falsehood.Under Article 1431 of the Civil Code, the
doctrine of estoppel is anchored on the rule that an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person relying thereon. A
party is precluded from denying his own acts, admissions or representations to the prejudice of the other
party in order to prevent fraud and falsehood.
Taxation; Withholding Tax System; The withholding agent is liable only insofar as he failed to perform
his duty to withhold the tax and remit the same to the governmentthe liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him; The taxpayer shares the
responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid
any penalty that may arise from the non-payment of the withholding tax due.Based on the foregoing, the
liability of the withholding agent is independent from that of the taxpayer. The former cannot be made
liable for the tax due because it is the latter who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the
same to the government. The liability for the tax, however, remains with the taxpayer because the gain was
realized and received by him. While the payor-borrower can be held accountable for its negligence in
performing its duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer and the
one which earned income on the transaction, remains liable for the payment of tax as the taxpayer shares
the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to
avoid any penalty that may arise from the non-payment of the withholding tax due. RCBC cannot evade its
liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent.

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Part I: REMEDIES UNDER THE NIRC

Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23, 1974
Esguerra, J.
Facts:
The late Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner, during his
lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis
from1945 TO 1951. The Commissioner of Internal Revenue having his doubts on the veracity of the
reported income of one obviously wealthy, caused B.I.R. Examiner Honorio Guerrero to ascertain the
taxpayer's true income for said years by using the net worth and expenditures method of tax investigation.
The assets and liabilities of the taxpayer during the above-mentioned years were ascertained and it was
discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth
was very much more than the income reported during said years.
Based on the above findings the BIR notified the taxpayer (Matias H. Aznar) of the assessed tax
delinquency. The taxpayer requested a reinvestigation which was granted for the purpose of verifying the
merits of the various objections of the taxpayer to the deficiency income tax assessment of November 28,
1952.
The notice of final and last assessment was receive by the petitioner on March 2, 1955. Petitioner contends
that 8 years had elapsed and the five year period provided by law.
Issue:
Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income taxes of the
late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment
was made on November 28, 1952.
Held:
The CIR is not barred. The ordinary period of prescription of 5 years within which to assess tax liabilities
under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is
placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to
false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten
years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, the Court affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within
which to assess petitioner's tax liability had not expired at the time said assessment was made.
CASE SYLLABI:
Taxation; Income Tax; Assessments; Prescription; Proceeding for collection of deficiency taxes based
on false return, fraudulent return or failure to file a return prescribes in ten years.In the three
different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return,
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the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud, or omission.
Same; Same; Words and phrases; Distinction between false return and fraudulent return explained.
Our stand that the law should be interpreted to mean a separation of the three different situations of
false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened
immeasurably by the last portion of the provision which segregates the situations into three different
classes, namelyfalsity, fraud and omission. That there is a difference between false return and
fraudulent return cannot be denied. While the first merely implies deviation from the truth, whether
intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due.
Same; Same; Assessments; Prescription; Ten year period of prescription applies where the government
is prevented from making proper assessments.The ordinary period of prescription of 5 years within
which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances,
but whether the government is placed at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent returns intended to evade payment of tax or
failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the
discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.
Republic vs. Ker & Company, Ltd., 18 SCRA 207, No. L-21609. September 29, 1966
Bengzon, J.
Facts:
Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the years 1947, 1948, 1949 and
1950. In 1953 the Bureau of Internal Revenue examined and audited Ker & Co., Ltd.'s returns and books of
accounts and subsequently issued notices of assessment.
On March 15, 1962, the Bureau of Internal Revenue demanded payment of the aforesaid assessments
together with a surcharge of 5% for late payment and interest at the rate of 1% monthly. Ker & Co., Ltd.
refused to pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up the defense of
prescription of the Commissioner's right to collect the tax. Subsequently, the Republic of the Philippines
filed on March 27, 1962 a complaint with the Court of First Instance of Manila seeking collection of the
aforesaid deficiency income tax for the years 1947, 1948, 1949 and 1950. The complaint did not allege
fraud in the filing of any of the income tax returns for the years involved, nor did it pray for the payment of
the corresponding 50% surcharge, but it prayed for the payment of 5% surcharge for late payment and
interest of 1% per month without however specifying from what date interest started to accrue.
On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez & Associates, moved for the
dismissal of the complaint on the ground that the court did not acquire jurisdiction over the person of the
defendant and that plaintiff's cause of action has prescribed. This motion was denied and defendant filed a
motion for reconsideration. Resolution on said motion, however, was deferred until trial of the case on the
merits.
The CFI dismisses the claim for the collection of deficiency income taxes for 1947, but orders defendant
taxpayer to pay the deficiency income taxes for 1948, 1949 and 1950.
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On February 20, 1963 the Republic of the Philippines filed a motion for reconsideration contending that the
right of the Commissioner of Internal Revenue to collect the deficiency assessment for 1947 has not
prescribed by a lapse of merely five years and three months, because the taxpayer's income tax return was
fraudulent in which case prescription sets in ten years from October 31, 1951, the date of discovery of the
fraud, pursuant to Section 332 (a) of the Tax Codes and that the payment of delinquency interest of 1% per
month should commence from the date it fell due as indicated in the assessment notices instead of on the
date the complaint was filed.
On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration reiterating its assertion that the
Court of First Instance did not acquire jurisdiction over its person, and maintaining that since the complaint
was filed nine years, one month and eleven days after the deficiency assessments for 1948, 1949 and 1950
were made and since the filing of its petition for review in the Court of Tax Appeals did not stop the
running of the period of limitations, the right of the Commissioner of Internal Revenue to collect the tax in
question has prescribed.
Issue:
1. Whether or not right of the Commissioner of Internal Revenue to assess deficiency income tax for
the year 1947 prescribe; and
2. Whether or not taxpayer's income tax return for 1947 was fraudulent.
3. Whether or not the filing of a petition for review by the taxpayer in the Court of Tax Appeals
suspend the running of the statute of limitations to collect the deficiency income for the years 1948,
1949 and 1950
Held:
On the first and second issues- the Court resolves the issues in the negative. The Court resolved the issue
without touching upon fraudulence of the return. The reason is that the complaint alleged no fraud, nor did
the plaintiff present evidence to prove fraud.
This contention suffers from a flaw in that it fails to consider the well-settled principle that fraud is a
question of fact6 which must be alleged and proved. Fraud is a serious charge and, to be sustained, it must
be supported by clear and convincing proof. Accordingly, fraud should have been alleged and proved in the
lower court. On these premises the Supreme Court therefore sustain the ruling of the lower court upon the
point of prescription.
In this case however, Ker & Co., Ltd. raised the defense of prescription in the proceedings below and the
Republic of the Philippines, instead of questioning the right of the defendant to raise such defense, litigated
on it and submitted the issue for resolution of the court. By its actuation, the Republic of the Philippines
should be considered to have waived its right to object to the setting up of such defense.
On the third issue the pendency of the taxpayers appeal toll the running of the prescriptive period. The
running of the prescriptive period to collect the tax shall be suspended for the period during which the
Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter.
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From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals
contesting the legality of the assessments in question, until the termination of its appeal in the Supreme
Court, the Commissioner of Internal Revenue was prevented. Besides, to do so would be to violate the
judicial policy of avoiding multiplicity of suits and the rule on lis pendens.
Thus, did the taxpayer produce the effect of temporarily staying the hands of the Commissioner of Internal
Revenue simply through a choice of remedy. And, if the Court were to sustain the taxpayer's stand, We
would be encouraging taxpayers to delay the payment of taxes in the hope of ultimately avoiding the same.
Under the circumstances, the Commissioner of Internal Revenue was in effect prohibited from collecting
the tax in question. This being so, the provisions of Section 333 of the Tax Code will apply.
CASE SYLLABI:
Taxation; Deficiency income tax; Prescription of actions; Degree of proof required to establish fraud.
Fraud is a question of fact (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713) which must be alleged and
proved (Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is a serious charge and, to be
sustained, it must be supported by clear and convincing proof (Collector of Internal Revenue vs. Benipayo,
L-13656, January 31, 1962). In the instant case the filing by the taxpayer of a false return was neither
alleged in the complaint nor proved in court. Hence, the lower court correctly resolved the issue of
prescription without touching upon fraudulence of the return.
Same; Failure to object to the setting up of defense of prescription.The assessment for deficiency
income tax for 1947 has become final and executory, and, therefore, defendant may not anymore raise
defenses which go into the merits of the assessment, i.e., prescription of the Commissioner's right to assess
the tax. (Republic of the Philippines vs. Albert, L-12996, December 28, 1961; Republic of the Philippines
vs. Lim Tian Teng Sons ,& Co., Inc., L-21731, March 31, 1966). However, defendant raised the defense of
prescription in the proceedings below, and the Republic of the Philippines, instead of questioning the right
of the defendant to raise such defense, litigated on it and submitted the issue for resolution of the court. By
its actuation, the government should be considered to have waived its right to object to the setting up of
such defense.
Same; Suspension of prescriptive period; Effect of pendency of appeal.Under Section 333 of the Tax
Code the running of the prescriptive period to collect deficiency taxes shall be suspended for the period
during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or
instituting a proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of the
taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily
staying the hands of the said Commissioner. If the taxpayer's stand that the pendency of the appeal did not
stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case is
upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding
the same. Under the circumstances, the running of the prescriptive period was suspended.
Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, et al., 104 Phil. 819, No.
L-11527. November 25, 1958
Bautista Angelo, J.

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Facts:
Due to the chaos caused by World War II, Congress extended the filing of income tax returns for the year
1941. The extension was up to December 31, 1945. However, Suyoc Consolidated Mining Company
(SCMC) due to lost records requested the Commissioner of Internal Revenue (CIR) for further extension.
The same was granted and SCMC was allowed to file its return until February 15, 1946. On February 12,
1946, SCMC filed a tentative income tax return. On November 28, 1946, SCMC filed a second final return.
In February 1947, the CIR made an assessment notifying SCMC that is liable for P33k in taxes. The CIR
gave SCMC 3 months to pay but the latter failed to make payment.
What followed was a series of negotiations as SCMC repeatedly asked for reconsideration and
reinvestigation. Due to SCMCs requests, the CIR had to revise the assessment several times. Eventually in
July 1955, the CIR made a final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes.
This time, SCMC questioned the validity of the assessment as it now alleged that it was issued beyond the
5 year prescriptive period. The issue reached the Court of Tax Appeals (CTA) which ruled that the
assessment issued is void because in the first place, when SCMC requested for a reinvestigation, there
was no agreement as to the extension of the prescriptive period; that a mere request for reinvestigation does
not automatically suspend the running of the prescriptive period. The CTA ruled that the FAN issued in
1955 was already way beyond the 5 year prescriptive period.
Issue:
Whether or not the right of the BIR has prescribed
Held:
This is one case where a taxpayer is barred from setting up the defense of prescription even though there
was not a written agreement. It is true that when a request for reinvestigation is made by the taxpayer, the
same does not toll the running of the prescriptive period unless there is a written agreement between the
CIR and the taxpayer. However, in this case, due to the repeated requests of SCMC which were acted upon
by the government for good reasons the government was persuaded to delay the final assessment. The
applicable principle is fundamental and unquestioned. He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect
this is your own act, and therefore you are not damnified. The tax could have been collected, but the
government withheld action at the specific request of SCMC. SCMC is now estopped and should not be
permitted to raise the defense of the Statute of Limitations.
CASE SYLLABI:
Income Tax; Collection; Period of Limitation; Reexamina-tion or Reinvestigation of Assessment does
not Suspend Period of Limitation; Exceptions.A mere request for re-examination or reinvestigation of
assessment may not suspend the running of the period of limitation for in such a case there is need of a
written agreement to extend the period between the Collector and the taxpayer. There are cases, however,
where a taxpayer may be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive acts the Government has been,
for good reasons, per-suaded to postpone collection to make himself feel that the demand was not
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unreasonable or that no harassment or in-justice is meant by the Government. And when such situa-tion
comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior
should not be countenanced if only to protect the interest of the Government.
Id.; Id.; Id.; Governments Action Withheld at Taxpayers Request; Estoppel.He who prevents a thing
from being done may not avail himself of the non-performance which he has himself occasioned, for the
law says to him in effect this is your own act and therefore you are not damnified. (R.H. Stearns Co. vs.
U.S. 78 L Ed. 6647). Or, as was aptly said, The tax could have been collected, but the government
withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be
permitted to raise the defense of the statute of limitations. (Newpoint Co. vs. U.S. (Dc-wis), 34
Off. Supp. 588.)
Commissioner of Internal Revenue vs. Philippine Global Communication, Inc., 506 SCRA 427,
G.R. No. 167146. October 31, 2006
Chico-Nazario, J.
Facts:
The Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the
appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other
accounting records of respondent, in connection with the investigation of respondents 1990 income tax
liability. On April 22 1994, respondent received a Formal Assessment Notice with Assessment Notice No.
000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00
On May 6, 1994 and May 23, 1994 respondent, through its counsels filed two separate letters of
protest. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged
was invalid for lack of factual and legal basis.
On 16 October 2002, more than eight years after the assessment was presumably issued, the
Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8
October 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and
affirming the said assessment in toto
The CTA ruled on the primary issue of prescription and found it unnecessary to decide the issues on the
validity and propriety of the assessment. It decided that the protest letters filed by the respondent cannot
constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to
collect the assessed deficiency income tax.
Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the aforesaid Decision
and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA
Issue:
Whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription
under Section 269(c) of the Tax Code of 1977
Held:
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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 Answer in
CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive
period. Thus, the CIR is now prescribed from collecting the assessed tax.
CASE SYLLABI:

Taxation; Prescription; The law increased the prescriptive period to assess or to begin a court
proceeding for the collection without an assessment to ten years when a false or fraudulent return was
filed with the intent of evading the tax or when no return was filed at all.The law prescribed a period
of three years from the date the return was actually filed or from the last date prescribed by law for the
filing of such return, whichever came later, within which the BIR may assess a national internal revenue
tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the
collection without an assessment to ten years when a false or fraudulent return was filed with the intent of
evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from
the date of discovery by the BIR of the falsity, fraud or omission.
Same; Same; The law provided another three years after the assessment for the collection of the tax due
thereon through the administrative process of distraint and/or levy or through judicial proceedingsthe
three year period for collection of the assessed tax began to run on the date the assessment notice had been
released, mailed or sent by the BIR.If the BIR issued this assessment within the threeyear period or the
ten-year period, whichever was applicable, the law provided another three years after the assessment for the
collection of the tax due thereon through the administrative process of distraint and/or levy or through
judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.
Same; Same; The provisions on prescription in the assessment and collection of national internal
revenue taxes became law upon the recommendation of the tax commissioner of the Philippines.The
provisions on prescription in the assessment and collection of national internal revenue taxes became law
upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax
commission clearly states that these provisions on prescription should be enacted to benefit and protect
taxpayers.
Same; Statute of Limitations; The statute of limitations on the collection of taxes should benefit both the
Government and the taxpayers.In a number of cases, this Court has also clarified that the statute of
limitations on the collection of taxes should benefit both the Government and the taxpayers. In these cases,
the Court further illustrated the harmful effects that the delay in the assessment and collection of taxes
inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil.
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819 (1958), Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if
the assessment and collection of taxes are not promptly made.
Same; Same; The statute of limitations of actions for the collection of taxes is justified by the need to
protect law-abiding citizens from possible harassment.In Republic of the Philippines v. Ablaza, 108
Phil. 1105 (1960), this Court emphatically explained that the statute of limitations of actions for the
collection of taxes is justified by the need to protect law-abiding citizens from possible harassment.
Same; Same; Though the statute of limitations for the collection of taxes benefits both the Government
and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation.In the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473
SCRA 205 (2005), this Court, in confirming these earlier rulings, pronounced that: Though the statute of
limitations on assessment and collection of national internal revenue taxes benefits both the Government
and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the
said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
Same; Same; Prescription; The law on prescription should be liberally construed in order to protect
taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed.In Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546 (1999), this Court
affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as
a corollary, the exceptions to the law on prescription should be strictly construed.
Same; Same; Same; Section 271 of the 1997 Tax Code provides instances when the running of the
statute of limitations on the assessment and collection of national internal revenue taxes could be
suspended even in the absence of waiver.The Tax Code of 1977, as amended, provides instances when
the running of the statute of limitations on the assessment and collection of national internal revenue taxes
could be suspended, even in the absence of a waiver, under Section 271 thereof which reads: Section 224.
Suspension of running of statute.The running of the statute of limitation provided in Sections 268 and
269 on the making of assessments and the beginning of distraint or levy or a proceeding in court for
collection in respect of any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is
being assessed or collected x x x.
Same; Same; Same; Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests
of Assessment of the Bureau of Internal Revenue, defines two types of protest, the request for
reconsideration and the request for reinvestigation.Revenue Regulations No. 12-85, the Procedure
Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27
November 1985, defines the two types of protest, the request for reconsideration and the request for
reinvestigation, and distinguishes one from the other in this manner: x x x
Same; Same; Same; The main difference between the two types of protests lies in the records or evidence
to be examined by internal revenue officers, whether there are existing records or newly discovered or
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additional evidence; A request for reinvestigation, and not a request for reconsideration, interrupts the
running of the statute of limitations on the collection of the assessed tax.The main difference between
these two types of protests lies in the records or evidence to be examined by internal revenue officers,
whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing
records which results from a request for reconsideration does not toll the running of the prescription period
for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the
statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR.
The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of
Internal Revenue, 473 SCRA 205 (2005), explaining why a request for reinvestigation, and not a request
for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax.
C. REQUISITES OF A VALID ASSESSMENT
Collector of Internal Revenue vs. Benipayo, 4 SCRA 182, No. L-13656. January 31, 1962
Dizon, J.
Facts:
Respondent is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon.
On October 3, 1953 Internal Revenue Agent Romeo de Guia investigated respondent's amusement tax
liability in connection with the operation of said theater during the period from August, 1952 to September,
1953. His finding was that during the years 1949 to 1951 the average ratio of adults and children
patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the theater, one child was
also admitted, while during the period in question. the proportion was reversedthree children to one adult.
From this he concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in
order to avoid payment of the amusement tax prescribed in Section 260 of the National Internal Revenue
Code.
On July 14, 1954. petitioner issued a deficiency amusement tax assessment against respondent, demanding
from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On
August 16, 1954, respondent filed the corresponding protest with the Conference Staff of the Bureau of
Internal Revenue.
Issue:
Whether or not there is sufficient evidence in the record showing that respondent, during the period under
review, sold and issued to his adult customers two tax-free 20-centavo children's tickets, instead of one 40centavo ticket for each adult customer; to cheat or defraud the Government.
Held:
The assessment has no factual bases. Assessments should not be based on mere presumptions no matter
how reasonable or logical said presumptions may be. Assuming arguendo that the average ratio of adults
and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to
the inference that the same conditions existed during the years in question (1952 and 1953). The fact that
almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference on the
conditions in 1952 and 1953. x x x
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"In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The
presumption of correctness of assessment being a mere presumption cannot be made to rest on another
presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949
to 1951 and July 1955. In the case under consideration there are no substantial facts to support the
assessment in question. x x x."
Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in
the present case, is 'lacking.
CASE SYLLABUS:
Taxation; Amusement taxes; Fraud should be supported by clear and convincing proof.To sustain the
defective assessment against respondent would amount to a finding that he had, for a considerable period of
time, cheated and defrauded the government by selling to each adult patron two children's tax-free tickets
instead of one ticket subject to the amusement tax provided for in Section 260 of the National Internal
Revenue Code. Fraud is a serious charge and, to be sustained, must be supported by clear and convincing
proof which, in this case, is lacking.
Commissioner of Internal Revenue vs. Enron Subic Power Corporation, 576 SCRA 212, G.R. No.
166387. January 19, 2009
Corona, J.
Facts:
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport
enterprise, filed its annual income tax return for the year 1996 on April 12, 1997.
On May 26, 1999, Enron received from the CIR a formal assessment notice6 requiring it to pay the alleged
deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax
assessment.
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the
Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of
Section 228 of the National Internal Revenue Code (NIRC), as amended,8 and Section 3.1.4 of Revenue
Regulations (RR) No. 12-999 by not providing the legal and factual bases of the assessment. Enron
likewise questioned the substantive validity of the assessment.
Issue:
Whether or not the notice of assessment complied with the requirements of NIRC and RR No. 12-99
Held:
The CIR did not complied with requirements laid down by NIRC and RR No. 12-99. The advice of tax
deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not
valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIRs duties in correctly assessing a taxpayer. The
requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the
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Part I: REMEDIES UNDER THE NIRC

existence of a deficiency tax assessment is markedly different from the requirement of what such notice
must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage
and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the
law and facts on which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand
and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of
the NIRC and RR No. 12-99 would be rendered nugatory. The alleged factual bases in the advice,
preliminary letter and audit working papers did not suffice. There was no going around the mandate of
the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.
Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for the Government itself.
CASE SYLLABI:
Taxation; A taxpayer must be informed in writing of the legal and factual bases of the tax assessment
made against him.It is clear from the foregoing that a taxpayer must be informed in writing of the legal
and factual bases of the tax assessment made against him. The use of the word shall in these legal
provisions indicates the mandatory nature of the requirements laid down therein. We note the CTAs
findings: In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in the
issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts
on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and regulations
which were not complied with by Enron.
Same; The advice of tax deficiency, given by the Commissioner of Internal Revenue (CIR) to an
employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment.The advice of tax
deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not
valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIRs duties in correctly assessing a taxpayer. The
requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the
existence of a deficiency tax assessment is markedly different from the requirement of what such notice
must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage
and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the
law and facts on which the deficiency tax assessment was made.
Same; Tax Assessment; The law requires that the legal and factual bases of the assessment be stated in
the formal letter of demand and assessment notice.The law requires that the legal and factual bases of
the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be
presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be
rendered nugatory. The alleged factual bases in the advice, preliminary letter and audit working papers
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did not suffice. There was no going around the mandate of the law that the legal and factual bases of the
assessment be stated in writing in the formal letter of demand accompanying the assessment notice.
Same; Same; In view of the absence of a fair opportunity for Enron to be informed of the legal and
factual bases of the assessment against it, the assessment in question was void.We note that the old law
merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998
and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is
made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of
property without due process. In view of the absence of a fair opportunity for Enron to be informed of the
legal and factual bases of the assessment against it, the assessment in question was void. We reiterate our
ruling in Reyes v. Almanzor, et al., 196 SCRA 322 (1991): Verily, taxes are the lifeblood of the
Government and so should be collected without unnecessary hindrance. However, such collection should
be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.
Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No. 159694. January 27, 2006
Panganiban, CJ.
Facts:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was
conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed.
Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay
P14.9 million in taxes inclusive of surcharge and interest; the estates liability was based on Section 229 of
the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal
Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but
in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied.
She continued to work on another compromise but was eventually denied. The case reached the Court of
Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment.
Issue:
Whether or not the formal assessment notice is valid.
Held:
No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC,
taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise,
the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be
shouldered by the estate and the law upon which such liability is based. However, the estate was not
informed in writing of the facts on which the assessment of estate taxes had been made. The estate was
merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be
applied retroactively even though the tax investigation was conducted prior to the laws passage.
Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the
invalid FAN is void including the issuance of the warrant of distraint and/or levy.
CASE SYLLABI:
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Taxation; Assessment; Taxpayers shall be informed in writing of the law and the facts on which the
assessment is made, otherwise, the assessment shall be void.The second paragraph of Section 228 of
the Tax Code is clear and mandatory. It provides as follows: Sec. 228. Protesting of Assessment.x x x
x x x x x x The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void.
Same; Same; The old requirement of merely notifying the taxpayer of the CIRs findings was changed
in 1998 to informing the taxpayer of not only the law but also of the facts on which an assessment would
be made.RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing
the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.
Same; Same; Statutes; Statutory Construction; Statutes that are remedial, or that do not create new or
take away vested rights, do not fall under the general rule against the retroactive operation of statutes;
RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted
from the operation of Section 228, or that applying it to pending proceedings would impair vested
rights.The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive operation of
statutes. Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision
does not create new or take away vested rights. In both instances, it can surely be applied retroactively.
Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested
rights.
Same; Same; Same; Same; A tax regulation is promulgated by the finance secretary to implement the
provisions of the Tax Code; The absence of the regulation does not automatically mean that the law
itself would become inoperative.The non-retroactive application of Revenue Regulation (RR) No. 12-99
is of no moment, considering that it merely implements the law. A tax regulation is promulgated by the
finance secretary to implement the provisions of the Tax Code. While it is desirable for the government
authority or administrative agency to have one immediately issued after a law is passed, the absence of the
regulation does not automatically mean that the law itself would become inoperative.
Same; Same; Same; Same; An administrative rule interpretive of a statute and not declarative of certain
rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.An administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 1299 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998a date prior to the issuance of the
preliminary assessment notice and demand letter.
Same; Same; Same; Same; In case of discrepancy between the law as amended and its implementing but
old regulation, the former necessarily prevails; Between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law.
Section 228 has replaced Section 229. The provision on protesting an assessment has been amended.
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Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation,
the former necessarily prevails. Thus, between Section 228 of the Tax Code and the pertinent provisions of
RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still
be followed, even though the existing tax regulation at that time provided for a different procedure. The
regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.
Same; Same; To proceed heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations: that taxpayers should be
able to present their case and adduce supporting evidence.The law imposes a substantive, not merely a
formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment
is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be
able to present their case and adduce supporting evidence. In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first
informing the taxpayer of the governments claim, there can be no deprivation of property, because no
effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate
taxations general provisions that are expected to be known by the taxpayer, is utter chicanery.
Same; Same; Although taxes are the lifeblood of the government, their assessment and collection should
be made in accordance with law as any arbitrariness will negate the very reason for government itself.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the
lack of basis fornot to mention the insufficiency ofthe gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on
estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of
the government, their assessment and collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
Same; Same; Failure to comply with Section 228 does not only render the assessment void, but also
finds no validation in any provision in the Tax Code.Tax laws are civil in nature. Under our Civil Code,
acts executed against the mandatory provisions of law are void, except when the law itself authorizes the
validity of those acts. Failure to comply with Section 228 does not only render the assessment void, but
also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax
officials, as they are expected to be vigilant and law-abiding.
A Brown Co., Inc., vs Commissioner of Internal Revenue, CTA Case No. 6357, June 7, 2004
Acosta, J.
Facts:
In November 1998, the Bureau of Internal Revenue, through one of its Revenue District Office
conducted a tax investigation on the books of accounts of A. Brown Co., Inc. (ABCI) for the period
of 1997. The examiner found that ABCI is liable for a tax deficiency amounting to P4.5 million.
On January 4, 2001, the Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment
Notice against ABCI advising the latter that it is liable to pay an amount more than P132 million for
tax deficiencies. The said notice was however sent to ABCIs former business address even though
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the CIR has been informed of ABCIs change of address. ABCI was only able to receive said letter
on January 15, 2001. On January 19, 2001, the CIR issued another set of Assessments with Formal
Demand against ABCI. Thereafter, ABCI filed a protest.
Issue:
Whether or not ABCI was deprived of procedural due process.
Held:
The CIR violated Section 228 of the National Internal Revenue Code as well as Revenue Regulations
12-85 and 12-99 and Revenue Memorandum Order 37-94.
Among the violations committed by the CIR are:
Demanding a tax deficiency not reflective of the tax investigation conducted. Here, the investigation
found ABCI liable for P4.5 million yet the CIR is demanding P132 million plus.
No valid service of the pre-assessment notice because the Pre-assessment notice were sent to the
wrong address. The notice should have been delivered by registered mail or personally to ABCI, and
ABCI or its representative should receive personally.
Assuming arguendo that there was a valid service of the notice, ABCI was deprived its right to
present its side of the case. ABCI finally received the notice on January 15, 2001. Thereafter, ABCI
should have 15 days to file a reply yet on January 19, 2001, the CIR immediately made an
Assessment with Formal Demand.
These lapses rendered the subject assessments null and void. Taxation is indeed indispensable but
nevertheless, the prescribed procedure pursuant thereto should be complied with. . If it is not, then
the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it
has here, that the law has not been observed.
Commissioner of Internal Revenue vs. Menguito, 565 SCRA 461, G.R. No. 167560. September 17,
2008
Austria-Martinez, J.
Facts:
Dominador Menguito and his wife are the owners of Copper Kettle Catering Services, Inc. (CKCSI). They
also operate several restaurant branches in the Philippines. One such branch was the Copper Kettle
Cafeteria Specialist (CKCS) in Club John Hay, Baguio City. The branch was registered as a sole
proprietorship. In September 1997, a formal assessment notice (FAN) was issued against the spouses and
they were adjudged to pay P34 million in deficiency taxes for the years 1991 to 1993. The Bureau of
Internal Revenue found that in order for CKCS to operate in Club John Hay, a contract was entered into by
CKCSI and Club John Hay; hence, CKCS and CKCSI are one and the same.
Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the assessment notice. She asked for
more time to sort the issue. Later, when Menguito eventually filed a protest, he denied, through his witness
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(Ma. Therese Nalda, CKCS employee), receiving the FAN; that the FAN was addressed to the wrong
person because it was addressed to CKCSI not CKCS. He presented as evidence a photocopy of the articles
of incorporation (AOI) of CKCSI.
On the other hand, the Commissioner of Internal Revenue (CIR) presented proof of the due mailing of the
FAN. It however was not able to prove that it issued a pre-assessment notice (PAN) or a post-assessment
notice.
Issue:
Whether or not respondent was denied due process for failure of petitioner to validly serve respondent with
the post-reporting and pre-assessment notices as required by law
HELD:
The assessment notices are valid. More importantly, Menguito and his wife are in estoppel because they
already acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito to the BIR. They
cannot later on deny the receipt of the FAN. Worse, it should be Menguito who should be directly denying
the receipt and not through an employee (Nalda) who was not even an employee of the spouses when the
FAN was issued and received in 1997. It was only in 1998 that Nalda was employed by CKCS. Since
Menguito did not legally deny the receipt of the FAN, the presumption that he actually received it still
subsists. Further, based on the records, Menguito, in the stipulation of facts, acknowledged the receipt of
the FAN.
Anent the issue of the non-issuance of the PAN, the same is not vital to due process. The Supreme Court
ruled that the strict requirement of proving that an assessment is sent and received by the taxpayer is only
applicable to FANs and to PANs. The issuance of a valid formal assessment is a substantive prerequisite to
tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within
a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies therefor. A PAN or a post-assessment notice
does not bear the gravity of a FAN. Neither notice contains a declaration of the tax liability of the taxpayer
or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for
as long as the latter is properly served a formal assessment notice.
CASE SYLLABI:
Same; Taxation; When the owner of one directs and controls the operations of the other, and the
payments effected or received by one are for the accounts due from or payable to the other, or when the
properties or products of one are all sold to the other, which in turn immediately sells them to the public,
as substantial evidence in support of the finding that the two are actually one juridical taxable
personality.The Court considers the presence of the following circumstances, to wit: when the owner
of one directs and controls the operations of the other, and the payments effected or received by one are for
the accounts due from or payable to the other; or when the properties or products of one are all sold to the
other, which in turn immediately sells them to the public, as substantial evidence in support of the finding
that the two are actually one juridical taxable personality.

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Taxation; Under Section 11 of Revenue Regulation No. 12-85, respondents failure to give written notice
of change of address bound him to whatever communications were sent to the address appearing in the
tax returns for the period involved in the investigation.As to the address indicated on the assessment
notices, respondent cannot question the same for it is the said address which appears in its percentage tax
returns. While respondent claims that he had earlier notified petitioner of a change in his business address,
no evidence of such written notice was presented. Under Section 11 of Revenue Regulation No. 12-85,
respondents failure to give written notice of change of address bound him to whatever communications
were sent to the address appearing in the tax returns for the period involved in the investigation.
Same; It should be emphasized that the stringent requirement that an assessment notice be satisfactorily
proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have
been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the
National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices.While the
lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under
Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that
formal assessments were issued to and actually received by respondents in accordance with Section 228 of
the National Internal Revenue Code which was in effect at the time of assessment. It should be emphasized
that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and
released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer,
applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code,
but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a
substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a
demand for payment within a prescribed period, thereby signaling the time when penalties and interests
begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process
requires that it must be served on and received by the taxpayer.
Same; Notices; A post-reporting notice and pre-assessment notice do not bear the gravity of a formal
assessment notice.A post-reporting notice and pre-assessment notice do not bear the gravity of a formal
assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of
the BIR against a taxpayer and invites the latter to an informal conference or clarificatory meeting.
Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof.
Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly
served a formal assessment notice. In the case of respondent, a formal assessment notice was received by
him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a
protest with the BIR, Baguio City and eventually a petition with the CTA.
Commissioner of Internal Revenue vs. Metro Star Superama Inc., 637 SCRA 633, G.R. No. 185371.
December 8, 2010
Mendoza, J.
Facts:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star
Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment
notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro
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Star assailed the issuance of the formal assessment notice as it averred that due process was not observed
when it was not issued a pre-assessment notice. Nevertheless, the Commissioner of Internal Revenue
authorized the issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in favor of
Metro Star.
Issue:
Whether or not due process was observed in the issuance of the formal assessment notice against Metro
Star.
Held:
No. It is true that there is a presumption that the tax assessment was duly issued. However, this
presumption is disregarded if the taxpayer denies ever having received a tax assessment from the Bureau of
Internal Revenue. In such cases, it is incumbent upon the BIR to prove by competent evidence that such
notice was indeed received by the addressee-taxpayer. The onus probandi was shifted to the BIR to prove
by contrary evidence that the Metro Star received the assessment in the due course of mail. In the case at
bar, the CIR merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR
could have simply presented the registry receipt or the certification from the postmaster that it mailed the
pre-assessment notice, but failed. Neither did it offer any explanation on why it failed to comply with the
requirement of service of the pre-assessment notice. The Supreme Court emphasized that the sending of a
pre-assessment notice is part of the due process requirement in the issuance of a deficiency tax assessment,
the absence of which renders nugatory any assessment made by the tax authorities.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But
even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with
the prescribed procedure.
Add notes as empahasized by Atty. Lock:
The case of CIR v. Menguito cited by the CIR in support of its argument that only the non-service of the
FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was the
non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax
law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made. Otherwise, the
assessment itself would be invalid. The regulation then, on the other hand, simply provided that a notice be
sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply
with that form.
The Court need not belabor to discuss the matter of Metro Stars failure to file its protest, for it is wellsettled that a void assessment bears no fruit.
CASE SYLLABI:

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Taxation; Court of Tax Appeals; Appeals; Court will not lightly set aside the conclusions reached by the
Court of Tax Appeals (CTA) which by the very nature of its functions has accordingly developed an
exclusive expertise on the resolution unless there has been an abuse or improvident exercise of
authority.The general rule is that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its functions, has accordingly developed an exclusive expertise on the
resolution unless there has been an abuse or improvident exercise of authority. In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, the Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA
441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function
is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise
of authority. Such findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any
clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision
which is valid in every respect.
Same; Assessment; If the taxpayer denies ever having received an assessment from the Bureau of
Internal Revenue (BIR), it is incumbent upon the latter to prove by competent evidence that such notice
was indeed received by the addressee.Jurisprudence is replete with cases holding that if the taxpayer
denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted
to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of
mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption subject to controversion and a
direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter
was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351).
Same; Same; Section 228 of the Tax Code clearly requires that the taxpayer must be informed that he is
liable for deficiency taxes through the sending of a Preliminary Assessment Notice (PAN).Section 228
of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency
taxes through the sending of a PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations that taxpayers should be able to present their case and
adduce supporting evidence.
Same; Same; The sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform him of the
assessment made is but part of the due process requirement in the issuance of a deficiency tax
assessment, the absence of which senders nugatory any assessment made by the tax authorities.It is
clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the due
process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory
any assessment made by the tax authorities. The use of the word shall in subsection 3.1.2 describes the
mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both
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substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid
down by law and its own rules is a denial of Metro Stars right to due process. Thus, for its failure to send
the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A.
No. 8424, the assessment made by the CIR is void.
Same; Same; While taxes are the lifeblood of the government, the power to tax has its limits in spite of
all its plenitude.It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law. In balancing the scales between the power of the State to
tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must
tilt in favor of the individual, for a citizens right is amply protected by the Bill of Rights under the
Constitution. Thus, while taxes are the lifeblood of the government, the power to tax has its limits, in
spite of all its plenitude.
ADDITIONAL CASE UNDER DUE PROCESS:
CIR vs. United Salvage and Towage (Phils.), Inc., G.R. No. 197515. July 5, 2014
Peralta, J.
Facts:
Respondent is engaged in the business of sub-contraction work for service contractors engaged in
petroleum operations in the Philippines. In the course of respondents operations, petitions found
respondent liable for deficiency income tax, withholding tax, and value-added tax (VAT) and
documentary stamp tax (DST) for taxable years 1992, 1994, 1997, and 1998. Particularly, petitioner,
through BIR officials, issued demand letters with attached assessment notices for withholding tax
compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994, and 1998.
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and
1998 assessments, respectively.
On February 21, 2003, USTP appeals by way of Petition for Review before the Court in action
(which was thereafter raffled to the CTA-Special First Division) alleging, among others, that the
Notices of Assessment are bereft of any facts, law, rules, and regulations or jurisprudence; thus, the
assessment are void and the right of the government to assess and collect deficiency taxes from it has
prescribed on account of the failure to issue a valid notice of assessment within the applicable period.
As, regards the FANs for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First
Division held that the same do not show the law and the facts on which the assessments were based.
Said assessments were, therefore, declared void for failure to comply with Section 228 of the NIRC.
From the foregoing the only remaining valid assessment is for the taxable year 1992.
Issue:
Whether or not the EWT for the year 1994 issued by petitioner against respondent was without any
factual and legal basis.
Held:
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In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994 will
show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the
assessment was provided by petitioner. Only the resulting interest, surcharge, and penalty were
anchored with legal basis. Petitioner should have at least attached a detailed notice of discrepancy or
stated an explanation why the amount of P 48, 461.76 is collectible to respondent and how the same
was arrived at. Any short-cuts to the prescribed content of the assessment or the process thereof
should not be countenanced, in consonance with the ruling in CIR vs Enron Subic Power Corporation
to wit:
The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the
express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered
nugatory. The alleged factual bases in the advice, preliminary letter and audit working
papers did not suffice. There was no going around the mandate of the law that the legal
and factual bases of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.
It is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded the provisions
of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of the RR 12-99 by not
providing legal and factual bases of the assessment. Hence, the formal letter of demand and the
notice of assessment issued relative thereto are void.
Meralco Securities Corporation vs. Savellano, 117 SCRA 804, No. L-36181. 23, 1982
Teehankee, J.
Facts:
In 1967, Juan Maniago informed the Commissioner of Internal Revenue (CIR) that MERALCO Securities
Corporation did not pay the proper taxes from 1962 to 1966. The CIR conducted an investigation and it
found out that MERALCO did actually pay the proper amount of tax due within said period. The CIR then
informed Maniago of its decision and also informed him that since no deficiency tax was collected,
Maniago is not entitled to the informers reward then offered to individuals who report tax evaders.
Maniago then filed a petition for mandamus against the CIR. After hearing, Judge Victorino Savellano
granted Maniagos petition and ordered the CIR to collect the deficiency taxes and further ordered the CIR
to pay Maniagos informers reward.
Issue:
Whether or not the CIR can be compelled by Mandamus to impose a deficiency tax assessment against
MERALCO.
Held:
The power to assess or not to assess tax deficiency against a taxpayer is a discretionary function vested in
the CIR. As such, the CIR may not be compelled by mandamus. Mandamus only lies to enforce the
performance of a ministerial act or duty and not to control the performance of a discretionary power.
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Especially so in this case where the CIR found that no tax deficiency is due. It should be noted further that
regular courts have no jurisdiction over the subject matter of this case. Section 7 of Republic Act No. 1125,
enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by
appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue Code or other law or part of law administered
by the Bureau of Internal Revenue.
CASE AYLLABI:
Taxation; Jurisdiction; Matters involving failure or refusal of the Commissioner of Internal Revenue to
make a tax assessment belongs to the jurisdiction of the Court of Tax Appeals, not the CFI.
Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof
clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals.
Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive
appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court
of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of
first instance, and even those already pending in said courts. The question of whether or not to impose a
deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the
words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . ."
Same; Same; Same.Thus, even assuming arguendo that the right granted the taxpayers affected to
question and appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by
strangers or informers like the late Maniago, the most that he could have done was to appeal to the Court of
Tax Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from receipt
thereof pursuant to section 11 of Republic Act No. 1125. He failed to take such an appeal to the tax court.
The ruling is clearly final and no longer subject to review by the courts.
Same; Mandamus; Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a
tax assessment not found by him to be proper.Moreover, since the office of the Commissioner of
Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of
the executive branch of the government, mandamus may not lie against the Commissioner to compel him to
impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation
of executive functions. As we held in the case of Commissioner of Immigration vs. Arca anent this
principle, "the administration of immigration laws is the primary responsibility of the executive branch of
the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and
neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to
extend the stay of an alien whose period to stay has expired.
Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to
contrary judgment or control of the courts. "Discretion" of public officers defined.Such discretionary
power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go
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beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion'
when applied to public functionaries, means a power or right conferred upon them by law of acting
officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely
ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a
given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard
to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes
a duty upon a public officer and gives him the right to decide how or when the duty shall be performed,
such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same
requires neither the exercise of official discretion or judgment."
Maceda vs. Macaraig, Jr., 197 SCRA 771, G.R. No. 88291 , May 31, 1991
Gancayco, J.
Facts:
The National Power Corporation (NAPOCOR) was created by Commonwealth Act No. 120. In 1949, it
was given tax exemption by Republic Act No. 358. In 1984, Presidential Decree No. 1931 was passed
removing the tax exemption of NAPOCOR and other government owned and controlled corporations
(GOCCs). There was a reservation, however, that the president or the Minister of Finance, upon
recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption.
In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of Executive Order 93
which again provided that upon FIRB recommendation it can again be restored. In the same year, FIRB
resolved to restore the exemption. The same was approved by President Corazon Aquino through
Executive Secretary Catalino Macaraig, Jr. acting as her alter ego. Ernesto Maceda assailed the FIRB
resolution averring that the power granted to the FIRB is an undue delegation of legislative power.
Macedas claim was strengthened by Opinion 77 issued by then DOJ Secretary Sedfrey Ordoez. Macaraig
however did not give credence to the opinion issued by the DOJ secretary.
On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the
Bureau of Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds
of the NPC, respondent Executive Secretary rendered his ruling ordering respondent Commissioner of
Internal Revenue to deny as being null and void the pending claims for refund of respondent NPC with the
Bureau of Internal Revenue covering the period from June 11, 1984 to June 17, 1987.
Issue:
Whether or not the CIR can be compelled to cancel the claims for credits/refunds of NPC
Held:
Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not
found by him to be proper. It would be tantamount to a usurpation of executive functions.
Even in Meralco, the Court recognizes the situation when mandamus can control the discretion of the
Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.
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CASE SYLLABI:
Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to
contrary judgment or control of the courts. "Discretion" of public officers defined.Such discretionary
power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go
beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion'
when applied to public functionaries, means a power or right conferred upon them by law of acting
officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely
ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a
given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard
to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes
a duty upon a public officer and gives him the right to decide how or when the duty shall be performed,
such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same
requires neither the exercise of official discretion or judgment."
Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, No. L-19470. January 30, 1965
Reyes, J.B.L., J.
Facts:
That on May 15, 1951, Nava filed his income tax return for the year 1950, and, on the same date, he was
assessed by respondent Commissioner (formerly Collector) of Internal Revenue in the sum of P4,952.00,
based solely on said return. Nava paid one-half of the tax due, leaving a balance of P2,491.00.
Subsequently, Nava offered his backpay certificate to pay said balance, but respondent refused the offer.
On July 28, 1953, he requested the respondent to hold in abeyance the collection of said balance until the
question of whether or not he was entitled to pay the same out of his backpay shall have been decided, but
this was also rejected by the latter in a reply letter dated January 5, 1954. This rejection was followed by
two more letters or notices demanding payment of the balance thereof, the last of which was dated
February 22, 1955.
On March 30, 1955, after investigation of petitioners 1950 income tax return, respondent Collector issued
a deficiency income tax assessment notice (Exhibit 4) requiring petitioner to pay not later than April 30,
1955 the sum of P9,124.50, that included the balance of P2,491.00, still unpaid under the original
assessment, plus a 50% surcharge. Several notices of this revised assessment are alleged to have been
issued to the taxpayer, but Nava claims to have learned of it for the first time on December 19, 1956, more
than five years since the original tax return was filed, and testified to that effect in the court below, In a
letter of January 10, 1957, Nava called attention to the fact that more than six years had elapsed, protested
the assessment, and contended that it was a closed issue.
Issue:
Whether the enforcement of the tax assessment has prescribed
Held:
It has already prescribed. Since none of these requirements have been shown, there has been no valid and
effective issuance or release of said deficiency income tax assessment notice dated March 30, 1955 and of
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the other demand letters or notices subsequent thereto, the latest of which was purportedly sent on August
25, 1956, and these dates cannot be reckoned with in computing the period of prescription within which a
court action to collect the same may be brought.
It being undisputed that an original assessment of Navas 1950 income tax return was made on May 15,
1951, and no valid and effective notice of the re-assessment having been made against the petitioner after
that date (May 15, 1951), it is evident that the period under Section 331 of the Tax Code within which to
make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was
effectively made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on
Navas 1950 income tax return has already prescribed under Section 332 (c) of the Tax Code, it having
been found by the Tax Appeals court that said return was not false or fraudulent.
Notes: WHEN ASSESSMENT IS MADE
An assessment is made when sent within the prescribed period, even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the
more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved.
Mere notations made without the taxpayers intervention, notice, or control, without adequate supporting
evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without
adequate protection or defense. Having reached the conclusion that the action to collect said deficiency
income tax has already prescribed, it is unnecessary to discuss the other issues raised by petitioner Nava in
the instant appeal.
CASE SYLLABUS:
Same; Same; Same; Same; Mere notations on records of tax collector not sufficient proof of mailing.
Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment
to a taxpayer, made without .the taxpayers intervention, notice, or control, and without adequate
supporting evidence, cannot suffice to prove that such notice was sent and received; otherwise, the taxpayer
would be at the mercy of the revenue officers, without adequate protection or defense.
Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue, 498 SCRA 126, G.R. No.
157064. August 7, 2006
Chico-Nazario, J.
Facts:
On April 14, 1988, Barcelon, Roxas Securities, Inc. (BRSI, now called UBP Securities, Inc.) filed its
annual income tax return. The last day for filing was April 15, 1988. BRSI was subjected to a tax audit and
thereafter, the tax examiner determined that BRSI is liable for deficiency taxes amounting to P826k.
On March 17, 1992, BRSI received a warrant of distraint and/or levy to satisfy said deficiency.
BRSI then protested the said warrant as it averred that the same was issued without due process. BRSI
contends that it never received a formal assessment notice (FAN) from the Commissioner of Internal
Revenue (CIR); that since it never received a FAN, the governments right to make an assessment has
already prescribed at the time it received the warrant.
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The CIR maintained that a FAN dated February 1, 1991 was mailed on February 6, 1991; that the
assessment was made within the prescriptive period; that it was made within the prescriptive period
because under the law, the CIR has three years from the last day of filing of returns to issue an assessment.
To prove the alleged mailing of the FAN, the CIR produced BIR record books which contains a list of
taxpayers, inclusive of the name of BRSI, their reference numbers, nature of tax, and the tax amount due.
Issue:
Whether or not respondents right to assess petitioners alleged deficiency income tax is barred by
prescription
Held:
No assessment was made. It is true that there is a presumption that when an assessment was sent via
registered mail, the same is received by the taxpayer in the regular course of mail. However, this
presumption ceases when the taxpayer denies the receipt of an assessment. It now becomes incumbent
upon the CIR to prove that the taxpayer actually receives the assessment by showing (a) that the letter was
properly addressed with postage prepaid, and (b) that it was mailed. These can be further proved by
presenting the registry receipt issued by the Bureau of Posts or the Registry return card which would have
been signed by the taxpayer; if this cannot be done, at least the CIR should have submitted a certification
issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of
the Bureau of Posts.
In the case at bar, the BIR record presented by the CIR is self-serving. It is not competent proof and does
not meet the standard needed in proving the receipt of mail matters such as an assessment sent via
registered mail.
As a rule, an assessment is considered made when it is sent within the prescriptive period even if it is
received by the taxpayer after the lapse of such period. This rule makes it the more imperative that the
release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice or control, without adequate supporting evidence cannot suffice;
otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or
defense.
CASE SYLLABI:
Taxation; Assessment Notices; An assessment is made within the prescriptive period if notice to this
effect is released, mailed or sent by the Commissioner of Internal Revenue to the taxpayer within said
periodreceipt thereof by the taxpayer within the prescriptive period is not necessary but this rule does not
dispense with the requirement that the taxpayer should actually receive, even beyond the prescriptive
period, the assessment notice.Under Section 203 of the National Internal Revenue Code (NIRC),
respondent had three (3) years from the last day for the filing of the return to send an assessment notice to
petitioner. In the case of Collector of Internal Revenue v. Bautista, 105 Phil. 1326 (1959), this Court held
that an assessment is made within the prescriptive period if notice to this effect is released, mailed or sent
by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive
period is not necessary. At this point, it should be clarified that the rule does not dispense with the
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requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment
notice which was timely released, mailed and sent.
Same; Presumptions; While a mailed letter is deemed received by the addressee in the ordinary course of
mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the
receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee.In Protectors Services, Inc. v. Court of Appeals, 330 SCRA
404 (2000), this Court ruled that when a mail matter is sent by registered mail, there exists a presumption,
set forth under Section 3(v), Rule 131 of the Rules of Court, that it was received in the regular course of
mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed
with postage prepaid; and (b) that it was mailed. While a mailed letter is deemed received by the addressee
in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a
direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that
the mailed letter was indeed received by the addressee.
Assessment Notices; While an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration, this rule makes it more imperative that the release, mailing,
or sending of the notice be clearly and satisfactorily provedmere notations made without the taxpayers
intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the
taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.
Independent evidence, such as the registry receipt of the assessment notice, or a certification from the
Bureau of Posts, could have easily been obtained. Yet respondent failed to present such evidence. In the
case of Nava v. Commissioner of Internal Revenue, 13 SCRA 104 (1965), this Court stressed on the
importance of proving the release, mailing or sending of the notice. While we have held that an assessment
is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll.
of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative
that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made
without the taxpayers intervention, notice, or control, without adequate supporting evidence, cannot
suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection
or defense.

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Part I: REMEDIES UNDER THE NIRC

PROTESTING AN ASSESSMENT/ REMEDY BEFORE


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

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Apart from failing to file the required estate tax return within the time required for filing the same,
petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to
lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the
late President Marcos.
The Notice of Levy upon real property were issued within the prescriptive period and in accordance with
Sec. 222 of the Tax Code. The deficiency tax assessment, having become final, executory and demandable,
the same can now be collected through the summary remedy of distraint and levy pursuant to Sec. 205 of
the Tax Code.
CASE SYLLABI:
Same; Estates Taxes; The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal, as under Section 223 of the NIRC, in case of failure to
file a return, the tax may be assessed at any time within ten years after the omission, and any tax so
assessed may be collected by levy upon real property within three years following the assessment of the
tax.The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioners cause, as under the above-cited provision, in case of
failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax
so assessed may be collected by levy upon real property within three years following the assessment of the
tax. Since the estate tax assessment had become final and unappealable by the petitioners default as
regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue
with the collection of the said tax. Any objection against the assessment should have been pursued
following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
Same; Same; Ill-Gotten Wealth; The mere fact that the decedent has pending cases involving ill-gotten
wealth does not affect the enforcement of tax assessments over the properties indubitably included in his
estate.Petitioner further argues that the numerous pending court cases questioning the late presidents
ownership or interests in several properties (both real and personal) make the total value of his estate, and
the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents
assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and
oppressive. He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which
were filed by the government to question the ownership and interests of the late President in real and
personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether
the properties levied upon by the BIR in the collection of estate taxes upon the decedents estate were
among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to
how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases
involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Same; Same; Actions; Certiorari; Objections to assessments should be raised by means of the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of
Tax Appeals, and not via a Petition for Certiorari, under the pretext of grave abuse of discretion.
Moreover, these objections to the assessments should have been raised, considering the ample remedies
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afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals,
as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse
of discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered society. The subject tax assessments
having become final, executory and enforceable, the same can no longer be contested by means of a
disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This
judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations
of government.
Due Process; Equity; Where there was an opportunity to raise objections to government action, and
such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes
the oppressor of the orderly functions of the government; He who comes to court must come with clean
hands, otherwise he not only taints his name, but ridicules the very structure of established authority.
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April
12, 1993 at his office at the Batasang Pambansa. We cannot therefore, countenance petitioners insistence
that he was denied due process. Where there was an opportunity to raise objections to government action,
and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes to court must come with
clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.
Prulife of UK Insurance Corporation vs Commissioner of Internal Revenue, CTA Case No. 6774,
September 11, 2007
Castaeda, J.
Facts:
Herein petitioner is a successor-in-interest of Allstate Life Insurance Company of the PH Inc. (Allstate), a
duly registered corporation. Respondent issued Assessment/Demand Notices addressed to Allstate finding
to be liable of the amount P 5, 756,316.21 which serves as the premium and documentary stamp taxes and
compromise penalties. On 21 February 2003, petitioner seasonably protested the Assessment/Demand
Notices and attached documents in support of its protests. Petitioner wrote a letter to the BIR District
officer relative to the re-investigation of the case. The re-investigation has not been terminated as of 19
September 2003.
Issue:
Whether or not the petitioner failed to submit relevant supporting documents relative to the premium tax
within 60 days from the filing of the protest on 21 February 2003, and if som whether such failure is in
violation of Section 228 of the 1997 Tax Code so as to render the Assessment Notices and demand letters
all dated 24 January 2003, final, executor and demandable.
Held:
Upon reviewing the assessment notices for the deficiency premium tax and documentary stamp tax, the
court finds the same to be factual and legally supported. The assessment/demand notices showed detailed
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computations and applicable provisions of the NIRC arriving at the amount of the deficiency taxes. The
figures used in the computation
The same, however, cannot be said about the compromise penalties imposed by respondent. The Court has
no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a
mutual agreement between the parties in respect to the thing or subject matter which is so compromised,
and the choice of paying or not paying it distinctly belongs to the taxpayer. Absent any showing that
petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the
compromise penalty without the conformity of the taxpayer is illegal and unauthorized. Considering that
respondent had not shown that petitioner conformed to the imposition of the compromise penalty, the
compromise penalty is deleted.
Notwithstanding petitioner's lack of relevant documents in support of its protest insofar as the premium tax
assessment is concerned, that assessment did not attain finality as respondent argued. The only effect of
petitioner's lack of supporting documents submitted is that it lost its chance of further contesting the
premium tax assessment.
"xxx [T]he finality of the assessment, as worded in the provision of law, simply means
that where the taxpayer decides to forego with its opportunity to present the documents
in support of its claim within sixty {60) days from the filing of its protest, it merely lost
its chance to further contest the assessment.
Effectively, its non-compliance with the submission of the necessary documents would
either mean that the petitioner no longer wishes to further submit any document for the
reason that its protest letter filed was more than enough to support its claim, or that the
petitioner failed to comply thus it can no longer give justification with regard to its
objections as to the correctness of the assessment notices.
Nonetheless, the necessity of the submission of the supporting documents lies on the
petitioner. It cannot be left to the discretion of the respondent for in doing so would leave
the petitioner's case at the mercy of the whims of the respondent. In other words, it is for
the petitioner to decide whether or not supporting documents are necessary to support its
protest, for it is in the best position, being the affected party to the assessment, to
determine which documents are necessary and essential to garner a favorable decision
from the respondent." (Emphasis supplied)
ABN-AMRO Savings Bank Corp. vs Commissioner of Internal Revenue, CTA Case Np. 7089,
September 10, 2008
Acosta, P.J.
Facts:
Petitioner is a domestic corporation duly registered with SEC and duly authorized by the BSP to engage in
commercial banking. On 30 December 2003, respondent sent to petitioner a FAN, assessing petitioner
deficiency documentary stamp tax for the taxable year 1999 in the amount of P167, 886,906.79, inclusive
of penalties.
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Respondent claims that petitioner failed to pay the DST due on reverse repurchase agreements with the
BSP and that the said agreements are considered as deposit substitutes hence taxable pursuant to then Sec.
180 of 1997 Tax Code.
On January 28, 2004, Petitioner filed its protest letter pursuant to Sec. 228 of the 1997 Tax Code. Due to
the alleged failure of the respondent to act on the said protest, petitioner filed on 25 October 2004 a petition
for review praying for the cancellation of the aforesaid deficiency documentary stamp tax assessment.
Issue:
Whether or not petitioner is liable to pay the deficiency documentary stamp tax assessment for taxable year
1999.
Held:
The CTA dismissed the case for lack of jurisdiction. The Court of Tax Appeals is a court of special
jurisdiction and as such it can take cognizance only of such matters as are clearly within its jurisdiction. Its
jurisdiction may only be invoked in the particular instances enumerated in Section 7 of Republic Act No.
1125 as amended by Section 7 of Republic Act No. 9282. The Court's exclusive appellate jurisdiction to
review by appeal inaction by the Commissioner of Internal Revenue in cases involving disputed assessment
is conferred under Section 7(a) (2) of Republic Act No. 9282. As an added requirement, Section 11 of the
same law provides that "any party adversely affected by inaction of the Commissioner of Internal Revenue
may appeal with the CTA within thirty (30) days after the expiration of the period fixed by law." The
Supreme Court emphasized that the requirement to file a Petition for Review with the Court of Tax
Appeals within 30 days is jurisdictional and failure to comply therewith would bar the appeal and deprive
the said Court of its jurisdiction to entertain and determine the correctness of the assessment. Such period is
not merely directory but mandatory and it is beyond the power of the courts to extend the same.
The case at bar reveals that the petitioner filed its letter protest on January 28, 2004, therefore, it has sixty
(60) days, until March 28, 2004, within which to submit the relevant supporting documents. Records of the
case, however, is bereft of proof that petitioner had submitted the relevant documents on or before March
28, 2004, therefore, applying the pronouncement in the Oceanic case, the 180-day period shall be
reckoned from the filing of the protest on January 28, 2004, which ends on July 26, 2004.
In the RCBC case, the Supreme Court held that in case the Commissioner failed to act on the disputed
assessment within the 180-day period, a taxpayer can either: 1) file a petition for review with the Court of
Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals
within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and
resort to one bars the application of the other.
Commission of Internal Revenue vs. First Express Pawnshop Company, Inc., 589 SCRA 253, G.R.
Nos. 172045-46, June 16, 2009
Carpio, J.
Facts:
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CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary
stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the
assessments. When CIR did not act on the protest during the 180-day period, respondent filed a
petition before the CTA.

Issue:
Has Respondents right to dispute the assessment in the CTA prescribed?
Held:
NO. The assessment against Respondent has not become final and unappealable. It cannot be said
that respondent failed to submit relevant supporting documents that would render the assessment
final because when respondent submitted its protest, respondent attached all the documents it felt
were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST
payment because such document does not exist as respondent claims that it is not liable to pay, and
has not paid, the DST on the deposit on subscription.
The term "relevant supporting documents" are those documents necessary to support the legal basis
in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to
submit additional documents and cannot demand what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production
of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all
supporting documents at the time of filing of its protest, the 180-day period likewise started to run on
that same date.
CASE SYLLABI:
Same; Same; Section 228 states that if the protest is not acted upon within 180 days from
submission of documents, the taxpayer adversely affected by the inaction may appeal to the Court
of Tax Appeals (CTA) within 30 days from the lapse of the 180-day period.Section 228 states that
if the protest is not acted upon within 180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180day period. Respondent, having submitted its supporting documents on the same day the protest was
filed, had until 31 July 2002 to wait for petitioners reply to its protest. On 28 August 2002 or within
30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting
documents were simultaneously filed, respondent filed a petition before the CTA.
B. COMMISSIONER OF INTERNAL REVENUE RENDERS A DECISION ON THE
DISPUTES ASSESSMENT
Oceanic Wireless Network, Inc. vs. Commissioner of Internal Revenue, 477 SCRA 205, G.R. No.
148380. December 9, 2005.
Azcuna, J.
Facts:
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Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts
Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide
and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against
disputed tax deficiency assessments.
On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax
assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest
against the tax assessments and requested a reconsideration or cancellation of the same in a letter to
the BIR Commissioner dated April 12, 1988.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing
Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioners request for
reinvestigation in a letter dated January 24, 1991,
Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 within ten (10)
days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division
of the BIR National Office for the issuance of a warrant of distraint and levy without further notice.
Upon petitioners failure to pay the subject tax assessments within the prescribed period, the
Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the
corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on
October 10, 1991 and October 17, 1991, respectively.
On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to
contest the issuance of the warrants to enforce the collection of the tax assessments. This was
docketed as CTA Case No. 4668.
The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994,
declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when
the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing
Division was presumably received by petitioner.
Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991
cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest
because the same was signed by a mere subordinate and not by the Commissioner himself.
With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review
with the Court of Appeals .The Court of Appeals denied the petition in a decision dated October 31,
2000.
Issue:
Whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate
officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and
executory and subject to an appeal to the Court of Tax Appeals.
Held:

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

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

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the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30
days after receipt of the copy of the decision.
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the
protested assessment. It is imperative that the taxpayers are informed of its action in order that the taxpayer
should then at least be able to take recourse to the tax court at the opportune time.
CASE SYLLABI:
Taxation; Taxpayers Remedies; Remedies of a taxpayer in case the Commissioner of Internal Revenue
fails to act on the disputed assessment within the 180-day period from date of submission of
documents.In RCBC v. CIR, 522 SCRA 144 (2007), the Court has held that in case the Commissioner
failed to act on the disputed assessment within the 180-day period from date of submission of documents, a
taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed
assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a
copy of such decision.
Same; Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved. Thus, even as we concede the inevitability and
indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and
in accordance with the prescribed procedure.
Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 522 SCRA 144,
G.R. No. 168498. April 24, 2007
Ynares-Santiago, J.
Facts:
For resolution is petitioners Motion for Reconsideration of on the Decision dated June 16, 2006 affirming
the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed
the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in
C.T.A. Case No. 6475, denying petitioners Petition for Relief from Judgment and Motion for
Reconsideration, respectively.
Petitioner reiterates its claim that its former counsels failure to file petition for review with the Court of
Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC)
was excusable.
Petitioner maintains that its counsels neglect in not filing the petition for review within the reglementary
period was excusable. It alleges that the counsels secretary misplaced the Resolution hence the counsel
was not aware of its issuance and that it had become final and executory.
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Issue:
Whether or not the inadvertence of the petitioners counsel is excusable and thus, the petition to cancel the
assessment against the petitioner should be given due course.
Held:
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioners counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby
putting no end to litigation.
If indeed there was negligence, this is obviously on the part of petitioners own counsel whose prudence in
handling the case fell short of that required under the circumstances. He was well aware of the motion
filed by the respondent for the Court to resolve first the issue of this Courts jurisdiction on July 15, 2003,
that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said
hearing the motion was submitted for resolution. Petitioners counsel apparently did not show enthusiasm
in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared
for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot
support petitioners claim for relief from judgment.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of
submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days
after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late
filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.
Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be
countenanced. After availing the first option, i.e., filing a petition for review which was however filed out
of time, petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioners inaction.
CASE SYLLABI:
Same; Same; Same; The jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue.It is clear that the
jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but
inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the
Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the
appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days
after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed
assessments. This 30-day period within which to file an appeal is jurisdictional and failure to comply
therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and
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determine the correctness of the assessments. Such period is not merely directory but mandatory and it is
beyond the power of the courts to extend the same.
Same; Same; Same; Tax Remedies; In case the Commissioner fails to act on the disputed assessment
within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition
for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2)
await the final decision of the Commissioner on the disputed assessments and appeal such final decision
to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.In case the
Commissioner failed to act on the disputed assessment within the 180-day period from date of submission
of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30
days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars
the application of the other.
Same; Same; Same; Same; After availing the first option, i.e., filing a petition for review which was
however filed out of time, a taxpayer cannot successfully resort to the second option, i.e., awaiting the
final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext
that there is yet no final decision on the disputed assessment because of the Commissioners inaction.
Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which was however filed out of time,
petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioners inaction.
Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No. L-23912. March 15, 1968
Fernando, J.
Facts:
In CTA Case No. 669, respondent Jose Concepcion, as ancillary administrator of the estate of Mary H.
MitchellRoberts, and respondent Jack F. Mitchell-Roberts, husband of the deceased, sought a refund of the
sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward
J. Nell Company issued in the names of both spouses "as joint tenants with full rights of survivorship and
not as tenants in common." The above assessment was made by petitioner Commissioner of Internal
Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the
death of the wife, the above shares being conjugal property. Respondents maintained on the other hand that
there was no transmission of property since under English law, ownership of all property acquired during
the marriage vests in the husband. Moreover, the shares of stock were issued to the spouses "as joint
tenants with full rights of survivorship and not as tenants in common." Not being agreeable to the theory
entertained by petitioner Commissioner of Internal Revenue, respondents, in a previous case, CTA Case No.
168, appealed such a decision under Republic Act No. 1125. The Court of Tax Appeals, however,
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dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of
30 days. That decision rendered on April 29, 1957, became final.
Issue:
Whether a taxpayer who had lost his right to dispute the validity of an assessment, the period for appealing
to the Court of Tax Appeals having expired, as found by such Court in a previous case in a decision now
final, and who thereafter paid under protest could then, relying on Section 306 of the National Internal
Revenue Code sue for recovery on the ground of its illegality?
Held:
No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was reaffirmed categorically in
this language: "Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in
question final, executory and demandable, And when the action was instituted on September 2, 1958 to
enforce the deficiency assessment in question, it was already barred from disputing the correctness of the
assessment or invoking any defense that would reopen the question of his tax liability on the merits.
Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense." Once
the matter has reached the stage of finality in view of the failure to appeal, it logically follows, in the
appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could no
longer be reopened through the expedient of an appeal from the denial of petitioner's request for
cancellation of the warrant of distraint and levy."
In the same way then that the expedient of an appeal from a denial of a tax request for cancellation of
warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment,
which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in
Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity
of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by
the lapse of the reglementary period within which to appeal could have been taken. Clearly then, the
liability of respondent Concepcion as an ancillary administrator of the estate of the deceased wife and of
respondent Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate tax and P2,616.10 as
inheritance tax was beyond question. Having paid the same, respondents are clearly devoid of any legal
right to sue for recovery.
CASE SYLLABUS:
Taxation; Recovery of tax illegally collected, denied where taxpayer had failed to appeal in due time.
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose
appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such
taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an
appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to
test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section
360 of the Tax Code not available to revive the right to contest the validity of an assessment which had
become final for failure to appeal the same on time.
Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No.
162852. December 16, 2004
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---------------SUPRA--------------Under the case of Phil. Journalist, Inc. vs. CIR, wherein the taxpayer failed to file protest and appeal to
CTA on time, since the waiver is held to be invalid, therefore the assessment is invalid; hence, further the
rule that the defenses are waived which include the validity of the assessment and prescription will not
apply. Here, you can still raise the defense of prescription.
Fishwealth Canning Corporation vs. Commissioner of Internal Revenue, 610 SCRA 524, G.R. No.
179343. January 21, 2010
Carpio- Morales, J.
Facts:
The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000, ordered
the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp.
(petitioner). The investigation disclosed that petitioner was liable in the amount of P2,395,826.88
representing income tax, value added tax (VAT), withholding tax deficiencies and other miscellaneous
deficiencies. Petitioner eventually settled these obligations onAugust 30, 2000.
On August 25, 2000, respondent reinvestigated petitioners books of accounts and other records of
internal revenue taxes covering the same period for the purpose of which it issued a subpoena duces
tecum requiring petitioner to submit its records and books of accounts. Petitioner requested the
cancellation of the subpoena on the ground that the same set of documents had previously been examined.
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT
deficiencies totaling P67,597,336.75 for the taxable year 1999, which assessment petitioner contested by
letter of September 23, 2003.
Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which
petitioner received on August 4, 2005, denying its letter of protest, and requesting the immediate payment
thereof, inclusive of penalties incident to delinquency. Respondent added that if petitioner disagreed, it
may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt hereof,
otherwise our said deficiency income and value-added taxes assessments shall become final, executory, and
demandable. Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of
Reconsideration dated August 31, 2005.
Petitioner filed a Motion for Reconsideration which was denied. The Resolution denying its motion for
reconsideration was received by petitioner on October 31, 2006.
On November 21, 2006, petitioner filed a petition for review before the CTA En Banc which, by
Decision of July 5, 2007, held that the petition before the First Division, as well as that before it, was filed
out of time.
Issue:
Whether or not CTA En Banc erred in holding that the petition it filed before the CTA First Division as
well as that filed before it (CTA En Banc) was filed out of time.
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Held:
The Court dismissed the petition. In the case at bar, petitioners administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner
received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30
days to appeal respondents denial of its protest to the CTA.
Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3,
2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005,
hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative
protest does not toll the 30-day period to appeal to the CTA.
CASE SYLLABUS:
Taxation; Administrative Protest; Motion for Reconsideration; A motion for reconsideration of the
denial of the administrative protest does not toll the 30-day period to appeal to the Court of Tax Appeals
(CTA).In the case at bar, petitioners administrative protest was denied by Final Decision on Disputed
Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005.
Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondents
denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August
4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the
denial of the administrative protest does not toll the 30-day period to appeal to the CTA.
Allied Banking Corporation vs. Commissioner of Internal Revenue, 611 SCRA 692, G.R. No.
175097. February 5, 2010
Del Castillo, J.
The key to effective communication is clarity.
The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must
indicate clearly and unequivocally to the taxpayer whether an action constitutes a final
determination on a disputed assessment. Words must be carefully chosen in order to avoid any
confusion that could adversely affect the rights and interest of the taxpayer.
Facts:
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN)
to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount
of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for
the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May
27, 2004.
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.
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On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its First
Division and docketed as CTA Case No. 7062.
On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005, he filed a Motion to
Dismiss on the ground that petitioner failed to file an administrative protest on the Formal Letter of
Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.
On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondents Motion to
Dismiss. On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The case was
docketed as CTA EB No. 167. Finding no reversible error in the Resolutions dated October 12,
2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition for Review ]as
well as petitioners Motion for Reconsideration.
The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest
in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part
of the remedies given to a taxpayer in challenging the legality or validity of an assessment.
Issue:
Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.
Held:
Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review
by appeal decisions of the CIR in cases involving disputed assessments. The CTA, being a court of special
jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction.
The word decisions in the above quoted provision of RA 9282 has been interpreted to mean the decisions
of the CIR on the protest of the taxpayer against the assessments. Corollary thereto, Section 228 of the
National Internal Revenue Code (NIRC) provides for the procedure for protesting an assessment.
In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR
issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the
proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30
days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed
a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for
Review by the CTA was proper.
However, In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand
with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the
Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand
letter indicate that it is the final decision of the respondent on the matter. We have time and again
reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is
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now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices
to be a final decision.
The Formal Letter of Demand with Assessment Notices which was not administratively protested by the
petitioner can be considered a final decision of the CIR appealable to the CTA because the words used,
specifically the words final decision and appeal, taken together led petitioner to believe that the Formal
Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it
filed and that the available remedy was to appeal the same to the CTA.
CASE SYLLABI:
Taxation; Assessment; Tax Protest; Pursuant to Section 228 of the National Internal Revenue Code
(NIRC), the proper recourse of petitioners was to dispute the assessment by filing an administrative
protest within 30 days from receipt thereof.In the instant case, petitioner timely filed a protest after
receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment
Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the
assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did
not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we
strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.
Same; Same; Same; Instant case is an exception to the rule on exhaustion of administrative remedies.
A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with
petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e.,
estoppel on the part of the administrative agency concerned.
Same; Same; Same; Court have time and again reminded the Commissioner of Internal Revenue (CIR)
to indicate in a clear and unequivocal language whether his action on a disputed assessment constitute
his final determination thereon in order for the taxpayer concerned to determined when his or her right
to appeal to tax count accrues.In this case, records show that petitioner disputed the PAN but not the
Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing
a protest against the Formal Letter of Demand with Assessment Notices since the language used and the
tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time
and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to
determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing,
respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with
Assessment Notices to be a final decision.
Same; Same; Same; It is the Formal Letter of Demand and Assessment Notice that must be
administratively protested or disputed within 30 days and not the Preliminary Assessment Notice
(PAN).We are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented
by Section 3 of BIR Revenue Regulations No. 12-99. It is the Formal Letter of Demand and Assessment
Notice that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we
deviating from our pronouncement in St. Stephens Chinese Girls School v. Collector of Internal Revenue,
104 Phil. 314 (1958) that the counting of the 30 days within which to institute an appeal in the CTA
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commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the
date the assessment was issued.
Republic vs. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, No. L-21731. March 31, 1966
Bengzon J.P., J.
Facts:
Lim Tian Teng Sons & Co., a domestic corporation with principal office in Cebu City, engaged in 1951
and 1952, among others, in the exportation of copra. The copra was weighted before shipment in the port of
departure and upon arrival in the port of destination. The weight before shipment was called copra outturn.
To allow for loss in weight due to shrinkage said exporter collected only 95% of the amount appearing in
the letter of credit covering every copra outturn. The 5% balance remained outstanding until final
liquidation and adjustment.
On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for 1952 based on accrued
income and expenses. Its return showed a loss of P55, 109.98. It took up as part of the beginning inventory
for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as part of
its outstanding stock as of December 31, 1951.
In the audit and examination of taxpayers 1952 income tax return, the CIR eliminated the P95,500.00
outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. This
increased taxpayers 1952 net taxable income. Accordingly, in a letter dated January 16, 1957 received by
Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of P10,074.00 and 50%
surcharge them amounting to 5,037.00 and demanded payment thereof not later than February 15, 1954.
On January 31, 1957 Lim Tian requested for reinvestigation of its 1952 income tax liability. The CIR did
not reply; instead he referred the case to the solicitor general for collection by judicial action.
On September 20, 1957 the solicitor general demanded from Lim Tian the payment of P15,111.50 within
five days, stating that otherwise judicial action would be instituted without further notice.
Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the
taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waiver
of the statute of limitations. As him Tian failed to file a waiver of the statute of limitations, the collector of
I.R. instituted 8 months after, or on September 2, 1958 an action in the CFI for the collection of deficiency
income tax. The CFI rendered decision ordering the defendant to pay the plaintiff as the assessment is valid.
Both parties appealed, raising only question of law.
Issue:
Whether or not the Commissioner is required to rule first on the taxpayers request for reinvestigation
before he can go to court for collecting the tax assessed.
Held:
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's request
for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary,
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Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under Section 11
of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or
charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in
the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government
chiefly relies to obtain the means the carry on its operations, and it is of the utmost importance that the
modes adopted to enforce collection of taxes levied should be summary and interfered with as little as
possible. No government could exist if all litigants were permitted to delay the collection of its taxes.
When the commissioner did not reply to the tax payers request for reinvestigation/reconsideration and
instead referred the case to the solicitor general for judicial collection, this was indicative of his decision
against reinvestigation.
CASE SYLLABI:
Same; Decision on request for reinvestigation is not a condition precedent to the filing of action for
collection of tax already assessed.Nowhere in the Tax Code is the Collector of Internal Revenue
required to rule first on a taxpayers request for reinvestigation before he can go to court for the purpose of
collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts,
except the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the
collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to
allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes.
Same; Remedy of taxpayer who desires to contest assessment before and after the creation of Tax
Court.Before the creation of the Court of Tax Appeals the remedy of a taxpayer who desired to contest
an assessment issued by the Collector of Internal Revenue was to pay the tax and bring an action in the
ordinary courts for its recovery pursuant to Section 306 of the Tax Code. (Sarasola vs. Trinidad, 40 Phil.
252; Alhambra Cigar & Cigarette Manufacturing Co. vs. Collector of Internal Revenue, L-12026, May 29,
1959). Collection or payment of the tax was not made to wait until after the Collector of Internal Revenue
has resolved all issues raised by the taxpayer against an assessment. Republic Act 1125 creating the Court
of Tax Appeals allows the taxpayer to dispute the correctness or legality of an assessment both in the
purely administrative level and in said court, but it does not stop or prohibit the Collector of Internal
Revenue from collecting the tax through any of the means provided for in Section 316 of the Tax Code,
except when enjoined by said Court of Tax Appeals.
Advertising Associates, Inc. vs. Court of Appeals, 133 SCRA 765, No. L-59758. December 26, 1984
Aquino, J.
Facts:
This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's
percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of
the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent
contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972,
added paragraph 17 to section 191 by taxing lessors of personal property.
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The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax
for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its
income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of
incorporation provide that its primary purpose is to engage in general advertising business. Advertising
Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and
March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July
12 and September 16,1974.
The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21,
1974 . Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the
Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection
enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the
deficiency taxes. The warrants were served upon the taxpayer on April 18 and May 25, 1978.
More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to
the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of
distraint. Such letter constitutes the decision on the matter. That if the taxpayer does not agree, he may
appeal to the CTA within 30 days from the receipt of the letter.
Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its
petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the
warrants of distraint.
The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the
Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23,
1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court.
Issue:
Whether or not the petition for review was filed on time.
Held:
The Court held that the petition for review was filed on time. The reviewable decision is that contained in
Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint.
No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the
Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The
Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same
situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal
Revenue, 104 Phil. 314, 317-318.
CASE SYLLABI:
Taxation; Appeals; The reviewable decision of the B.I.R. Commissioner is that letter where he clearly
directed the taxpayer to appeal to the Tax Court, and not the warrants of distraint and levy.No amount
of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the
Commissioners final decision within the meaning of section 7 of Republic Act No. 1125. The
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Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same
situation in St. Stephens Association and St. Stephens Chinese Girls School vs. Collector of Internal
Revenue, 104 Phil. 314, 317-318.
Same; Same; Same.The directive is in consonance with this Courts dictum that the Commissioner
should always indicate to the taxpayer in clear and unequivocal language what constitutes his final
determination of the disputed assessment. That procedure is demanded by the pressing need for fair play,
regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L25289, June 28, 1974, 57 SCRA 523).
Commissioner of lnternal Revenue vs. Algue, Inc., 158 SCRA 9, No. L-28896. February 17, 1988
Cruz, J.
Facts:
On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction
and other allied activities, received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a
letter of protest or request for reconsideration, which letter was stamp received on the same day in the
office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara
produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the
warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on
the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served. 5Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.
Issue:
Whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue
was made on time and in accordance with law.
Held:
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a
rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a
request for reconsideration," being "tantamount to an outright denial thereof and makes the said request
deemed rejected." But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment,
it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and
levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after
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Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities.
During the intervening period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent
was definitely informed of the implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been
consumed.
CASE SYLLABI:
Same; Appeal; Appeal from a decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals is 30 days from receipt thereof.The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the
decision or ruling challenged.
Same; Warrant of distraint and levy; Rule that the warrant of distraint and levy is proof of the finality of
the assessment; Exception is where there is a letter of protest after receipt of notice of assessment.It is
true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and "renders
hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said
request deemed rejected." But there is a special circumstance in the case at bar that prevents application of
this accepted doctrine. The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account
before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office
of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
Same; Same; Same; Same; Protest filed, not pro forma, and was based on strong legal considerations;
Case at bar.As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not
pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent
was definitely informed of the implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been
consumed.
Yabes vs. Flojo, 115 SCRA 278, No. L-46954. July 20, 1982
Concepcion, JR., J.
Facts:

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In May 1962, Doroteo Yabes received an assessment notice from the Commissioner of Internal Revenue
(CIR) demanding him to pay P15k in taxes. Doroteo filed a protest within the prescribed period. The
protest was initially denied in September 1962 however, a few days after the denial, the CIR advised
Doroteo to execute a waiver of the statute of limitations (SOL) and to allow the CIR to hold in abeyance
the ruling of his case until a similar case (Cirilo Constantino Case) which involves exactly the same issue
would be decided by the Court of Tax Appeals (CTA). Doroteo complied but while waiting for the CTA to
decide that case, Doroteo died. The CTA finally decided the Constantino Case but the same was appealed
to the Supreme Court (SC). And so the CIR asked the successors-in-interest of Doroteo, Elpidio and
Severino Yabes, to execute another waiver while waiting for the SC decision. The waiver was duly
executed and it extended the period of prescription within which the CIR may collect the assessed tax to
December 31, 1970.
The Constantino Case was decided by the SC in February 1970. On December 4, 1970, before the lapse of
the extended period (12/31/70), the CIR filed a tax collection suit against the estate of Doroteo Yabes with
the Court of First Instance (CFI) of Cagayan. Elpidio et al received the summons on January 20, 1971.
Elpidio et al then filed an appeal with the CTA on February 12, 1971. At the same time, Elpidio et al filed a
motion to dismiss (MTD) the collection suit with CFI Cagayan on the ground that the filing of the
collection suit is a denial by the CIR of the protest; that such denial is appealable to the CTA; that CFI
Cagayan therefore has no jurisdiction over the case. However, Judge Napoleon Flojo of CFI Cagayan
denied the MTD.
Issue:
Whether or not respondent Court of First Instance can lawfully acquire jurisdiction over a contested
assessment made by the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes,
which has not yet become final, executory and incontestable, and which assessment is being contested by
petitioners in the Court of Tax Appeals, Case No. 2216, and still pending consideration.
Held:
The jurisdiction of the CFI is wanting in this case. The respondent Court of First Instance of Cagayan can
only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the
Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as
this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the
finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax
Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7
of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal
with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day
prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive
appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases
involving disputed assessments and other matters arising under the National Internal Revenue Code.
For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the
complaint filed in Civil Case No. II-7. Absent jurisdiction over the case, it would be improper for the Court
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of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case,
as well.
The dismissal of the complaint, however, is not sufficient. The ends of justice would best be served by
considering the complaint filed in Civil Case No. II-7 not only as a final notice of assessment but also as a
counterclaim in CTA Case No. 2216, in order to avoid mutiplicity of suits, as well as to expedite the
settlement of the controversy between the parties. After all, the two cases involve the same parties, the
same subject matter, and the same issue, which is the liability of the heirs of the deceased Doroteo Yabes
for commercial broker's fixed and percentage taxes due from the said deceased.
AQUINO, J., concurring:
In 1970, the Government sued the heirs of Doroteo Yabes (he died in 1963), namely, his widow, Nicolasa,
and his three children named, Elpidio, Severina and Julita, for the recovery of the sum of P15,976.82 as
commercial broker's fixed and percentage taxes for the period from 1956 to 1960 (Civil Case No. II-7 of
the CFI of Cagayan).
The suit, which was brought to stop the running of the prescriptive period, was filed on the theory that the
tax assessment was uncontested. If contested, it should have been filed in the Court of Tax Appeals.
Ordinarily, such an action is not maintainable against the heirs because the remedy for asserting money
claims against the deceased is to file a claim in the administration proceeding for the settlement of his
estate, as indicated in Rule 86 of the Rules of Court.
However, the estate of the deceased is not under administration and his heirs had settled it extrajudicially.
Hence, Solicitor General Felix Q. Antonio and his assistants deemed it proper to sue directly the
decedent's heirs.
The taxes in question were assessed during the taxpayer's lifetime. The prescriptive period was extended
and the enforcement of the taxes was held in abeyance by the Commissioner of Internal Revenue upon
agreement with the Yabes heirs to await the outcome of a test case, the Constantino case, regarding the
same kind of tax liability which was pending in this Court. After the Constantino case was decided in the
Government's favor (Commissioner of Internal Revenue vs. Constantino, L-25926, February 27, 1970, 31
SCRA 779), the State filed the aforementioned collection case, Civil Case No. II-7.
The Yabes heirs considered the filing of the collection suit as the Commissioner's decision which they could
contest in the Tax Court (a view which was later sustained by the Tax Court). Hence, on February 12, 1971,
the Yabes heirs filed a petition for review with the Tax Court. They contended that Doroteo Yabes was not
a commercial broker. They asked for the cancellation of the tax assessment (CTA Case No. 2216).
Respondent judge erred in setting Civil Case No. II-7 for trial. In my opinion, Civil Case No. II-7 should be
transferred to the Tax Court. No rule allows the transfer to the Tax Court of a tax case pending in the
Court of First Instance and vice-versa.
But under the peculiar situation in this case, the pragmatic, expedient and sensible thing to do is to transfer
Civil Case No. II-7 to the Tax Court and to consider it as a counterclaim to CTA Case No. 2216. The two
cases involve the same parties, the same subject-matter and the same issue: the liability of the Yabes heirs
for the commercial broker's fixed and percentage taxes allegedly due from Doroteo Yabes.
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That may be a novel and unprecedented solution but we have to be practical and should avoid duplicity of
suits. Since it now appears that the Government erroneously assumed in filing Civil Case No. II-7 in the
Court of First Instance that the tax assessment is uncontested when actually it is contested, then that case
should be consolidated with the case in the Tax Court which is the proper forum for deciding contested tax
assessments.
DE CASTRO, J., dissenting:
I vote to dismiss the complaint filed in the CFI, as well or to set aside all the questioned orders of said
Court.

CASE SYLLABI:
Taxation; Action; The filing by the Bureau of Internal Revenue of an action for collection of deficiency
taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the
Commissioner of Internal Revenue.There is no reason for Us to disagree from or reverse the Court of
Tax Appeals conclusion that under the circumstances of this case, what may be considered as final
decision or assessment of the Commissioner is the filing of the complaint for collection in the respondent
Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971,
and that therefore the appeal with the Court of Tax Appeals in CTA Case No. 2216 was filed on time.
Same; Same; Jurisdiction; The Court of First Instance can acquire jurisdiction over a claim for
collection of deficiency taxes only after the assessment made by the Commissioner of Internal Revenue
has become final and unappealable; not where there is still and pending Court of Tax Appeals case.
The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against
the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become
final and incontestable. If the contrary is established, as this Court holds it to be, considering the
aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the
assessment made by the Commissioner is correct, then the Court of Tax Appeals had exclusive jurisdiction
over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First
Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals
in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section
11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on
appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other
matters arising under the National Internal Revenue Code.
Same; Jurisdiction; Where a court has no jurisdiction dismissal of action, not a mere suspension of
proceedings, must be made.The recommendation of the Solicitor General that the lower court hold in
abeyance any action or proceeding in Civil Case No. II-7 until after the Court of Tax Appeals shall have
finally decided CTA Case No. 2216, is untenable since the lower court has no jurisdiction over the case.
Jurisdiction over an action includes jurisdiction over all interlocutory matters incidental to the case and
deemed necessary to preserve the subject matter of the suit or protect interests of the parties. Absent
jurisdiction over the case, it would be improper for the Court of First Instance of Cagayan to take
cognizance over the case and act upon interlocutory matters of the case, as well.
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Commissioner of Internal Revenue vs. Union Shipping Corp., 185 SCRA 547(1990), G.R. No.
66160. May 21, 1990
Paras, J.
Facts:
The CIR assessed Yee Fong Hong, Ltd the total sum of P583, 155.22, as deficiency income taxes due for
the years 1971 and 1972. Respondent Yee protested the assessment.
November 25, 1976 the CIR, without ruling on the protest by Yee, issued a Warrant of Distraint and
Levy, which was served on private respondent's counsel.
November 27, 1976 Yee reiterated its request for the reinvestigation of the assessment. However the CIR,
again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and
Levy, filed a collection suit before the CFI.
January 10, 1976 Respondent filed its Petition for Review of the petitioner's assessment of its deficiency
income taxes in the Court of Tax Appeals.
According to the petitioner, the Court of Tax Appeals has no jurisdiction over this case. It claims that the
warrant of distraint and levy is proof of the finality of an assessment and is tantamount to an outright denial
of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant was
issued after the respondent filed a request for reconsideration of subject assessment, thus constituting
petitioner's final decision in the disputed assessments. Therefore, the period to appeal to the CTA
commenced from the receipt of the warrant on November 25, 1976 so that on January 10, 1976 when
respondent corporation sought redress, it has long become final and executory.
Issue:
Whether or not the CTA has jurisdiction over the case
Held.
The CTA has jurisdiction over the case. There is no dispute that petitioner did not rule on private
respondent's motion for reconsideration but left private respondent in the dark as to which action of the
Commissioner is the decision appealable to the CTA. Had he categorically stated that he denies private
respondent's motion for reconsideration and that his action constitutes his final determination on the
disputed assessment, private respondent without needless difficulty would have been able to determine
when his right to appeal accrues and the resulting confusion would have been avoided. Under the
circumstances, the CIR, not having clearly signified his final action on the disputed assessment, legally the
period to appeal has not commenced to run.
CASE SYLLABI:
Taxation; Appeal; The Commissioner of Internal Revenue must state whether his action on questioned
assessment is final. It cannot be implied from mere issuance of warrant of distraint and levy.There
appears to be no dispute that petitioner did not rule on private respondents motion for reconsideration but
contrary to the above ruling of this Court, left private respondent in the dark as to which action of the
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Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he
denies private respondents motion for reconsideration and that his action constitutes his final
determination on the disputed assessment, private respondent without needless difficulty would have been
able to determine when his right to appeal accrues and the resulting confusion would have been avoided.
Same; Same; Same.Under the circumstances, the Commissioner of Internal Revenue, not having clearly
signified his final action on the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to appeal commenced to run.
Same; Same; Filing of collection suit may be considered a final denial of request for reconsideration of
tax assessment.The request for reinvestigation and reconsideration was in effect considered denied by
petitioner when the latter filed a civil suit for collection of deficiency income. So that on January 10, 1979
when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only
thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
Commissioner of Internal Revenue vs. Isabela Cultural Corporation, 361 SCRA 71, G.R. No.
135210. July 11, 2001
Panganiban, J.
Facts:
In an investigation conducted in the 1986 books of account of Isabela, it preliminarily incurred a tax
deficiency of P9,985,392.15, inclusive of increments. Upon protest by Isabelas counsel, the said
preliminary assessment was reduced to the amount of P325,869.44.

On February 23, 1990, Isabela received from CIR an assessment letter demanding payment of the amounts
of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of
surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31,
1986. Isabela then filed a letter to CIR asking for reconsideration on the subject assessment. It even
attached certain documents supporting its protest.
On February 9, 1995, Isabela received from CIR a Final Notice Before Seizure. In said letter, CIR
demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure
on its part would constrain CIR to collect the subject assessment through summary remedies.
Isabela considered said final notice of seizure as [petitioners] final decision. Hence, the instant petition for
review filed with this Court on March 9, 1995.
The CTA having rendered judgment dismissing the petition, Isabela filed the instant petition anchored on
the argument that CIRs issuance of the Final Notice Before Seizure constitutes its decision on Isabelas
request for reinvestigation, which Isabela may appeal to the CTA. CA reversed CTAs decision.
CIR: Final Notice was a mere reiteration of the delinquent taxpayers obligation to pay the taxes due. It
was supposedly a mere demand that should not have been mistaken for a decision on a protested
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assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the
resolution of the taxpayers request for reconsideration and must likewise state the reason therefor.
Isabela: Final Notice Before Seizure should be considered as a denial of its request for reconsideration of
the disputed assessment. The Notice should be deemed as petitioners last act, since failure to comply with
it would lead to the distraint and levy of respondents properties, as indicated therein.
Issue:
Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue
Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the
CTA.
Held:
No. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes,
indicating the period covered, the amount due including interest, and the reason for the delinquency. If the
taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest,
stating the reasons therefore, and submitting such proof as may be necessary. That letter is considered as
the taxpayers request for reconsideration of the delinquent assessment. After the request is filed and
received by the BIR, the assessment becomes a disputed assessment on which it must render a
decision. That decision is appealable to the Court of Tax Appeals for review.
Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of
internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to
submit additional evidence. However, the CIRs position regarding the disputed assessment must be
indicated in the final decision. It is this decision that is properly appealable to the CTA for review.
In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the
commissioners decision disposing of the request for reconsideration filed by respondent, who received no
other response to its request. Not only was the Notice the only response received; its content and tenor
supported the theory that it was the CIRs final act regarding the request for reconsideration. The very title
expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that
respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would be
subjected to distraint and levy.
Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon
180 days after submission thereof.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have become final.
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If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable.
In this case, the said period of 180 days had already lapsed when Isabela filed its request for
reconsideration on March 23, 1990, without any action on the part of the CIR.
In the instant case, the second notice received by Isabela verily indicated its nature that it was
final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration.
CASE SYLLABI:
Taxation; National Internal Revenue Code (NIRC); The Final Notice Before Seizure cannot but be
considered as the commisioners decision disposing of the request for reconsideration.In the light of
the above facts, the Final Notice Before Seizure cannot but be considered as the commissioners decision
disposing of the request for reconsideration filed by respondent, who received no other response to its
request. Not only was the Notice the only response received; its content and tenor supported the theory that
it was the CIRs final act regarding the request for reconsideration. The very title expressly indicated that it
was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being
given this LAST OPPORTUNITY to pay; otherwise, its properties would be subjected to distraint and
levy.
Same; Same; A delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its
request for reconsideration remains unacted upon 180 days after submission thereof.Section 228 of
the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission
thereof, x x x In this case, the said period of 180 days had already lapsed when respondent filed its request
for reconsideration on March 23, 1990, without any action on the part of the CIR.
Same; Same; A final demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment.Jurisprudence dictates that a final demand letter for payment of
delinquent taxes may be considered a decision on a disputed or protested assessment.
D. NON-RETROACTIVITY OF RULINGS (SEC.246, NIRC)
Commissioner of Internal Revenue vs. Philippine Health Care Providers, Inc., 522 SCRA 131, G.R.
No. 168129. April 24, 2007
Sandoval-Gutierrez, J.
Facts:
On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the
National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added Tax
(VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.

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

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In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the
1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position
contrary to one previously taken where injustice would result to the taxpayer. Hence, where an
assessment for deficiency withholding income taxes was made, three years after a new BIR Circular
reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the
taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair
play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen.
Mdsg. Corp. Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.)
Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no
retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case.
CASE SYLLABI:
Same; Same; Same; Administrative Law; Rulings, circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the
taxpayer; Exceptions. Relative to the second issue, Section 246 of the 1997 Tax Code, as amended,
provides that rulings, circulars, rules and regulations promulgated by the Commissioner of Internal
Revenue have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to
this rule are: (1) where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (3)
where the taxpayer acted in bad faith.
Same; Same; Same; Same; The Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer; The rule is that
the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of
the taxpayer.In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, 108 SCRA 142 (1981), this
Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is
precluded from adopting a position contrary to one previously taken where injustice would result to the
taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after
a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp. in the later cases of Commissioner of Internal Revenue v. Borroughs, Ltd., 142 SCRA
324 (1986), Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., 166 SCRA 166 (1988),
Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.), Inc., 249 SCRA 401 (1995), and
Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557 (1997). The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.
Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., 512 SCRA 124, G.R. No. 153205. January 22, 2007
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Carpio, J.
Facts:
Respondent is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippines with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City.
It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S
(BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a
contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of
[NAPOCORs] two power barges. The Consortium appointed BWSC-Denmark as its coordination
manager.
BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance of
NAPOCORs two power barges as well as the performance of other duties and acts which necessarily have
to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and
Peso). The freely convertible non-Peso component is deposited directly to the Consortiums bank accounts
in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special
designated bank account in the Philippines. On the other hand, the Consortium pays [respondent] in foreign
currency inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the
BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if
[respondent] chooses to register as a VAT person and the consideration for its services is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration
bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District
Office No. 113 of Davao City.
For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among
others, a total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14.

On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR. It
allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its case.
On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review
Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being rendered
by BWSCMI is subject to VAT at zero percent (0%)."
On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the issuance
of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed that it
erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program
(VAP) of the BIR.4
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On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of
the two-year prescriptive period under the Tax Code.
CTA RULING:
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67
in favor of respondent. The CTAs ruling stated:
[Respondents] sale of services to the Consortium [was] paid for in acceptable foreign currency inwardly
remitted to the Philippines and accounted for in accordance with the rules and regulations of Bangko
Sentral ng Pilipinas. These were established by various BPI Credit Memos showing remittances in Danish
Kroner (DKK) and US dollars (US$) as payments for the specific invoices billed by [respondent] to the
consortium. These remittances were further certified by the Branch Manager x x x of BPI-Davao Lanang
Branch to represent payments for sub-contract fees that came from Den Danske Aktieselskab BankDenmark for the account of [respondent]. Clearly, [respondents] sale of services to the Consortium is
subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code.
x x x Considering the principle of solutio indebiti which requires the return of what has been delivered by
mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for by [respondent]. x x x
CA RULING:
In affirming the CTA, the Court of Appeals rejected petitioners view that since respondents services are
not destined for consumption abroad, they are not of the same nature as project studies, information
services, engineering and architectural designs, and other similar services mentioned in Section 4.1022(b)(2) of Revenue Regulations No. 5-96 as subject to 0% VAT. Thus, according to petitioner,
respondents services cannot legally qualify for 0% VAT but are subject to the regular 10% VAT.
Issue:
Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year
1996.
Held:
The petition is denied. At the outset, the Court declares that the denial of the instant petition is not on the
ground that respondents services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the
prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that
respondents services are subject to 0% VAT and which respondent invoked in applying for refund of the
output VAT.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 00399, which reconfirmed BIR Ruling No. 023-95 insofar as it held that the services being rendered by
BWSCMI is subject to VAT at zero percent (0%). Respondents reliance on these BIR rulings binds
petitioner.
Petitioners filing of his Answer before the CTA challenging respondents claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such
revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondents
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status will deprive respondent of a refund of a substantial amount representing excess output tax. Section
246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue
shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no
showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.
CASE SYLLABUS:
Same; Same; A taxpayers reliance on Bureau of Internal Revenue (BIR) rulings binds the
Commissioner of Internal Revenue; The BIR Commissioners filing of his Answer before the Court of
Tax Appeals challenging a taxpayers claim for refund effectively serves as a revocation of VAT Ruling
No. 003-99 and BIR Ruling No. 023-95, but such revocation cannot be given retroactive effect since it
will prejudice the taxpayer; Section 246 of the Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given retroactive application if the revocation will
prejudice the taxpayer.In seeking a refund of its excess output tax, respondent relied on VAT Ruling No.
003-99, which reconfirmed BIR Ruling No. 023-95 insofar as it held that the services being rendered by
BWSCMI is subject to VAT at zero percent (0%). Respondents reliance on these BIR rulings binds
petitioner. Petitioners filing of his Answer before the CTA challenging respondents claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such
revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondents
status will deprive respondent of a refund of a substantial amount representing excess output tax. Section
246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue
shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no
showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.
Philippine Bank of Communications vs. Commissioner of Internal Revenue, 302 SCRA 24, G.R.
No. 112024. January 28, 1999
Quisumbing, J.
Facts:
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of
1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by
applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax
Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the
year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

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

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which payment was made, such payment appears clearly to have been erroneously paid.
(Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal
Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing the Adjustment Return and final
payment of the tax for the year.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense
of more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony with
the law they seek to apply and implement.
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by
the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony
with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his
interpretation could not be given weight for to do so would, in effect, amend the statute.
Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly
payments over the actual income tax computed in the adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax
liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided
in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the
succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative,
and the choice of one precludes the other.
CASE SYLLABUS:
Same; Same; Same; Same; Same; Statutory Construction; A memorandum circular of a bureau head
could not operate to vest a taxpayer with a shield against judicial action, for there are no vested rights to
speak of respecting a wrong construction of the law by the administrative officials and such wrong
interpretation could not place the Government in estoppel to correct or overrule the same; The nonretroactivity of rulings by the Commissioner of Internal Revenue is not applicable where the nullity of a
Revenue Memorandum Circular was declared by courts and not by the Commissioner of Internal
Revenue.Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as
part of the legal system of the country. But administrative decisions do not enjoy that level of recognition.
A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial
action. For there are no vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the Government in estoppel to
correct or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal
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Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent
courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held
by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in
strictissimi juris against the taxpayer.
Commissioner of lnternal Revenue vs. Court of Appeals, 267 SCRA 557, G.R. No. 117982.
February 6, 1997
Bellosillo, J.
Facts:
Alhambra Industries, Inc, is a domestic corporation engaged in the manufacture and sale of cigar and
cigarette products. On May 7, 1991, Private respondent received a letter (26 of April,1991) from the CIR
assessing its deficiency Ad Valorem Tax (AVT) in the total amount of (P488,396.62), inclusive of
increments, on the removals of cigarette products from place of production during (November 2, 1990 to
January 22, 1991).Alhambra filed a protest but the same was denied. CIR requested payment of the revised
amount of P520, 835.39. Without waiting for CIRs reply to its reconsideration. Alhambra filed a petition
for review with CTA. Meanwhile, CIR denied the request for reconsideration. Alhambra then paid the
disputed AVT in the sum of P520,835.29 under protest. CTA, in its jurisdiction, ordered CIR to refund to
Alhambra the amount erroneously paid, explaining that the subject deficiency excise tax assessment
resulted from Alhambras use of the computation mandated by BIR Ruling 017-473-88 dated October 4,
1998 as basis for computing the 15% AVT. BIR Ruling 017-91 revoked BIR Ruling 473-88 for being
violative of Sec. 142 of the Tax Code; it included back the VAT to the gross selling price in determining
the tax base for computing the AVT on cigarettes.
Issue:
Whether or not private respondents reliance on a void BIR ruling conferred upon the latter a vested right
to apply the same in the computation of its AVT and claim for tax refund?
Held:
The present dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on
account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October 4, 1988 which
EXCLUDED the VAT from the tax base in computing the 15% excise tax due; and (2) BIR Ruling 017-91
dated Feb 11, 1991 which INCLUDED back the Vat in computing the tax base for purposes of the 15%
AVT.
The question as to correct computation of the excise tax on cigarettes in the case at bar has been
sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88.
It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to domestic products
and excludes the value added tax in the determination of the gross selling price, which is the tax base for
purposes of the imposition of AVT. On the other hand, the last par., of Sec 142 of the same code which
includes the VAT in the computation of the AVT refers specifically to cigar and cigarettes only. It does
not include/apply to any other articles or goods subject to the AVT. Accordingly, Sec. 142 must perforce
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prevail over SEC 127 (B) which is a general provision of law insofar as the imposition of AVT on cigar
and cigarettes is concerned,
Moreover, the phrase unless otherwise provided in Sec 127(b) purports of exceptions to the general rule
contained therein, such as that of Sec 142, last paragraph therof which explicitly provides that in the case of
cigarettes, the tax base for purposes of the AVT shall include, the VAT.
Private respondent did not question the correctness of the above BIR ruling. In fact, upon knowledge of the
effectivity of BIR Ruling No. 017-91, private respondent immediately implemented the method of
computation mandated therein by restoring the VAT in computing the tax base for purposes of the 15 %
AVT.
However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers.
The applicable law is Sec. 246 of the Tax Code which provides Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any
rules and regulations promulgated in accordance with the preceding section or any of
the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not
be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayers except in the following cases: a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document required
of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts on which the ruling is
based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it
would be assessed deficiency excise tax.
What is left to be resolved is petitioners claim that private respondent falls under the third exception in Sec.
246, i.e., that the taxpayer has acted in bad faith.
Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes
of the nature of fraud; a breach of a known duty through some motive of interest or ill will. We find no
convincing evidence that private respondents implementation of the computation mandated by BIR Ruling
473-88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of good faith,
private respondent immediately reverted to the computation mandated by BIR Ruling 017-91 upon
knowledge of its issuance on 11 February 1991.
As regards petitioner's argument that private respondent should have made consultations with it before
private respondent used the computation mandated by BIR Ruling 473-88, suffice it to state that the
aforesaid BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of
private respondent to consult petitioner does not imply bad faith on the part of the former.

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

Taxation; Rulings and circulars, rules and regulations promulgated by the Commissioner of lnternal
Revenue would have no retroactive application if to so apply them would be prejudicial to the
taxpayers.However, well-entrenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply
them would be prejudicial to the taxpayers.
Same; Words and Phrases; Bad faith imports a dishonest purpose or some moral obliquity and
conscious doing of wrongit partakes of the nature of fraud, a breach of a known duty through some
motive of interest or ill will.Bad faith imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. lt partakes of the nature of fraud; a breach of a known duty through some
motive of interest or ill will. We find no convincing evidence that private respondents implementation of
the computation mandated by BIR Ruling 47388 was ill-motivated or attended with a dishonest purpose.
To the contrary, as a sign of good faith, private respondent immediately reverted to the computation
mandated by BIR Ruling 01791 upon knowledge of its issuance on 11 February 1991.
Same; The failure of a taxpayer to consult the Bureau of Internal Revenue before using a computation
mandated by a BIR Ruling which was clear and categorical, thus leaving no room for interpretation,
does not imply bad faith on the part of the former.As regards petitioners argument that private
respondent should have made consultations with it before private respondent used the computation
mandated by BIR Ruling 47388, suffice it to state that the aforesaid BIR Ruling was clear and categorical
thus leaving no room for interpretation. The failure of private respondent to consult petitioner does not
imply bad faith on the part of the former.
Same; Estoppel; While the government is not estopped from collecting taxes legally due because of
mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer.Admittedly the government is not estopped from collecting taxes
legally due because of mistakes or errors of its agents. But like other principles of law, this admits of
exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer.
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Commissioner of Internal Revenue vs. Filinvest Development Corporation , 654 SCRA 56, G.R. No.
163653 & G.R. No. 167689, July 19, 2011
Perez, J.
Facts:
The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc. (FAI), respondent
Filinvest Development Corporation (FDC) is a holding company which also owned 67.42% of the
outstanding shares of Filinvest Land, Inc. (FLI). FDC and FAI entered into a Deed of Exchange with FLI
whereby the former both transferred in favor of the latter parcels of land appraised at P4,306,777,000.00.
In exchange for said parcels which were intended to facilitate development of medium-rise residential and
commercial buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI.
Later, FLI requested a ruling from the BIR to the effect that no gain or loss should be recognized in the
aforesaid transfer of real properties. Acting on the request, the BIR issued Ruling No. S-34-046-97 dated 3
February 1997, finding that the exchange is among those contemplated under Section 34 (c) (2) of the old
NIRC (Now Section 40, NIRC) which provides that (n)o gain or loss shall be recognized if property is
transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of
such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of
said corporation." With the BIRs reiteration of the foregoing ruling upon the request for clarification filed
by FLI, the latter, together with FDC and FAI, complied with all the requirements imposed in the ruling.

On various dates during the years 1996 and 1997, in the meantime, FDC also extended advances in favor of
its affiliates, namely, FAI, FLI, Davao Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI).
Duly evidenced by instructional letters as well as cash and journal vouchers, said cash advances amounted
to P2,557,213,942.60 in 1996 and P3,360,889,677.48 in 1997. FDC also entered into a Shareholders
Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a Singapore-based joint venture
company called Filinvest Asia Corporation (FAC), tasked to develop and manage FDCs 50% ownership of
its PBCom Office Tower Project (the Project). With their equity participation in FAC respectively pegged
at 60% and 40% in the Shareholders Agreement, FDC subscribed to P500.7 million worth of shares in said
joint venture company to RHPLs subscription worth P433.8 million. Having paid its subscription by
executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project worth
P500.7 million, FDC eventually reported a net loss of P190,695,061.00 in its Annual Income Tax Return
for the taxable year 1996.
Then, FDC received from the BIR a Formal Notice of Demand to pay deficiency income and documentary
stamp taxes, plus interests and compromise penalties, covered by the following Assessment Notices, viz.:
(a) Assessment Notice for deficiency income taxes in the sum of P150,074,066.27 for 1996; (b)
Assessment Notice for deficiency documentary stamp taxes in the sum of P10,425,487.06 for 1996; (c)
Assessment Notice for deficiency income taxes in the sum of P5,716,927.03 for 1997; and (d) Assessment
for deficiency documentary stamp taxes in the sum of P5,796,699.40 for 1997. The foregoing deficiency
taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it
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executed with FAI and FLI, on the dilution resulting from the Shareholders Agreement FDC executed
with RHPL as well as the arms-length interest rate and documentary stamp taxes imposable on the
advances FDC extended to its affiliates.
FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes in the sum of
P1,477,494,638.23 for the year 1997. Covered by Assessment Notice, said deficiency tax was also assessed
on the taxable gain purportedly realized by FAI from the Deed of Exchange it executed with FDC and FLI.
Within the reglementary period of thirty (30) days from notice of the assessment, both FDC and FAI filed
their respective requests for reconsideration/protest, on the ground that the deficiency income and
documentary stamp taxes assessed by the BIR were bereft of factual and legal basis. Having submitted the
relevant supporting documents pursuant to the 31 January 2000 directive from the BIR Appellate Division,
FDC and FAI filed a letter requesting an early resolution of their request for reconsideration/protest on the
ground that the 180 days prescribed for the resolution thereof under Section 228 of the NIRC was going to
expire on 20 September 2000.
In view of the failure of petitioner CIR to resolve their request for reconsideration/protest within the
aforesaid period, FDC and FAI filed a petition for review with the CTA. The petition alleged, among other
matters, that as previously opined in BIR Ruling No. S-34-046-97, no taxable gain should have been
assessed from the subject Deed of Exchange since FDC and FAI collectively gained further control of FLI
as a consequence of the exchange; that correlative to the CIR's lack of authority to impute theoretical
interests on the cash advances FDC extended in favor of its affiliates, the rule is settled that interests cannot
be demanded in the absence of a stipulation to the effect; that not being promissory notes or certificates of
obligations, the instructional letters as well as the cash and journal vouchers evidencing said cash advances
were not subject to documentary stamp taxes; and, that no income tax may be imposed on the prospective
gain from the supposed appreciation of FDC's shareholdings in FAC. As a consequence, FDC and FAC
both prayed that the subject assessments for deficiency income and documentary stamp taxes for the years
1996 and 1997 be cancelled and annulled.
CTA decision - went on to render the decision dated 10 September 2002 which, with the exception of the
deficiency income tax on the interest income FDC supposedly realized from the advances it extended in
favor of its affiliates, cancelled the rest of deficiency income and documentary stamp taxes assessed against
FDC and FAI for the years 1996 and 1997. However [FDC] is ordered to pay the amount of P5,691,972.03
as deficiency income tax for taxable year 1997. In addition, FDC is also ordered to pay 20% delinquency
interest computed from February 16, 2000 until full payment thereof pursuant to Section 249 (c) (3) of the
Tax Code.
Dissatisfied with the foregoing decision, FDC filed petition for review -- Calling attention to the fact that
the cash advances it extended to its affiliates were interest-free in the absence of the express stipulation on
interest required under Article 1956 of the Civil Code, FDC questioned the imposition of an arm's-length
interest rate thereon on the ground, among others, that the CIR's authority under Section 43 of the NIRC: (a)
does not include the power to impute imaginary interest on said transactions; (b) is directed only against
controlled taxpayers and not against mother or holding corporations; and, (c) can only be invoked in cases
of understatement of taxable net income or evident tax evasion.
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CA upheld FDCs position and reversed and set aside CTA deicision.
Issue No. 1:
Whether or not the advances extended by FDC to its affiliates are subject to income tax and also subject to
interest.
Held:
Yes. Section 43 [now Section 50] of the 1993 National Internal Revenue Code (NIRC) provides that. (i)n
case of two or more organizations, trades or businesses (whether or not incorporated and whether or not
organized in the Philippines) owned or controlled directly or indirectly by the same interests, the
Commissioner of Internal Revenue [(CIR)] is authorized to distribute, apportion or allocate gross income or
deductions between or among such organization, trade of business, if he determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income
of any such organization, trade or business, Section 179 of Revenue Regulations No. 2 provides in part
that (i)n determining the true net income of a controlled taxpayer, the [CIR] is not restricted to the case of
improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device
designed to reduce of avoid tax by shifting or distorting income or deductions. The authority to determine
true net income extends to any case in which either by inadvertence or design the taxable net income in
whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct
of his affairs been an uncontrolled taxpayer dealing at arms length with another uncontrolled taxpayer.
Despite the broad parameters provided, however, the CIRs power of distribution, apportionment or
allocation of gross income and deductions under the NIRC and Revenue Regulations No. 2 do not include
the power to impute theoretical interests to the taxpayers transactions. Pursuant to Section 28 [now
Section 32] of the NIRC, the term gross income is understood to mean all income from whatever source
derived, including, but not limited to certain items. While it has been held that the phrase from whatever
source derived indicates a legislative policy to include all income not expressly exempted within the class
of taxable income under Philippine laws, the term income has been variously interpreted to mean cash
received or its equivalent, the amount of money coming to a person within a specific time or something
distinct from principal or capital. Otherwise stated, there must be proof of the actual or, at the very least,
probable receipt or realization by the controlled taxpayer of the item of gross income sought to be
distributed, apportioned or allocated by the CIR. In this case, there is no evidence of actual or possible
showing that the advances taxpayer extended to its affiliates had resulted to interests subsequently assessed
by the CIR. Even if the Court were to accord credulity to the CIRs assertion that taxpayer had deducted
substantial interest expense from its gross income, there would still be no factual basis for the imputation of
theoretical interests on the subject advances and assess deficiency income taxes thereon. Further, pursuant
to Article 1959 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly
stipulated in writing.
Issue No. 2:
Whether or not FDC is subject to documentary stamp tax.
Held:

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Yes. Loan agreements and promissory notes are taxed under Section 180 of the 1993 National Internal
Revenue Code (NIRC) [they are now taxed under Section 179 as evidence of indebtedness]. When read in
conjunction with Section 173 of the NIRC, Section 180 concededly applies to [a]ll loan agreements,
whether made or signed in the Philippines, or abroad when the obligation or right arises from Philippine
sources or the property or object of the contract is located or used in the Philippines. Section 3 (b) of
Revenue Regulations No. 9-94 provides in part that the term loan agreement shall include credit
facilities, which may be evidenced by credit memo, advice or drawings. Section 6 of the same revenue
regulations further provides that [i]n cases where no formal agreements or promissory notes have been
executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or
availment of the facilities, which may be evidenced by credit/debit memo, advice or drawings by any form
of check or withdrawal slip Applying the foregoing to the case, the instructional letters as well as the
journal and cash vouchers evidencing the advances taxpayer extended to its affiliates in 1996 and 1997
qualified as loan agreements upon which documentary stamp taxes may be imposed.
CASE SYLLABI:
Same; Rulings, circulars, rules and regulations promulgated by the Bureau of Internal Revenue (BIR)
have no retroactive application if to so apply them would be prejudicial to the taxpayers; Exceptions to
the rule.In its appeal before the CA, the CIR argued that the foregoing ruling was later modified in BIR
Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos evidencing lendings or
borrowings extended by a corporation to its affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes. In brushing aside the foregoing argument, however, the CA applied Section 246
of the 1993 NIRC from which proceeds the settled principle that rulings, circulars, rules and regulations
promulgated by the BIR have no retroactive application if to so apply them would be prejudicial to the
taxpayers. Admittedly, this rule does not apply: (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b)
where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. Not being the taxpayer who,
in the first instance, sought a ruling from the CIR, however, FDC cannot invoke the foregoing principle on
non-retroactivity of BIR rulings.
Commissioner of Internal Revenue vs. San Roque Power Corporation, 690 SCRA 336, G.R. No.
187485. February 12, 2013
Carpio, J.
Consolidated Digest:
The primary issue in the three (3) consolidated cases involving San Roque Power, Taganito Mining and
Philex Mining decided last February 12, 2013 revolves around the proper period for filing the judicial
claim for refund or credit of creditable input tax. Under Section 112(A) and 112(C) of the Tax Code, a
taxpayer whose sales are zero-rated or effectively zero-rated can file his administrative claim for refund or
credit at anytime within two (2) years after the taxable quarter when the sales were made and, after full or
partial denial of the claim or failure of the Commissioner to act on his application within 120 days from
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submission of the same, he may, within 30 days from receipt of the decision denying the claim or after the
expiration of the 120-day period, file his judicial claim with the CTA.
These cases all involved the timely filing by the taxpayers of their administrative claims with the
Commissioner of Internal Revenue. However, San Roque and Taganito both prematurely filed their judicial
claims without waiting for the 120-day period (for the Commissioner to act on their administrative claims)
to lapse, whereas Philex was a case of late filing since it did not file its judicial claim until after 426 days
beyond the 120 + 30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio,
denied tax refund or credit to San Roque and Philex, but granted the same to Taganito.
The majority denied refund to San Roque on the basis, among others, that the waiting period for filing a
judicial claim is mandatory and jurisdictional and has been in the Tax Code for more than 15 years before
San Roque filed its judicial claim in April 10, 2003 (barely 13 days after it filed its administrative claim).
The majority, however, granted refund to Taganito who, although like San Roque filed its judicial claim
without waiting for the 120-day period to lapse, was deemed to have filed its judicial claim on time since it
was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003
(which states that the taxpayer need not wait for the 120-day period to lapse before it could seek judicial
relief with the CTA) but before the October 6, 2010 Supreme Court (SC) decision in Commissioner of
Internal Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day periods as mandatory and
jurisdictional). The majority held that since the Commissioner has exclusive and original jurisdiction to
interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an erroneous
interpretation by the Commissioner and, under Section 246, a reversal of a BIR ruling cannot adversely
prejudice a taxpayer like Taganito who in good faith relied on it prior to its reversal.
In denying Philexs judicial claim for refund filed on October 17, 2007, the majority ruled that the inaction
of the Commissioner during the 120-day period is a deemed denial and Philexs failure to file an appeal
within 30 days from the expiration of the 120-day period rendered the deemed denial decision of the
Commissioner final and inappealable.
In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-Bernabe, suggested that the
doctrine applicable to a claim for refund depends on the operative case and the prevailing rulings and
practices at the time of filing the claim. In San Roque, since both the administrative and judicial claims
were filed during the effectivity of RR 7-95 (which still applied the 2-year prescriptive period to judicial
claims), San Roque can claim good faith reliance on RR 7-95 and the then prevailing practices of the BIR
and CTA to believe that the 120 + 30-day periods are dispensable so long as both administrative and
judicial claims are filed within the 2-year period. In denying refund to Taganito, however, the dissenter
pointed out that Taganito cannot claim reliance in good faith on RR 7-95 since it filed its judicial claim
after November 1, 2005 when RR 16-2005 took effect and superseded RR 7-95 (including BIR Ruling No.
DA-489-03 relied upon by the majority in granting refund to Taganito and which this dissenter believed
was a mere application of RR 7-95), deleting the reference therein to the 2-year period for filing judicial
claims. Philex, on the other hand, filed its claim belatedly under both the superseded RR 7-95 and the
effective RR 16-2005. This dissenter thus voted to grant refund to San Roque, but to deny it to Taganito
and Philex.

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

CASE SYLLABI:
Civil Law; Human Relations; It is hornbook doctrine that a person committing a void act contrary to a
mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act.It is hornbook doctrine that a person committing a
void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A
right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article
2254 of the Civil Code, which states, No vested or acquired right can arise from acts or omissions which
are against the law or which infringe upon the rights of others. For violating a mandatory provision of law
in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus,
San Roques petition with the CTA is a mere scrap of paper.
Same; A reversal of a Bureau of Internal Revenue (BIR) regulation or ruling cannot adversely
prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in
good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner
interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the
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Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a
BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR
regulation or ruling prior to its reversal.
Same; Statutory Construction; Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law.Taxpayers should not be prejudiced by an
erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment
of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input
VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not
result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they
received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and
Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general
interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246,
should also apply prospectively.
Same; Judgments; Court of Tax Appeals decisions do not constitute precedents, and do not bind the
Supreme Court or the public.There is also the claim that there are numerous CTA decisions allegedly
supporting the argument that the filing dates of the administrative and judicial claims are inconsequential,
as long as they are within the two-year prescriptive period. Suffice it to state that CTA decisions do not
constitute precedents, and do not bind this Court or the public. That is why CTA decisions are appealable
to this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may warrant.
Only decisions of this Court constitute binding precedents, forming part of the Philippine legal system.
Sereno, C.J., Separate Dissenting Opinion:
Same; View that it is violative of the right to procedural due process of taxpayers when the Court itself
allowed the taxpayers to believe that they were observing the proper procedural periods and, in a sudden
jurisprudential turn, deprived them of the relief provided for and earlier relied on by the taxpayers.We
find it violative of the right to procedural due process of taxpayers when the Court itself allowed the
taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential
turn, deprived them of the relief provided for and earlier relied on by the taxpayers. It is with this reason
and in the interest of substantial justice that the strict application of the 120+<30 day period should be
applied prospectively to claims for refund or credit of excess input VAT. To apply these rules retroactively
would be tantamount to punishing the public for merely following interpretations of the law that have the
imprimatur of this Court. To do so creates a tear in the public order and sow more distrust in public
institutions. We would be fostering uncertainty in the minds of the public, especially in the business
community, if we cannot guarantee our own obedience to these rules.
Velasco, J., Dissenting Opinion:
Same; Same; View that the Supreme Court should not turn a blind eye to the subordinate legislations
issued by the Secretary of Finance (and RMCs issued by the CIR) and the various decisions of this
Court as well as the then prevailing practices of the Bureau of Internal Revenue and the Court of Tax
Appeals suggesting that the taxpayers can dispense with the 120 and 30 day-periods in filing their
judicial claim for refund/credit of input Value-Added Tax (VAT) so long as both the administrative and
judicial claims are filed within two (2) years from the close of the relevant taxable quarter.The Court
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should not turn a blind eye to the subordinate legislations issued by the Secretary of Finance (and RMCs
issued by the CIR) and the various decisions of this Court as well as the then prevailing practices of the
BIR and the CTA suggesting that the taxpayers can dispense with the 120 and 30 day-periods in filing their
judicial claim for refund/credit of input VAT so long as both the administrative and judicial claims are filed
within two (2) years from the close of the relevant taxable quarter. I humbly submit that in deciding claims
for refund/credit of input VAT, the following guideposts should be observed: (1) For judicial claims for
refund/credit of input VAT filed from January 1, 1996 (effectivity of RR 7-95) up to October 31, 2005
(prior to effectivity of RR 16-2005), the Court may treat the filing of the judicial claim within the 120 day
(or 60-day, for judicial claims filed before January 1, 1998), or beyond the 120+30 day-period (or 60+30
day-period) as permissible provided that both the administrative and judicial claims are filed within two (2)
years from the close of the relevant taxable quarter. Thus, the 120 and 30-day periods under Sec. 112 may
be considered merely discretionary and may be dispensed with. (2) For judicial claims filed from
November 1, 2005 (date of effectivity of RR 16-2005), the prescriptive period under Sec. 112(C) is
mandatory and jurisdictional. Hence, judicial claims for refund/credit of input VAT must be filed within a
mandatory and jurisdictional period of thirty (30) days after the taxpayers receipt of the CIRs decision
denying the claim, or within thirty (30) days after the CIRs inaction for a period of 120 days from the
submission of the complete documents supporting the claim. The judicial claim may be filed even beyond
the 2-year threshold in Sec. 112(A) as long as the administrative claim is filed within said 2-year period. (3)
RR 16-2005, as fortified by our ruling in Aichi, must be applied PROSPECTIVELY in the same way that
the ruling in Atlas and Mirant must be applied prospectively.
Same; Statutory Construction; View that the Supreme Court has previously held that in declaring a law
or executive action null and void, or, by extension, no longer without force and effect, undue harshness
and resulting unfairness must be avoided.This Court, I maintain, is duty-bound to sustain and give due
credit to the taxpayers bona fide reliance on RR Nos. 7-95 and 14-2005, RMC Nos. 42-03 and 49-03,
along with guidance provided by the then prevailing practices of the BIR and the CTA, prior to their
modification by RR 16-2005. Such prospective application of the latter revenue regulation comports with
the simplest notions of what is fair and justthe precepts of due process. The Court has previously held
that in declaring a law or executive action null and void, or, by extension, no longer without force and
effect, undue harshness and resulting unfairness must be avoided. Such pronouncement can be applied to a
change in the implementing rules of the law. The reliance on the previous rules, in particular RR Nos. 7-95
and 14-2005, along with RMC Nos. 42-03 and 49-03, and the guidance provided by the then prevailing
practices of the BIR and the CTA, most certainly have had irreversible consequences that cannot just be
ignored; the past cannot always be erased by a new judicial declaration.
Leonen, J., Separate Opinion:
Courts; Supreme Court; View that the Supreme Court does not make law. Its duty is to construe: i.e.,
declare authoritatively the meaning of existing text.I am however unable to agree with the conclusion
that the interpretation we have just put on these provisions take effect only when we pronounce them. Thus,
in the view of the ponencia, that it is to be applied prospectively. My disagreement stems from the idea
that we do not make law. Ours is a duty to construe: i.e., declare authoritatively the meaning of existing
text. I can grant that words are naturally open textured and do have their own degrees of ambiguity. This
can be based on their intrinsic text, language structure, context, and the interpreters standpoint.
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Statutory Construction; Statutes; View that an erroneous application and enforcement of the law by
public officers do not preclude a subsequent correct application of the statute, and the Government is
never estopped by mistake or error on the part of its agents; Accordingly, while the Bureau of Internal
Revenue (BIR) Commissioner is given the power and authority to interpret tax laws pursuant to Section
4 of the National Internal Revenue Code (NIRC), it cannot legislate guidelines contrary to the law it is
tasked to implement.Settled is the principle that an erroneous application and enforcement of the law
by public officers do not preclude a subsequent correct application of the statute, and the Government is
never estopped by mistake or error on the part of its agents. Accordingly, while the BIR Commissioner is
given the power and authority to interpret tax laws pursuant to Section 4 of the NIRC, it cannot legislate
guidelines contrary to the law it is tasked to implement. Hence, its interpretation is not conclusive and will
be ignored if judicially found to be erroneous. Concededly, under Section 246 of the NIRC, [a]ny
revocation, modification or reversal of any BIR ruling or circular shall not be given retroactive application
if the revocation, modification or reversal will be prejudicial to the taxpayers. However, if it is patently
clear that the ruling is contrary to the text of the law, there can be no reliance in good faith by the
practitioners.
Commissioner of Internal Revenue vs. San Roque Power Corporation, 707 SCRA 66, G.R. No.
187485. October 8, 2013
Carpio, J.
-----------------------supra----------------------Nature of the Case: This Resolution resolves the Motion for Reconsideration and the Supplemental
Motion for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the
Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R.
No. 187485, the Motion for Reconsideration filed by the CIR in G.R. No. 196113, and the Comment to the
Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No. 196113.
San Roque prays that the rule established in our 12 February 2013 Decision be given only a prospective
effect, arguing that the manner by which the Bureau of Internal Revenue (BIR) and the Court of Tax
Appeals (CTA) actually treated the 120 + 30 day periods constitutes an operative fact the effects and
consequences of which cannot be erased or undone.
The CIR, on the other hand, asserts that Taganito Mining Corporations (Taganito) judicial claim for tax
credit or refund was prematurely filed before the CTA and should be disallowed because BIR Ruling No.
DA-489-03 was issued by a Deputy Commissioner, not by the Commissioner of Internal Revenue.
Final resolution: Motions are Denied
CASE SYLLABI:
Statutes; The general rule is that a void law or administrative act cannot be the source of legal rights or
duties.The general rule is that a void law or administrative act cannot be the source of legal rights or
duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception: Laws are repealed
only by subsequent ones, and their violation or non-observance shall not be excused by disuse, or custom
or practice to the contrary. When the courts declared a law to be inconsistent with the Constitution, the
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former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations
shall be valid only when they are not contrary to the laws or the Constitution. The doctrine of operative
fact is an exception to the general rule, such that a judicial declaration of invalidity may not necessarily
obliterate all the effects and consequences of a void act prior to such declaration.
Same; Operative Fact Doctrine; For the operative fact doctrine to apply, there must be a legislative or
executive measure, meaning a law or executive issuance, that is invalidated by the court.Clearly, for
the operative fact doctrine to apply, there must be a legislative or executive measure, meaning a law or
executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such
executive issuance until its invalidation by the court, the effects of the law or executive issuance, when
relied upon by the public in good faith, may have to be recognized as valid. In the present case, however,
there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No.
DA-489-03. To justify the application of the doctrine of operative fact as an exemption, San Roque asserts
that the BIR and the CTA in actual practice did not observe and did not require refund seekers to comply
with the 120+30 day periods. This is glaring error because an administrative practice is neither a law nor
an executive issuance. Moreover, in the present case, there is even no such administrative practice by the
BIR as claimed by San Roque.
Taxation; Operative Fact Doctrine; Under Section 246 of the Tax Code, taxpayers may rely upon a rule
or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the
Commissioner or the Supreme Court.Under Section 246, taxpayers may rely upon a rule or ruling
issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the
Commissioner or this Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of
operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon by
the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not
suffice because such a mere administrative practice may not be uniformly and consistently applied. An
administrative practice, if not formalized as a rule or ruling, will not be known to the general public and
can be availed of only by those with informal contacts with the government agency.
VELASCO, JR., J., Dissenting Opinion:
Same; Statutory Construction; View that the interpretation of the Secretary of Finance, as embodied in
revenue regulations, prevails over rulings issued by the Commissioner of Internal Revenue (CIR), who
is only empowered, at most, to recommend the promulgation of rules and regulations by the Secretary
of Finance.Section 4 of the 1997 NIRC provides that the CIR has the power to interpret the
provisions of the [1997 Tax] Code x x x subject to the review by the Secretary of Finance. Ergo, the
interpretation of the Secretary of Finance, as embodied in revenue regulations, prevails over rulings issued
by the CIR, who is only empowered, at most, to recommend the promulgation of rules and regulations by
the Secretary of Finance.
LEONEN, J., Concurring and Dissenting Opinion:
Same; Statutory Construction; View that a construction placed upon the law by the Commissioner, even
if it has been followed for years, if found to be contrary to law, must be abandoned.A construction
placed upon the law by the Commissioner, even if it has been followed for years, if found to be contrary to
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law, must be abandoned. To say that such interpretation established by the administrative agency has effect
would be to say that this Court has the power to control or suspend the effectivity of laws. We cannot hold
ourselves hostage to an erroneous interpretation. To say that equity should be considered because it has
been relied upon by taxpayers would mean to underestimate or, worse, make the ordinary beneficiaries of
the use of our taxes invisible. We cannot use equity only to favor large taxpayers.
Same; Statutory Construction; View that under Section 4 of the 1997 Tax Code, the power to interpret
the provisions of the Code and other tax laws is under the exclusive and original jurisdiction of the
Commissioner of Internal Revenue, subject to review by the Secretary of Finance. Pursuant to Section 7
of the Tax Code, the Commissioner of Internal Revenue may delegate his or her powers to a subordinate
official except, among others, the power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau of Internal Revenue.Under Section 4 of the 1997 Tax Code,
the power to interpret the provisions of the Code and other tax laws is under the exclusive and original
jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance.
Pursuant to Section 7 of the Tax Code, the Commissioner of Internal Revenue may delegate his or her
powers to a subordinate official except, among others, the power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue. The Bureau of Internal
Revenue Ruling No. DA-489-03 is a ruling of first impression, declaring for the first time in written form
the permissive nature of the 120-day period stated in Section 112(C).

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REMEDIES AVAILABLE TO THE GOVERNMENT


A. PRESCRIPTIVE PERIOD TO COLLECT
Republic vs. Hizon, 320 SCRA 574, G.R. No. 130430. December 13, 1999
Mendoza, J
Facts:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment
of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the
assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax
deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties.
More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a
reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied
the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San
Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud,
Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional
Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon
authority of the BIR Commissioner as required by 221 2 of the National Internal Revenue Code, and
(2) that the action had already prescribed. Over petitioner's objection, the trial court, on August 28,
1997, granted the motion and dismissed the complaint. Hence, this petition.
Issues:
1. Whether or not the institution of the civil case for collection of taxes was without the
approval of the commissioner in violation of section 221 of the National Internal Revenue
Code; and
2. Whether or not the action for collection of taxes filed against respondent had already been
barred by the statute of limitations.
Held: #1
Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution
Section of the Legal Division of regional district offices to institute the necessary civil and criminal
actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal
Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with
the law.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code
authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of
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the Code to any subordinate official with the rank equivalent to a division chief or higher, except the
following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax
deficiency: Provided, however, that assessment issued by the Regional Offices involving
basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor
criminal violations as may be determined by rules and regulations to be promulgated by
the Secretary of Finance, upon the recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional Director,
heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection
cases.
Held: #2
The contention of the petitioner has no merit. Sec. 229 of the Code mandates that a request for
reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency
assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The
notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On
the other hand, respondent made her request for reconsideration thereof only on November 3, 1992,
without stating when she received the notice of tax assessment. She explained that she was
constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all
likelihood, she must have been referring to the distraint and levy of her properties by petitioner's
agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency
assessment on this date, her request for reconsideration was nonetheless filed late since she made it
more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of
the prescriptive period provided under 223(c). Although the Commissioner acted on her request by
eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact
that the assessment had long become demandable.
Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is
misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca
v. Commissioner of Internal Revenue, is that the timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency in the sense that the disposition of t he
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attached properties might well take time to accomplish, extending even after the lapse of the statutory
period for collection. In those cases, the BIR did not file any collection case but merely relied on the
summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was
not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted that the
Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrant s of
distraint and levy to interrupt the running of the statute of limitations.
For the foregoing reasons, we hold that petitioner's contention that the action in this case had not
prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of
the properties covered by the warrants of distraint and levy which petitioner served on respondent, as
such would be a mere continuation of the summary remedy it had timely begun. Although
considerable time has passed since then, as held in Advertising Associates Inc. v. Court of
Appeals and Palanca v. Commissioner of Internal Revenue, the enforcement of tax collection through
summary proceedings may be carried out beyond the statutory period considering that such remedy
was seasonably availed of.
CASE SYLLABI:
Same; Same; A request for reconsideration must be made within 30 days from the taxpayers receipt of
the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore,
demandable; Respondents request for reconsideration did not suspend the running of the prescriptive
period provided under 223(c).Sec. 229 of the Code mandates that a request for reconsideration must be
made within 30 days from the taxpayers receipt of the tax deficiency assessment, otherwise the assessment
becomes final, unappealable and, therefore, demandable. The notice of assessment for respondents tax
deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for
reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax
assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the
harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her
properties by petitioners agents which took place on January 12, 1989. Even assuming that she first
learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late
since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the
running of the prescriptive period provided under 223(c). Although the Commissioner acted on her
request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the
fact that the assessment had long become demandable.
Same; Same; The timely service of a warrant of distraint or levy suspends the running of the period to
collect the tax deficiency.Petitioners reliance on the Courts ruling in Advertising Associates, Inc. v.
Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca
v. Commissioner of Internal Revenue, is that the timely service of a warrant of distraint or levy suspends
the running of the period to collect the tax deficiency in the sense that the disposition of the attached
properties might well take time to accomplish, extending even after the lapse of the statutory period for
collection. In those cases, the BIR did not file any collection case but merely relied on the summary
remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the
Court. Thus, in Advertising Associates, it was held: It should be noted that the Commissioner did not
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institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to
interrupt the running of the statute of limitations.
Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., 635 SCRA 162, G.R.
No. 169225. November 17, 2010
Leonardo- De Castro, J.
Facts:
In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its
West-Makati District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de
Roxas, Makati City to the 22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets,
Makati City. Said letter was duly received by the BIR-West Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued
by the Accounts Receivable/Billing Division of the BIRs National Office and signed by then Assistant
Chief Mr. Manuel B. Mina, demanding for payment of alleged deficiency income and expanded
withholding taxes for the taxable year 1989 amounting to P2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the same Accounts
Receivable/Billing Division of the BIRs National Office, its protest letter against the alleged deficiency
tax assessments for 1989 as indicated in the said tracer letter dated October 11, 1993.
On November 7, 2001, nearly eight (8) years later, respondents external auditors received a letter from
herein petitioner Commissioner of Internal Revenue dated October 27, 2001. The letter advised the
respondent that petitioner had rendered a final decision denying its protest on the ground that the protest
against the disputed tax assessment was allegedly filed beyond the 30-day reglementary period prescribed
in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case No. 6362 before the
then Court of Tax Appeals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an Act
Creating the Court of Tax Appeals and Section 228 of the NIRC, to appeal the final decision of the
Commissioner of Internal Revenue denying its protest against the deficiency income and withholding tax
assessments issued for taxable year 1989.
In a Decision dated September 24, 2004, the CTA Original Division held that the subject assessment notice
sent by registered mail on January 8, 1993 to respondents former place of business was valid and binding
since respondent only gave formal notice of its change of address on February 18, 1993. Thus, the
assessment had become final and unappealable for failure of respondent to file a protest within the 30-day
period provided by law. However, the CTA (a) held that the CIR failed to collect the assessed taxes within
the prescriptive period; and (b) directed the cancellation and withdrawal of Assessment Notice No. 00154389-5668. Petitioners Motion for Reconsideration and Supplemental Motion for Reconsideration of said
Decision filed on October 14, 2004 and November 22, 2004, respectively, were denied for lack of merit.
The CIR filed a Petition for Review with the CTA En Banc but this was denied in a Decision dated August
12, 2005
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Issue:
Whether or not the period to collect the assessment has prescribed
Held:
Based on the facts of this case, we find that the CIRs contention is without basis. The pertinent provision
of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. The running of the statute of limitations
provided in Sections 203 and 223 on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall
be suspended for the period during which the Commissioner is prohibited from making
the assessment or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected: Provided, That, if the
taxpayer informs the Commissioner of any change in address, the statute will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines. (Emphasis
supplied.)
The plain and unambiguous wording of the said provision dictates that two requisites must concur before
the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b)
that petitioner grants such request.
The above section is plainly worded. In order to suspend the running of the prescriptive
periods for assessment and collection, the request for reinvestigation must be granted
by the CIR.(Emphasis supplied.)
Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the
running of the period to collect taxes. In the case at bar, the records show that respondent filed a request for
reinvestigation on December 3, 1993, however, there is no indication that petitioner acted upon
respondents protest. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its
Decision, to wit:
It is evident that the respondent did not conduct a reinvestigation, the protest having been
dismissed on the ground that the assessment has become final and executory. There is
nothing in the record that would show what action was taken in connection with the
protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor
received any communication from the respondent relative to its protest, not until eight
years later when the final decision of the Commissioner was issued (TSN, March 7, 2002,
p. 24). In other words, the request for reinvestigation was not granted. x x x.
(Emphasis supplied.)

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Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by
substantial evidence on record, this Court is constrained to uphold them as binding and true. This is in
consonance with our oft-cited ruling that instructs this Court to not lightly set aside the conclusions reached
by the CTA, which, by the very nature of its functions, is dedicated exclusively to the resolution of tax
problems and has accordingly developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority.[11]
Indeed, it is contradictory for the CIR to argue that respondents December 3, 1993 protest which contained
a request for reinvestigation was filed beyond the reglementary period but still claim that the same request
for reinvestigation was implicitly granted by virtue of its October 27, 2001 letter. We find no cogent
reason to reverse the CTA when it ruled that the prescriptive period for the CIRs right to collect was not
suspended under the circumstances of this case.
CASE SYLLABI:
Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the Court of Tax Appeals (CTA) is not
limited to cases which involve decisions of the Commissioner of Internal Revenue (CIR) on matters
relating to assessments or refunds.The assailed CTA En Banc Decision was correct in declaring that
there was nothing in the foregoing provision upon which petitioners theory with regard to the parameters
of the term other matters can be supported or even deduced. What is rather clearly apparent, however, is
that the term other matters is limited only by the qualifying phrase that follows it. Thus, on the strength
of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of
the provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related
laws administered by the Bureau of Internal Revenue (BIR).
Same; Same; Under Section 3, 1986 National Internal Revenue Code (NIRC), the issue of prescription
of the Bureau of Internal Revenues (BIRs) right to collect taxes may be considered as covered by the
term other matters over which the Court of Tax Appeals (CTA) has appellate jurisdiction.The issue
of prescription of the BIRs right to collect taxes may be considered as covered by the term other matters
over which the CTA has appellate jurisdiction.
Same; Same; The phraseology of Section 7, number (1), denotes an intent to view the Court of Tax
Appeals (CTAs) jurisdiction over disputed assessments and over other matters arising under the
National Internal Revenue Code (NIRC) or other laws administered by the Bureau of Internal Revenue
(BIR) as separate and independent of each other.The phraseology of Section 7, number (1), denotes an
intent to view the CTAs jurisdiction over disputed assessments and over other matters arising under the
NIRC or other laws administered by the BIR as separate and independent of each other. This runs counter
to petitioners theory that the latter is qualified by the status of the former, i.e., an other matter must not
be a final and unappealable tax assessment or, alternatively, must be a disputed assessment.
Same; Same; The mere existence of an adverse decision, ruling or inaction along with the timely filing
of an appeal operates to validate the exercise of jurisdiction by the Court of Tax Appeals (CTA).The
first paragraph of Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, belies
petitioners assertion as the provision is explicit that, for as long as a party is adversely affected by any
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decision, ruling or inaction of petitioner, said party may file an appeal with the CTA within 30 days from
receipt of such decision or ruling. The wording of the provision does not take into account the CIRs
restrictive interpretation as it clearly provides that the mere existence of an adverse decision, ruling or
inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the
CTA.
Taxation; Assessment; Prescription; The validity of the assessment itself is a separate and distinct issue
from the issue of whether the right of the Commissioner of Internal Revenue (CIR) to collect the validly
assessed tax has prescribed.The fact that an assessment has become final for failure of the taxpayer to
file a protest within the time allowed only means that the validity or correctness of the assessment may no
longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct
issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This
issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to
decide.
Same; Same; Same; Requisites before the Period to Enforce Collection may be Suspended.The plain
and unambiguous wording of the said provision dictates that two requisites must concur before the period
to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that
petitioner grants such request.
B. ADMINISTRATIVE REMEDIES/ SUMMARY REMEDIES
Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174. April 26, 1962
Reyes, J.B.L., J.
Facts:
On September 23, 1950 the respondent demanded from the petitioner Maria B. Castro the payment of
the total amount of P3,593,950.78 as war profits tax.
In the course of the summary methods employed by the respondent to enforce the collection of the
war profits tax liability of petitioner, the respondent also distrained and advertised for sale the
properties of the Marvel Building Corporation in which the petitioner had a substantial interest. To
counter-act the move, the said corporation through counsel filed on November 31, 1950, Civil Case
No. 12555 in the Court of First Instance of Manila wherein it sought to enjoin the respondent
Collector of Internal Revenue from selling at public auction its various properties described in the
complaint. While the corporation was able to secure the injunction from the lower court, the same
was dissolved by the Supreme Court in its decision in G.R. No. L-5081, Marvel Building Corporation
v. Saturnino David, promulgated on February 24, 1954. Petitioner Maria B. Castro was declared
therein as the sole and exclusive owner of all shares of stock of the Marvel Building Corporation an d
all the other partners are her dummies.
In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316 with the Court of First
Instance of Manila against the respondent Collector of Internal Revenue for the recovery of the
properties advertised for sale on November 22 and 27, 1950 which for lack of bidders were forfeited
to the Government. However, before the case could be tried on the merits before said Court, the
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Court of Tax Appeals was created by Republic Act No. 1125 and pursuant to Section 22 thereof, the
record of the case was remanded for final disposition to this Court. This last mentioned case is now
pending hearing before this Court.
To satisfy, fully the amount of the war profits tax assessed against petitioner, the respondent on September
29, 1954, caused to be advertised for sale at public auction for November 2, 1954, other real properties of
petitioner situated in Manila. The properties were seized, distrained and levied upon from petitioner "in
satisfaction of internal revenue taxes and penalties amounting to P4,539,556.26, computed as of April 30,
1954" due from her in favor of the Republic of the Philippines. For lack of bidders at the time of the
scheduled sale on November 2, 1954, the properties in question were forfeited to the Government under
Section 328 of the National Internal Revenue Code for the total amount of P3,547,892.41 which was
allegedly the balance of petitioner's tax liability as of that date.
Before the expiration of the one-year period provided for in Section 328 of the National Internal Revenue
Code within which petitioner may redeem the real properties forfeited in favor of the Government in the
sale at public auction held on November 2, 1954, the petitioner filed with this Court on September 30, 1955,
a petition for the annulment of said sale and forfeiture on the ground that her properties were advertised for
sale on tax claim of the Government far in excess of the alleged war profits tax, surcharges and penalties
fixed by respondent. The Court, in a resolution dated October 31, 1955, declared the auction sale of
November 2, 1954 as well as the resulting forfeiture, null and void and of no legal force and effect because
of the admitted discrepancy in the amount of tax stated in the notice of sale for which the properties were
auctioned and the actual amount of tax assessed and demanded.
The said resolution being without prejudice to such action and proceedings a respondent may take in
accordance with law. To stop the sale, petitioner filed a petition for injunction with this Court on November
22, 1955 requesting that respondent be enjoined from proceeding with the resale of her properties
scheduled on December 12, 1955; that the said properties be released to her; and that she be declared not
liable for the war profits tax assessed and demanded of her. After due hearing of this petition and the
opposition thereto, this Court, in a resolution dated December 10, 1955, denied the injunction and held in
abeyance the determination of other questions until after the case shall have been heard on the merits. The
properties were therefore advertised for sale on December 12, 1955 to answer for a war profits tax liability
of petitioner to the Republic of the Philippines for the alleged amount of P3,594,307.51 computed as of that
date. For lack of bidders, the same were forfeited to the Government.
After due hearing and reception of evidence, the Tax Court annulled the last tax sale of December, 1955,
covering the found Manila buildings, on account of irregularities in the notices of sale; but for the rest, it
found against petitioner and assessed her tax of P 1, 360, 514.66.
Issues:
(c) That even if appellant were subject to the tax liability declared by the court below, such liability was
totally extinguished by the levy and forfeiture of certain properties of hers; and
(d) That appellant's acquittal in the criminal case instituted against her for violation of the War Profits Tax
Law is a bar to the collection of the taxes assessed, and specially of the 50% surcharge.
Held:
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(c) The third main ground of appeal is predicated on the acquittal of petitioner in case No. 4976 of
the Court of First Instance of Manila, wherein she was criminally prosecuted for failure to render a
true and accurate return of the war profits tax due from her, with intent to evade payment of the tax.
She contends (Assignments of Error II to IV) that the acquittal should operate as a bar to the
imposition of the tax and specially the 50% surcharge provided by section 6 of the War Profits law
(R.A. No. 55), invoking the ruling in Coffey v. U.S., 29 L. Ed. 436.
With regard to the tax proper, the state correctly points out in its brief that the acquit tal in the
criminal case could not operate to discharge petitioner from the duty to pay the tax, since that duty is
imposed by statute prior to and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the felonious acts charged in the
information, nor is it a mere civil liability derived from crime that would be wiped out by the judicial
declaration that the criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that rendered the Coffey decision has
subsequently pointed out that additions of this kind to the main tax are not penalties but civil
administrative sanctions, provided primarily as a safeguard for the protection of the state revenue and
to reimburse the government for the heavy expense of investigation and the loss resulting from the
taxpayer's fraud (Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S. 317 U.S. 492).
This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by
distraint or civil suit, and that they are provided in a section of R.A. No. 55 (section 5) that is
separate and distinct from that providing for criminal prosecution (section 7). We conclude that t he
defense of jeopardy and estoppel by reason of the petitioner's acquittal is untenable and without merit.
Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge
is an issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of
its existence by the Tax Court is conclusive upon us. (Gutierrez v. Collector, G.R. No. L -9771, May
31, 1951 ; Perez vs. Collector, supra).
(d) The fourth main ground adduced on behalf of the petitioner (Errors II and XlV) is that the sale and
forfeiture to the government (due to lack of bidders) of the properties of petitioner in Manila, Balintawak,
Pasay, Makati, Tarlac, Tagaytay and Caloocan which had been levied upon by the respondent Collector of
Internal Revenue and advertised for sale in 1950 and 1954, constitutes a full discharge of petitioner's tax
liabilities. In so arguing, she relies on the provisions of paragraph 1 of Section 328 of the Internal Revenue
Code, reading as follows: .
SEC. 328. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real
property exposed for sale as herein above provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties, and costs, the provincial or city treasurer shall declare the
property forfeited to the Government in satisfaction of the claim in question and within two days
thereafter shall make a return of his proceedings and the forfeiture, which shall be spread upon the
records of his office,
and appellant contends that in the provision to the effect that in the absence of bidders, the property is to be
"forfeited to the Government in satisfaction of the claim in question", the term "satisfaction" signifies
nothing but full discharge of the taxes, penalties, and costs claimed by the state. Carried to its logical
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conclusion, this theory would permit a clever taxpayer, who is able to conceal most or the more valuable
part of his property from the revenue officers, to escape payment of his tax liability by sacrificing an
insignificant portion of his holdings; and we can not agree that in providing that the forfeiture of the
taxpayer's distrained or levied property, for lack of adequate bids, should operate in satisfaction of the total
tax claims even beyond the value of the property forfeited. That the satisfaction prescribed in section 328
of the Revenue Code was intended to mean only a discharge pro tanto is confirmed by the provisions of
section 330 of the Revenue Code to the effect that "remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount due including all expenses, is collected". This
section makes no distinction between forfeitures to the Government and sales to third persons, and we are
satisfied that no distinction was intended and that none is warranted.
Nor do we see that the petitioner has any ground for complaining that the properties forfeited were
undervalued (Error XV). The relation between assessed value and market price being variable, it is not a
matter of notice. However, the Court of Tax Appeals appraised the forfeited properties at double their
assessed evaluation, and thereby credited her with a part payment on account of her tax liability in the
amount of P1,716,880.00. There is no adequate evidence that they were worth more, petitioner's own
estimates of value being obviously unreliable, due to her direct interest in the matter under investigation.
Since the burden of proof lay evidently on the taxpayer, she is not in a position to complain in this regard.
CASE SYLLABUS:
Same; Same; Forfeiture of taxpayer's property under paragraph 1, of Section 328, Tax Code .The
provision in parsgraph 1, of Section 328 of the Tax Code that in the absence of bidders the taxpayer's
property is to be "forfeited to the Government in satisfaction of the claim in question", does not operate in
satisfaction of the total tax claims even beyond the value of the property forfeited, but was intended to
mean only a discharge pro tanto of the tax liabilities. This is confirmed by the provisions of section 330 of
the Revenue Code to the effect that "remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected." This section makes no
distinction between forfeitures to the Government and sales to third persons.
Republic vs. Enriquez, 166 SCRA 608, No. L-78391. October 21, 1988
Padilla, J.
Facts:
On 28 January 1985, the petitioner, through the Commissioner of Internal Revenue, served a Warrant of
Distraint of Personal Property on the Maritime Company of the. Philippines to satisfy various deficiency
taxes of said company in the total amount of P17,284,882.45, pursuant to unappealed and final tax
assessments. On 4 October 1985, the corresponding Notice of Seizure of Personal Property, a copy of
which was received by a respresentative of the Maritime Company of the Philippines, was issued by the
Commissioner of Internal Revenue. 3 Among the properties seized were six (6) barges, Barge MCP-1 to
Barge MCP-6.
On 11 June 1986, respondent sheriff levied on two (2) barges of the Maritime Company of the Philippines,
pursuant to a writ of execution issued on 19 February 1986 by the Regional Trial Court of Manila, Branch
31, in Civil Case No. 85-30134, entitled "Genstar Container Corporation vs. Maritime Company of the
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Philippines", in favor of the plaintiff therein. Respondent sheriff scheduled a public auction sale, of the
levied barges on 23 June 1986. The barges, particularly Barge MCP-1 and Barge MCP-4, were among the
aforementioned properties distrained and seized by petitioner, through the Commissioner of Internal
Revenue.
On 18 June 1986, the Commissioner of Internal Revenue wrote respondent sheriff informing the latter that
Barge MCP-1 and Barge MCP-4 were no longer owned by the Maritime Company of the Philippines as
said barges had been distrained and seized by the Bureau of Internal Revenue in satisfaction of various
deficiency taxes of Maritime Company of the Philippines, thereby registering its adverse claim over said
barges.
On 23 June 1986, respondent deputy sheriff sold at public auction the two (2) barges, MCP-1 and MCP-4,
and issued the corresponding sheriffs certificate of sale on the same date to the highest bidder which was
the levying creditor. On 24 July 1986, petitioner filed before the Court of Appeals the aforementioned
petition for prohibition with preliminary injunction, alleging that respondent sheriff, Ramon G. Enriquez,
acted in excess of his authority or with grave abuse of discretion when he levied on execution and
subsequently auctioned the abovesaid two (2) barges which were the subject of a warrant of distraint and
notice of seizure by the Commissioner of Internal Revenue. Petitioner prayed that respondent be ordered to
desist and refrain from further proceedings in connection with the execution and that respondent's notice of
levy be declared null and void.
In its decision, dated 30 April 1987, the Court of Appeals dismissed the petition after finding that "(H)e
appears to have acted in accordance with law and in keeping with his duties. There is no perceived abuse of
authority or grave abuse of discretion." Hence, this appeal.
Issue:
Whether or not the writ of execution issued by the RTC is more superior than the BIRs warrant of distraint
and notice of seizure of personal property.
Held:
It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint
of personal property but from the time the tax became due and payable. 5 Besides, the distraint on the
subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made
by petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued
by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of
execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime
Company of the Philippines. The power of the court in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor
only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of
sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to
the judgment debtor.
CASE SYLLABI:
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Taxation; Tax liens; Claim of the government predicated on a tax lien is superior to the claim of a
private litigant based on a judgment.It is settled that the claim of the government predicated on a tax
lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only
from the service of the warrant of distraint of personal property but from the time the tax became due and
payable.
Same; Same; Execution of judgment; Power of the court in execution of judgments extends only to
properties belonging to the judgment debtor; The sheriff is not authorized to attach or levy on property
not belonging to the judgment debtor.Besides, the distraint on the subject properties of Maritime
Company of the Philippines as well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of execution was issued by the Regional Trial
Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the
two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines.
The power of the court in execution of judgments extends only to properties unquestionably belonging to
the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an
auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled
that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.
Commissioner of Internal Revenue vs. NLRC, 238 SCRA 42, G.R. No. 74965. November 9, 1994
Mendoza, J.
Facts:
On January 12, 1984, the CIR demanded payment from private respondent Maritime Company of the
Philippines of deficiency common carriers tax, fixed tax, 6% commercial brokers tax, documentary
stamp tax, income tax and withholding tax totalling P17,284,882.45. The assessment became final
and executory, and with private respondents failure to pay the tax liabilities, the CIR issued warrants
of distraint of personal property and levy of real property which were duly served on January 23,
1985. On April 16, 1985, a receipt of goods, articles and things was executed covering, among
others, 6 barges as proof of constructive distraint of property but the same was not signed by any
representative of private respondent because of the refusal of the persons actually in possession of
the barges
It appeared that 4 of the barges constructively distrained were also levied upon by a deputy sheriff of
Manila on July 20, 1985 and sold at public auction to satisfy a judgment for unpaid wages and other
benefits of employees of private respondent.
Issue:
Who has the better right- the BIR, or the workers?
Held:
This case arose out of the same facts involved in Republic v. Enriquez, in which we sustained the validity
of the distraint of the six barges, which included the four involved in this case, against the levy on
execution made by another deputy sheriff of Manila in another case filed against Maritime Company. Two
barges (MCP-1 and MCP-4) were the subject of a levy in the case. There we found that the "Receipt for
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Goods, Articles and Things Seized under Authority of the National Internal Revenue Code" covering the
six barges had been duly executed, with the Headquarters, First Coast Guard District, Farola Compound
Binondo, Manila acknowledging receipt of several barges, vehicles and two (2) bodegas of spare parts
belonging to Maritime Company of the Philippines.
Accordingly, what we said in the prior case in upholding the validity of distraint of two of the six barges
(MCP Nos. 1 and 4), fully applies in this case:
It is settled that the claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicated on a judgment. The tax lien attaches not only from
the service of the warrant of distraint of personal property but from the time the tax
became due and payable. Besides, the distraint on the subject properties of the Maritime
Company of the Philippines as well as the notice of their seizure were made by petitioner,
through the Commissioner of the Internal Revenue, long before the writ of the execution
was issued by the Regional Trial Court of Manila, Branch 31. There is no question then
that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4,
were no longer properties of the Maritime Company of the Philippines. The power of the
court in execution of judgments extends only to properties unquestionably belonging to
the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the
purchaser in an auction sale acquires only such right as the judgment debtor had at the
time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on
property not belonging to the judgment debtor.
Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with
respect to movable or immovable properties on which they are due and that since the taxes sought to be
collected in this case are not due on the barges in question the government's claim cannot prevail over the
claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor
Code, "enjoy first preference."
In addition, we have held that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial
liquidation of the employer. This is clear from the text of the law. This case does not involve the liquidation
of the employer's business.
CASE SYLLABI:
Taxation; National Internal Revenue Code; Remedies for collection of delinquent taxes.The National
Internal Revenue Code provides for the collection of delinquent taxes by any of the following remedies: (a)
distraint of personal property or levy of real property of the delinquent taxpayer and (b) civil or criminal
action.
Same; Same; Constructive Distraint.With respect to the four barges in question, petitioner resorted to
constructive distraint pursuant to 303 (now 206) of the NIRC. This provision states: Constructive
distraint of the property of a taxpayer.To safeguard the interest of the Government, the Commissioner of
Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any
taxpayer who, in his opinion, is retiring from any business subject to tax, or intends to leave the Philippines,

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or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct
the proceedings, for collecting the tax due or which may be due from him.
Same; Same; Same; It is settled that the claim of the government predicated on a tax lien is superior to
the claim of a private litigant predicated on a judgment.Accordingly, what we said in the prior case in
upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in this case: It
is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint
of personal property but from the time the tax became due and payable. Besides, the distraint on the subject
properties of Maritime Company of the Philippines as well as the notice of their seizure were made by
petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued by
the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of
execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime
Company of the Philippines. The power of the court in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor
only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of
sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to
the judgment debtor.
Same; Same; NLRC; No merit in the contention of the NLRC that taxes are absolutely preferred claims
only with respect to movable or immovable properties on which they are due.Nor is there any merit in
the contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or
immovable properties on which they are due and that since the taxes sought to be collected in this case are
not due on the barges in question the governments claim cannot prevail over the claims of employees of
the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor Code, enjoy first
preference.
Labor Law; Money Claims; Workers Preference; Civil Law; Preference of Credits; Article 110 of the
Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned by their employer.Article 110 of the
Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon
all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do
not therefore fall at all within the category of specially preferred claims established under Articles 2241
and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by
Article 2241, number 6; claims for laborers wages, on the goods manufactured or the work done; or by
Article 2242, number 3: claims of laborers and other workers engaged in the construction, reconstruction
or repair of buildings, canals and other works, upon said buildings, canals or other works. To the extent
that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they
would come within the ambit of the category of ordinary preferred credits under Article 2244.
Same; Same; Same; Same; Same; Article 110 of the Labor Code applies only in case of bankruptcy or
judicial liquidation of the employer.In addition, we have held that Art. 110 of the Labor Code applies
only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of the law:
ART. 110. Worker preference in case of bankruptcy.In the event of bankruptcy or liquidation of an
employers business, his workers shall enjoy first preference as regards wages due them for services
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rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a
share in the assets of the employer.
Hongkong & Shanghai Banking Corporation vs. Rafferty., 39 Phil., 145, No. 13188. November 15,
1918
Malcolm, J.
Facts:
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the firm of Pujalte & Co.
which the latter assigned to it after it was unable to pay a large sum of money it then owed to HSBC.
The firm of Pujalte & Co. is engaged in the business of timber, and it was shown that prior to the
assignment of the railroad ties to HSBC it owed to thevBIR forest charges, one of the taxes
enumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 to secure the payment
of the forest charges and was allowed to remove the timber from the public forests.
More than a year later, when some of the timber were already made into railroad ties and transferred
to third parties like HSBC, the Collector instituted collection proceedings agains Pujalte. To enforce
collection, the CIR went after thee property of Pujalte & Co. including that which were already in the
possession of HSBC, who at the time it acquired the property had no notice of the lien nor of the
delinquent tax due from Pujalte.
Issue:
Whether or not the CIR can still enforce the lien.
Held:
No, the lien does not follow the property subject to the tax into the handsof a third party when at the
time of transfer, no demand for payment had beenmade and when the purchaser then had no notice of
the existence of the lien.
Under the general rule of the Civil law, possession of movables is not necessary to the validity of a
lien, whether created by contract or by act of law. Such lien will attach upon movable property even
in the hands of a bonafide purchaser without notice. Under the law of taxation however, the tax lien
does not establish itself upon property which has been transferred to an innocent purchaser prior to
demand. A demand is necessary to create and bring the lien into operation.
Furthermore, in order that the lien may follow the property into the hands of third party, it is essential
that the latter should have notice, either actual or constructive. The reason behind this is the
benevolence of our Constitution which prohibits the taking of property without due process of
law. The policy of the law is against upholding secret liens and charges against property of innocent
purchasers or encumbrances for value. At the time HSBC acquired the property there was nothing to
show that Pujalte & Co. were delinquent taxpayers nor were there any public records that may be
consulted to protect it from loss by reason of the existence of a secret lien.
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Minor issue on the right of HSBC to recover interest from the undue enforcement of the lien: The
reckoning date for the computation of interest should be the date when the taxpayer lost the income
from the funds by payment under protest. In this case, it is not from the filing of the complaint
for collection but on the date HSBC was deprived of the property.
Street, J., dissenting and concurring:
The lien created by law for the enforcement of the tax on land is expressly declared to be enforcible against
the property in the hands of any person, whether the delinquent or any subsequent owner. (See sec. 364,
Administrative Code, 1917; section 2497, id., for city of Manila.) On the other hand, that section of the
Internal Revenue Law which declared a lien for internal-revenue taxes merely says that such lien shall be
superior to all other charges or liens. (Sec. 1588, Administrative Code, 1917.) From this it can be fairly,
though not, I think, conclusively argued that the lien for the enforcement of internal revenue taxes was not
intended to be effective against subsequent owners. Acceding to the force of this argument, I should
perhaps have yielded my own views and expressed my conformity with the decision upon this as upon
other points involved in the case. Nevertheless I cannot refrain from expressing my regret that the court
should have reached the conclusion it has announced with respect to the lien declared in section 1588 of the
Code, and it is my opinion that the lien created in this section has the same effect and range as the lien
which is created in support of the land tax.
The obvious effect of the decision on the point in question is to destroy the practical utility of the lien
created by section 1588; because so long as the property subject to the tax is in the hands of the person
primarily liable for the tax, it can be seized by the Collector of Internal Revenue under process of distraint
and thus subjected to the payment of the tax (section 1690, Administrative Code, 1916). No lien is
therefore necessary to enable the government to take the property and enforce its rights as against him. It is
only when the property passes into the hands of some other person than the one primarily liable that the
existence of a lien becomes of any importance.
It is inherent in the nature of a lien, as a real obligation fixed on the property, that it should remain as a
burden thereon regardless of mutations in the ownership; and a lien, like this, created by express provision
of law and made superior to all other charges and liens, necessarily continues to subsist regardless of
whether the subsequent owner or purchaser of the property has notice of the lien or not. I am not convinced
by the citation of the American authorities, referred to in the opinion of the Court, and I think that the
deductions drawn by the Court from those cases is unwarranted. It is well known that mere equitable liens,
as recognized in American jurisprudence, are not enforcible against purchasers without notice; but this
doctrine I consider to be inapplicable to a statutory lien, such as is involved in this case.
The possibility of the existence of some hidden lien like this was recognized by the Hongkong & Shanghai
Bank at the time it bought these rails, for the very contract of transfer, or assignment, by which it acquired
the property contains a provision whereby Pujalte & Company warranted that, at the date of the transfer,
the rails were the absolute property of that company and were "free and clear of any liens, charges, and
encumbrances," and warranted the title against all lawful claims of all persons whomsoever. It is obvious
that Pujalte & Company would be liable upon this warranty, if the lien should be enforced; and I think this
the simplest solution that can be made of the case.

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I am, therefore, constrained to express my disagreement with the conclusion of the court with respect to the
liability of the rails in question for the tax upon them; and I think that the trial court committed no error in
refusing a refund of the amount thereof (P316.43). Upon other points I concur.

CASE SYLLABI:
1.TAXATION; NATURE.Taxation is an attribute of sovereignty. The power to tax is the strongest of all
the powers of government. If approximate equality in taxation is to be attained, all property subject to a tax
must respond, or there is resultant inequality. To prevent such a lamentable situation, the law ordains that
the claim of the State upon the property of the tax debtor shall be superior to that of any other creditor.
2.ID. ; TAX LIENS ; LIEN DEFINED.A lien in its modern acceptation is understood to denote a legal
claim or charge on property, either real or personal, as security for the payment of some debt or obligation.
Its meaning is more extensive than the jus retentionis (derecho de retencin) of the civil law.
3.ID.; ID.; INTERNAL REVENUE LAW.The internal revenue tax constitutes a paramount lien either
on the property upon which the tax is imposed or on any other property used in any business or occupation
upon which the tax is imposed.
4.ID. ; ID. ; REQUISITES.The tax lien does not establish itself upon property which has been
transferred to innocent purchasers prior to demand.
5.ID.; ID.; ID.In order that the lien may follow the property into the hands of a third party, it is further
essential that the latter should have notice, either actual or constructive.
6.ID.; ID.; ID.; REAL ESTATE OR SPECIAL ASSESSMENT TAXES.In the case of real estate or
special assessment taxation a man cannot get rid of his liability to a tax by buying without notice. (City of
Seattle vs. Kelleher [1904], 195 U. S., 351.)
7.ID.; ID.; ID.; PERSONAL PROPERTY TAXES.In the case of personal property taxes, where the
vendee has no knowledge of the taxes on personality existing at the time of purchase, or had no means of
knowing from the public records that such taxes had accrued, the lien does not attach.
8.ID.; ID.; FACTS.Because, on the date the plaintiff purchased the personal property, no demand had
been made for the tax, and because the plaintiff had no notice of the tax, there is no valid subsisting lien
upon the propertyand the plaintiff is not liable to pay the tax.
C. JUDICIAL REMEDIES
Mambulao Lumber Company vs. Republic, 132 SCRA 1, No. L-37061. September 5, 1984
Cuevas, J.
Facts:
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6,
Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner
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Mambulao Lumber Company for the purpose of determining said taxpayer's forest charges and percentage
tax liabilities.
After the examination of the booka of accounts of the petitioner, Mambulao Lumber Company and
exchanges of correspondence with the Acting Commissioner of Internal Revenue the petitioner was
assessed and demanded to pay the amount of P 33,595.26 as deficiency sales tax, forest charges and
surcharges.
The aforesaid letter was acknowledged to have been received by petitioner on September 19, 1958. On
October 18, 1958, petitioner requested for a reinvestigation of its tax liability. Subsequently, in a letter
dated July 8, 1959, respondent Commissioner of Internal Revenue give petitioner a period of twenty (20)
days from receipt thereof to submit the results of its verification of payments with a warning that failure to
comply therewith would be construed as an abandonment of the request for reinvestigation.
For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite
demands for the payment thereof, respondent Commissioner of Internal Revenue filed a complaint for
collection in the Court of First Instance of Manila on August 25, 1961.
The Court of First Instance rendered a judgment in favor of the CIR and ordered the petitioner to pay P 15,
739.80 representing its tax liability.
From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial court's
decision ordering it to pay the amount of P15,443.55 representing forest charges and surcharges due for the
year 1949.
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner filed a
motion for reconsideration which was denied by the said court in its Resolution dated June 7, 1973. Hence,
the instant appeal.
Issue:
Whether or not the right of plaintiff (respondent herein) to file a judicial action for the collection of the
amount of P15, 443.55 as forest charges and surcharges due from the petitioner Mambulao Lumber
Company for the year 1949 has already prescribed.
Held:
It has not prescribed. In the case at bar, the commencement of the five-year period should be counted from
August 29, 1958, the date of the letter of demand of the Acting Commissioner of Internal Revenue to
petitioner Mambulao Lumber Company. It is this demand or assessment that is appealable to the Court of
Tax Appeals. The complaint for collection was filed in the Court of First Instance of Manila on August 25,
1961, very much within the five-year period prescribed by Section 332 of the Tax Code. Consequently,
the right of the Commissioner of Internal Revenue to collect the forest charges and surcharges in the
amount of P15,443.55 has not prescribed.
Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax
liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20)
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days from receipt thereof to submit the results of its verification of payments and failure to comply
therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to comply
with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty (30) days from receipt
of the letter dated July 8, 1959, as prescribed under Section 11 of Republic Act No. 1125, thus making the
assessment final and 127xecutor.
Taxpayers failure to appeal to the Court of Tax Appeals in due time made the assessment
in question final, 127xecutor and demandable. And when the action was instituted on
September 2, 1958 to enforce the deficiency assessment in question, it was already barred
from disputing the correctness of the assessment or invoking any defense that would
reopen the question of its tax liability. Otherwise, the period of thirty days for appeal to
the Court of Tax Appeals would make little sense.
In a proceeding like this the taxpayers defenses are similar to those of the defendant in a
case for the enforcement of a judgment by judicial action under Section 6 of Rule 39 of
the Rules of Court. No inquiry can be made therein as to the merits of the original case or
the justness of the judgment relied upon, other than by evidence of want of jurisdiction, of
collusion between the parties, or of fraud in the party offering the record with respect to
the proceedings. As held by this Court in Insular Government vs. Nico the taxpayer may
raise only the questions whether or not the Collector of Internal Revenue had jurisdiction
to do the particular act, and whether any fraud was committed in the doing of the act. In
that case, Doroteo Nico was fined by the Collector of Internal Revenue for violation of
sub-paragraphs (d), and (g) of Section 28 as well as Sections 36, 101 and 107 of Act
1189. Under Section 54 of the same Act, the taxpayer was given the right to appeal from
the decision of the Collector of Internal Revenue to the Court of First Instance within a
period of ten days from notice of imposition of the fine. Nico did not appeal, neither did
he pay the fine. Pursuant to Section 33 of the Act, the Collector of Internal Revenue filed
an action in the Court of First Instance to enforce his decision and collect the fine. The
decision of the Collector of Internal Revenue having become final, this Court, on appeal,
allowed no further inquiry into the merits of the same.
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become
final and 127xecutor, the action to collect is akin to an action to enforce a judgment. No inquiry can be
made therein as to the merits of the original case or the justness of the judgment relied upon. Petitioner is
thus already precluded from raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax assessed against him, the
same became final and properly collectible by means of an ordinary court action. The
taxpayer cannot dispute an assessment which is being enforced by judicial action, He
should have disputed it before it was brought to court.
CASE SYLLABI:
Same; Failure of taxpayer to appeal to the C.T.A., a B.I.R. assessment makes said assessment final and
executory.Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a
reinvestigation of its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner
a period of twenty (20) days from receipt thereof to submit the results of its verification of payments and
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failure to comply therewith would be construed as abandonment of the request for reinvestigation.
Petitioner failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals within
thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of Republic
Act No. 1125, thus making the assessment final and executory.
Same; After B.I.R. assessment becomes final, and collection suit is filed in court, there can no longer be
any inquiry on merits of original case. Defenses available only those jurisdictional nature or on fraud.
In a proceeding like this the taxpayers defenses are similar to those of the defendant in a case for the
enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No inquiry
can be made therein as to the merits of the original case or the justness of the judgment relied upon, other
than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering
the record with respect to the proceedings. As held by this Court in Insular Government vs. Nico the
taxpayer may raise only the questions whether or not the Collector of Internal Revenue had jurisdiction to
do the particular act, and whether any fraud was committed in the doing of the act.
AQUINO, J., concurring:
Taxation; Jurisdiction; The C.T.A. has jurisdiction over disputed assessments and the ordinary courts
over non-disputed ones.The Tax Court has jurisdiction over disputed assessments (Sec. 7[1], Republic
Act No. 1125). If the assessment is not disputed, an ordinary action for the collection of the tax may be
filed by the Commissioner (Republic vs. Ledesma, 125 Phil. 856, 862-863; Republic vs. Medrano, 109 Phil.
762; Fernandez Hermanos, Inc. vs. Commissioner of Internal Revenue, L-21551, September 30, 1969, 29
SCRA 552, 567).
Same; Appeal; Appeal from a decision of the trial court in a tax case is directly to the Supreme Court.
Any decision of the trial court, sustaining an undisputed assessment, would be appealable to the Supreme
Court, in accordance with Rule 42, now Republic Act No. 5440, or as provided in section 25 of the Interim
Rules.

Fernandez Hermanos, Inc, vs. Commissioner of Internal Revenue, 29 SCRA 552, No. L -21551, No.
L-21557, No. L-24972 No. L-24978, September 30, 1969.
Teehankee, J.
Nature of the Case: These four appears involve two decisions of the Court of Tax Appeals determining
the taxpayer's income tax liability for the years 1950 to 1954 and for the year 1957. Both the taxpayer and
the Commissioner of Internal Revenue, as petitioner and respondent in the cases a quo respectively,
appealed from the Tax Court's decisions, insofar as their respective contentions on particular tax items were
therein resolved against them. Since the issues raised are interrelated, the Court resolves the four appeals in
this joint decision.
Facts:
Cases L-21551 and L-21557
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The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of
engaging in business as an "investment company" with main office at Manila. Upon verification of the
taxpayer's income tax returns for the period in question, the Commissioner of Internal Revenue assessed
against the taxpayer the sums of P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as
alleged deficiency income taxes for the years 1950, 1951, 1952, 1953 and 1954, respectively. Said
assessments were the result of alleged discrepancies found upon the examination and verification of the
taxpayer's income tax returns for the said years.
The Tax Courtmodified the deficiency assessments accordingly, found the total deficiency income taxes
due from the taxpayer for the years under review to amount to P123,436.00 instead of P166,063.00 as
originally assessed by the Commissioner, and rendered the following judgment:
WHEREFORE, the decision appealed from is hereby modified, and petitioner is ordered
to pay the sum of P123,436.00 within 30 days from the date this decision becomes final. If
the said amount, or any part thereof, is not paid within said period, there shall be added to
the unpaid amount as surcharge of 5%, plus interest as provided in Section 51 of the
National Internal Revenue Code, as amended. With costs against petitioner.
Both parties have appealed from the respective adverse rulings against them in the Tax Court's decision.
One of the main issues that were raise is whether or not the government's right to collect the deficiency
income taxes in question has already prescribed.
Held:
It has not prescribed. On the second issue of prescription, the taxpayer's contention that the Commissioner's
action to recover its tax liability should be deemed to have prescribed for failure on the part of the
Commissioner to file a complaint for collection against it in an appropriate civil action, as
contradistinguished from the answer filed by the Commissioner to its petition for review of the questioned
assessments in the case a quo has long been rejected by this Court. This Court has consistently held that "a
judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of
first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to
the taxpayer's petition for review wherein payment of the tax is prayed for." This is but logical for where
the taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is
vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other
court. In the present case, regardless of whether the assessments were made on February 24 and 27, 1956,
as claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's
right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was
filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer with a
prayer for payment of the taxes due, long before the expiration of the five-year period to effect collection
by judicial action counted from the date of assessment.;
CASE SYLLABUS:
Same; Prescription; Five-year 'period to effect collection by judicial action; When period of prescription
is counted.A judicial action for the collection of a tax is begun by the filing of a complaint with the
proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an
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answer to the taxpayer's petition for review wherein payment of the tax is prayed for. This is but logical for
where the taxpayer avails of the right to appeal the .tax assessment to the Court of Tax Appeals, the said
Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of
any other court.
Philippine National Oil Company vs. Court of Appeals, 457 SCRA 32, G.R. No. 109976. April 26,
2005
Chico-Nazario, J.
Facts:
Private respondent Savellano informed the BIR that PNB had failed to withhold the 15% final tax on
interest earnings and/or yields from the money placements of PNOC with the said bank, in violation of
Presidential Decree (P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew all tax
exemptions of government-owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which PNB did not withhold. PNOC proposed to set-off its
tax liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then
pending with the BIR, in the amount ofP335,259,450.21. The amount of the claim for tax refund/credit
was supposedly a receivable account of PNOC from NAPOCOR.
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however,
PNOC proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic
tax, in accordance with the provisions of Executive Order (E.O.) No. 44.
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the
compromise. The BIR received a total tax payment on the interest earnings and/or yields from PNOC's
money placements with PNB in the amount of P93,955,479.12.
Private respondent Savellano, through four installments, was paid the informer's reward in the total amount
ofP14,093,321.89, representing 15% of the P93,955,479.12 tax collected by the BIR from PNOC and
PNB. He received the last installment on 01 December 1987.
On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand
payment of the balance of his informer's reward.
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano
was already fully paid the informer's reward equivalent to 15% of the amount of tax actually collected by
the BIR pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that
the compromise was in accordance with the provisions of E.O. No. 44, Revenue Memorandum Order
(RMO) No. 39-86, and RMO No. 4-87.
Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan,
seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter, private
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respondent Savellano questioned the legality of the compromise agreement entered into by the BIR and
PNOC and claimed that the tax liability should have been collected in full.
On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private
respondent Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case No.
4249. He claimed therein that BIR Commissioner Tan acted "with grave abuse of discretion and/or
whimsical exercise of jurisdiction" in entering into a compromise agreement that resulted in "a gross and
unconscionable diminution" of his reward. Private respondent Savellano prayed for the enforcement and
collection of the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and the
payment to him by the BIR Commissioner of the 15% informer's reward on the total tax collected. 18 He
would later amend his Petition to implead PNOC and PNB as necessary and indispensable parties since
they were parties to the compromise agreement.19
In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of
action against him, and that private respondent Savellano was already paid the informer's reward due him.
PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide
the case. In its Resolution, dated 28 November 1988, the CTA denied the Motions to Dismiss since the
question of lack of jurisdiction and/or cause of action do not appear to be indubitable.
After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to
the amended Petition. PNOC averred, among other things, that (1) it had no privity with private respondent
Savellano; (2) the BIR Commissioner's discretionary act in entering into the compromise agreement had
legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no
jurisdiction to resolve the case against it. On the other hand, PNB asserted that (1) the CTA lacked
jurisdiction over the case; and (2) the BIR Commissioner's decision to accept the compromise was
discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts. PNOC and
PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informer's reward to private respondent Savellano.
The CTA, thereafter, ordered the parties to submit their evidence, to be followed by their respective
Memoranda.
On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of
Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may soon
be resolved. Both PNOC and PNB opposed the said Motion.
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16 January
1991, for deficiency withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal to the
DOJ was sanctioned under P.D. No. 242, which provided for the administrative settlement of disputes
between government offices, agencies, and instrumentalities, including government-owned and controlled
corporations.
Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it had
a pending appeal before the DOJ.

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On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the attention of
the CTA to the fact that the BIR already issued, on 12 August 1991, a warrant of garnishment addressed to
the Central Bank Governor and against PNB. In compliance with the said warrant, the Central Bank issued,
on 23 August 1991, a debit advice against the demand deposit account of PNB with the Central Bank for
the amount ofP294,958,450.73, with a corresponding transfer of the same amount to the demand depositin-trust of BIR with the Central Bank. Since the assessment had already been enforced, PNB's Motion to
Suspend Proceedings became moot and academic. Private respondent Savellano, thus, moved for the
denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR to deposit with the CTA
the amount of P44,243,767.00 as his informer's reward, representing 15% of the deficiency withholding tax
collected.
The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the case
as follows:
WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the
Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and
Philippine National Bank, on the other, as WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of
January 16, 1991 against Philippine National Bank which has become final and unappealable by
collecting from Philippine National Bank the deficiency withholding tax, plus interest totalling
(sic) P294,958,450.73;
Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his
entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding total
tax collected in this case or P44,243.767.00 subject to existing rules and regulations governing
payment of reward to informers.
PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision,
In both cases, the Court of Appeals affirmed the decision of the CTA. Hence, the present petition.
Issue:
Whether or not the CTA has a jurisdiction over the case considering that the petition for review was filed
neither filed by the taxpayer nor the CIR but by an informer seeking the collection of the balance of the
informers reward.
Held:
The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125.
Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment,
then, there could be no basis for PNB's claim that any dispute arising from the new assessment should only
be between BIR and PNB.
Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the
suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax
assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The
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CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249;
and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessment
against PNB.
The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on
the following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau of Internal
Revenue; . . . (Underscoring ours.)
In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then
BIR Commissioner Tan to enter into a compromise agreement with PNOC and to reject his claim for
additional informer's reward. He submitted before the CTA questions of law involving the interpretation
and application of (1) E.O. No. 44, and its implementing rules and regulations, which authorized the BIR
Commissioner to compromise delinquent accounts and disputed assessments pending as of 31 December
1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended,
which granted to the informer a reward equivalent to 15% of the actual amount recovered or collected by
the BIR.54 These should undoubtedly be considered as matters arising from the NIRC and other laws being
administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125.
Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that
deals with administrative settlement or adjudication of disputes, claims and controversies between or
among government offices, agencies and instrumentalities, including government-owned or controlled
corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies.
Following the rule on statutory construction involving a general and a special law previously discussed,
then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof
on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and
controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices,
agencies, and instrumentalities, including government-owned and controlled corporations, remain in the
exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or
conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law is no longer
significant.
Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only
disputes, claims and controversies solely between or among departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be administratively settled or adjudicated. While the
BIR is obviously a government bureau, and both PNOC and PNB are government-owned and controlled
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corporations, respondent Savellano is a private citizen. His standing in the controversy could not be lightly
brushed aside. It was private respondent Savellano who gave the BIR the information that resulted in the
investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the compromise
agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review.
Add Notes:
The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered
waived.
In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR
had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private
respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already
constituted a judicial action for collection of the tax assessed which stops the running of the three-year
prescriptive period for collection thereof.
A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper
regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's
petition for review wherein payment of the tax is prayed for. 106
The present case is unique, however, because the Petition for Review was filed by private respondent
Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency;
PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side.
Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1)
the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay
the tax making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed
by the informer and not the taxpayer; and that the prayer for the enforcement of the tax assessment and
payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case as a
judicial action for collection. In case the CTA grants the Petition and the prayer therein, as what has
happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently,
upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for
collection of the tax had been initiated and the running of the prescriptive period for collection of the said
tax was terminated.
Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive
period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said
prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive
period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is
prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days
thereafter. Just as in the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of
Appeals, this Court declares herein that the pendency of the present case before the CTA, the Court of
Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of
the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule
otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens.
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Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead
of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of
the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR
Commissioner cannot file a judicial action in any other court for the collection of the tax because such a
case would necessarily involve the same parties and involve the same issues already being litigated before
the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall
commence to run only after the promulgation of the decision of this Court in which the issues of the present
case are resolved with finality.
CASE SYLLABI:
Same; Same; Prescription; A judicial action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court, or where the assessment is appealed to the CTA, by filing
an answer to the taxpayers petition for review wherein payment of the tax is prayed for; The present
case is unique because the Petition for Review was filed by a tax informer against the BIR, PNOC, and
PNBthe BIR (the collecting government agency), PNOC (the taxpayer), and PNB (the withholding agent)
initially found themselves on the same side.In the case of PNB, an assessment was issued against it by
the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax
assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review before
the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops
the running of the three-year prescriptive period for collection thereof. A judicial action for the collection
of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the
assessment is appealed to the CTA, by filing an answer to the taxpayers petition for review wherein
payment of the tax is prayed for. The present case is unique, however, because the Petition for Review was
filed by private respondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the
collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found
themselves on the same side.
Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR
Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and
for 60 days thereafter.Supposing that CTA Case No. 4249 is not a collection case which stops the
running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least,
suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended,
the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during
which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in
court, and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd. and Protectors
Services, Inc. v. Court of Appeals, this Court declares herein that the pendency of the present case before
the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an
action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular
trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and
the rule on lis pendens.
Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR
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Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and
for 60 days thereafter.Supposing that CTA Case No. 4249 is not a collection case which stops the
running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least,
suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended,
the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during
which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in
court, and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd. and Protectors
Services, Inc. v. Court of Appeals, this Court declares herein that the pendency of the present case before
the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an
action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular
trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and
the rule on lis pendens.
Same; Same; Same; The three-year prescriptive period for collection of the tax shall commence to run
only after the promulgation of the decision of the Supreme Court in which the issues of the present case
are resolved with finality.That CTA Case No. 4249 was initiated by private respondent Savellano, the
informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension
of the running of the prescriptive period for collection of the tax. What is controlling herein is the fact that
the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because
such a case would necessarily involve the same parties and involve the same issues already being litigated
before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall
commence to run only after the promulgation of the decision of this Court in which the issues of the present
case are resolved with finality.
Same; Same; Same; Whether the filing of the Amended Petition for Review by private respondent
Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the
tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB on 12
August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September
1992 pursuant to the said writ, because the case was by then, pending review by the Court of Appeals.
Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or
merely suspends the running of the prescriptive period for collection of the tax, it had been premature for
the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central
Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ,
because the case was by then, pending review by the Court of Appeals. However, since this Court already
finds that the compromise agreement is without force and effect and hereby orders the enforcement of the
assessment against PNB, then, any issue or controversy arising from the premature garnishment of PNBs
account and collection of the tax by the BIR has become moot and academic at this point.

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SATUTORY OFFENSES AND PENALTIES


A. CIVIL PENALTIES/ SURCHARGE/ INTEREST
Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 496 SCRA 601, G.R.
No. 137002. July 27, 2006
Chico-Nazario, J.
Facts:
From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the
Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI
instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account
therein to the Federal Reserve Bank in New York for credit to the Central Bank's account therein.
Thereafter, the Federal Reserve Bank sent to the Central Bank confirmation that such funds had been
credited to its account and the Central Bank promptly transferred to the petitioner's account in the
Philippines the corresponding amount in Philippine pesos. 3
During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption
privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board.
However, in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the
National Internal Revenue Code was enacted. This law amended Section 222 (now 173) of the National
Internal Revenue Code (NIRC), by adding the foregoing:
[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the
other party thereto who is not exempt shall be the one directly liable for the tax.
In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result
thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now
Section 182)4 of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on
all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which
consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a
compromise penalty ofP300.00.5
BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment
No. FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI
formally protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final
notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount
of P3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990.
Issues:
I

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WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING


THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM
SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP
TAX UNDER SECTION 182 OF THE TAX CODE
II
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING
THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED
DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR
T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT
Held:
I
The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection
with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the
NIRC.
To determine what is being taxed under this section, a discussion on the nature of the acts covered by
Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp
tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the
payment of money issued by express or steamship companies or by any person or persons. This
enumeration is further limited by the qualification that they should be drawn in the Philippines and payable
outside of the Philippines.
In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a
sum of money, which is to be credited to the account of the Central Bank. These are the same acts
described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the
Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the
NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are
included among those taxed under Section 195 (now Section 182) of the NIRC.
Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of
payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two
common elements need to be present: (1) drawing the instrument or ordering a drawee, within the
Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the
Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay
within the Philippines and have the payment made in another country.
A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered
its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve
Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent
a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the
funds which were to be credited to the Central Bank's account with them. The transaction was made at the
shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or
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facility used by the parties in their transactions, transactions which they may effect through our courts, and
which are regulated and protected by our government.
II
The second issue is whether the delinquency interest of 20% per annum, as provided under Section
249(c)(3) of the NIRC, is applicable in this case.
In the case of Philippine Refining Company v. Court of Appeals,19 this Court categorically ruled that even if
an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time
demand was made by the CIR.
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which
was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should
have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default
thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11,
1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified
does not relieve petitioner of the penalties incident to delinquency. The reduced amount
of P237,381.25 is but a part of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional
charges and interests incident to delinquency by explaining that the nature of additional charges is
compensatory and not a penalty.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are
imposed for the taxpayers' use of the funds at the time when the State should have control of said funds.
Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20%
delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section
249(c)(3) of the NIRC.
CASE SYLLABI:
Taxation; Interests; Even if an assessment is later reduced by the courts, a delinquency interest should
still be imposed from the time demand was made by the Commissioner of Internal Revenue; The
intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this
sense, the surcharge and interest charged are not penal but compensatory in naturethey are
compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer
beyond the date he is supposed to have paid them to the State.In the case of Philippine Refining
Company v. Court of Appeals, 256 SCRA 667 (1996), this Court categorically ruled that even if an
assessment was later reduced by the courts, a delinquency interest should still be imposed from the time
demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax
assessment in this case, which was the subject of the demand letter of respondent Commissioner dated
April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of
petitioners default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from
April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified
does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is
but a part of the original assessment of P1,892,584.00. This doctrine is consistent with the earlier decisions
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of this Court justifying the imposition of additional charges and interests incident to delinquency by
explaining that the nature of additional charges is compensatory and not a penalty. The above legal
provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge
and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in
subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is
mandatory in case of delinquency. This is justified because the intention of the law is precisely to
discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest
charged are not penal but compensatory in naturethey are compensation to the State for the delay in
payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have
paid them to the State.
Same; Collecting charges incident to tax delinquency is mandatory.Based on established doctrine,
these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers use of
the funds at the time when the State should have control of said funds. Collecting such charges is
mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the
assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
Republic Cement Corp. vs. Commissioner of Internal Revenue, CTA Case No. 7144, August 2,
2011, Amended Decision
Cotangco-Manalastas, J.
Facts:
Petitioners Motion for Partial Reconsideration
Petitioner claims that it duly filed proper returns for remittance of withholding VAT on payments for
services rendered to non-residents, hence, the three-year prescriptive period applies.
Petitioner asserts that respondent has until January 25, 2003 to assess the deficiency withholding VAT for
taxable year 1999, which is three years from the date of filing of the VAT return on January 25, 2000; and
that respondent's Assessment Notice for the said deficiency tax dated February
18, 2004, which it received on March 3, 2004, is beyond the three-year prescriptive period for the
assessment and collection of taxes.
Petitioner further avers that the six (6) waivers it had executed were invalid as the same did not comply
with Revenue Memorandum Order (RMO) No. 20-90, and Revenue Delegation Authority Order No.
(RDAO) 3-2003; hence, the said waivers did not have the effect of extending the three-year prescriptive
period and the right of the government to assess the deficiency withholding VAT for taxable year 1999 is
already barred by the statute of limitations.
Petitioner alleges that: (a) certain payments to non-residents, such as Elex Engineers, BMH Claudius
Engineers, Mr. Jadgmann and Krupp Polysius were made prior to 1999, hence, said transactions should not
have been included in the subject deficiency withholding VAT assessment for taxable year 1999; (b)
certain payments made to non-residents in 1999, such as Krupp Po/ysius, were established to have been
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made to domestic corporations and/or resident individuals, and/or payments for purchase of materials and
not services, hence, not subject to deficiency withholding VAT for taxable year 1999; (c) the findings of
this Court that journal vouchers, which were presented by petitioner, are self-serving is erroneous because,
in the first place, it was respondent who assessed petitioner based solely on the same journal vouchers
without verifying or examining any other pertinent evidence; and (d) as the assessments were based solely
on the journal vouchers, which had no indication that the entries therein were payments made to nonresidents or payments made in 1999, and which were not corroborated by any other evidence, therefore, the
assessment is invalid for it has no factual and legal bases.
Finally, petitioner avers that the imposition of 25% surcharge has no legal basis since petitioner is not
subject to deficiency withholding VAT; and that the deficiency interest should be computed from the time
the tax is required to be paid, which is January 25, 2000, until the time provided for its payment under the
Final Demand and Assessment Notice, which is January 31, 2005 (not until full payment), while the
delinquency interest should be computed from the day after the due date appearing in the Final Demand
and Assessment Notice, which is February 1, 2005 until the amount is fully paid because the imposition of
the deficiency interest at the same time that the delinquency interest is imposed amounts to double
imposition of interest penalty.
Respondent's Motion for Partial Reconsideration
On the other hand, in respondent's Motion for Partial Reconsideration, she insisted that petitioner is liable
for the amount of P30, 429,409.29 and P6,137.82, respectively, representing deficiency creditable
withholding on VAT and withholding tax on compensation.
Respondent argues that the investigation conducted by its revenue officers disclosed that certain payments
of services to non-resident foreign corporations were not subjected to Creditable Withholding on VAT and
that petitioner failed to submit proof, hence, the assessment was sustained pursuant to Section 114(C) of
the NIRC of 1997 and Section 4.102 of Revenue Regulations No. 7-95; that a comparison of withholding
tax due per Alphalist against the remittance per tax Returns resulted to a discrepancy of P2,564.68, hence,
the assessed deficiency withholding tax on compensation of P6,137.82 must be sustained; and that failure
of petitioner to file a return for the taxes assessed merits the sanction of a Compromise Penalty in lieu of
instituting a criminal action pursuant to Revenue Memorandum Order No. 1- 90 in relation to RMO No.
26-86.
COURTS RULING:
Court partially grants petitioners partial motion for reconsideration and denies the respondents partial
motion for reconsideration.
1. AS TO CIVIL LIABILITY
As previously stated, petitioner failed to overcome the presumption of the correctness of the
assessment; therefore, it is liable to pay the disputed deficiency tax. In view of this, the imposition
of 25% surcharge is proper in accordance with Section 248(A) of the NIRC of 1997, which
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provides:
"SEC. 248. Civil Penalties.- (A) There shall be imposed, in addition to the tax required to
be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the
following cases:
(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an
internal revenue officer other than those with whom the return is required to be
filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return
required to be filed under the provisions of this Code or rules and regulations, or
the full amount of tax due for which no return is required to be filed, on or before
the date prescribed for its payment."
The law is very clear. The imposition of surcharge is mandatory. This is justified because the intention of
the law is precisely to discourage delay in the payment of taxes due to the State. The delay in the payment
of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the
imposition of a 25% surcharge, pursuant to Section 248(A)(3) of the Tax Code. 6 Even the alleged good
faith of the taxpayer in failing to pay the tax upon advice of counsel is not sufficient justification for
seeking exemption from the payment of surcharge.
I t is basic principle that "surcharg e" is an overcharge or exaction imposed by law as an addition to the
main tax required to be paid. It is not really a penalty as used in criminal law but a civil administrative
sanction provided primarily as a safeguard for the protection of the State revenue and to reimburse the
government for the expenses in investigating and the loss resulting from the taxpayer's fraud. In other
words, the imposition of a surcharge is not penal but compensatory in nature - they are compensation to the
State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he
is supposed to have paid them to the State.
A comparison of Section 249(6) and 2LJ0(C)(3) of the NIRC reveals that the deficiency interest on any
deficiency tax is assessed "from the date prescribed for its payment until the full payment thereof" while
the delinquency interest, which is imposed for ruilure to pay a deficiency tax, is assessed starting "on the
due date appearing in the notice and demand of the Commissioner until the amount is fully paid': Clearly,
the law itself allows the imposition of these two kinds or interests simultaneously, and therefore, there is no
double imposition of interest penalty. Hence, petitioner's assertion that the 20% deficiency interest should
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be computed from January 25, 2000 until January 31, 2005 and not until full payment is contrary to the
very language of the NIRC.
ACOSTA, J. Dissenting Opinion
It is not the intent of the law to impose such undue interest on any unpaid tax due to the
Government. The imposition of at least 40% interest per annum on any unpaid tax is grossly excessive and
unjust. The imposition of deficiency interest and delinquency interest simultaneously for a given period of
time and which will translate to at least 40% interest per annum on any unpaid tax, being grossly excessive
and unconscionable, may partake the nature of an imposition that is penal, rather than compensatory.
The 20% deficiency interest runs only from the date prescribed for the payment of the unpaid or deficiency
tax until the date of payment prescribed by the FAN issued by CIR. After which, delinquency interest (on
the deficiency tax, deficiency interest and surcharge) is imposed on taxpayer in addition to the basic
deficiency tax, deficiency interest and surcharge, until final payment of the total amount is made.
Philippine Refining Company vs. Court of Appeals, 256 SCRA 667, G.R. No. 118794. May 8, 1996
Regalado, J.
Facts:
This is an appeal by certiorari from the decision of respondent Court of Appeals 1 affirming the decision of
the Court of Tax Appeals which disallowed petitioner's claim for deduction as bad debts of several
accounts in the total sum of P395,324.27, and imposing a 25% surcharge and 20% annual delinquency
interest on the alleged deficiency income tax liability of petitioner.
Petitioner argues that the imposition of the 25% surcharge and the 20% delinquency interest due to delay in
its payment of the tax assessed is improper and unwarranted, considering that the assessment of the
Commissioner was modified by the CTA and the decision of said court has not yet become final and
executory.
Issue:
Whether or not the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its
payment of the tax assessed is improper and unwarranted.
Held:
The Court vehemently rejects the absurd thesis of petitioner that despite the supervening delay in the tax
payment, nothing is lost on the part of the Government because in the event that these debts are collected,
the same will be returned as taxes to it in the year of the recovery. This is an irresponsible statement which
deliberately ignores the fact that while the Government may eventually recover revenues under that
hypothesis, the delay caused by the non-payment of taxes under such a contingency will obviously have a
disastrous effect on the revenue collections necessary for governmental operations during the period
concerned.
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Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides:
Sec. 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to
be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the
following cases:
xxx xxx xxx
(3) Failure to pay the tax within the time prescribed for its payment.
With respect to the penalty of 20% interest, the relevant provision is found in Section 249 of the same Code,
as follows:
Sec. 249. Interest. (a) In general. There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such
higher rate as may be prescribed by regulations, from the date prescribed for payment
until the amount is fully paid.
xxx xxx xxx
(c) Delinquency interest. In case of failure pay:
(1) The
filed, or

amount

of

the

tax

due

on

any

return

required

to

be

(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the
notice and demand of the Commissioner,
there shall be assessed and collected, on the unpaid amount, interest at the rate prescribed
in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the
tax. (emphasis supplied)
xxx xxx xxx
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the
subject of the demand letter of respondent Commissioner dated April 11,1989, should have been paid
within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency
penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner
appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the
penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original
assessment of P1,892,584.00.
Our attention has also been called to two of our previous rulings and these we set out here for the benefit of
petitioner and whosoever may be minded to take the same stance it has adopted in this case. Tax laws
imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by
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punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy
reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance
of the Government and its multifarious activities will be adversely affected. 11
We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government
and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the
funds by the taxpayer beyond the date when he is supposed to have paid them to the
Government. 12 Unquestionably, petitioner chose to turn a deaf ear to these injunctions.
CASE SYLLABI:
Same; Same; The fact that a taxpayer appealed the assessment to the CTA and that the same was
modified does not relieve it of the penalties incident to delinquency.As correctly pointed out by the
Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of
respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt
thereof. By reason of petitioners default thereon, the delinquency penalties of 25% surcharge and interest
of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that
the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced
amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.
Same; Same; Tax laws imposing penalties for delinquencies are intended to hasten tax payments by
punishing evasions or neglect of duty in respect thereof.Our attention has also been called to two of our
previous rulings and these we set out here for the benefit of petitioner and whosoever may be minded to
take the same stance it has adopted in this case. Tax laws imposing penalties for delinquencies, so we have
long held, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof.
If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be
rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely
affected.
Same; Same; It is mandatory to collect penalty and interest at the stated rate in case of delinquency.
We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government
and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the
funds by the taxpayer beyond the date when he is supposed to have paid them to the Government.
Unquestionably, petitioner chose to turn a deaf ear to these injunctions.
Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue, 501 SCRA 450, G.R.
No. 166786. September 11, 2006
Ynares-Santiago, J.
Facts:
The gist of the motion for reconsideration is that before an exercise of a taxable privilege may be subject to
DST, it is indispensable that the transaction must be embodied in and evidenced by a document. Since a
pawn ticket as defined in Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act is merely the
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pawnbrokers receipt for a pawn and not a security nor a printed evidence of indebtedness, it cannot be
considered as among the documents subject to DST. In the alternative, petitioner contends that should the
Court rule otherwise, it cannot be made to pay surcharges and interest because it acted in good faith and the
confusion as to whether it is liable to pay DST is partly attributable to the divergent rulings of the Bureau
of Internal Revenue (BIR) on the matter.
Issue:
Whether or not surcharge and interest penalties shall be impost?
Held:
The law is clear and needs no further interpretation. No law on legal hermeneutics could change the fact
that the entries contained in a pawnshop ticket spell out a contract of pledge and that the exercise of the
privilege to conclude such a contract is taxable under Section 195 of the NIRC. The rationale for the
issuance of and the spirit that gave rise to the Pawnshop Regulation Act cannot justify an interpretation that
obviously supplies an exemption which is simply and clearly not found in the law. Nothing in P.D. No.
114 exempts pawnshops or pawnshop tickets from DST. There is no ambiguity in the provisions thereof;
any vagueness arises only from the circuitous construction invoked by petitioner. If then President
Ferdinand E. Marcos intended to exempt pawnshops or pawnshop tickets from DST, he would have
expressly so provided for said exemption in P.D. No. 114. Since no such exemption appear in the decree,
the only logical conclusion is that no such exemption is intended and that pawnshops or pawnshop tickets
are subject to DST.
Significantly, the Court notes that rural banks and their borrowers and mortgagors are exempt from
documentary stamp tax on instruments relating to loans. Under P.D. No. 122, the exemption is up to the
amount of P5,000.00 loan and charges are collectible only on the amount in excess of P5,000.00. This
provision was adopted by R.A. No. 7353, the Rural Banks Act of 1992 but the threshold amount was
increased to P50,000.00, and documentary tax is levied only on any amount in excess of P50,000.00, if
there is any.
Nevertheless, all is not lost for petitioner. The settled rule is that good faith and honest belief that one is
not subject to tax on the basis of previous interpretation of government agencies tasked to implement the
tax law, are sufficient justification to delete the imposition of surcharges and interest. In Connell Bros. Co.
(Phil.) v. Collector of Internal Revenue, it was held that:
We are convinced that appellant, in preparing its sales invoices as it did, was not guilty of
an intentional violation of the law. It did not delay filing the returns for the sales taxes
corresponding to the period in question, let alone did so purposely. The delay was in the
payment of the deficiency, which arose from a mistaken understanding of the regulations
laid down by appellee. The ensuing controversy was, in our opinion, generated in good
faith and should furnish no justification for the imposition of a penalty.
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CASE SYLLABUS:
Taxation; Good Faith; The settled rule is that good faith and honest belief that one is subject to tax on
the basis of previous interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest.The settled rule is that good
faith and honest belief that one is not subject to tax on the basis of previous interpretation of government
agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges
and interest. In Connell Bros. Co. (Phil.) v. Collector of Internal Revenue, 9 SCRA 735 (1963), it was held
that: We are convinced that appellant, in preparing its sales invoices as it did, was not guilty of an
intentional violation of the law. It did not delay filing the returns for the sales taxes corresponding to the
period in question, let alone did so purposely. The delay was in the payment of the deficiency, which arose
from a mistaken understanding of the regulations laid down by appellee. The ensuing controversy was, in
our opinion, generated in good faith and should furnish no justification for the imposition of a penalty.
WHEREFORE, modified by eliminating the surcharge of 25% imposed upon appellant, the judgment
appealed from is affirmed, without costs.
Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23, 1974
Esguerra, J.
---------------SUPRA--------------Dispositive portion:
As could be readily seen from the above rationalization of the lower court, no distinction has been made
between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to
evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent intent to evade
taxes on the substantial difference between the amounts of net income on the face of the returns as filed by
him in the years 1946 to 1951 and the net income as determined by the inventory method utilized by both
respondents for the same years. The lower court based its conclusion on a presumption that fraud can be
deduced from the very substantial disparity of incomes as reported and determined by the inventory method
and on the similarity of consecutive disparities for six years. Such a basis for determining the existence of
fraud (intent to evade payment of tax) suffers from an inherent flaw when applied to this case. It is very
apparent here that the respondent Commissioner of Internal Revenue, when the inventory method was
resorted to in the first assessment, concluded that the correct tax liability of Mr. Aznar amounted to
P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in another
assessment dated February 16, 1955, concluded that the tax liability should be reduced to P381,096.07.
This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use
of the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability. When
the respondent Court of Tax Appeals reviewed this case on appeal, it concluded that petitioner's tax
liability should be only P227,788.64. The lower court in three instances (elimination of two buildings in the
list of petitioner's assets beginning December 31, 1949, because they were destroyed by fire; elimination of
expenses for construction in petitioner's assets as duplication of increased value in buildings, and
elimination of value of house and lot in petitioner's assets because said property was only given as
collateral) supported petitioner's stand on the wrong inclusions in his lists of assets made by the respondent
Commissioner of Internal Revenue, resulting in the very substantial reduction of petitioner's tax liability by
the lower court. The foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in
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his report of his income but also the respondent Commissioner of Internal Revenue who committed
mistakes in his use of the inventory method to determine the petitioner's tax liability. The mistakes
committed by the Commissioner of Internal Revenue which also involve very substantial amounts were
also repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud.
From the above exposition of facts, we cannot but emphatically reiterate the well established doctrine that
fraud cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent
intent could not be deduced from mistakes however frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous classification of items in accounting methods utilized for
determination of tax liabilities The predecessor of the petitioner undoubtedly filed his income tax returns
for "the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees.
It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated
readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by him.
The Lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law
is actual and not constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the
law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily
follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and
in the assessment, respectively, under the inventory method of determining tax liability, it would be
unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in
good faith.
We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code should
not be imposed, but eliminated from the income tax deficiency for each year from 1946 to 1951, inclusive.
CASE SYLLABUS:
Same; Same; Penalties; Actual fraud, not constructive fraud, is subject to 50% surcharge as penalty.
The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was
based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent
returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and
not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is
not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional
wrong-doing with the sole object of avoiding the tax.
Commission of Internal Revenue vs. Javier, Jr., 199 SCRA 824, G.R. No. 78953. July 31, 1991
Sarmiento, J.
Facts:
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On or about June 3, 1977, Victoria L. Javier, the wife of the petitioner (private respondent herein), received
from the Prudential Bank and Trust Company in Pasay City the amount of US$999,973.70 remitted by her
sister, Mrs. Dolores Ventosa, through some banks in the United States, among which is Mellon Bank, N.A.
On or about June 29, 1977, Mellon Bank, N.A. filed a complaint with the Court of First Instance of Rizal
(now Regional Trial Court), (docketed as Civil Case No. 26899), against the petitioner (private respondent
herein), his wife and other defendants, claiming that its remittance of US$1,000,000.00 was a clerical error
and should have been US$1,000.00 only, and praying that the excess amount of US$999,000.00 be
returned on the ground that the defendants are trustees of an implied trust for the benefit of Mellon Bank
with the clear, immediate, and continuing duty to return the said amount from the moment it was received.
November 5, 1977, the City Fiscal of Pasay City filed an Information with the then Circuit Criminal Court
(docketed as CCC-VII-3369-P.C.) charging the petitioner (private respondent herein) and his wife with the
crime of estafa, alleging that they misappropriated, misapplied, and converted to their own personal use
and benefit the amount of US$999,000.00 which they received under an implied trust for the benefit of
Mellon Bank and as a result of the mistake in the remittance by the latter.
On March 15, 1978, the petitioner (private respondent herein) filed his Income Tax Return for the taxable
year 1977 showing a gross income of P53,053.38 and a net income of P48,053.88 and stating in the
footnote of the return that "Taxpayer was recipient of some money received from abroad which he
presumed to be a gift but turned out to be an error and is now subject of litigation."
Petitioner (private respondent herein) received a letter from the acting Commissioner of Internal Revenue
dated November 14, 1980, together with income assessment notices for the years 1976 and 1977,
demanding that petitioner (private respondent herein) pay on or before December 15, 1980 the amount of
P1,615.96 and P9,287,297.51 as deficiency assessments for the years 1976 and 1977 respectively. . . .
Petitioner (private respondent herein) wrote the Bureau of Internal Revenue that he was paying the
deficiency income assessment for the year 1976 but denying that he had any undeclared income for the
year 1977 and requested that the assessment for 1977 be made to await final court decision on the case filed
against him for filing an allegedly fraudulent return. . . .
Petitioner (private respondent herein) received from Acting Commissioner of Internal Revenue Romulo
Villa a letter dated October 8, 1981 stating in reply to his December 15, 1980 letter-protest that "the
amount of Mellon Bank's erroneous remittance which you were able to dispose, is definitely taxable." . . . 5
The Commissioner also imposed a 50% fraud penalty against Javier.
Disagreeing, Javier filed an appeal 6 before the respondent Court of Tax Appeals on December 10, 1981.
Issue:
Whether or not a taxpayer who merely states as a footnote in his income tax return that a sum of money
that he erroneously received and already spent is the subject of a pending litigation and there did not
declare it as income is liable to pay the 50% penalty for filing a fraudulent return.
Held:
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Under the then Section 72 of the Tax Code (now Section 248 of the 1988 National Internal Revenue Code),
a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of
the deficiency tax in case payment has been made on the basis of the return filed before the discovery of
the falsity or fraud.
We are persuaded considerably by the private respondent's contention that there is no fraud in the filing of
the return and agree fully with the Court of Tax Appeals' interpretation of Javier's notation on his income
tax return filed on March 15, 1978 thus: "Taxpayer was the recipient of some money from abroad which he
presumed to be a gift but turned out to be an error and is now subject of litigation that it was an "error or
mistake of fact or law" not constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally "laid his cards on the table." 13
In Aznar v. Court of Tax Appeals, 14 fraud in relation to the filing of income tax return was discussed in this
manner:
. . . The fraud contemplated by law is actual and not constructive. It must be intentional
fraud, consisting of deception willfully and deliberately done or resorted to in order to
induce another to give up some legal right. Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade the tax contemplated by law. It must amount
to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows
that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making entries in
the returns and in the assessment, respectively, under the inventory method of determining
tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud
and those of the respondent as made in good faith.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most,
create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax
evasion.
In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the
government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The
government was not induced to give up some legal right and place itself at a disadvantage so as to prevent
its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or
mistake of law is not fraud. The petitioner's zealousness to collect taxes from the unearned windfall to
Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified
by the extant facts. Javier may be guilty of swindling charges, perhaps even for greed by spending most of
the money he received, but the records lack a clear showing of fraud committed because he did not conceal
the fact that he had received an amount of money although it was a "subject of litigation." As ruled by
respondent Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by the petitioner against the
private respondent in the deficiency assessment should be deleted.
CASE SYLLABI:
Taxation; Court persuaded that there is no fraud in the filing of the return and agrees fully with the
Court of Tax Appeals interpretation of Javiers notation on his income tax return filed on March 15,
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1978.We are persuaded considerably by the private respondents contention that there is no fraud in the
filing of the return and agree fully with the Court of Tax Appeals interpretation of Javiers notation on his
income tax return filed on March 15, 1978 thus: Taxpayer was the recipient of some money from abroad
which he presumed to be a gift but turned out to be an error and is now subject of litigation; that it was an
error or mistake of fact or law not constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally laid his cards on the table.
Same; Same; Fraud in relation to the filing of income tax return discussed in Aznar vs. Court of
Appeals.In Aznar v. Court of Appeals, fraud in relation to the filing of income tax return, was discussed
in this manner: xxx The fraud contemplated by law is actual and not constructive. It must be intentional
fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to
give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if
both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in
the returns and in the assessment, respectively, under the inventory method of determining tax liability, it
would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as
made in good faith.
Same; Same; Same; Courts never sustain findings of fraud upon circumstances which create only
suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax
evasion.Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which,
at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.
Same; Same; Same; Same; There was no actual and intentional fraud through willful and deliberate
misleading of the Bureau of Internal Revenue, case at bar; Error or mistake of law is not fraud.In the
case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the
government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The
government was not induced to give up some legal right and place itself at a disadvantage so as to prevent
its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or
mistake of law is not fraud. The petitioners zealousness to collect taxes from the unearned windfall to
Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified
by the extant facts.
B. CRIMES/ OFFENSES/ PENALTIES/ FORFEITURE
Ungab vs. Cusi, Jr., 97 SCRA 877, Nos. L-41919-24. May 30, 1980
Concepcion, JR., J.
Facts:
In July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein
petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the cour se of his
examination, he discovered that the petitioner failed to report his income derived from sales of
banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of
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Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting
petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his
objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner wrote the
BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent
on commission basis in the banana sapling business and that his income, as reported in his income
tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully
convinced that the petitioner had filed a fraudulent income tax return so that he submitted a "Fraud
Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of Internal Revenue found
sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and
recommended his prosecution:
(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade
his just taxes due the government under Section 45 in relation to Section 72 of the
National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of
unpaid fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance
with Section 183 of the National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on
the total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the
government of its due revenue in the amount of P15,872.59, inclusive of surcharge.
In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the
Commissioner of Internal Revenue approved the prosecution of the petitioner.
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals
throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of
the National Internal Revenue Code, as amended, and other related laws, in Administrative Order No. 116
dated December 5, 1974, and to whom the case was assigned, conducted a preliminary investigation of the
case, and finding probable cause, filed six (6) informations against the petitioner with the Court of First
Instance of Davao City.
On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1)
the informations are null and void for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled
cases in view of his pending protest against the assessment made by the BIR Examiner. 10 However, the
trial court denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse.
As prayed for, a temporary restraining order was issued by the Court, ordering the respondent Judge from
further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and
1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused."
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Issue:
Whether or not the filing of the criminal complaints against the petitioner were premature since the
Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the
Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals.
Held:
The contention is without merit. What is involved here is not the collection of taxes where the assessment
of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal
prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts
of first instance. While there can be no civil action to enforce collection before the assessment procedures
provided in the Code have been followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under the Code.
The contention is made, and is here rejected, that an assessment of the deficiency tax due
is necessary before the taxpayer can be prosecuted criminally for the charges preferred.
The crime is complete when the violator has, as in this case, knowingly and willfully filed
fraudulent returns with intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator has
knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax.
The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that
he has made an inaccurate return, and the government's failure to discover the error and
promptly to assess has no connections with the commission of the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of
the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for
violation of law.16 Obviously, the protest of the petitioner against the assessment of the District Revenue
Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the
respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner.
CASE SYLLABI:
Criminal Procedure; Taxation; National Internal Revenue Code; Preliminary investigation; Authority
of State Prosecutor to investigate and prosecute violations of the National Internal Revenue Code
independently of the City Fiscal; Case at bar.The respondent State Prosecutor, although believing that
he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first
sought permission from the City Fiscal of Davao City before he started the preliminary investigation of
these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974,
designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in
the investigation and prosecution of all violations of the National Internal Revenue Code, as amended, and
other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said
cases, and in fact, said investigation was conducted in the office of the City Fiscal.

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Same; Same; Same; Jurisdiction of the Court of First Instance over criminal prosecution for violations
of the National Internal Revenue Code; Computation and assessment of deficiency taxes is not a prerequisite for criminal prosecution under the Code.What is involved here is not the collection of taxes
where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within
the recognizance of Courts of First Instance. While there can be no civil action to enforce collection before
the assessment procedures provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution under the Code.
Same; Same; Same; Prescription; Petition for reconsideration of assessment of deficiency taxes
suspends the prescriptive period for the collection of taxes, not the prescriptive period of a criminal
action for violation of law.Besides, it has been ruled that a petition for reconsideration of an assessment
may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive
period of a criminal action for violation of law. Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to
quash filed by the petitioner.
Commissioner of Internal Revenue vs. Court of Appeals, 257 SCRA 200, G.R. No. 119322. June 4,
1996
Kapunan, J.
Facts:
On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities
of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing
corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities
discovered from such investigation, and to file the necessary criminal actions against those who may have
violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman,
a representative of the Department of Justice and a representative of the Executive Secretary.
On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 3793 reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes of
foreign brands subject to a higher rate of tax.
On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the
reclassification of said brands of cigarettes as violative of its right to due process and equal protection of
law. Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the
reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement.
In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner
assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad
valorem and value-added tax for the year 1992 with the request that the said amount be paid within thirty
(30) days upon receipt thereof. 4 Fortune on September 17, 1993 moved for reconsideration of the
assessments.
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On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of
Justice against respondent Fortune, its corporate officers, nine (9) other corporations and their respective
corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct
amount of income tax, ad valorem tax and value-added tax for the year 1992. The complaint alleged
, among others, that:
In the said income tax return, the taxpayer declared a net taxable income of
P183,613,408.00 and an income tax due of P64,264,693.00. Based mainly on
documentary evidence submitted by the taxpayer itself, these declarations are false and
fraudulent because the correct taxable income of the corporation for the said year is
P1,282,959,399.25.
This underdeclaration which resulted in the evasion of the amount of P723,773,759.79 as
deficiency income tax for the year 1992 is a violation of Section 45 of the Tax Code,
penalized under Section 253 in relation to Sections 252(b) and (d) and 253 thereof, thus: .
..
xxx xxx xxx
Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas Chua,
likewise filed value-added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with
the Rev. District Office of Marikina, Metro Manila, declaring therein gross taxable sales,
as follows:
1st Qtr. P 2,924,418,055.00
2nd Qtr. 2,980,335,235.00
3rd Qtr. 2,839,519,325.00
4th Qtr. 2,992,386,005.00
However, contrary to what have been reported in the said value- added tax returns, and
based on documentary evidence obtained from the taxpayer, the total actual taxable sales
of the corporation for the year 1992 amounted to P16,158,575,035.00 instead of
P11,929,322,334.52 as declared by the corporation in the said VAT returns.
These fraudulent underdeclarations which resulted in the evasion of value-added taxes in
the aggregate amount of P1,169,688,645.63 for the entire year 1992 are violations of
Section 110 in relation to Section 100 of the Tax Code, which are likewise penalized
under the aforequoted Section 253, in relation to Section 252, thereof. Sections 110 and
100 provide:
xxx xxx xxx

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Furthermore, based on the corporation's VAT returns, the corporation reported its taxable
sales for 1992 in the amount of P11,736,658,580. This declaration is likewise false and
fraudulent because, based on the daily manufacturer's sworn statements submitted to the
BIR by the taxpayer, its total taxable sales during the year 1992 is P16,686,372,295.00.
As a result thereof, the corporation was able to evade the payment of ad valorem taxes in
the aggregate amount of P5,792,479,816.24 in violation of Section 127 in relation to
Section 142, as amended by R.A. 6956, penalized under the aforequoted Section 253, in
relation to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A.
6956, are quoted as follows: . . .
The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on
revenue cases which found sufficient basis to further investigate the allegations that Fortune, through
fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year 1992
thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion Pesos.
On December 20, 1993, the panel of prosecutors issued an Omnibus Order 11 denying private respondents'
motion for reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors,
and motion to require submission by the BIR of certain documents to further support private respondents'
motion to dismiss.
On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for
preliminary injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790,
praying that the complaint of the Commissioner of Internal Revenue and the orders of the prosecutors in
I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on the preliminary investigation be
suspended pending final determination by the Commissioner of Fortune's motion for reconsideration/
reinvestigation of the August 13, 1993 assessment of the taxes due. 12
On January 17, 1994, petitioners filed a motion to dismiss the petition 13 on the grounds that (a) the trial
court is bereft of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a
criminal prosecution for tax fraud can proceed independently of criminal or administrative action; (c) there
is no prejudicial question to justify suspension of the preliminary investigation; (d) private respondents'
rights to due process was not violated; and (e) selective prosecution is not a valid defense in this
jurisdiction.
On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in
the petition, private respondents offered in evidence their verified petition for certiorari and prohibition
and its annexes. Petitioners responded by praying that their motion to dismiss the petition for certiorari and
prohibition be considered as their opposition to private respondents' application for the issuance of a writ of
preliminary injunction.
On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary
injunction. 14 The trial court rationalized its order in this wise:
a) It is private respondents' claim that the ad valorem tax for the year 1992 was levied,
assessed and collected by the BIR under Section 142(c) of the Tax Code on the basis of
the "manufacturer's registered wholesale price" duly approved by the BIR. Fortune's
taxable sales for 1992 was in the amount of P11,736,658,580.00.
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b) On the other hand, it is petitioners' contention that Fortune's declaration was false and
fraudulent because, based on its daily manufacturer's sworn statements submitted to the
BIR, its taxable sales in 1992 were P16,686,372,295.00, as a result of which, Fortune was
able to evade the payment of ad valorem tax in the aggregate amount of
P5,792,479,816.24.
c) At the hearing for preliminary investigation, the "Daily Manufacturer's Sworn
Statements" which, according to petitioners, were submitted to the BIR by private
respondents and made the basis of petitioner Commissioner's complaint that the total
taxable sales of Fortune in 1992 amounted to P16,686,372, 295.00 were not produced as
part of the evidence for petitioners. In fact, private respondents had filed a motion to
require petitioner Commissioner to submit the aforesaid daily manufacturer's sworn
statements before the DOJ panel of prosecutors to show that Fortune's actual taxable sales
totaled P16,686,373,295.00, but the motion was denied.
d) There is nothing on record in the preliminary investigation before the panel of
investigators which supports the allegation that Fortune made a fraudulent declaration of
its 1992 taxable sales.
e) Since, as alleged by private respondents, the ad valorem tax for the year 1992 should be
based on the "manufacturer's registered wholesale price" while, as claimed by petitioners,
the ad valorem taxes should be based on the wholesale price at which the manufacturer
sold the cigarettes, which is a legal issue as admitted by a BIR lawyer during the hearing
for preliminary injunction, the correct interpretation of the law involved, which is Section
142(c) of the Tax Code, constitutes a prejudicial question which must first be resolved
before criminal proceedings for tax evasion may be pursued. In other words, the BIR must
first make a final determination, which it has not, of Fortune's tax liability relative to its
1992 ad valorem, value-added and income taxes before the taxpayer can be made liable
for tax evasion.
f) There was a precipitate issuance by the panel of prosecutors of subpoenas to private
respondents, on the very day following the filing of the complaint with the DOJ consisting
of about 600 pages, and the precipitate denial by the panel of prosecutors, after a recess of
about twenty (20) minutes, of private respondents' motion to dismiss, consisting of one
hundred and thirty five (135) pages.
g) Private respondents had been especially targeted by the government for prosecution.
Prior to the filing of the complaint in I.S. No. 93-508, petitioner Commissioner issued
Revenue Memorandum Circular No. 37-93 reclassifying Fortune's best selling cigarettes,
namely "Hope," "More," and "Champion" as cigarettes bearing a foreign brand, thereby
imposing upon them a higher rate of tax that would price them out of the market.
h) While in petitioner Commissioner's letter of August 13, 1993, she gave Fortune a
period of thirty (30) days from receipt thereof within which to pay the alleged tax
deficiency assessments, she filed the criminal complaint for tax evasion before the period
lapsed.
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i) Based on the foregoing, the criminal complaint against private respondents was filed
prematurely and in violation of their constitutional right to equal protection of the laws.
On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private
respondents' petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of
whether Sec. 127(b) of the National Tax Revenue Code should be the basis of private respondents' tax
liability as contended by the Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code
that applies, as argued by herein private respondents, should first be settled before any complaint for
fraudulent tax evasion can be initiated.
On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for preliminary
injunction before this Court. However, the petition was referred to the Court of Appeals for disposition by
virtue of its original concurrent jurisdiction over the petition.
On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a decision denying the
petition. The Court of Appeals ruled that the trial court committed no grave abuse of discretion in ordering
the issuance of writs of preliminary injunction and in denying petitioners' motion to dismiss.
Their motion for reconsideration having been denied by respondent appellate court on February 23,
1995.
Issue:
Whether or not the prosecution of private respondent be enjoined pending the determination of the
latters tax liability.
Held:
The Court ruled in the affirmative. It is the opinion of both the trial court and respondent Court of
Appeals, that before Fortune and the other private respondents could be prosecuted for tax evasion
under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and
value-added taxes were due from Fortune for the year 1992 should first be established. Fortune
received form the Commissioner of Internal Revenue the deficiency assessment notices in the total
amount of P7,685,942,221.06 on August 24, 1993. However, under Section 229 of the Tax Code, the
taxpayer has the right to move for reconsideration of the assessment issued by the Commissioner of
Internal Revenue within thirty (30) days from receipt of the assessment; and if the motion for
reconsideration is denied, it may appeal to the Court of Appeals within thirty (30) days from receipt
of the Commissioner's decision. Here, Fortune received the Commissioner's assessment notice dated
August 13, 1993 on August 24, 1993 asking for the payment of the deficiency taxes. Within thirty
(30) days from receipt thereof, Fortune moved for reconsideration. The Commissioner has not
resolved the request for reconsideration up to the present.
We share with the view of both the trial court and court of Appeals that before the tax liabilities of
Fortune are first finally determined, it cannot be correctly asserted that private respondents have
wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words,
before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of
the Tax code, the fact that a tax is due must first be proved.
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Suppose the Commissioner eventually resolves Fortune's motion for reconsideration of the
assessments by pronouncing that the taxpayer is not liable for any deficiency assessment, then, the
criminal complaints filed against private respondents will have no leg to stand on.
In view of the foregoing reasons, we cannot subscribe to the petitioners' thesis citing Ungad
v. Cusi, 27 that the lack of a final determination of Fortune's exact or correct tax liability is not a bar
to criminal prosecution, and that while a precise computation and assessment is required for a civil
action to collect tax deficiencies, the Tax Code does not require such computation and assessment
prior to criminal prosecution.
Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary
prior to prosecution is pointedly and deliberately qualified by the Court with following statement
quoted from Guzik v. U.S.:28 "The crime is complete when the violator has knowingly and wilfully
filed a fraudulent return with intent to evade and defeat apart or all of the tax." In plain words, for
criminal prosecution to proceed before assessment, there must be a prima facies howing of a wilful
attempt to evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer's
failure to declare in his income tax return "his income derived from banana sapplings." In the mind of
the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the
registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale
price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is
supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution. Herein lies a whale of difference between Ungad and the case at bar.
This brings us to the erroneous disquisition that private respondents' recourse to the trial court by
way of special civil action of certiorari and prohibition was improper because: a) the proceedings
before the state prosecutors (preliminary injunction) were far from terminated -- private respondents
were merely subpoenaed and asked to submit counter affidavits, matters that they should have
appealed to the Secretary of Justice; b) it is only after the submission of private respondents' counter
affidavits that the prosecutors will determine whether or not there is enough evidence to file in court
criminal charges for fraudulent tax evasion against private respondents; and c) the proper procedure
is to allow the prosecutors to conduct and finish the preliminary investigation and to render a
resolution, after which the aggrieved party can appeal the resolution to the Secretary of Justice.
As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions
which, as summarized in Brocka v. Enrile 29 are:
a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs.
Albano, et al., L-19272, January 25, 1967, 19 SCRA 95);
b. When necessary for the orderly administration of justice or to avoid oppression or
multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs.
Albano, supra; Fortun vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607);
c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil
202);

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d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67
Phil 62);
e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs.
Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);
f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109
Phil. 1140);
g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795,
October 29, 1966, 18 SCRA 616);
h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R.
No. 4760, March 25, 1960);
i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto
vs. Castelo, 18 L.J. [1953], cited in Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8,
1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and
j. When there is clearly no prima facie case against the accused and a motion to quash on
that ground has been denied (Salonga vs. Pane, et al., L-59524, February 18, 1985, 134
SCRA 438).
Contrary to petitioners' submission, preliminary investigation may be enjoined where exceptional
circumstances so warrant. In Hernandez v. Albano 30 and Fortun v. Labang, 31 injunction was issued
to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss
the complaint against them before the prosecution and alternatively, to suspend the preliminary
investigation on the grounds cited hereinbefore, one of which is that the complaint of the
Commissioner is not supported by any evidence to serve as adequate basis for the issuance of the
subpoena to them and put them to their defense.
Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and
oppressive prosecution and to protect him from an open and public accusation of crime, from the
trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive
trials.
BELLOSILLO, J., concurring and dissenting:
I am in full accord with the conclusion of the majority that the trial court committed no grave abuse of
discretion in issuing the assailed injunctive writs. But I am constrained to dissent insofar as it finds that
there was "selective prosecution" in charging private respondents.
Let me first touch on "selective prosecution." There is no showing that petitioner Commissioner of Internal
Revenue is not going after others who may be suspected of being big tax evaders and that only private
respondents are being prosecuted, or even merely investigated, for tax evasion. As pointed out by the
Solicitor General, assuming ex hypothesi that other corporate manufacturers are guilty of using similar
schemes for tax evasion, the proper remedy is not the dismissal of the complaints against private
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respondents, but the prosecution of other similar evaders. In this regard, in the absence of willful or
malicious prosecution, or so-called "selective prosecution," the choice on whom to prosecute ahead of the
others belongs legitimately, and rightly so, to the public prosecutors.
But, I share the view of the majority that the trial court did not commit grave abuse of discretion amounting
to lack of jurisdiction. At once it must be pointed out that the trial court merely issued writs of preliminary
injunction. However to grant the prayer of herein petitioners would effectively dismiss the petition
for certiorari and prohibition filed by private respondents with the trial court even before the issues in the
main case could be joined, which seems to me to be a procedural lapse since the main case is already being
resolved when the only issue before the Court is the propriety of the ancillary or provisional remedy.
The trial court granted the writs of preliminary injunction upon finding, after hearing for the purpose, that
private respondents sufficiently established that "they are entitled to certain constitutional rights and that
these rights have been violated," 1 and that they have complied with the requirements of Sec. 3, Rule 58,
Rules of Court. 2 In support of its conclusion, the trial court enumerated its reasons: first, inspite of the
motion of respondent Fortune Tobacco Corporation, petitioner Commissioner of Internal Revenue failed to
present the "daily manufacturer's sworn statements submitted to the BIR by the taxpayer," supposedly
stating that the total taxable sales of respondent Corporation for the year 1992 is P16,686,372,295.00,
which is the basis of petitioner Commissioner's allegation that private respondents failed to pay the correct
taxes since it declared in its VAT returns that its total taxable sales in 1992 was only
P11,736,658.580.00; second, the proper application of Sec. 142, par. (c), of the National Internal Revenue
Code is a prejudicial question which must first be resolved by the Court of Tax Appeals to determine
whether a tax liability which is an essential element of tax evasion exists before criminal proceedings may
be pursued; third, from the evidence submitted, it appears that the Bureau of Internal Revenue has not yet
made a final determination of the tax liability of private respondents with respect to its ad valorem, value
added and income taxes for 1992; and, fourth, the precipitate issuance by the prosecutors of subpoenas to
private respondents one (1) day after the filing of the complaint, consisting of about 600 pages, inclusive of
the 14-page complaint, 17-page joint affidavit of eight (8) revenue officers and the annexes attached
thereto, and their hasty denial of private respondents' 135-page motion to dismiss, after a recess of only
about 20 minutes, show that private respondents' constitutional rights may have been violated.
These circumstances as well as the other traces of discrimination mentioned by the trial court, i.e., the
announcement by the PCGG that it would take over the various corporations associated with respondent
Lucio C. Tan; the creation of the Task Force on Revenue Cases among the functions of which is to
"[i]nvestigate the tax liabilities of manufacturers that engage in well-known tax evasion schemes, such as
selling products through dummy marketing companies to evade the payment of the correct internal revenue
taxes," the very charge against respondent Tan; the reclassification of respondent corporation's best selling
cigarettes as foreign brands thereby imposing upon them a higher tax rate that would price them out of the
market without notice and hearing; the singling out of private respondents as subjects of a complaint for tax
evasion when other cigarette manufacturers have been using the same basis private respondents are using in
paying ad valorem, value added and income taxes; and, the failure of petitioner Commissioner to wait for
the expiration of the 30-day period she herself gave to private respondents to pay the supposed tax
deficiencies before the filing of the complaint, obviously impelled the trial court to issue the writ of
preliminary injunction. Practically the same grounds were found by the trial court when it provisionally
restrained the investigation of the two (2) other complaints, i.e., tax evasion complaints for FYs 1990 and
1991.
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On the basis of the findings of the trial court, it indeed appears that private respondents' constitutional
rights to due process of law and equal protection of the laws may have been for the moment set aside, if not
outright violated. The trial court was convinced that the tell-tale signs of malice and partiality were
indications that the constitutional rights of private respondents may not have been afforded adequate
protection. Accordingly I see no manifest abuse, much less grave, on the part of the trial court in issuing
the injunctive writs. Thus it is my opinion that the trial court did not commit grave abuse of discretion in
granting the assailed writs.
Well entrenched is the rule that the issuance of the writ of preliminary injunction as an ancillary or
preventive remedy to secure the rights of a party in a pending case rests upon the sound discretion of the
court hearing it. The exercise of sound judicial discretion by the trial court in injunctive matters should not
be interfered with except in case of manifest abuse, 3 which is not true in the case before us. Equally well
settled is that under Sec. 7, Rule 58, Rules of Court, 4 a wide latitude is given to the trial court. 5 This is
because the conflicting claims in an application for a provisional writ more often than not involves a factual
determination which is not the function of this Court, or even respondent appellate court. Thus in the case
at bar the ascertainment of the actual tax liability, if any, based on the evidence already presented and still
to be presented, is more within the competence of the trial court before which the parties have raised the
very same issue in the main case. The truth or falsity of the divergent statements that there was deliberate
haste in issuing the subpoenas and in denying private respondents' motion to dismiss may be confirmed not
by this Court but by the trial court during that hearing on the merits.
In fine, no grave abuse of discretion can be attributed to a judge or body in the issuance of a writ of
preliminary injunction where a party was not deprived of its day in court as it was heard and had
exhaustively presented all its arguments and defenses. 6 It is undisputed that in the case before us
petitioners and private respondents were given sufficient time and opportunity to present their respective
pieces of evidence as well as arguments in support of their positions.
Consequently, I concur with the finding of the majority that the trial court committed no grave abuse of
discretion. As respondent appellate court said, "[g]rave abuse of discretion as a ground for issuance of writs
of certiorari and prohibition implies capricious and whimsical exercise of judgment as is equivalent to lack
of jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason of passion,
prejudice or personal hostility amounting to an evasion of positive duty or to a virtual refusal to perform
the duty enjoined, or to act at all in contemplation of law. 7 For such writs to lie there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with
centuries of both civil and common law traditions." 8 The trial court, to my mind, is not guilty of any of
these. Thus I accord respect to the exercise of the trial court's sound judicial discretion and hold that the
same should not be interfered with.
To permanently enjoin the trial court from proceeding in any manner in Civil Case No. Q-94-19790 and
allow the preliminary investigation of the complaints docketed as I.S. Nos. 93-508, 93-17942 and 93-584
with the Department of Justice to resume until their final conclusion and completion would go against the
prevailing rule that courts should avoid issuing a writ or preliminary injunction which would in effect
dispose of the main case without trial. 9 Due process considerations dictate that the assailed injunctive writs
are not judgments on the merits but merely orders for the grant of a provisional and ancillary remedy to
preserve the status quo until the merits of the case can be heard. The hearing on the application for issuance
of a writ of preliminary injunction is separate and distinct from the trial on the merits of the main case. The
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quantum of evidence required for one is different from that for the other, so that it does not necessarily
follow that if the court grants and issues the temporary writ applied for the same court will now have to
rule in favor of the petition for prohibition and ipso facto make the provisional injunction permanent.
If grave abuse of discretion attended the issuance of the writ of preliminary injunction, then by all means
nullify the abusive act -- but only that. The main case should be allowed to proceed according to due
process. The trial court should receive the evidence from the contending parties, weigh and evaluate the
same and then make its findings. Clearly, the dismissal of the main case as a result of a mere incident
relative to the issuance of an ancillary writ is procedurally awkward and violates due process, as it deprives
private respondents of their right to present their case in court and support it with its evidence.
In resolving the fundamental issue at hand, i.e., whether the trial court committed grave abuse of discretion
in issuing the subject writs of preliminary injunction, we cannot avoid balancing on the scales the power of
the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the laws on the other.
Obviously the scales must tilt in favor of the individual, for a citizen's right is amply protected by the Bill
of Rights of the Constitution. Thus while "taxes are the lifeblood of the government," the power to tax has
its limits, inspite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc., 10 we said Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved.
xxx xxx xxx
It is said that taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for the lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of one's hard-earned income to taxing
authorities, every person who is able to must contribute his share in the running of the
government. The government for its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the
seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then came to his succor. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate . . . that the law has not
been observed.

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In the instant case, it seems that due to the overzealousness in collecting taxes from private respondents and
to some accident of immediate overwhelming interest which distressingly impassions and distorts
judgment, the State has unwittingly ignored the citizens' constitutional rights. Thus even the rule that
injunction will not lie to prevent a criminal prosecution has admitted exceptions, which we enumerated
in Brocka v. Enrile 11 and in Ocampo IV v.Ombudsman 12 -- (a) to afford adequate protection to the
constitutional rights of the accused; (b) when necessary for the orderly administration of justice or to avoid
oppression or multiplicity of actions; (c) when there is a prejudicial question which is sub-judice; (d) when
the acts of the officer are without or in excess of authority; (e) where the prosecution is under an invalid
law, ordinance or regulation; (f) when double jeopardy is clearly apparent; (g) when the court has no
jurisdiction over the offense; (h) where it is a case of persecution rather than prosecution; (i) where the
charges are manifestly false and motivated by lust for vengeance; (j) when there is clearly no prima
facie case against the accused and a motion to quash on that ground has been denied; and, (k) to prevent a
threatened unlawful arrest.
Finally, courts indeed should not hesitate to invoke the constitutional guarantees to give adequate
protection to the citizens when faced with the enormous powers of the State, even when what is in issue are
only provisional remedies, as in the case at hand. In days of great pressure, it is alluring to take short cuts
by borrowing dictatorial techniques. But when we do, we set in motion an arbitrary or subversive influence
by our own design which destroys us from within. Let not the present case dangerously sway towards that
trend.
For all the foregoing, I vote to dismiss the instant petition for lack of merit, and to order the trial court to
proceed with Civil Case No. Q-94-19790 with reasonable dispatch.
PADILLA, J., dissenting:
Because of what I humbly perceive to be the crippling, chilling and fatal effects of the majority opinion on
the power of the state to investigate fraudulent tax evasion in the country, I am constrained to dissent, as
vigorously as I can, from the majority opinion.
THE ISSUE
The main issue in this petition for review on certiorari is whether or not there are valid grounds to stop or
stay the preliminary investigation of complaints filed by the Bureau of Internal Revenue (BIR) with the
Department of Justice (DOJ) Revenue Cases Task Force against private respondents for alleged fraudulent
tax evasion for the years 1990, 1991 and 1992. Stated differently, the issue is: did respondent trial court
commit grave abuse of discretion amounting to lack or excess of jurisdiction in stopping the subject
preliminary investigation?
THE CASE AND THE FACTS
On 7 September 1993, petitioner Commissioner of Internal Revenue filed a complaint with the DOJ against
private respondents Fortune Tobacco Corporation (hereinafter referred to simply as "Fortune"), its
corporate officers, nine (9) other corporations, and their respective corporate officers, for alleged fraudulent
tax evasion for the year 1992.

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The complaint, docketed as I.S. No. 93-508, was referred to the DOJ Task Force on Revenue Cases which
found sufficient grounds to further investigate the allegation that Fortune fraudulently evaded payment of
income, value-added and ad valorem taxes for the year 1992 thus depriving the Government of revenue
allegedly in excess of seven and one-half (7 1/2) billion pesos.
The fraudulent scheme allegedly adopted and employed by private respondents, is described by the BIR as
follows:
In order to evade payment of said taxes, [Fortune] made fictitious and simulated sales of
its cigarette products to non-existent individuals and to entities incorporated and existing
only for the purpose of such fictitious sales by declaring registered wholesale prices with
the BIR lower than [Fortune's] actual wholesale prices which are required for
determination of [Fortune's] correct ad valorem, income and value-added tax liabilities.
These "ghost wholesale buyers" then ostensibly sold the product to consumers and other
wholesalers/retailers at higher wholesale prices determined by [Fortune]. The tax returns
and manufacturer's sworn statements filed by [Fortune] as aforesaid declare the fictitious
sales it made to the conduit corporations and non-existent individual buyers as its gross
sales. 1
Based on the initial evaluation of the DOJ Task Force, private respondents were subpoenaed and required
to submit their counter-affidavits not later than 20 September 1993. 2 Instead of filing counter-affidavits,
private respondents filed a "Verified Motion to Dismiss; Alternatively, Motion to Suspend." 3 Said motion
was denied by the DOJ Task Force and treated as private respondents' counter-affidavit, in an order dated
15 October 1993. 4
Private respondents sought reconsideration of the aforementioned order of denial and likewise filed
motions to require submission by the Bureau of Internal Revenue (BIR) of certain documents to support the
verified motion to dismiss or suspend the investigation, and for the inhibition of the state prosecutors
assigned to the case for alleged lack of impartiality. 5
On 20 December 1993, an omnibus order was issued by the investigating Task Force: 6
a. denying reconsideration;
b. denying suspension of investigation; and
c. denying the motion to inhibit the investigating state prosecutors.
Thereupon, or on 4 January 1994, private respondents went to court. They filed a petition for certiorari and
prohibition with prayer for preliminary injunction in the Regional Trial Court, Branch 88, Quezon City,
praying that the proceedings (investigation) before the DOJ Task Force be stopped. The petition was
docketed as Civil Case No. Q-94-19790. 7
On 17 January 1994, petitioners filed with the trial court a motion to dismiss the aforesaid petition. 8 On 25
January 1994, the trial court issued instead an order granting the herein private respondents' prayer for a
writ of preliminary injunction,9 to stop the preliminary investigation in the DOJ Revenue Cases Task Force.
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On 26 January 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition
seeking this time the issuance of another writ of preliminary injunction against a second complaint of the
BIR with the DOJ docketed as I.S. No. 93-17942 likewise against herein private respondents for fraudulent
tax evasion for the year 1990. Private respondents averred in their aforesaid motion with the trail court that
-a. no supporting documents nor copies of the complaint were attached to the subpoena in I.S. No. 9317942;
b. the abovementioned subpoena violates private respondents' constitutional rights to due process, equal
protection and presumption of innocence;
c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-508 except that it concerns the year 1990;
d. no tax assessment has been issued by the Commissioner of Internal Revenue and since taxes already paid
have not been challenged by the BIR, no tax liability exists;
e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia was a former classmate of then Presidential
Legal Counsel Antonio T. Carpio, thus, he cannot conduct the preliminary investigation in an impartial
manner.
On 28 January 1994, private respondents filed with the trial court a second supplemental petition 10 this
time seeking to stay the preliminary investigation in I.S. No. 93-548, a third BIR complaint with the DOJ
against private respondents for fraudulent tax evasion for the year 1991.
On 31 January 1994, the trial court admitted the two (2) supplemental petitions and issued a temporary
restraining order stopping the preliminary investigation of the two (2) later complaints with the DOJ
against private respondents for alleged fraudulent tax evasion for the years 1990 and 1991.
On 7 February 1994, the trial court also issued an order denying herein petitioners' motion to dismiss
private respondents' petition seeking to stay the preliminary investigation in I.S. No. 93-508. The trial court
ruled that the issue of whether Sec. 127(b) of the National Internal Revenue (Tax) Code should be the basis
of herein private respondents' tax liability, as contended by the Bureau of Internal Revenue, or whether it is
Sec. 142(c) of the same code that applies, as argued by herein private respondents, should first be settled
before any criminal complaint for fraudulent tax evasion can be initiated or maintained.
On 14 February 1994, the trial court issued a supplemental writ of preliminary injunction this time
enjoining the preliminary investigations of the two (2) other BIR complaints with the DOJ for fraudulent
tax evasion. The trial court then denied motions to dismiss the two (2) supplemental petitions, filed by
therein respondents Commissioner of Internal Revenue and the DOJ Revenue Cases Task Force
investigators.
On 7 March 1994, herein petitioners filed with this Court a petition for certiorari and prohibition with
prayer for preliminary injunction which questioned the orders issued by the trial court granting the private
respondents' prayer for preliminary injunction to stop the preliminary investigation in the DOJ of the BIR's
complaints for fraudulent tax evasions against private respondents and denying petitioners' motions to
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dismiss private respondents' various petitions with the trial court. The petition was referred by this Court to
the Court of Appeals which has original concurrent jurisdiction over the petition.
On 19 December 1994, the Court of Appeals rendered a decision which, in part, reads:
In making such conclusion the respondent Court (the Regional Trial Court of Quezon
City, Branch 88) must have understood from herein petitioner Commissioner's lettercomplaint of 14 pages and the joint affidavit of eight revenue officers of 17 pages attached
thereto and its annexes, that the charge against herein respondents is for tax evasion for
non-payment by herein respondent Fortune of the correct amounts of income tax, ad
valorem tax and value added tax, not necessarily "fraudulent tax evasion". Hence, the
need for previous assessment of the correct amount by herein petitioner Commissioner
before herein respondents may be charged criminally. Certiorari will not be issued to cure
errors in proceedings or correct erroneous conclusions of law or fact. As long as a Court
acts within its jurisdiction, any alleged error committed in the exercise of its jurisdiction,
will amount to nothing more than errors of judgment which are reviewable by timely
appeal and not by a special civil action of certiorari.
The questioned orders issued after hearing being but interlocutory, review thereof by this
court is inappropriate until final judgment is rendered, absent a showing of grave abuse of
discretion on the part of the issuing court. The factual and legal issues involved in the
main case still before the respondent Court are best resolved after trial. Petitioners,
therefore, instead of resorting to this petition for certiorari and prohibition should have
filed an answer to the petition as ordained in Section 4, Rule 16, in connection with Rule
11 of the Revised Rules of Court, interposing as defense or defenses the objection or
objections raised in their motion to dismiss, then proceed to trial in order that thereafter
the case may be decided on the merits by the respondent Court. In case of an adverse
decision, they may appeal therefrom by which the entire record of the case would be
elevated for review. Therefore, certiorari and prohibition resorted to by herein petitioners
will not lie in view of the remedy open to them. Thus, the resulting delay in the final
disposition of the case before the respondent Court would not have been incurred.
Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition
implies capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason
of passion, prejudice, or personal hostility, amounting to an evasion of positive duty or to
a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law. For
such writs to lie, there must be capricious, arbitrary and whimsical exercise of power, the
very antithesis of the judicial prerogative in accordance with centuries of both civil law
and common law traditions. Certiorari and prohibition are remedies narrow in scope and
inflexible in character. They are not general utility tools in the legal workshop. Their
function is but limited to correction of defects of jurisdiction solely, not to be used for any
other purpose, such as to cure errors in proceedings or to correct erroneous conclusions of
law or fact. Due regard for the foregoing teachings enunciated in the decision cited can
not bring about a decision other than what has been reached herein.
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Needless to say, the case before the respondent Court involving those against herein
respondents for alleged non-payment of the correct amount due as income tax, ad
valorem tax and value-added tax for the years 1990, 1991, and 1992 is not ended by this
decision. The respondent Court is still to try the case and decide it on the merits. All that
is decided here is but the validity of the orders of the respondent Court granting herein
respondents' application for preliminary injunction and denying herein, petitioners' motion
to dismiss. If upon the facts established after trial and the applicable law, dissolution of
the writ of preliminary injunction allowed to be issued by the respondent Court is called
for and a judgment favorable to herein petitioners is demanded, the respondent Court is
duty bound to render judgment accordingly.
WHEREFORE, the instant petition for certiorari and prohibition with application for
issuance of restraining order and writ of preliminary injunction is DISMISSED. Costs de
officio. (references to annexes and citations omitted) 11
Petitioners' motion for reconsideration of the aforequoted judgment was denied by respondent appellate
court on 23 February 1995, hence, the present petition for review on certiorari based on the following
grounds:
GROUNDS FOR THE PETITION
THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT:
I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE
SUSPENSION OF THE PRELIMINARY INVESTIGATION
II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL PROTECTION
AND PRESUMPTION OF INNOCENCE WERE VIOLATED; ON THE CONTRARY,
THE STATE ITSELF WAS DEPRIVED OF DUE PROCESS
III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL PETITIONS
WERE PROPER
IV. THERE WAS SELECTIVE PROSECUTION
V THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY
ADMITTED IN A MOTION TO DISMISS BASED ON JURISDICTIONAL GROUNDS
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON
THE MERITS OF THE PETITION BEFORE THE LOWER COURT 12
DISCUSSION
At the outset, it should be pointed out that respondent appellate court's observations to the effect that herein
petitioners' recourse to said court through a special civil action of certiorari and prohibition was improper
(as discussed in the aforequoted portion of the CA decision) actually and appropriately apply to private
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respondents when they resorted to the remedy of certiorari and prohibition with application for preliminary
injunction with the respondent Regional Trial Court to stop the preliminary investigation being conducted
by the DOJ Revenue Cases Task Force of the BIR complaints for fraudulent tax evasion against private
respondents. It is to be noted that the proceedings before the investigators (preliminary investigation before
the DOJ Revenue Cases Task Force) are far from terminated. In fact, private respondents were merely
subpoenaed and asked to submit counter-affidavits. They instead resorted to the courts for redress after
denial of their motion to dismiss. The proper procedure on the part of private respondents after their motion
to dismiss was denied by the investigating panel, should have been an appeal from such an adverse
resolution to the Secretary of Justice, not a special civil action for certiorariand prohibition with
application for preliminary injunction before the respondent trial court.
As a corollary, the respondent trial court should have desisted from entertaining private respondents'
original petition for certiorari and prohibition with prayer for preliminary injunction because a court order
to stop a preliminary investigation is an act of interference with the investigating officers' discretion, absent
any showing of grave abuse of discretion on the part of the latter in conducting such preliminary
investigation.
The rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting and finishing his
preliminary investigation. 13 The private respondents' petition before the trial court in this case was clearly
premature since the case did not fall within any of the exceptions when prohibition lies to stop a
preliminary investigation. 14
The decision of the majority in this case clearly constitutes an untenable usurpation of the primary duty and
function of the prosecutors to conduct the preliminary investigation of a criminal offense and the power of
the Secretary of Justice to review the resolution of said prosecutors.
In Guingona, supra, the Court en banc ruled thus:
"As a general rule, an injunction will not be granted to restrain a criminal prosecution".
With more reason will injunction not lie when the case is still at the preliminary
investigation stage. This Court should not usurp the primary function of the City Fiscal to
conduct the preliminary investigation of the estafa charge and of the petitioners'
countercharge for perjury, which was consolidated with the estafa charge.
The City Fiscal's office should be allowed to finish its investigation and make its factual
findings. This Court should not conduct the preliminary investigation. It is not a trier of
facts. (Reference to footnotes omitted).
Before resolving the main issue in this petition, as earlier stated in this opinion, several preliminary issues
raised by private respondents in their "Verified Motion To Dismiss; Alternatively, Motion To Suspend"
need to be addressed, namely:
A.) Private respondent Fortune's right to due process and equal protection of the laws have been violated
because of the subject preliminary investigation before the DOJ Revenue Cases Task Force.

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B.) Jurisdiction over Fortune's tax liability pertains to the Court of Tax Appeals and not the Regional Trial
Courts, thus, the Department of Justice, through its state prosecutors, is without jurisdiction to conduct the
subject preliminary investigation.
C.) The complaints for fraudulent tax evasion are unsupported by any evidence to serve as basis for the
issuance of a subpoena.
D.) The lack of final determination of Fortune's tax liability precludes criminal prosecution.
1. On the alleged violation of Fortune's rights to due process and equal protection of the laws, I fail to see
any violation of said rights.
Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers alleged by
the BIR to be mere "dummies" or conduits of Fortune in the fraudulent tax evasion on the Government,
were given the opportunity to file their counter-affidavits to refute the allegations in the BIR complaints,
together with their supporting documents. It is only after submission of counter-affidavits that the
investigators will determine whether or not there is enough evidence to file in court criminal charges for
fraudulent tax evasion against private respondents or to dismiss the BIR complaints. At this stage of the
preliminary investigation, the constitutional right of private respondents to due process is adequately
protected because they have been given the opportunity to be heard, i.e., to file counter-affidavits.
Nor can it be said, as respondents falsely argue, that there was no ground or basis for requiring the private
respondents to file such counter-affidavits. As respondent Court of Appeals admitted in its here assailed
decision, the BIR complaint (1st complaint) signed by the Commissioner of Internal Revenue consisted of
fourteen (14) pages supported by an annex consisting of seventeen (17) pages in the form of a joint
affidavit of eight (8) revenue officers, to which were attached voluminous documents as annexes which,
when put together, constituted a formidable network of evidence tending to show fraudulent tax evasion on
the part of private respondents. When, on the basis of such BIR complaint and its supporting documents,
the investigating Task Force saw a need to proceed with the inquiry and, consequently, required private
respondents to file their counter-affidavits, grave abuse of discretion could hardly be imputed to said
investigators.
2. On respondents' assertions that there is selective prosecution (no equal protection of the laws) since other
corporations similarly situated as they are, are not being prosecuted and/or investigated, the argument is
quite ludicrous, to say the least. As pointed out by the Solicitor General, more than one thousand (1,000)
criminal cases for tax evasion have been filed in Metro Manila alone. This number, even if it seems to
represent but a small fraction of "cases of actual tax evasion, undoubtedly show that respondents are not
being singled out. It is of note that the memorandum issued by the President of the Philippines creating a
task force to investigate tax evasion schemes of manufacturers was issued three (3) months before the
complaints against private respondents were filed. This makes any charge of selective prosecution baseless
since it could not then be shown, nor has it been shown by private respondents that only they (respondents)
were being investigated/prosecuted. In fact, up to this time, respondents have failed to substantiate this
allegation of selective prosecution against them.
Moreover, assuming arguendo that other corporate manufacturers are guilty of using similar schemes for
tax evasion, allegedly used by respondents, the Solicitor General correctly points out that the remedy is not
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dismissal of the complaints against private respondents or stoppage of the investigations of said complaints,
but investigation and prosecution of other similar violators (fraudulent tax evaders).
3. Private respondents' allegations that the Assistant Quezon City Prosecutor (among those investigating
the complaints against them) lacks impartiality, are so unsubstantiated, imaginary, speculative and indeed
puerile. They need not be elaborately refuted as a mere denial would suffice under the circumstances.
4. On the issue of jurisdiction, the rule is settled that city and state prosecutors are authorized to conduct
preliminary investigations of criminal offenses under the National Internal Revenue Code. Said criminal
offenses are within the jurisdiction of the Regional Trial Court. 15
5. The issue of whether or not the evidence submitted by petitioners is sufficient to warrant the filing of
criminal informations for fraudulent tax evasion is prematurely raised. 16 To argue, as private respondents
do, that one piece of evidence, i.e. the Daily Manufacturer's Sworn Statements, should be produced at a
particular stage of the investigation, in order to determine the probable guilt of the accused, is to dictate to
the investigating officers the procedure by which evidence should be presented and examined. Further, "a
preliminary investigation is not the occasion for the full and exhaustive display of the parties' evidence; it is
for the presentation of such evidence only as may engender a well grounded belief that an offense has been
committed and that the accused is probably guilty thereof . . ." 17
Besides, the preliminary investigation has not yet been terminated. The proper procedure then should be to
allow the investigators, who undeniably have jurisdiction, to conduct and finish the preliminary
investigation and to render a resolution. The party aggrieved by said resolution can then appeal it to the
Secretary of Justice, 18 as required by the settled doctrine of exhaustion of administrative remedies. What
special qualification or privilege, I may ask, do private respondents have, particularly Fortune and Lucio
Tan, as to exempt them from the operation of this rooted principle and entitle them to immediate judicial
relief from the respondent trial court in this case?
6. The respondents Court of Appeals and the trial court maintain, as private respondents do, that a previous
assessment of the correct amount of taxes due is necessary before private respondents may be charged
criminally for fraudulent tax evasion. This view is decidedly not supported by law and jurisprudence.
The lack of a final determination of respondent Fortune's exact or correct tax liability is not a bar to
criminal prosecution for fraudulent tax evasion. While a precise computation and assessment is required for
a civil action to collect a tax deficiency, the National Internal Revenue Code does not require such
computation and assessment prior to criminal prosecution for fraudulent tax evasion. Thus, as this Court
had earlier ruled -An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator has
knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax.
The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that
he has made an inaccurate return, and the government's failure to discover the error and
promptly to assess has no connections with the commission of the crime. 19
It follows that, under the Ungab doctrine, the filing of a criminal complaint for fraudulent tax evasion
would be proper even without a previous assessment of the correct tax.
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The argument that the Ungab doctrine will not apply to the case at bar because it involves a factual setting
different from that of the case at bar, is erroneous. The Ungab case involved the filing of a fraudulent
income tax return because the defendant failed to report his income derived from sale of banana saplings.
In the case at bar, the complaints filed before the DOJ for investigation charge private wholesale
respondents with fraudulent concealment of the actual price of products sold through declaration of
registered wholesale prices lower than the actual wholesale prices, resulting in underpayment of income, ad
valorem, and value-added taxes. Both cases involve, therefore, fraudulent schemes to evade payment to the
Government of correct taxes.
The Court in Ungab stated further as follows:
The petitioner also claims that the filing of the informations was precipitate and premature
since the Commissioner of Internal Revenue has not yet resolved his protests against the
assessment of the Revenue District Officer; and that he was denied recourse to the Court
of Tax Appeals.
The contention is without merit. What is involved here is not the collection of taxes where
the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of
Tax Appeals, but a criminal prosecution for violations of the National Internal Code
which is within the cognizance of courts of first instance. While there can be no civil
action to enforce collection before the assessment procedures provided in the Code have
been followed, there is no requirement for the precise computation and assessment of the
tax before there can be a criminal prosecution under the Code.
The contention is made, and is here rejected, that an assessment of the deficiency tax due
is necessary before the taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as in this case, knowingly and
wilfully filed fraudulent returns with intent to evade and defeat a part or all of the tax.
[Guzik vs. U.S., 54 F2d 618] (emphasis supplied)
The ruling in the Ungab case is undisputably on all fours with, and conclusive to the case at bar. It should
be stressed and pointed out that in Ungab the Court denied the prayer of therein petitioner to quash
informations for tax evasion that had already been filed in court. In other words, the prosecutors
in Ungab had already found probable cause to try therein petitioner for tax evasion. Despite this fact there
was no finding by the Court of violation of any of petitioner's constitutional rights.
In the present case, private respondents were merely being required to submit counter-affidavits to the
complaints filed. If no violation of constitutional rights was committed in Ungab, upon the filing of the
criminal informations in Court, how can there now be a violation of private respondents' constitutional
rights upon a requirement by the investigators that private respondents submit their counter-affidavits.
The Court has not been presented any compelling or persuasive argument why the Ungab doctrine has to be
abandoned. It is good law and should be the nemesis of fraudulent tax evaders. It gives teeth to the proper
enforcement of our tax laws.
7. Private respondents argue that a case earlier file before the Court of Tax Appeals (CTA) and now before
this Court 20 involves a prejudicial question justifying or requiring suspension of the preliminary
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investigation of the complaints for fraudulent tax evasion against private respondents. Said case involves
the validity of BIR Revenue Memorandum Circular No. 37-93 dated 1 July 1993 which reclassified
cigarettes manufactured by respondent Fortune. The circular subjects cigarettes with brand names "Hope",
"More" and "Champion" to a 10% increase in ad valorem taxes starting 2 July 1993. Respondent Fortune
has assailed the validity of said revenue circular and the case has yet to be decided with finality.
But the foregoing issue is irrelevant to the issue of fraudulent tax evasion involved in this case. A final
decision either upholding or nullifying the aforementioned revenue circular will not affect private
respondents' criminal liability for fraudulent tax evasion, for the following reasons:
a) The revenue circular involved in the other case pertains to ad valorem taxes on sales of Fortune's named
cigarette brands after 1 July 1993 while the fraudulent tax evasion involved in the present case pertains to
years 1990, 1991 and 1992.
b) The fraudulent scheme allegedly utilized by Fortune and its dummies, as described in the BIR
complaints pending with the DOJ Revenue Cases Task Force, which resulted in the
misdeclaration/underdeclaration of Fortune's gross sales receipts resulting in turn in underpayment of ad
valorem, value-added and income taxes was actually a "built-in" tax evasion device already in place even
before the assailed revenue circular was issued. The scheme is particularly designed to result in the
underpayment of ad valorem, value-added and income taxesregardless of the tax rate fixed by the
government on cigarette products.
8. Respondents also argue that the issue of whether Section 127(b) or Section 142(c) of the National
Internal Revenue Code is applicable to private respondents should first be settled before any criminal cases
can be filed against them. This argument is both misleading and erroneous.
The aforementioned provisions read:
Sec. 127. . . .
(b) Determination of gross selling price of goods subject to ad valorem tax. -- Unless
otherwise provided, the price, excluding the value-added tax, at which the goods are sold
at wholesale in the place of production or through their sales agents to the public shall
constitute the gross selling price. If the manufacturer also sells or allows such goods to be
sold at wholesale price in another establishment of which he is the owner or in the profits
at which he has an interest, the wholesale price in such establishment shall constitute the
gross selling price. Should such price be less than the cost of manufacture plus expenses
incurred until the goods are finally sold, then a proportionate margin of profit, not less
than 10% of such manufacturing cost and expenses, shall be added to constitute the gross
selling price.
Sec. 142 . . .
(c) Cigarettes packed in twenties. -- There shall be levied, assessed and collected on
cigarettes packed in twenties an ad valorem tax at the rates prescribed below based on the
manufacturer's registered wholesale price:
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(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent


(55%): Provided, That this rate shall apply regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its owner to the local manufacturer.
Whenever it has to be determined whether or not a cigarette bears a foreign brand, the
listing of brands manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.
(2) On other locally manufactured cigarettes, forty-five percent (45%).
Duly registered or existing brands of cigarettes packed in twenties shall not be allowed to
be packed in thirties.
When the existing registered wholesale price, including tax, of cigarettes packed in
twenties does not exceed P4.00 per pack, the rate shall be twenty percent (20%).
As the Solicitor General correctly points out, the two (2) aforequoted provisions of the Tax Code are both
applicable in determining the amount of tax due. Section 127(b) provides for the method of determining the
gross wholesale price to be registered with the BIR while Section 142(c) provides for the rate of ad
valorem tax to be paid. Said rate is expressed as a percentage of the registered gross selling price which is
determined, in turn, based on Section 127(b).
The aforementioned two (2) provisions of the Tax Code are certainly not determinative of private
respondents' criminal liability, if any. A reading of the BIR complaints pending with the DOJ Revenue
Cases Task Force shows that private respondent Fortune is being accused of using "dummy" corporations
and business conduits as well as non-existent individuals and entities to enable the company (Fortune) to
report gross receipts from sales of its cigarette brands lower than gross receipts which are actually
derived from such sales. Such lower gross receipts of the company, as reported by respondent Fortune thus
result in lower ad valorem, value-added and income taxes paid to the government. Stated a little differently,
respondent Fortune is accused of selling at wholesale prices its cigarette brands through dummy entities in
the profits of which it has a controlling interest. Under Section 127(b), the gross selling price of the goods
should be the wholesale price of such dummy -- entities to its buyers but it is alleged by the government
that respondent Fortune has purposely made use of such entities to evade payment of higher but legally
correct taxes.
9. As to respondents' additional claim that with regard to ad valorem tax, they merely based their liability
on the wholesale price registered with the Bureau of Internal Revenue (BIR) following the method used by
all cigarette manufacturers, said claim cannot absolve Fortune and its officers from criminal
liability. 21 Payment of ad valoremand other taxes based on the wholesale price registered with the
BIR presupposes and naturally assumes that the registered wholesale price correspond to the actual
wholesale prices at which the manufacturer sells the product. If a manufacturer makes use of a method or
device to make it appear that products are sold at a wholesale price lower than the amounts that the
manufacturer actually realizes from such wholesale of its products, as what respondent Fortune is accused
of doing, through the use of dummy entities, then there arises criminal liability under the penal provisions
of the Tax Code. This is clear from Section 127(b) aforequoted in relation to the penal provisions of the
Tax Code.

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10. Private respondents contend that the registration with the BIR of manufacturer's wholesale price and the
corresponding close supervision and monitoring by BIR officials of the business operations of cigarette
companies, ensure payment of correct taxes. The argument is baseless. It does not follow that the cited
procedure is a guarantee against fraudulent schemes resorted to by tax-evading individuals or entities. It
only indicates that taxpayers bent on evading payment of taxes would explore more creative devices or
mechanisms in order to defraud the government of its sources of income even under its very nose. It is
precisely to avoid and detect cases like this that the President issued a Memorandum on 1 June 1993
creating a task force to investigate tax liabilities of manufacturers engaged in tax evasion schemes, such as
selling products through dummy marketing companies at underdeclared wholesale prices registered with
the BIR.
Moreover, the Manufacturer's Declaration which is the basis for determining the "Manufacturer's
Registered Wholesale Price" (which in turn becomes the basis for the imposition of ad valorem tax), even if
verified by revenue officers and approved by the Commissioner of Internal Revenue, does not necessarily
reflect the actual wholesale price at which the cigarettes are sold. This is why manufacturers are still
required to file other documents, like the "daily manufacturer's sworn statements" in order to assist in
determining whether or not correct taxes have been paid. In fine, even if BIR officials may have verified
Fortunes' BIR registered wholesale price for its products, the same does not estop or preclude the
Government from filing criminal complaints for fraudulent tax evasion based on evidence subsequently
gathered to the effect that such BIR registered wholesale prices were a misdeclaration or underdeclaration
of the actual wholesale price. It is hornbook law that the Government is not bound or estopped by the
mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent schemes
to defraud the Government. 22
Even on the assumption that official duty of BIR officials and employees has been regularly performed, the
allegations in the complaints are clear enough in that private respondents allegedly made use of schemes to
make it appear that respondent Fortune's tax liabilities are far less than what it (Fortune) should be actually
liable for under the law. The very nature of the offense for which respondents are being investigated,
certainly makes regularity/irregularity in the performance of official duties irrelevant.
It should also be pointed out that the offense allegedly committed by private respondents' consists in' the
intentional use of "dummy" entities to make it appear that respondent Fortune sells its products at lower
wholesale prices, which prices would correspond to the wholesale prices registered by Fortune with the
BIR, but not to the prices at which its products are sold by Fortune's dummies. The difference between
Fortune's BIR-reported wholesale prices and the prices at which its dummies sell Fortune's products thus
constitutes amounts for which Fortune should actually incur tax liabilities but for which it allegedly never
paid taxes because of the operation of the tax evasion scheme founded on a combined underdeclaration
with the BIR of Fortune's wholesale price of its products and the sale of such products to is "dummy"
corporations or to non- existing individuals or entities. This is the obvious reason why the government has
sought to investigate the alleged tax evasion scheme purportedly utilized by respondent Fortune and its
dummy corporations.
Based on the foregoing discussions, it follows that the answer to the main issue formulated earlier in this
opinion is in the negative since the private respondents have not shown that there exist, in this case,
exceptional grounds removing it from the general rule that preliminary investigations of criminal offenses
and criminal prosecutions cannot be stayed or enjoined by the courts. 23
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11. The trial court's ruling that private respondents' constitutional rights have been violated, rests on
untenable grounds. It must be remembered, in this connection, that exceptions to a settled rule, by their
nature, must be strictly applied. And any claim to an exception must be fully substantiated. In other words,
it must have real basis for existing.
The exceptions to the general rule against restraining orders or injunctions to stop preliminary
investigations or criminal prosecutions are enumerated in Brocka vs. Enrile. 24 One specific exception is
when an injunction is needed for the adequate protection of the accused's constitutional rights. The
exception definitely does not apply in the case at bar.
Before proceeding to illustrate this point, it is important to stress that in a preliminary investigation, the
investigating officers' sole duty is to determine, before the presentation of evidence by the prosecution and
by the defense, if the latter should wish to present any, whether or not there are reasonable grounds for
proceeding formally against the accused. 25 This is in conformity with the purpose of a preliminary
investigation which is to secure the innocent against hasty, malicious, and oppressive prosecutions, and to
protect him from an open and public accusation of crime, from the trouble, expense and anxiety of public
trial, and also to protect the state from useless and expensive trials. 26 As restated by the illustrious late
Chief Justice Manuel V. Moran -. . . the purpose of a preliminary investigation is to afford the accused an opportunity to
show by his own evidence that there is no reasonable ground to believe that he is guilty of
the offense charged and that, therefore, there is no good reason for further holding him to
await trial in the Court of First Instance. 27
Prescinding from the tenets above-discussed, it is clear from the inception that there had been no violation
of private respondents' constitutional rights to presumption of innocence, due process and equal protection
of the laws. The preliminary investigation, I repeat, has not yet been terminated. At this stage, only the
complainant has finished presenting its affidavits and supporting documents. Obviously then, the
investigating panel found that there were grounds to continue with the inquiry, hence, the issuance of
subpoena and an order for the submission of counter-affidavits by private respondents. Instead of filing
counter-affidavits, private respondents filed a Verified Motion to Dismiss; Alternatively, Motion to
Suspend. At this point, it may be asked, how could private respondents' constitutional right to presumption
of innocence be violated when, in all stages of the preliminary investigation, they were presumed innocent?
Declaring that there are reasonable grounds to continue with the inquiry is not the same as pronouncing that
a respondent is guilty or probably guilty of the offense charged.
12. Private respondents cannot also claim that they were not afforded due process and equal protection of
the laws. In fact, the investigating panel was concerned with just that when it ordered the submission of
private respondents' counter-affidavits. This procedure afforded private respondents the opportunity to
show by their own evidence that no reasonable grounds exist for the filing of informations against them.
Furthermore, contrary to the findings of the trial court and the Court of Appeals, the alleged haste by which
the subpoena was issued to private respondents (the day after the filing of the 600-page annexed complaint)
does not lessen the investigating panel's ability to study and examine the complainant's evidence. Neither
does such act merit the conclusion that the investigating panel was less than objective in conducting the
preliminary investigation. Consequently, the general and settled rule must apply that the courts cannot

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interfere with the discretion of the investigating officer to determine the specificity and adequacy of the
averments in the complaint filed, except in very exceptional circumstances, 28 which do not obtain here.
Therefore, private respondents' act of filing a petition for certiorari and prohibition before the Regional
Trial Court was rather untimely and uncalled for, not only because private respondents failed to exhaust
their administrative remedies but also because the grounds cited in their petition before the trial court were
highly speculative -- more fancied than real.
Finally, Hernandez v. Albano (19 SCRA 95), cited by the majority to support the conclusion that
preliminary investigation can be stayed by the courts, clearly states that preliminary investigation can be
stayed by court order only in extreme cases. Hernandez also states that:
By statute, the prosecuting officer of the City of Manila and his assistants are empowered
to investigate crimes committed within the city's territorial jurisdiction. Not a mere
privilege, it is the sworn duty of a Fiscal to conduct an investigation of a criminal charge
filed with his office. The power to investigate postulates the other obligation on the part of
the Fiscal to investigate promptly and file the case of as speedily. Public interest -- the
protection of society -- so demands. Agreeably to the foregoing, a
rule -- now of long standing and frequent application -- was formulated that ordinarily
criminal prosecution may not be blocked by court prohibition or injunction. Really, if at
every turn investigation of a crime will be halted by a court order, the administration of
criminal justice will meet with an undue setback. Indeed, the investigative power of the
Fiscal may suffer such a tremendous shrinkage that it may end up in hollow sound rather
than as a part and parcel of the machinery of criminal justice.
It should be noted that while Hernandez lays down the extreme grounds when preliminary investigation of
criminal offenses may be restrained by the courts, the dispositive portion of the decision affirmed the
decision of the trial court dismissing a petition for certiorari and prohibition with prayer for preliminary
injunction filed to stay the preliminary investigation of criminal complaints against petitioner Hernandez.
The other case cited by the majority to support its decision in this case, Fortun v. Labang 29 involves
criminal complaints filed against a judge of the Court of First Instance by disgruntled lawyers who had lost
their cases in the judge's sala. Clearly, the basis for the Court to stay preliminary investigation
in Fortun was a finding that said complaints were filed merely as a form of harassment against the judge
and which "could have no other purpose than to place petitioner-judge in contempt and disrepute". The
factual situation in the case at bar is poles apart from the factual situation in Fortun.
Further, in Fortun there was an express finding by the Court that complaints against judges of the Courts of
First Instance are properly filed with the Supreme Court under Executive Order No. 264 (1970) since the
Court is considered as the department head of the judiciary. In the present case it cannot be disputed that
jurisdiction to conduct preliminary investigation over fraudulent tax evasion cases lies with the state
prosecutors (fiscals).
It cannot therefore be denied that neither Hernandez nor Fortun supports with any plausibility the
majority's disposition of the issues in the present case. On the other hand, it appears to me all too clearly
that the majority opinion, in this case, has altered the entire rationale and concept of preliminary
investigation of alleged criminal offenses. That alteration has, of course, served the purposes of
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distinguished private respondents. But I will have no part in the shocking process especially in light of the
fact that Government cries out that the people have beencheated and defrauded of their taxes to the tune
allegedly of P25.6 billion pesos, and yet, it is not given by this Court even a beggar's chance to prove it!
13. There is great and vital public interest in the successful investigation and prosecution of criminal
offenses involving fraudulent tax evasion. Said public interest is much more compelling in the present case
since private respondents are not only accused of violating tax and penal laws but are also, as a
consequence of such violations, possibly depriving the government of a primary source of revenue so
essential to the life, growth and development of the nation and for the prestation of essential services to the
people.
14. It should be made clear, at this point, however, that this opinion is not a pre-judgment or predetermination of private respondents' guilt of the offense charged. No one, not even the prosecutors
investigating the cases for fraudulent tax evasion, is, at this stage of the proceedings, when private
respondents have yet to file their counter-affidavits, in a position to determine and state with finality or
conclusiveness whether or not private respondents are guilty of the offense charged in the BIR complaints,
now with the DOJ Revenue Cases Task Force. It is precisely through the preliminary investigation that the
DOJ Task Force on Revenue Cases can determine whether or not there are grounds to file informations in
court or to dismiss the BIR complaints.
15. I see no grave abuse of discretion committed by the state prosecutors in requiring private respondents to
submit counter-affidavits to the complaints for fraudulent tax evasion and to determine the existence or
absence of probable criminal liability.
The Rules on Criminal Procedure do not even require, as a condition sine qua non to the validity of a
preliminary investigation, the presence of the respondent as long as efforts to reach him are made and an
opportunity to controvert the complainant's evidence is accorded him. The purpose of the rule is to check
attempts of unscrupulous respondents to thwart criminal investigations by not appearing or employing
dilatory tactics. 30
16. Since the preliminary investigation in the DOJ Revenue Cases Task Force against private respondents
for alleged fraudulent tax evasion is well within its jurisdiction and constitutes no grave abuse of discretion,
it was in fact the respondent trial court that committed grave abuse of discretion, amounting to lack or
excess of jurisdiction, when it stayed such preliminary investigation.
17. The successful prosecution of criminal offenders is not only a right but the duty of the state. Only when
the state's acts clearly violate constitutional rights can the courts step in to interfere with the state's exercise
of such right and performance of such duty. I am indubitably impressed that there is no violation of private
respondents' constitutional rights in this case.
18. Lastly, the consolidation of the three (3) complaints in the DOJ against private respondents should be
allowed since they all involve the same scheme allegedly used by private respondents to fraudulently evade
payment of taxes. Consolidation will not only avoid multiplicity of suits but will also enable private
respondents to more conveniently prepare whatever responsive pleadings are required or expected of them.

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It is, therefore, my considered view that the decision of the Court of Appeals of 19 December 1994 in CA
G.R. SP No. 33599 should be SET ASIDE. The respondent trial court should be ENJOINED from
proceeding in any manner in Civil Case No. Q-94-19790, or at least until further orders from this Court.
The preliminary investigation of the BIR complaints docketed as I.S. Nos. 93-508, 93-17942 and 93-584
with the Department of Justice Revenue Cases Task Force, being constitutionally and legally in order,
should be allowed to resume until their final conclusion or completion, with private respondents given a
non-extendible period of ten (10) days from notice to submit to the investigating panel their respective
counter-affidavits and supporting documents, if any.
VITUG, J., dissenting:
I see in the petition the overriding issue of whether or not judicial relief could be resorted to in order to stop
state prosecutors from going through with their investigation of complaints lodged against private
respondents. Almost invariably, this Court has resolved not to unduly interfere, let alone to peremptorily
prevent, the prosecuting agencies or offices of the government in their investigatorial work or in their own
evaluation of the results of investigation. It would indeed be, in my view, an act precipitate for the courts to
take on a case even before the complaint or information is filed by the prosecution. Of course, one cannot
preclude the possibility that at times compelling reasons may dictate otherwise; I do not think, however,
that the instant case could be the right occasion for it.
While I do understand the concern expressed by some of my colleagues, i.e., that stopping the trial court
from now proceeding with Civil Case No. Q-94-9170 would, effectively, mean a disposition of the main
case without its merits having first been fully heard in the court below, in this particular situation before the
Court, however, the parties have since exhaustively and adequately presented their respective cases. In the
interest of good order, the practical measure of enjoining the trial court from taking further cognizance of
the case would not thus appear to be really all that unwarranted.
A final word: The matter affecting the civil liability for the due payment of internal revenue taxes,
including the applicable remedies and proceedings in the determination thereof, must be considered apart
from and technically independent of the criminal aspect that may be brought to bear in appropriate cases. A
recourse in one is not necessarily preclusive of, nor would the results thereof be conclusive on, the other.
Accordingly, I vote to grant the petition.
CASE SYLLABI:
Actions; Certiorari; Words and Phrases; Grave Abuse of Discretion, Defined.In resolving the issue
raised in the petition, the Court may be guided by its definition of what constitutes grave abuse of
discretion. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an
evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of
passion and hostility.
Same; Same; Same; Tax Evasion; If every step in the production of cigarettes was closely monitored and
supervised by the BIR personnel specifically assigned to the manufacturers premises, and considering
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that the Manufacturers Sworn Declarations on the data required to be submitted were scrutinized and
verified by the BIR and, further, since the manufacturers wholesale price was duly approved by the BIR,
in such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that
the manufacturer made fraudulent returns or wilfully attempted to evade payment of taxes due.Now,
if every step in the production of cigarettes was closely monitored and supervised by the BIR personnel
specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations on
the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and, further,
since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such
registered wholesale price is the same as, or approximates the price, excluding the value-added tax, at
which the goods are sold at wholesale in the place of production, otherwise, the BIR would not have
approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In
such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that private
respondents made fraudulent returns or wilfully attempted to evade payment of taxes due.
Same; Same; Same; Same; Words and Phrases; Willful and Fraud, Defined.Wilful means
premeditated; malicious; done with intent, or with bad motive or purpose, or with indifference to the
natural consequence x x x. Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust
or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable
advantage taken of another.
Same; Same; Same; Same; Fraud cannot be presumed.Fraud cannot be presumed. If there was fraud or
wilful attempt to evade payment of ad valorem taxes by private respondents through the manipulation of
the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of
certain BIR officials and employees who supervised and monitored Fortunes production activities to see to
it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnels
malfeasance. In the very least, there is the presumption that the BIR personnel performed their duties in the
regular course in ensuing that the correct taxes were paid by Fortune.
Same; Same; Same; Same; Before one is prosecuted for wilful attempt to evade or defeat any tax under
Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved.We share with the
view of both the trial court and Court of Appeals that before the tax liabilities of Fortune are first finally
determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or
defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful
attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due
must first be proved.
Same; Same; Same; Same; Instant case distinguished from Ungab v. Cusi, 97 SCRA 877 (1980).
Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to
prosecution is pointedly and deliberately qualified by the Court with following statement quoted from
Guzik v. U.S.: The crime is complete when the violator has knowingly and wilfully filed a fraudulent
return with intent to evade and defeat a part or all of the tax. In plain words, for criminal prosecution to
proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There
was a wilful attempt to evade tax in Ungab because of the taxpayers failure to declare in his income tax
return his income derived from banana sapplings. In the mind of the trial court and the Court of Appeals,
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Fortunes situation is quite apart factually since the registered wholesale price of the goods, approved by
the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR
has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be
placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the
case at bar.
Criminal Procedure; Preliminary Investigation; Exceptions to the general rule that criminal
prosecutions cannot be enjoined.As a general rule, criminal prosecutions cannot be enjoined. However,
there are recognized exceptions which, as summarized in Brocka v. Enrile are: a. To afford adequate
protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L-19272, January 25,
1967, 19 SCRA 95); b. When necessary for the orderly administration of justice or to avoid oppression or
multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun
vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607); c. When there is a prejudicial question which
is sub judice (De Leon vs. Mabanag, 70 Phil. 202); d. When the acts of the officer are without or in excess
of authority (Planas vs. Gil, 67 Phil. 62); e. Where the prosecution is under an invalid law, ordinance or
regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389); f. When
double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140); g. Where the
court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966, 18 SCRA
616); h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760,
March 25, 1960); i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto
vs. Castelo, 18 L.J. [1953], cited in Raoa vs. Alvendia, CA-G.R. No. 30720-R, October 8, 1962; Cf.
Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and j. When there is clearly no
prima facie case against the accused and a motion to quash on that ground has been denied (Salonga vs.
Pao, et al., L-59524, February 18, 1985, 134 SCRA 438).
Same; Same; Same; Preliminary investigation may be enjoined where exceptional circumstances
warrant.Contrary to petitioners submission, preliminary investigation may be enjoined where
exceptional circumstances so warrant. In Hernandez v. Albano and Fortun v. Labang, injunction was issued
to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the
complaint against them before the prosecution andalternatively, to suspend the preliminary investigation on
the grounds cited hereinbefore, one of which is that the complaint of the Commissioner is not supported by
any evidence to serve as adequate basis for the issuance of the subpoena to them and put them to their
defense. Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious
and oppressive prosecution and to protect him from an open and public accusation of crime, from the
trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials.
Actions; Certiorari; Pleadings and Practice; Certiorari will not be issued to cure errors in proceedings
or correct erroneous conclusions of law or factas long as a court acts within its jurisdiction, any alleged
errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil action of certiorari.We believe that the
trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave abuse of
discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the
other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a
whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to
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cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari.
Consequently, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and
the law, in issuing the orders granting the writs of preliminary injunction, in denying petitioners motion to
dismiss and in admitting the supplemental petitions. What petitioners should have done was to file an
answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the court if
adverse to them.
BELLOSILLO, J., Concurring and Dissenting:
Due Process; Preliminary Injunction; Pleadings and Practice; The dismissal of the main case as a result
of a mere incident relative to the issuance of an ancillary writ is procedurally awkward and violates due
process.If grave abuse of discretion attended the issuance of the writ of preliminary injunction, then by
all means nullify the abusive actbut only that. The main case should be allowed to proceed according to
due process. The trial court should receive the evidence from the contending parties, weigh and evaluate
the same and then make its findings. Clearly, the dismissal of the main case as a result of a mere incident
relative to the issuance of an ancillary writ is procedurally awkward and violates due process, as it deprives
private respondents of their right to present their case in court and support it with its evidence.
Taxation; While taxes are the lifeblood of the government, the power to tax has its limits, inspite of all
its plenitude.In resolving the fundamental issue at hand, i.e., whether the trial court committed grave
abuse of discretion in issuing the subject writs of preliminary injunction, we cannot avoid balancing on the
scales the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on
one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws
on the other. Obviously the scales must tilt in favor of the individual, for a citizens right is amply protected
by the Bill of Rights of the Constitution. Thus while taxes are the lifeblood of the government, the power
to tax has its limits, inspite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc.,
we saidTaxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
Courts; Judicial Statesmanship; In days of great pressure, it is alluring to take short cuts by borrowing
dictatorial techniques, but when courts do, they set in motion an arbitrary or subversive influence by
their own design which destroys them from within.Finally, courts indeed should not hesitate to invoke
the constitutional guarantees to give adequate protection to the citizens when faced with the enormous
powers of the State, even when what is in issue are only provisional remedies, as in the case at hand. In
days of great pressure, it is alluring to take short cuts by borrowing dictatorial techniques. But when we do,
we set in motion an arbitrary or subversive influence by our own design which destroys us from within. Let
not the present case dangerously sway towards that trend.
PADILLA, J., Dissenting:

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Criminal Procedure; Preliminary Investigation; Prosecutors; The decision of the majority clearly
constitutes an untenable usurpation of the primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the power of the Secretary of Justice to review the
resolution of said prosecutors.The rule is settled that the fiscal (prosecutor) cannot be prohibited from
conducting and finishing his preliminary investigation. The private respondents petition before the trial
court in this case was clearly premature since the case did not fall within any of the exceptions when
prohibition lies to stop a preliminary investigation. The decision of the majority in this case clearly
constitutes an untenable usurpation of the primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the power of the Secretary of Justice to review the
resolution of said prosecutors.
Same; Taxation; Tax Evasion; The lack of a final determination of a manufacturers exact or correct
tax liability is not a bar to criminal prosecution for fraudulent tax evasion.The lack of a final
determination of respondent Fortunes exact or correct tax liability is not a bar to criminal prosecution for
fraudulent tax evasion. While a precise computation and assessment is required for a civil action to collect
a tax deficiency, the National Internal Revenue Code does not require such computation and assessment
prior to criminal prosecution for fraudulent tax evasion. Thus, as this Court had earlier ruledAn
assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade
the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return
with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the
part of the taxpayer that he has made an inaccurate return, and the governments failure to discover the
error and promptly to assess has no connections with the commission of the crime. It follows that, under
the Ungab doctrine, the filing of a criminal complaint for fraudulent tax evasion would be proper even
without a previous assessment of the correct tax.
Same; Same; Same; Estoppel; It is hornbook law that the Government is not bound or estopped by the
mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent
schemes to defraud the Government.In fine, even if BIR officials may have verified Fortunes BIR
registered wholesale price for its products, the same does not estop or preclude the Government from filing
criminal complaints for fraudulent tax evasion based on evidence subsequently gathered to the effect that
such BIR registered wholesale prices were a misdeclaration or underdeclaration of the actual wholesale
price. It is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence, and
what more, connivance of its officials and employees with fraudulent schemes to defraud the Government.
Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 309 SCRA
402, G.R. No. 128315. June 29, 1999
Panganiban, J.
Facts:
In this case, then BIR Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for 1986,
1987 and 1988. This resulted in a recommendation for the issuance of an assessment in the amounts
of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
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On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ against PRDC, its
President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount
of P10,513,671.00. Private respondents filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.
The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet
issued a formal assessment.
Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for
review. The Commissioner filed a Motion to Dismiss the petition on the ground that the CTA has no
jurisdiction over the subject matter of the petition, as there was yet no formal assessment issued against the
petitioners. The CTA denied the said motion to dismiss and ordered the Commissioner to file an answer
within thirty (30) days. The Commissioner did not file an answer nor did she move to reconsider the
resolution. Instead, the Commissioner filed a petition for review of the CTA decision with the Court of
Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the Court of Appeals
decision and the CTA order, and ordered the dismissal of the petition.
Issue:
Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
Held:
The Court ruled in the negative. An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time when penalties and interests begin
to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint
for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of assessments[12] provide a specific
definition or form of an assessment. However, the NIRC defines the specific functions and effects of an
assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the
nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax
liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be
deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the
taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition
to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment
in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be
prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full
payment.[13]
The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance
and the period within which to protest it. Section 203[14] of the NIRC provides that internal revenue taxes
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must be assessed within three years from the last day within which to file the return. Section 222,[15] on
the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted
or in case of failure to file a return. Also, Section 228[16] of the same law states that said assessment may be
protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a
specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within
which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice
to the taxpayer.[17]
In the present case, the revenue officers Affidavit merely contained a computation of respondents tax
liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary,
not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply understood to mean:
A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. [18]
Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation
of tax rolls.[19]
Even these definitions fail to advance private respondents case. That the BIR examiners Joint Affidavit
attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does
not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due
and a demand to the private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to
private respondents shows that the intent of the commissioner was to file a criminal complaint
for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax evasion. What private
respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against
them, not a notice that the Bureau of Internal Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in
court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v.
Cusi,[20] petitioner therein sought the dismissal of the criminal Complaints for being premature, since his
protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend
the criminal action which was independent of the resolution of the protest in the CTA. This was because
the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an
assessment or to file a criminal case against the taxpayer or to do both.

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Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, [21] which
penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We
disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to
file a required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment
is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a
chance to submit position papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the
latter specifically and clearly that an assessment has been made against him or her. In contrast, the
criminal charge need not go through all these. The criminal charge is filed directly with the
DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the
commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
CASE SYLLABI:
Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return,
proceedings in court may be commenced without an assessment.Private respondents maintain that the
filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of
the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of
failure to file a return such as this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case
may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal
Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held
that such protests could not stop or suspend the criminal action which was independent of the resolution of
the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion
cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do
both.
Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge can
be filed.Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC,
which penalizes failure to file a return. They add that a tax assessment should precede a criminal
indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a
criminal charge can be filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of
failure to file a required return. This fact need not be proven by an assessment.
Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the
taxpayer for violation of the Tax Code.The issuance of an assessment must be distinguished from the
filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to
the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the
assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then
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sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against
him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him,
not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
Adamson vs. Court of Apepals, 588 SCRA 27, G.R. No. 120935 & G.R. No. 124557. May 21, 2009
Puno, CJ.
Facts:
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her Affidavit of
Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for
violation of Sections 45 (a) and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section
255,[6] and for violation of Section 253[7], in relation to Section 252 (b) and (d) of the National Internal
Revenue Code (NIRC).[8]
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a motion
to suspend proceedings on the ground of prejudicial question, pendency of a civil case with the Supreme
Court, and pendency of their letter-request for re-investigation with the Commissioner. After the
preliminary investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion for
Reconsideration against the findings of probable cause was denied by the prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were charged
before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842 to 941846. They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that there
was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court
and CTA cases. Initially, the trial court denied the motion. A Motion for Reconsideration was however
filed, this time assailing the trial courts lack of jurisdiction over the nature of the subject cases. On August
8, 1994, the trial court granted the Motion. It ruled that the complaints for tax evasion filed by the
Commissioner should be regarded as a decision of the Commissioner regarding the tax liabilities of Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It further
held that the said cases cannot proceed independently of the assessment case pending before the CTA,
which has jurisdiction to determine the civil and criminal tax liability of the respondents therein.
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals assailing the
trial courts dismissal of the criminal cases. She averred that it was not a condition prerequisite that a
formal assessment should first be given to the private respondents before she may file the aforesaid
criminal complaints against them. She argued that the criminal complaints for tax evasion may proceed
independently from the assessment cases pending before the CTA.
On March 21, 1995, the Court of Appeals reversed the trial courts decision and reinstated the criminal
complaints. The appellate court held that, in a criminal prosecution for tax evasion, assessment of tax
deficiency is not required because the offense of tax evasion is complete or consummated when the
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offender has knowingly and willfully filed a fraudulent return with intent to evade the tax. [9] It ruled
that private respondents filed false and fraudulent returns with intent to evade taxes, and acting
thereupon, petitioner filed an Affidavit of Complaint with the Department of Justice, without an
accompanying assessment of the tax deficiency of private respondents, in order to commence
criminal action against the latter for tax evasion.[10]
In parallel circumstances, the following events preceded G.R. No. 124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes filed a letter request for re-investigation with the Commissioner of the Examiners Findings
earlier issued by the Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas G.
Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition for Review with the
CTA. They assailed the Commissioners finding of tax evasion against them. The Commissioner
moved to dismiss the petition, on the ground that it was premature, as she had not yet issued a formal
assessment of the tax liability of therein petitioners. On September 19, 1994, the CTA denied the
Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ as
an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of
petitioners protest regarding the tax deficiency.
The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave
abuse of discretion. She contended that, with regard to the protest provided under Section 229 of the
NIRC, there must first be a formal assessment issued by the Commissioner, and it must be in accord
with Section 6 of Revenue Regulation No. 12-85. She maintained that she had not yet issued a
formal assessment of tax liability, and the tax deficiency amounts mentioned in her criminal
complaint with the DOJ were given only to show the difference between the tax returns filed and the
audit findings of the revenue examiner.
The Court of Appeals sustained the CTAs denial of the Commissioners Motion to Dismiss.
Issues:
1. Whether the Commissioners recommendation letter can be considered as a formal assessment of
private respondents tax liability.
2. Whether the filing of the criminal complaints against the private respondents by the DOJ is
premature for lack of a formal assessment.
Held #1:
We rule that the recommendation letter of the Commissioner cannot be considered a formal
assessment. Even a cursory perusal of the said letter would reveal three key points:
1.

It was not addressed to the taxpayers.

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2.

There was no demand made on the taxpayers to pay the tax liability, nor a period for

payment set therein.


3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing criminal
informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as
penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the
Tax Code.
Held #2:
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of
taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to
file a return, the tax may be assessed, or a proceeding in court after the collection of such
tax may be begun without assessment, at any time within ten years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for collection thereof

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in
court after the collection of such tax may be begun without assessment. Here, the private respondents
had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared
due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary finding of gross
discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first
to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not been
paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity
in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this seminal case, this
Court ruled that there was no need for precise computation and formal assessment in order for criminal
complaints to be filed against him. It quoted Mertens Law of Federal Income Taxation, Vol. 10, Sec.
55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for
willful attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the
tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the governments failure to discover
the error and promptly to assess has no connections with the commission of the crime.
This hoary principle still underlies Section 269 and related provisions of the present Tax Code.
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CASE SYLLABI:

Taxation; Assessments; Words and Phrases; In the context in which it is used in the National Internal
Revenue Code (NIRC), an assessment is a written notice and demand made by the Bureau of Internal
Revenue (BIR) on the taxpayer for the settlement of a due tax liability that is there definitely set and
fixeda written communication containing a computation by a revenue officer of the tax liability of a
taxpayer and giving him an opportunity to contest or disprove the BIR examiners findings is not an
assessment since it is yet indefinite; A recommendation letter of the Commissioner to the Department of
Justice (DOJ) Secretary recommending the filing of a criminal complaint against a taxpayer for fraudulent
returns and tax evasion cannot be considered a formal assessment.The first issue is whether the
Commissioners recommendation letter can be considered as a formal assessment of private respondents
tax liability. In the context in which it is used in the NIRC, an assessment is a written notice and demand
made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.
A written communication containing a computation by a revenue officer of the tax liability of a taxpayer
and giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment
since it is yet indefinite. We rule that the recommendation letter of the Commissioner cannot be considered
a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not
addressed to the taxpayers. 2. There was no demand made on the taxpayers to pay the tax liability, nor a
period for payment set therein. 3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing criminal
informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as
penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the
Tax Code.
Same; Same; When fraudulent tax returns are involved, a proceeding in court after the collection of
such tax may be begun without assessment; There is no need for precise computation and formal
assessment in order for criminal complaints to be filed against a tax evader.The law is clear. When
fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such
tax may be begun without assessment. Here, the private respondents had already filed the capital gains tax
return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the
examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC
Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of
services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of fraud. Thus, the applicability of
Ungab v. Cusi (97 SCRA 877 [1980]) is evident to the cases at bar. In this seminal case, this Court ruled
that there was no need for precise computation and formal assessment in order for criminal complaints to
be filed against him. It quoted Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent
return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge
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on the part of the taxpayer that he has made an inaccurate return, and the governments failure to discover
the error and promptly to assess has no connections with the commission of the crime.
Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., 193 SCRA 86, G.R. No .
35266. January 21, 1991
Narvasa, J.
Facts:
Lianga Bay Logging Co., Inc. (hereafter, simply Lianga), a domestic corporation, has been a forest
concessionaire since 1956, holding an ordinary timber license issued by the Bureau of Forestry up to March
12, 1958 when its license was converted into a Timber License Agreement (No. 49). 3 Within its forest
concession, Lianga has also been operating a sawmill, and in connection therewith posted a bond in the
amount of P25,000.00 with the Collector of Internal Revenue to guarantee payment of such forest charges
as may be due from it. 4 Forest officers have been assigned to Lianga's concession. They prepared monthly
reports setting forth inter alia the quantity of logs cut and removed within a certain period and the
computation of the forest charges due thereon. It was on the basis of these reports that forest charges were
paid by Lianga to the Bureau of Internal Revenue thru the deputy provincial treasurer. 5 For the period from
April, 1956 to December, 1961, inclusive, it paid a total of P336,462.40 in regular forest charges. 6
Some two years later, the Commissioner of Internal Revenue wrote to Lianga, demanding payment of
P84,115.60, representing a 25% surcharge on said sum of P336,462.40, on the theory that it had removed
forest products from its cutting area without the auxiliary invoices required by Section 267 of the National
Internal Revenue Code, being covered only by "commercial tables" (prepared by the forest officers
assigned to Lianga, supra). 7 The Commissioner also required payment of P300.00 as compromise if
Lianga wished "to settle extrajudicially the violation" in question. Lianga asked the Commissioner to
reconsider his assessment and demand. It claimed that as operator of a Class C sawmill, it was not required
to prepare and submit auxiliary invoices pursuant to Section 23 of Regulations No. 85 of the Department of
Finance. When the Commissioner refused to change his stand, Lianga appealed to the Court of Tax
Appeals. The Court of Tax Appeals reversed the decision of the Commissioner of Internal Revenue,
absolved respondent Lianga Bay Logging Co., Inc. from liability for a 25% surcharge for alleged failure to
provide auxiliary invoices covering forest products cut and removed from its forest concession during the
period from April, 1956 to December, 1961, plus the sum of P300 as "compromise penalty" for using
commercial scale table in violation of Section 4(j) of Regulations No. 85 of the Department of Finance
(Revised Internal Revenue Forest Products Regulations ).
Issue:
Whether or not the imposition of compromise penalty is proper.
Held:
The Court affirmed the Decision of the CTA. The Tax Court's finding, on the basis of the evidence, is that
Lianga is a Class C sawmill. 13 The record does indeed establish its character as such: in accordance with
said Regulations No. 85, forest officers have been permanently assigned to its concession for the purpose
of scaling all logs felled, and it has posted a bond to guarantee the payment of the forest charges that may
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be due from it. It is not, therefore required by Regulation No. 85 to accomplish and submit auxiliary
invoicesrequired only of Class A sawmills, i.e., holders of ordinary timber licenses, supra. What is
required in lieu thereof, pursuant to said Regulations No. 85, are the monthly scale reports (B.I.R. Form
14.15, drawn up by the forest officers assigned to the concessions, and subsequently presented to the
deputy provincial treasurer for the purpose of paying the corresponding forest charges) as well as the Daily
Trimmer Tally (B.I.R. Form No. 14.11); sawmill or commercial invoice (B.I.R. Form No. 14.13); and
monthly Abstract of Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner does not
claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax
Court declares, it is presumed that Lianga "has complied with the requirements regarding the keeping and
use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally
and Commercial invoice." 14 In fact, it appears that the forest officers' reports and computations were the
basis for the payment of forest charges by Lianga, and the basis, as well, of the Commissioner's
computation of the alleged 25% surcharge.
Furthermore, Section 267 of the Tax Code, imposing a surcharge of 25% of the regular forest charges if
forest products are removed from the forest concession "without invoice," does not specify the nature of the
invoice contemplated. Obviously, as the Tax Court says, the term is not limited to auxiliary invoices. It
may refer as well to "official" or "commercial" invoices such as those prepared by Class C sawmills, supra.
This is the interpretation placed on the term by said Regulations No. 85 themselves, which declare that the
25% surcharge is imposable on "Forest products transported without official invoice, or commercial invoice,
as the case requires." And since, as far as the record goes, sawmill or commercial invoices were in fact
prepared by Lianga, no violation of the rule may be imputed to it at all.
As to the "compromise penalty" of P300.00 also sought to be imposed, there is no basis therefor, and, as
the Court of Tax Appeals finally declares, "the imposition of the same without the conformity of the
taxpayer is illegal and unauthorized (Coll. v. U.S.T., 104 Phil. 1062; Phil. Int. Fair v. Coll., G.R. Nos. L12928 & L-12932, March 31, 1962)."
CASE SYLLABUS:
Taxation; Forest Charges; Sec. 11 of the Revised Internal Revenue Forest Products Regulations No. 85,
requiring auxiliary invoices, applies only to forest concessionaires who are holders of ordinary
licenses.Section 11 of Regulations No. 85 applies, as the Court of Tax Appeals points out, to a forest
concessionaire who is the holder of an ordinary license; but there are separate provisions on
invoicing and payment of forest charges x x in the case of owners or operators of sawmills who are
forest concessionaires, like Lianga. For purposes of said Regulations, sawmills are classified into
Class A, B, C, and D. x x x Now, the Tax Courts finding, on the basis of the evidence, is that Lianga is
a Class C sawmill. The record does indeed establish its character as such: in accordance with said
Regulations No. 85, forest officers have been permanently assigned to its concession for the purpose of
scaling all logs felled, and it has posted a bond to guarantee the payment of the forest charges that may
be due from it. It is not, therefore required by Regulations No. 85 to accomplish and submit auxiliary
invoicesrequired only of Class A sawmills, i.e., holders of ordinary timber licenses, supra. What is
required in lieu thereof, pursuant to said Regulations No. 85, are the monthly scale reports (B.I.R. Form
14.15, drawn up by the forest officers assigned to the concessions, and subsequently presented to the
deputy provincial treasurer for the purpose of paying the corresponding forest charges) as well as the Daily
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Trimmer Tally (B.I.R. Form No. 14.11); sawmill or commercial invoice (B.I.R. Form No. 14.13); and
monthly Abstract of Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner does not
claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax
Court declares, it is presumed that Lianga has complied with the requirements regarding the keeping and
use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally
and commercial invoice. In fact, it appears that the forest officers reports and computations were the
basis for the payment of forest charges by Lianga, and the basis, as well, of the Commissioners
computation of the alleged 25% surcharge. Furthermore, Section 267 of the Tax Code, imposing a
surcharge of 25% of the regular forest charges if forest products are removed from the forest concession
without invoice, does not specify the nature of the invoice contemplated. Obviously, as the Tax Court
says, the term is not limited to auxiliary invoices. It may refer as well to official or commercial
invoices such as those prepared by Class C sawmills, supra. This is the interpretation placed on the term by
said Regulations No. 85 themselves, which declare that the 25% surcharge is imposable on Forest
products transported without official invoice, or commercial invoice, as the case requires. And since, as
far as the record goes, sawmill or commercial invoices were in fact prepared by Lianga, no violation of the
rule may be imputed to it at all.
Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA 290, G.R. No.
147188. September 14, 2004
Davide, Jr, J.
Facts:
Cibales Insurance Company (CIC) authorized Benigno P. Toda, Jr., President and owner of 99.991% of
its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which
the building stands for an amount of not less than P90 million. Toda purportedly sold the property for P100
million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc.
(RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on
the same day by the same notary public.For the sale of the property to RMI, Altonaga paid capital gains tax
in the amount of P10 million.
CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of P75,728.021. After crediting withholding taxes
ofP254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725. Toda sold his entire shares
of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks.
Three and a half years later, Toda died. Subsequently, Bureau of Internal Revenue (BIR) sent an
assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. The new CIC
asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not
against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal
years 1987-1989. The estate of Toda then received a Notice of Assessment for the deficiency of income tax
in the amount of P79,099,999.22. The Estate thereafter filed a letter of protest.
The Commissioner dismissed the protest. The Estate filed a petition for review with the CTA. CTA held
that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due
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it. The CTA also denied the motion for reconsideration. The Court of Appeals affirmed the decision of the
CTA
Issue:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any?
Held:
1.Tax evasion
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation.
Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by
the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of
those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e.,
the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad
faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is
unlawful.
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to
the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40
million from RMI, and not from Altonaga. That P40million was debited by RMI and reflected in its trial
balance as "other inv. Cibeles Bldg." Also, as of 31 July 1989, another P40 million was debited and
reflected in RMIs trial balance as "other inv. Cibeles Bldg." This would show that the real buyer of the
properties was RMI, and not the intermediary Altonaga. Tax planning is by definition to reduce, if not
eliminate altogether, a tax. Surely petitioner cannot be faulted for wanting to reduce the tax from 35% to
5%. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties,
i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning.
Such scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and unconscionable advantage is taken of
another." Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale
transactions should be treated as a single direct sale by CIC to RMI. Accordingly, the tax liability of CIC is
governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of
1997). CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5%
individual capital gains tax provided for in Section 34 (h) of the NIRC of 1986 (now 6% under Section 24
(D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency income
tax issued by the BIR must be upheld.
2. No. (Legal basis: Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997).

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Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure
to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification
or omission, as the case may be. The prescriptive period to assess the correct taxes in case of false returns
is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity
thereof was claimed to have been discovered only on 8 March 1991.The assessment for the 1989 deficiency
income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for
deficiency income tax was well within the prescriptive period.
3. Yes. A corporation has a juridical personality distinct and separate from the persons owning or
composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for
the liabilities of a corporation and vice versa. There are, however, certain instances in which personal
liability may arise. It has been held in a number of cases that personal liability of a corporate director,
trustee, or officer along, albeit not necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in
directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders,
or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action.
When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all income tax
liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby voluntarily held himself
personally liable therefor. Respondent estate cannot, therefore, deny liability for CICs deficiency income
tax for the year 1989 by invoking the separate corporate personality of CIC, since its obligation arose from
Todas contractual undertaking, as contained in the Deed of Sale of Shares of Stock.
CASE SYLLABI:
Taxation; Tax Avoidance Distinguished from Tax evasion.-- Tax avoidance and tax evasion are the two
most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of,
it usually subjects the taxpayer to further or additional civil or criminal liabilities.
Same; same; factor to determine TAX Evasion. -- Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of
action or failure of action which is unlawful.
Same; Same; Fraud; Meaning of.- Fraud in its general sense, is deemed to comprise anything calculated
to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty,
trust or confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.
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Same; Same; Same; The intermediary transaction in this case constitutes one of tax evasion.-- In a
nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.
Same; Prescriptions; The period within which to assess tax in cases of fraudulent returns, false
returns and failure to file a return is ten (10) years from discovery of the fraud, falsification or
omission.-- Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and
(3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud,
falsification or omission, as the case may be.
Same; Same; The issuance of the correct assessment for deficiency income tax as well within the
prescriptive period.-- As stated above, the prescriptive period to assess the correct taxes in case of false
returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on 8 March 1991.The assessment for the 1989
deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct
assessment for deficiency income tax was well within the prescriptive period.
People of the Philippines vs. Judy Anne Santos, CTA CRIM. CASE NO. O-012, January 16, 2013
Bautista, J.
Facts:
The accused, Judy Anne Santos is charged for filing a false and fraudulent Income Tax Return
(ITR) for the taxable year 2002 by indicating therein a gross income of P 8, 003,33 2.70, when in
truth and in fact her correct income for taxable year 2002 is P 16, 396, 234.70. She is prosecuted for
violation Section 255 of the 1997 NIRC as amended for her failure to supply correct and accurate
information, which resulted to an income tax deficiency in the amount of P 1, 395,116.24, excluded
interest and penalties thereon in the amount of P 1, 319, 500. 94, or in the aggregate income tax
deficiency of P 2, 714,617.18.
Issue:
Whether or not the accused may be held liable for violation of Section 255 of the National Internal
Revenue Code, as amended.
Held:
Section 255 enumerates the following offenses:
a.
b.
c.
d.
e.
f.

Willful failure to pay tax;


Willful failure to make a return;
Willful failure to keep any record;
Willful failure to supply correct and accurate information;
Willful failure to withhold or remit taxes withheld; or
Willful failure to refund excess taxes withheld on compensation.

One of the offenses above-enumerated is willful failure to supply correct and accurate information,
which is being attributed to the accused. The elements of the said offense are as follows:
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1. That a person is required to supply correct and accurate information;


2. That there is failure to supply correct and accurate information at the time or times required
by law or rules and regulations; and
3. That such failure to supply correct and accurate information is done wilfully.
Require to supply Correct and Accurate Information
Based on the records of the case, the accused unequivocally admitted that as early as eight (8) years
old, she entered the entertainment industry, and that at present is an established movie actress,
celebrity endorser and showbiz personality. Further, for the subject taxable year 2002, she admitted
that she entered into contracts for her engagement as a professional entertainer, movie actress, and
product endorser. With this, accused is required to file an income tax return for all her income from
all sources.
The prosecution was able to prove that the accused, earning her professional income as an enterta iner
is required to file an income tax return, as she did, and that accused apparently supplied correct and
accurate information thereof.
Failure to Supply Correct and Accurate Information at the Time Required by Law
The prosecution was able to prove the element of failure to supply correct and accurate information
at the time required by law.
The prosecution presented that there were:
a.
b.
c.
d.
e.

Undeclared income form ABS-CBN Broadcasting Corporation


Undeclared income from Viva Productions, Inc.
Undeclared income from Star Cinema Productions, Inc.
Undeclared income from Regal Entertainment, Inc.
Undeclared income from Century Canning Corporation

From the foregoing, the prosecution was able to show that from the declared Gross Taxable
Professional Income of the accused in the amount of P 8, 003, 332.70, in her ITR for the taxable year
2002, accused has an aggregate amount of P16, 396, 234.70, or a gross underdeclaration of P 8, 362,
902.00.
Willful Failure to Supply Correct and Accurate Information
As early discussed, the prosecution was able to prove that the accused failed to supply correct and
accurate information in her ITR for the year2002 for her failure declare her other income payments
received from other sources.
However, it is well settled that mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.
Based on the records of the case, the accused denied the signature appearing on top of the name
Judy Anne Santos in the ITR for taxable year 2002, presented by the prosecution, and that the
Certified Public Accountant, whos participation is limited to the preparation of the Financial
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Statements attached to the return, likewise, denied signing the return on behalf of the accused.
Further, the working papers were all provided by the manager of the accused.
The Court, therefore, finds the records bereft of any evidence to establish the element of willfulness
on the part of the accused to supply the correct and accurate information on her subject return.
The Court, however, only finds the accused negligent; and such is not enough to convict her in the
case at bench.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax
contemplated by law. Fraud must amount to intentional wrong-doing with the sole object of avoiding
the tax.
The Court also notes the intention of the accused to settle the case were it not for the opposition of
her Manager and then counsel, which negated any motive of the accused to commit fraud.
In sum, the Court finds the failure of the prosecution to establish the guilt of the accused beyond the
required reasonable doubt.
Notes: In relation to Aznar vs CTA as emphasized by Atty. Lock
As could be readily seen from the above rationalization of the lower court, no distinction has been made
between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to
evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent intent to evade
taxes on the substantial difference between the amounts of net income on the face of the returns as filed by
him in the years 1946 to 1951 and the net income as determined by the inventory method utilized by both
respondents for the same years. The lower court based its conclusion on a presumption that fraud can be
deduced from the very substantial disparity of incomes as reported and determined by the inventory method
and on the similarity of consecutive disparities for six years. Such a basis for determining the existence of
fraud (intent to evade payment of tax) suffers from an inherent flaw when applied to this case. It is very
apparent here that the respondent Commissioner of Internal Revenue, when the inventory method was
resorted to in the first assessment, concluded that the correct tax liability of Mr. Aznar amounted to
P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in another
assessment dated February 16, 1955, concluded that the tax liability should be reduced to P381,096.07.
This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use
of the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability. When
the respondent Court of Tax Appeals reviewed this case on appeal, it concluded that petitioner's tax
liability should be only P227,788.64. The lower court in three instances (elimination of two buildings in the
list of petitioner's assets beginning December 31, 1949, because they were destroyed by fire; elimination of
expenses for construction in petitioner's assets as duplication of increased value in buildings, and
elimination of value of house and lot in petitioner's assets because said property was only given as
collateral) supported petitioner's stand on the wrong inclusions in his lists of assets made by the respondent
Commissioner of Internal Revenue, resulting in the very substantial reduction of petitioner's tax liability by
the lower court. The foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in
his report of his income but also the respondent Commissioner of Internal Revenue who committed
mistakes in his use of the inventory method to determine the petitioner's tax liability. The mistakes
committed by the Commissioner of Internal Revenue which also involve very substantial amounts were
also repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud.
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From the above exposition of facts, we cannot but emphatically reiterate the well-established doctrine that
fraud cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent
intent could not be deduced from mistakes however frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous classification of items in accounting methods utilized for
determination of tax liabilities The predecessor of the petitioner undoubtedly filed his income tax returns
for "the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees.
It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated
readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by him.
The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was
based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent
returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual
and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done
or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross,
is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere
mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner
of Internal Revenue committed mistakes in making entries in the returns and in the assessment,
respectively, under the inventory method of determining tax liability, it would be unfair to treat the
mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith.
Republic vs. Patanao, 20 SCRA 712, No. L-22356. July 21, 1967
Angeles, J.
Facts:
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B.
Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession at
Esperanza, Agusan, and as such was engaged in the business of producing logs and lumber for sale during
the years 1951-1955; that defendant failed to file income tax returns for 1953 and 1954, and although he
filed income tax returns for 1951, 1952 and 1955, the same were false and fraudulent because he did not
report substantial income earned by him from his business; that in an examination conducted by the Bureau
of Internal Revenue on defendant's income and expenses for 1951-1955, it was ascertained that the sum of
P79,892.75, representing deficiency; income taxes and additional residence taxes for the aforesaid years, is
due from defendant; that on February 14, 1958, plaintiff, through the Deputy Commissioner of Internal
Revenue, sent a letter of demand with enclosed income tax assessment to the defendant requiring him to
pay the said amount; that notwithstanding repeated demands the defendant refused, failed and neglected to
pay said taxes; and that the assessment for the payment of the taxes in question has become final, executory
and demandable, because it was not contested before the Court of Tax Appeals in accordance with the
provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior
judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which
were prosecutions for failure to file income tax returns and for non-payment of income taxes; and (2) that
the action has prescribed.
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After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition, the
lower court entered the order appealed from, holding that the only cause of action left to the plaintiff in its
complaint is the collection of the income tax due for the taxable year 1955 and the residence tax (Class B)
for 1953, 1954 and 1955. A motion to reconsider said order was denied, whereupon plaintiff interposed the
instant appeal, which was brought directly to this Court, the questions involved being purely legal.
Issue:
Whether or not respondents acquittal in a criminal case bars the collection of tax penalties.
Held:
In applying the principle underlying the civil liability of an offender under the Penal Code to a case
involving the collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual
premises which are diametrically opposed to each either, and are founded on entirely different philosophies.
Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil obligation such that generally, if one is not
criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the
income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one
has engaged himself in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual
premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity
on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that while
section 73 of the National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed
to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the
collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint of
goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence of a
contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs.
Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek
satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated,
since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to
hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the
action in the present case. The acquittal in the said criminal cases cannot operate to discharge
defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is
imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere
civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of
the criminal acts charged. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20,
1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency income tax
and residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by the
Bureau of Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for
assessment as provided in section 331 of the National Internal Revenue Code. Appellant contends that the
applicable law is section 332 (a) of the same Code under which a proceeding in court for the collection of
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the tax may be commenced without assessment at any time within 10 years from the discovery of the
falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for
1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically
admitted this allegation as all the other averments in the complaint were so admitted. Hence, section 332 (a)
and not section 331 of the National Internal Revenue Code should determine whether or not the cause of
action of deficiency income tax and residence tax for 1951 has prescribed. Applying the provision of
section 332 (a), the appellant's action instituted in court on December 7, 1962 has not prescribed.
CASE SYLLABI:
Taxation; Income tax; Civil liability under Penal Code and Income Tax Law distinguished.Under the
Penal Code the civil liability is incurred by reason of the offender's criminal act. The criminal liability
gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code,
he cannot become civilly liable thereunder, The situation under the income tax law is the exact opposite.
Civil liability to pay taxes arises from fact, for instance, that one has engaged himself in business, and not
because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to
satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two
cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law.
Another reason of course, is found in the fact that, while Section 73 of the National Internal Revenue Code
has provided for the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay
income tax or to make a return thereof, it does not provide the collection of said tax in criminal proceedings.
Same; Civil remedies for collection of income tax.The only civil remedies provided for the collection of
income tax are distraint and levy and judicial action, which remedies are generally exclusive in the absence
of a contrary legislative intent.
Same; Acquittal of taxpayer in criminal case does not exonerate him from tax liability.Since the
taxpayer's civil liability is not included in the criminal action, his acquittal in the criminal proceeding does
not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be
affected by his attempt to evade payment, Said obligation is not a consequence of the felonious acts
charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped
out by the judicial declaration of nonexistence of the criminal acts charged.
Same; Prescription of action for collection of income tax.Where the fraud in the taxpayer's 1951
income tax return was allegedly discovered in 1958, the prescriptive period for collecting the 1951
deficiency tax is ten years from the discovery of the fraud and not five years. The action instituted in 1962
to collect said deficiency has not prescribed.
Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174. April 26, 1962
Reyes, J.B.L., J.
-----------------------------supra----------------------------Facts:
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On November 22, 1947, Criminal Case No. 4976 was filed against her in the Court of First Instance of
Manila for violation of Section 4, in connection with Section 8, of the War Profits Tax Law, for allegedly
defrauding the Republic of the Philippines in the total amount of P1,048,687.76. The criminal action, was
filed at the instance of respondent and simultaneous with the filing of said action, the petitioner received
for the first time the notice of assessment dated November 19, 1947 by registered mail from the Collector
of Internal Revenue. The said letter of demand was based on the report of Supervising Examiner Felipe
Aquino of the Bureau of Internal Revenue, who recommended that the petitioner be assessed and made to
pay the sum of P1,048,687.76 as war profits tax and surcharge
On February 9, 1948, the motion of petitioner to quash the information was denied by the Court of First
Instance of Manila. At the scheduled hearing of the case on the merits on March 7, 1949, the City Fiscal of
Manila manifested in open court that after a re-investigation of the case "the amount of the tax due and for
which the accused stands charged for evading payment is only about P700,000.00, instead of
P1,048,687.76 as stated in the information." However, at the continuation of the hearing of the case on
February 22, 1950, Supervising Examiner Felipe Aquino of the Bureau of Internal Revenue, who testified
for the prosecution, declared in answer to questions propounded by the City Fiscal "that as a result of a
detailed reinvestigation conducted by his office, it was found out that no war profits tax was due from the
accused in connection with the present case." Whereupon, City Fiscal Angeles moved for the dismissal of
the case. Finding the petition for dismissal to be well taken, the Court of First Instance of Manila, in an
Order dated February 22, 1950, dismissed Criminal Case No. 4976 against petitioner.
After the dismissal of the Criminal Case, another report was submitted by the same Supervising Examiner
Felipe Aquino to his superiors wherein he changed his previous stand taken before the Court of First
Instance of Manila, on the basis of which report another letter of demand for P2,008,293.53 as war profits
tax was issued against petitioner on January 24, 1950. Barely one month thereafter, another report was
again submitted by the same Supervising Examiner Felipe Aquino to his superiors, on the basis of which
another letter of demand for war profits tax was issued by respondent against petitioner for the sum of
P2,229,976.94 or an increase of P221,683.31 over that assessment of January 24, 1950. The case was again
referred to the City Fiscal's Office for another prosecution based on the earlier demand but the same was
again dropped.
Assignment of error and the decision of the Court:
(c) The third main ground of appeal is predicated on the acquittal of petitioner in case No. 4976 of the
Court of First Instance of Manila, wherein she was criminally prosecuted for failure to render a true and
accurate return of the war profits tax due from her, with intent to evade payment of the tax. She contends
(Assignments of Error II to IV) that the acquittal should operate as a bar to the imposition of the tax and
specially the 50% surcharge provided by section 6 of the War Profits law (R.A. No. 55), invoking the
ruling in Coffey v. U.S., 29 L. Ed. 436.
With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal
case could not operate to discharge petitioner from the duty to pay the tax, since that duty is imposed by
statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The
obligation to pay the tax is not a mere consequence of the felonious acts charged in the information, nor
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is it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that rendered the Coffey decision has
subsequently pointed out that additions of this kind to the main tax are not penalties but civil administrative
sanctions, provided primarily as a safeguard for the protection of the state revenue and to reimburse the
government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud
(Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S. 317 U.S. 492). This is made plain by
the fact that such surcharges are enforceable, like the primary tax itself, by distraint or civil suit, and that
they are provided in a section of R.A. No. 55 (section 5) that is separate and distinct from that providing for
criminal prosecution (section 7). We conclude that the defense of jeopardy and estoppel by reason of the
petitioner's acquittal is untenable and without merit. Whether or not there was fraud committed by the
taxpayer justifying the imposition of the surcharge is an issue of fact to be inferred from the evidence and
surrounding circumstances; and the finding of its existence by the Tax Court is conclusive upon us.
(Gutierrez v. Collector, G.R. No. L-9771, May 31, 1951 ; Perez vs. Collector, supra).
CASE SYLLABI:
Same; Same; Taxpayer not discharged from duty to pay tax by his acquittal from criminal action.The
acquittal of a taxpayer in a criminal case cannot operate to discharge him from the duty to pay tax, because
that duty is imposed by statute prior to and independently of any attempt on the part of the taxpayer to
evade payment.
Same; Same; 50% surcharge not a penalty.Addition ike the 50% surcharge to the main tax are not
penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the state
revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from
the taxpayer's fraud. (Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S., 317 U.S. 492).
This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by distraint
or civil suit, and that they are provided in section 4, of Repub lic Act No that is separate and distinct from
that providing for criminal prosecution (Section 7).
People of the Philippines vs. Galero, CTA Criminal Case No. 0-55, September 30, 2009
Uy, J.
Facts:
Galero is charged with the crime in violation of Sec. 255 in relation to Section 253 (d) and 256 of the NIRC.
Accused allegedly refused to pay the deficiency taxes despite due assessment, notice and demand to do so.
The accused voluntarily surrender and posted a bail. He entered a plea of Not Guilty. Defendant claimed
that his failure to pay tax is not willful, but rather due to financial incapacity to pay the full amount, and to
show good faith, he presented a letter where he made an offer of compromise for payment of deficiency tax
assessments and subsequently paid portions of the said offer despite the fact that it is still pending
evaluation by the Technical Working Group, national evaluation board. He also availed of the tax amnesty
program and paid total amount of P25, 000.00 as amnesty payment.
Issue:
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Whether or not Galero is liable for violation of Sec. 255 in relation to Sec. 253 (d) and 256 of the NIRC
Held:
No. Accused attempted to settle said deficiencies by making an offer of compromise, availment of tax
amnesty and paying the amount stated in his offer instead of protesting the said assessment, both
administratively and judicially. The third essential element of the crime charged in this case requires that
the failure to pay the required tax must be willful. A careful examination of the amended information
shows a crucial omission in its averments of willfulness in the failure to pay the required taxes. It is
fundamental that every element constituting an offense charged must be alleged in the complaint or
information. And a complaint is deemed sufficient if it describes the offense in the language of the statute
whenever the statute contains all of the essential elements constituting the particular offense.
The amended information does not allege willful failure to pay taxes. Absent the allegation of this
essential element, the accused cannot be convicted for the violation raised.

People of the Philippine vs. Mendez, CTA Criminal Case No. 0-013 & 0-015, January 11, 2011
Castaeda, J.
Willfull blindness as defined by the Blacks Law Dictionary as- deliberate avoidance of knowledge of
a crime especially by failing to make reasonable inquiry about suspected wrongdoing despite being
aware that it is highly probable.
Facts:
Mendez was charged with a crime for violation of Sec. 255 of the NIRC. Two information were
subsequently filed;
a. For failure to file his ITR amounting to P 1,522,152.14 for the year 2002
b. For failure to supply the correct information in his ITR for the year 2003
Accused voluntary surrendered and posted bail, after pleading Not Guilty. The prosecution contends that
accused has willfully and feloniously failed to pay his AITR from 1995-2000.
The Prosecution contends, on the basis of the initial investigation and recommendation, a Letter of
Authority (LOA) No. 2001-00002438 dated November 8, 2004 was issued for the examination of books of
accounts and other accounting records for the period covering taxable years 2001, 2002 and 2003 of
accused Dr. Joel Cortez Mendez. According to Atty. Cruz, the said LOA was served on November 10,
2004 together with the First Letter-Notice for the production of books of accounts and accounting records.
Cherry Perez, who allegedly represented herself as the authorized representative of accused Dr. Mendez,
duly received the said LOA. Despite receipt of the First Letter-Notice, accused Dr. Mendez did not submit
the required documents, as specified in the said notice. As a consequence, a Second Letter-Notice and a
Final Request for presentation and/or production of the required records/documents were served upon -the
accused Dr. Mendez, and duly received on November 24, 2004 and January 11, 2005, respectively, thru his
accountant and employee named Richard Bianan and Carla Yadao.
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Due to the failure of the accused to present or produce the needed records and documents for examination
despite several notices, the investigation proceeded through "Third Party Information" and the "Best
Evidence Obtainable Rule" allowed under Section 5(B), in relation to Section 6(A) and (B) of the Tax
Code of 1997.
In the course of gathering information and best obtainable evidence pertaining to the accused, the team
verified certain data and information from the BIR Integrated Tax System (BIR-ITS) and different
government agencies, including private offices and entities.
During the investigation, it was further gathered that the accused filed his income tax return for taxable
year 2003 with Revenue District Office (ROO) No. 4-Calasiao, Pangasinan, for his Mendez Weigh Less
Center located at CSI City Mall, Lucao District, Oagupan City despite the existence of his principal place
of business at 31 Races Avenue, Quezon City, as evidenced by the Certification dated February 23, 2005
and the letter dated
August 15, 2006 issued by Mr. Joseph M. Catapia, Revenue District Officer of ROO No. 4, and income tax
return of the accused. Said certification was also identified during trial by Mr. Joseph M. Catapia himself.
Defendant however refuted the claims. By presenting Cherry Perez, who was then a medical staff on the
issuance of the assessment notice, representatives looked for the accused. Since the latter was not present,
the BIR examiners gave the letter to Perez instead. Perez then gave the letter to their accountant, Richard
Bianan, who deliberately concealed the documents from Mendez.
Accused further testified that Mr. Richard Bianan has been charged with multiple counts of Estafa. He also
stated that he issued checks and vouchers in Mr. Richard Bianan's name for the payment of taxes and other
obligations.
In addition, he also testified that he leased the property located in A. Roces Avenue, Quezon City on July
12, 2001 , but Weigh Less Center-Roces Avenue Branch only started its operation on or about March 4,
2003. The delay in operation was supposedly due to the fact that the property is a two- floor residential unit
that is not designed at all as office space and that he had to cause its renovation as his personal funds would
allow. Due to limited funds, the construction took a while before the same was completed. The delay was
also caused by the problem with building authorities inasmuch as the renovation was done without a permit.
Accused also made a statement that the idea of putting up clinics came up in 1996, but due to financial
problems and because his focus then was art, the clinics materialized only after several years. As regards
the vehicles he allegedly purchased from the years 2001 to 2003, he said that the said vehicles were
obtained through bank loans. He explained that the newspaper advertisements were intended to generate
public awareness in the business. While he did attend to some celebrities, he did not charge them any fee.
They had a simple understanding that he would do certain medical services for his celebrity clients and in
return, they would endorse his future business. The idea is that his future business is advertised through the
publicity generated by the treatments of celebrities.
Issue:
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WHETHER OR NOT ACCUSED DR. JOEL C. MENDEZ IS LIABLE FOR VIOLATION OF SECTION
255 OF THE 1997 NATIONAL INTERNAL REVENUE CODE, AS AMENDED, FOR FAILURE TO
FILE INCOME TAX RETURN AND FOR FAILURE TO SUPPLY CORRECT AND ACCURATE
INFORMATION.
Held:
The accused is found guilty of the alleged violation.
In his defense, accused avers that he was not able to personally receive the notices issued by the BIR. The
accused alleges that it was his former accountant, Mr. Richard Bianan, who received the notices and that
Mr. Bianan concealed said notices from the accused.
It must be pointed out that, as narrated by the accused in his Affidavit and as confirmed by him during the
cross-examination, Mr. Richard Bianan was authorized by him to receive documents and notices on his
behalf, including the notices issued by the BIR. Hence, the notification requirement was deemed
substantially complied with by the BIR, considering that the subject notices were admittedly received by
Mr. Bianan.
Before going one by one with the foregoing elements, it may be relevant to emphasize that direct evidence
is not the sole means of establishing guilt beyond reasonable doubt. Established facts that form a chain of
circumstances can lead the mind intuitively or impel a conscious process of reasoning towards a conviction.
Indeed, rules on evidence and principles in jurisprudence have long recognized that the accused may be
convicted through circumstantial evidence.
ON CRIMINAL CASE NO. 0-015
First Element:
He is a person required under this code or by rules and regulations to pay any tax, make a return, keep any
record, or supply correct and accurate information
Second Element:
He fails to supply correct and accurate information at the time or times required by law or rules and
regulation.
Anent the second element, the prosecution has the burden to prove that the accused, as a duly registered
taxpayer and as a sole proprietor of various branches of Weigh Less Center, failed to supply the correct and
accurate information in his income tax return for taxable year 2003 due to his failure to declare and indicate
in his return all his income from all sources for taxable year 2003.
During the investigation, it was found that accused filed his income tax return for taxable year 2003 with
Revenue District Office No. 4-Calasiao, Pangasinan, for his Mendez Weigh Less Center located at CSI
City Mall, Lucao District, Dagupan City, as evidenced by the Certification dated February 23, 2005 issued
by Mr. Joseph M. Catapia, Revenue District Officer of ROO No. 4. In the said Annual Income Tax Return
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submitted for taxable year 2003, the accused declared a net loss of P38,893.91.
However, based on the documents gathered by the BIR Revenue District Officers during the investigation,
it was discovered that there are several other branches registered with the BIR having the trade/business
names "Weigh Less Center", "Mendez Body and Face Salon and Spa" and "Mendez Body and Face Skin
Clinic" under the name of the accused Dr. Mendez as the sole proprietor/owner. This fact was evidenced by
the Certifications issued by the duly authorized Revenue District Officers who certified the registration of
said branches with the BIR.
There were also several leasing receipts/documents that is circumstantial evidence that may adduce that the
accused has financial capacity.
Moreover, if the accused claims that he suffered a net loss from the operation of his Mendez Weigh Less
Center Dagupan branch during taxable year 2003, then the substantial income found to have been earned
by the accused during the same year can be attributed to the operation of his other branches for taxable year
2003; which were not reflected in the Annual Income Tax Return submitted by the accused for the same
year.
Furthermore, verification of the tax records from the SIR Integrated Tax System revealed that accused Dr.
Mendez did not file his income tax returns for taxable year 2003 on its income earned from these other
branches.
Third Element: Such failure is willful.
As regards the third element, this Court finds the failure of the accused to supply the correct information in
his return to be willful.
In case of People of the Philippines vs. Estelita Delos Angeles, this Court defined the term "willful" in this
wise:
"Willful in the tax crimes statutes means a voluntary, intentional violation of a known legal duty and bad
faith or bad purpose need not be shown [Mertens (Law of Federal Income Taxation) Chapter 47.05, page
28, Volume 13, see U.S. v. Green, 757 F2d 116, 85-1 USTC 9178 (CA 1985), in which the Court, citing U.S.
v. Moore, 627 F2d 830 (CA 1980) and U.S. v. Verkuilen, 690 F2d 648, 82-2 USTC 9618 (CA7 1982),
upheld the conviction of a tax protester for willful failure to file returns]. "
In this case, the accused is considered to have knowledge that he hasthe obligation to declare and file
income tax return for taxes from all sources.This may be confirmed by his act of filing his income tax
return declaring his income from the operation of his Dagupan branch. Notwithstanding said knowledge of
the operation of his other branches as well as his obligation tofile income tax return or at least consolidate
and reflect his income from his other branches in his income tax return filed in taxable year 2003, the
accused still failed to file his income tax return on his income from these other Weigh Less Center
branches for taxable year 2003; making it appear that his only source of income was from the operation of
his Weigh Less Center in Dagupan City.
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"Willful Blindness" is defined in Black's Law Dictionary as "deliberate avoidance of knowledge of a crime,
esp. by failing to make a reasonable inquiry about suspected wrongdoing despite being aware that it is
highly probable." It "creates an inference of knowledge of the crime in question."In this case, even if the
allegations of the accused were true, his failure to examine his income tax return for 2003 and verify
whether the same contains correct and accurate information would still render the commission of the
offense charged willful.
It must be emphasized that denials by the accused of the crimes herein charged, while failing to provide
clear and convincing evidence to support the same, clearly deserve no weight and should not be given any
probative value.
Notes as emphasized by Atty. Lock:
Plainly, an assessment of the tax before there can be a criminal prosecution is not necessary. Whereas, in
case of a civil action for collection of the tax, the assessment procedures provided by the NIRC of 1997, as
amended, should be complied with.
Accordingly, considering that there was no assessment issued by the BIR against the accused, the foregoing
computations presented by the prosecution to prove the civil liabilities of the accused for the taxable years
2002 and 2003 may not be used by this Court as its basis to impose the civil liabilities prayed for by the
prosecution. Therefore, a proper determination of the civil liabilities for the non-payment of tax based on
the computations submitted by the prosecution may not be achieved. (Section 205, NIRC)
People of the Philippines vs. Benjamin Kintanar, CTA CRIM. CASE NO. O-031& O-032,
September 27, 2010
Cotangco-Manalastas, J.
Case Summary:
Accused, Benjamin Kintanar, is charged in the CTA of two (2) consolidated cases for failure to file
his Income Tax Returns (ITRs) for the taxable years 2000 and 2001 on his taxable income in the
estimated amounts of P 3, 475, 090.64 and P 5, 175,242.12, respectively, exclusive of penalties,
ssurcharges and interest, in violation of the first paragraph of Section 255 of the National Internal
Revenue Code as amended, which reads as follows:
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay
Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on
Compensation. - Any person required under this Code or by rules and
regulations promulgated thereunder to pay any tax make a return, keep any
record, or supply correct the accurate information, who willfully fails to pay such
tax, make such return, keep such record, or supply correct and accurate
information, or withhold or remit taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and regulations shall,
in addition to other penalties provided by law, upon conviction thereof, be punished
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by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of
not less than one (1) year but not more than ten (10) years. (emphasis supplied)
Section 255 enumerates the following offenses:
g.
h.
i.
j.
k.
l.

Willful failure to pay tax;


Willful failure to make a return;
Willful failure to keep any record;
Willful failure to supply correct and accurate information;
Willful failure to withhold or remit taxes withheld; or
Willful failure to refund excess taxes withheld on compensation.

To establish the offense of failure to file a return, the prosecution must prove three (3) esssetial
elements beyond reasonable that to wit:
1. That the accused was a person required to make of file a return;
2. That the accused failed to make or file a return at the time required by law; and
3. That the failure to make or file a return was willfull.
The Court ruled that Benjamin Kintanar is found liable for violation of Section 255 of the 1997
National Internal Revenue Code as amended. That all the elements above stated are present. The
prosecution was able to prove that he is guilty beyond reasonable doubt of the crime charge.
Likewise, the record also show that the accused is informed of the deficiency tax assessment against
him through a formal letter of demand and due to the accuseds failure to submit the supporting
documents after his request for reinvestigation within the reglementary period after the same was
granted, the assessments against the accused became final.
Wherefore, in CTA Criminal Case No. 0-031 and 0-032 Benjamin kintanar is GUILTY BEYOND
REASONABLE DOUBT of violation of Section 255 of the NIRC and sentenced to suffer an
indeterminate penalty of imprisonment of one (1) year as minimum, to two (2) years as maximum
and, is ordered to pay pay a fine in the amount P 10,000.00 with subsidiary imprisonment in case
accused has no property with which to meet the said fine, pursuant to Section 280 of the NIRC AS
AMENDED.
Aa regards civil liability, accused is hereby Ordered to pay deficiency income tax for the taxable
years 2000 and 2001 in the amount of P 8, 251, 605.72 and P10, 730,391.18 respectively, inclusive of
the surcharge and interest, plus 20% delinquency interest per annum from the total amount of P 8,
251, 605,72 and P10, 730,391.18, counted from April 12, 2005, until fully paid, pursuant to Section
249(c)(3) of the NIRC.
NOTA BENE:
As to the Civil aspect of the instant cases, the same were deemed instituted herewith pursuant Section
7 (1) of Republic Act No. 9282 which provides that :criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal

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action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the Criminal action will be recognized.

Lim, Sr. vs. Court of Appeals, 190 SCRA 616, G.R. Nos. 48134-37. October 18, 1990
Fernan, J.
Facts:
On October 5, 1959, a raid was conducted at their business address by the National Bureau of Investigation
by virtue of a search warrant issued by Judge Wenceslao L. Cornejo of the City Court of Manila. A similar
raid was made on petitioners' premises at 111 12th Street, Quezon City. Seized from the Lim couple were
business and accounting records which served as bases for an investigation undertaken by the Bureau of
Internal Revenue (BIR).
On September 30, 1964 Senior Revenue Examiner Raphael S. Daet submitted a memorandum with the
findings that the income tax returns filed by petitioners for the years 1958 and 1959 were false or
fraudulent. Daet recommended that an assessment of P835,127.00 be made against the petitioners.
Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M. Tabios informed
petitioners that there was due from them the amount of P922,913.04 as deficiency income taxes for 1958
and 1959, giving them until May 7, 1965 to pay the amount.
On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation. The BIR expressed
willingness to grant such request but on condition that within ten days from notice, Lim would accomplish
a waiver of defense of prescription under the Statute of Limitations and that one half of the deficiency
income tax would be deposited with the BIR and the other half secured by a surety bond. If within the tenday period the BIR did not hear from petitioners, then it would be presumed that the request for
reinvestigation had been abandoned. Petitioner Emilio E. Lim, Sr. refused to comply with the above
conditions and reiterated his request for another investigation.
On October 10, 1967, the BIR rendered a final decision holding that there was no cause for reversal of the
assessment against the Lim couple. Petitioners were required to pay deficiency income taxes for 1958 and
1959 amounting to P1,237,190.55 inclusive of interest, surcharges and compromise penalty for late
payment. The final notice and demand for payment was served on petitioners through their daughter-in-law
on July 3, 1968.
Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on September 1, 1969, the
matter was referred by the BIR to the Manila Fiscal's Office for investigation and prosecution. On June 23,
1970, four (4) separate criminal informations were filed against petitioners in the then Court of First
Instance of Manila, Branch VI for violation of Sections 45 and 51 in relation to Section 73 of the National
Internal Revenue Code. 2 Trial ensued. On August 19, 1975, the trial court rendered two (2) joint decisions
finding petitioners guilty as charged. Hence the present petition for review by certiorari.
In their Brief, petitioners contend that the Appellate Court erred in holding that the offenses charged in
Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years, instead of five (5) years; that the
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prescriptive period in Criminal Cases Nos. 1788 and 1789 commenced to run only from July 3, 1968, the
date of the final assessment; that Section 316 of the Tax Code as amended by Presidential Decree No. 69
was applicable to the case at bar; and that the civil obligation of petitioner Emilio E. Lim, Sr. arising from
the crimes charged was not extinguished by his death.
Issue:
When is the reckoning date of the five year period for filing a criminal charges against the petitioner?
Held:
We hold for the Government. Section 51 (b) of the Tax Code provides:
(b) Assessment and payment of deficiency tax. After the return is filed, the
Commissioner of internal Revenue shall examine it and assess the correct amount of the
tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from
the Commissioner of Internal Revenue. (Emphasis supplied)
Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on
July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because
prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The
offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within
the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the
five-year prescriptive period and are not time-barred.
With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing of fraudulent
consolidated income tax returns with intent to evade the assessment decreed by law, petitioners contend
that the said crimes have likewise prescribed. They advance the view that the five-year period should be
counted from the date of discovery of the alleged fraud which, at the latest, should have been October 15,
1964, the date stated by the Appellate Court in its resolution of April 4, 1978 as the date the fraudulent
nature of the returns was unearthed. 9
On behalf of the Government, the Solicitor General counters that the crime of filing false returns can be
considered "discovered" only after the manner of commission, and the nature and extent of the fraud have
been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final decision
holding that there was no ground for the reversal of the assessment and therefore required the petitioners to
pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered.
Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but
also institution of judicial proceedings. Note the conjunctive word "and" between the phrases "the
discovery thereof" and "the institution of judicial proceedings for its investigation and proceedings." In
other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation
and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1,
1969 that the offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office
for preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and
punishment of a crime, it was only on September 1, 1969 that the prescriptive period commenced.
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The Court is inclined to adopt the view of the Solicitor General. For while that particular point might have
been raised in the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have
settled the question once and for all. As Section 354 stands in the statute book (and to this day it has
remained unchanged) it would indeed seem that tax cases, such as the present ones, are practically
imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its
investigation and punishment, up to the filing of the information in court does not exceed five (5) years.
GUTTIERREZ, JR., J., concurring
I concur in the results.
I feel that certain issues need further clarification. I, therefore, reserve my definitive vote on these issues.
For instance, to say that no violation of the Income Tax Law has been committed until after receipt of the
letter assessment overlooks the fact that the assessment is only evidence of a prior violation. It is not the
refusal to comply with the latter that creates the violation. It is the failure to pay taxes in the years that they
were due. Again, to make discovery of the fraud and institution of judicial proceedings conjunctive seems
to me illogical because the judicial proceedings always come after discovery. The date of discovery
becomes meaningless under our decision. Perhaps, the law needs amendment to make it clearer.
Add notes:
The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the
payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The trial court had absolutely no
jurisdiction in sentencing the Lim couple to indemnify the Government for the taxes unpaid. The lower
court erred in applying Presidential Decree No. 69, particularly Section 316 thereof, which provides that
"judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes
subject of the criminal case", because that decree took effect only on January 1, 1973 whereas the criminal
cases subject of this appeal were instituted on June 23, 1970. Save in the two specific instances,
Presidential Decree No. 69 has no retroactive application.
CASE SYLLABI:
Taxation; Income Tax; Prescription; The 5-year prescriptive period provided for under Sec. 354 of the
Tax Code should be reckoned from the date the final notice and demand was served on the taxpayer.
Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners' refusal to pay the deficiency
income taxes due, again both parties are in accord that by their nature, the violations as charged could only
be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers.
Petitioners maintain that the five-year period of limitation under Section 354 should be reckoned from
April 7, 1965, the date of the original assessment while the Government insists that it should be counted
from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law. We hold
for the Government. Section 51 (b) of the Tax Code provides: "(b) Assessment and payment of deficiency
tax.After the return is filed, the Commissioner of Internal Revenue shall examine it and assess the
correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand
from the Commissioner of lnternal Revenue." (Italics supplied) Inasmuch as the final notice and demand
for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the
cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter212 | M s . N o l a i d a A g u i r r e

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assessment, no violation has yet been committed by the taxpayers. The offense was committed only after
receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal
informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are
not time-barred.
Same; Same; Same; Fraudulent Returns; In addition to the fact of discovery, there must be a judicial
proceeding for the investigation and punishment of the tax offense before the five-year limiting period
begins to run.On behalf of the Government, the Solicitor General counters that the crime of filing false
returns can be considered "discovered" only after the manner of commission, and the nature and extent of
the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final
decision holding that there was no ground for the reversal of the assessment and therefore required the
petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered. Not only that.
The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but also institution
of judicial proceedings. Note the conjunctive word "and" between the phrases "the discovery thereof' and
"the institution of judicial proceedings for its investigation and proceedings." In other words, in addition to
the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax
offense before the five-year limiting period begins to run. It was on September 1,1969 that the offenses
subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for preliminary
investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of
a crime, it was only on September 1,1969 that the prescriptive period commenced. x x x The Court is
inclined to adopt the view of the Solicitor General. For while that particular point might have been raised in
the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have settled the
question once and for all. As Section 354 stands in the statute book (and to this day it has remained
unchanged) it would indeed seem that the tax cases, such as the present ones, are practically imprescriptible
for as long as the period from the discovery and institution of judicial proceedings for its investigation and
punishment, up to the filing of the information in court does not exceed five (5) years.

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CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY


AFTER PAYMENY
A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT
Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel Corporation, 516 SCRA 93, G.R.
No. 147295. February 16, 2007
Velasco, JR., J.
Facts:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue
in Manila. It leases 6,768.53 square meters of the hotels premises to the Philippine Amusement and
Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to
PAGCORs casino patrons through the hotels restaurant outlets. For the period January (sic) 96 to April
1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and
beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its
tax exempt status.
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the
VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of nonpayment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an
administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29 May
1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in this
wise:
As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3)
[now 106(A)(C)] insofar as its gross income from rentals and sales to PAGCOR, a tax
exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and
P8,739,865.24, representing the 10% EVAT on its sales of food and services and gross
rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the
petitioner for having been inadvertently remitted to the respondent.
Thus, taking into consideration the prescribed portion of Petitioners claim for refund of P98,743.40, and
considering further the principle of solutio indebiti which requires the return of what has been delivered
through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64.
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not
only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the
transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they
involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTAs
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determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from
petitioner.
Issue:
Whether PAGCORs tax exempton privilege includes indirect tax of VAT to entitle Acesite to zero percent
(0%) VAT rate and thus, entitled the latter a claim for refund?
Held:
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869.
The VAT exemption extend to Acesite. Thus, while it was proper for PAGCOR not to pay the 10% VAT
charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction
by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of
the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services (a) Rate and base of tax There shall
be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts
derived by any person engaged in the sale of services x x x; Provided, that the following
services performed in the Philippines by VAT-registered persons shall be subject to 0%.
xxxx
(b) Transactions subject to zero percent (0%) rated.
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero (0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case ofCommissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where the absolute tax
exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held
in said case that the exemption of contractee WHO should be implemented to mean that the entity or
person exempt is the contractor itself who constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal because the manifest intention of the agreement
is to exempt the contractor so that no contractors tax may be shifted to the contractee WHO. Thus,
the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in
casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.
Acesite paid VAT by mistake. Considering the foregoing discussion, there are undoubtedly erroneous
payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR.
Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was
not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments.
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In UST Cooperative Store v. City of Manila,6 we explained that "there is erroneous payment of taxes when
a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing
exemption in his favor at the time the payment was made." 7 Such payment is held to be not voluntary and,
therefore, can be recovered or refunded.8
Solutio indebiti applies to the Government. Tax refunds are based on the principle of quasi-contract
or solutio indebiti and the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the
Civil Code, which provide, thus:
Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another.
Art. 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
When money is paid to another under the influence of a mistake of fact, that is to say, on
the mistaken supposition of the existence of a specific fact, where it would not have been
known that the fact was otherwise, it may be recovered. The ground upon which the right
of recovery rests is that money paid through misapprehension of facts belongs in equity
and in good conscience to the person who paid it.9
The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of
Internal Revenue v. Firemans Fund Insurance Company, where we held that: "Enshrined in the basic legal
principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of
another. It goes without saying that the Government is not exempted from the application of this
doctrine."10
Action for refund strictly construed; Acesite discharged the burden of proof. Since an action for a tax
refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most explicit
and categorical language, it is strictly construed against the claimant who must discharge such burden
convincingly.11 In the instant case, respondent Acesite had discharged this burden as found by the CTA and
the CA. Indeed, the records show that Acesite proved its actual VAT payments subject to refund, as
attested to by an independent Certified Public Accountant who was duly commissioned by the CTA. On the
other hand, petitioner never disputed nor contested respondents testimonial and documentary evidence. In
fact, petitioner never presented any evidence on its behalf.
One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed,
fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund
without any unreasonable delay what it has erroneously collected.12
CASE SYLLABI:
Taxation; Tax Exemptions; Philippine Amusement and Gaming Corporation (PAGCOR) is also exempt
from indirect taxes.A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption
to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that
PAGCOR is also exempt from indirect taxes, like VAT.
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Same; Same; Acesite is not liable for the payment of the 10% Value Added Tax (VAT) as it is exempt in
this particular transaction by operation of law to pay the indirect tax.While it was proper for PAGCOR
not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in
this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the
former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424).
Same; Same; The proviso in P.D. No. 1869 extending the exemption to entities or individuals dealing
with Philippine Amusement and Gaming Corporation [PAGCOR] in casino operations is clearly to
proscribe any indirect tax, like Value Added Tax (VAT), that may be shifted to PAGCOR.The rationale
for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to
entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of
Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., 148 SCRA 36 (1987), where the
absolute tax exemption of the World Health Organization (WHO) upon an international agreement was
upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that
the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO,
and such does not violate the rule that tax exemptions are personal because the manifest intention of the
agreement is to exempt the contractor so that no contractors tax may be shifted to the contractee WHO.
Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR
in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.
Tax Refunds; There is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for
the instance in a case where he is not aware of an existing exemption in his favor at the time the
payment was made.Considering the foregoing discussion, there are undoubtedly erroneous payments of
the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite
has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that
the transactions it had with PAGCOR were zero-rated at the time it made the payments. In UST
Cooperative Store v. City of Manila, 15 SCRA 656 (1965), we explained that there is erroneous payment
of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of
an existing exemption in his favor at the time the payment was made. Such payment is held to be not
voluntary and, therefore, can be recovered or refunded.
Same; Same; The ground upon which the right of recovery rests is that money paid through
misapprehension of facts belongs in equity and in good conscience to the person who paid it.Tax
refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this
principle are found in Arts. 2142 and 2154 of the Civil Code, x x x When money is paid to another under
the influence of a mistake of fact, that is to say, on the mistaken supposition of the existence of a specific
fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground
upon which the right of recovery rests is that money paid through misapprehension of facts belongs in
equity and in good conscience to the person who paid it.
Same; Same; The Government is not exempted from the application of the solutio indebiti principle.
The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of
Internal Revenue v. Firemans Fund Insurance Company, 148 SCRA 315 (1987), where we held that:
Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich
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himself at the expense of another. It goes without saying that the Government is not exempted from the
application of this doctrine.
CIR vs. Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377, G.R. No. 66838.
December 2, 1991
Feliciano, J.
Facts:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder,
P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the
BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal Revenue
for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code,
as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends
remitted was only 15%.
Issue:
Whether or not P&G Philippines is entitled to the refund or tax credit.
Held:
YES. P&G Philippines is entitled.
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to
non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he
country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax
credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary
country by the foreign stockholder corporation. However, such tax credit for taxes deemed paid in the
Philippines MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents
the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if
USA shall allow P&G USA a tax credit for taxes deemed paid in the Philippines applicable against the
US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were
met.
CASE SYLLABI:
Taxation; Claim for Refund; taxpayer,-defined.- Since the claim for refund was filed by P&G-Phil.,
the question which arises is: is P&G-Phil. a "taxpayer" under Section 309 (3) of the NIRC? The term
"taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax
on Income]." 2 It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding
agent who is "required to deduct and withhold any tax" is made " personally liable for such tax" and indeed
is indemnified against any claims and demands which the stockholder might wish to make in questioning
the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC.
The withholding agent, P&G-Phil., is directly and independently liable 3 for the correct amount of the tax
that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and
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liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally
found to be less than the amount that should have been withheld under law.
A "person liable for tax" has been held to be a "person subject to tax" and properly considered a
"taxpayer." The terms liable for tax" and "subject to tax" both connote legal obligation or duty to pay a
tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable
for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in
interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were
illegally collected from him.
Same; tax on non-resident foreign corporations; Tax credit- The ordinary thirty-five percent (35%) tax
rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation,
goes down to fifteen percent (15%) if the country of domicile of the foreign stockholder corporation "shall
allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable against
the tax payable to the domiciliary country by the foreign stockholder corporation. In other words, in the
instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA "shall allow" to
P&G-USA a tax credit for "taxes deemed paid in the Philippines" applicable against the US taxes of P&GUSA. The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines" must, as a
minimum, reach an amount equivalent to twenty (20) percentage points which represents the difference
between the regular thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%)
dividend tax rate.
It is important to note that Section 24 (b) (1), NIRC, does not require that the US must give a "deemed
paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in making applicable
the preferred divided tax rate of fifteen percent (15%). In other words, our NIRC does not require that the
US tax law deem the parent-corporation to have paid the twenty (20) percentage points of dividend tax
waived by the Philippines. The NIRC only requires that the US "shall allow" P&G-USA a "deemed paid"
tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines.
Same; Same; Same; question of when deemed paid tax credit should have been actually
granted.The basic legal issue is this: which is the applicable dividend tax rate in the instance case: the
reular 35% rate or the reduced (15%)? he question of whether or not P&G-USA is in fact given by the US
tax authorities a "deemed paid" tax credit in the required amount, relates to the administrative
implementation of the applicable reduced tax rate.xxx Section 24 (b) (1), NIRC, does not in fact require
that the "deemed paid" tax credit shall have actually been granted before the applicable dividend tax rate
goes down from thirty-five percent (35%) to fifteen percent (15%). As noted several times earlier, Section
24 (b) (1), NIRC, merely requires, in the case at bar, that the USA "shall allow a credit against the
tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . . ." There is neither
statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of
the "deemed paid" tax credit by the US Internal Revenue Service to P&G-USA before the preferential
fifteen percent (15%) dividend rate becomes applicable. Section 24 (b) (1), NIRC, does not create a tax
exemption nor does it provide a tax credit; it is a provision which specifies when a particular (reduced) tax
rate is legally applicable.
Same; Same; Same; Philippines-United States Convention With Respect to Taxes on Income -t
remains only to note that under the Philippines-United States Convention "With Respect to Taxes on
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Income," 15 the Philippines, by a treaty commitment, reduced the regular rate of dividend tax to a
maximum of twenty percent (20%) of the gross amount of dividends paid to US parent corporations.xxx
The Tax Convention, at the same time, established a treaty obligation on the part of the United States that it
"shall allow" to a US parent corporation receiving dividends from its Philippine subsidiary "a [tax] credit
for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary] .16
This is, of course, precisely the "deemed paid" tax credit provided for in Section 902, US Tax Code,
discussed above. Clearly, there is here on the part of the Philippines a deliberate undertaking to reduce the
regular dividend tax rate of twenty percent (20%) is a maximum rate, there is still a differential or
additional reduction of five (5) percentage points which compliance of US law (Section 902) with the
requirements of Section 24 (b) (1), NIRC, makes available in respect of dividends from a Philippine
subsidiary.
Paras. J. Dissenting
Civil procedure; parties; withholding agent not real party in interest to claim reimbursement of
alleged tax overpayment.-- It is true that private respondent, as withholding agent, is obliged by law to
withhold and to pay over to the Philippine government the tax on the income of the taxpayer, PMC-U.S.A.
(parent company). However, such fact does not necessarily connote that private respondent is the real party
in interest to claim reimbursement of the tax alleged to have been overpaid. Payment of tax is an obligation
physically passed off by law on the withholding agent, if any, but the act of claiming tax refund is a right
that, in a strict sense, belongs to the taxpayer which is private respondent's parent company. The role or
function of PMC-Phils., as the remitter or payor of the dividend income, is merely to insure the collection
of the dividend income taxes due to the Philippine government from the taxpayer, "PMC-U.S.A.," the nonresident foreign corporation not engaged in trade or business in the Philippines, as "PMC-U.S.A." is subject
to tax equivalent to thirty five percent (35%) of the gross income received from "PMC-Phils." in the
Philippines "as . . . dividends . . ." (Sec. 24 [b], Phil. Tax Code). Being a mere withholding agent of the
government and the real party in interest being the parent company in the United States, private respondent
cannot claim refund of the alleged overpaid taxes.
Same; Appeals; Issues raised for the first time on appeal; Government can never be in estoppels- In
like manner, petitioner Commissioner of Internal Revenue's failure to raise before the Court of Tax
Appeals the issue relating to the real party in interest to claim the refund cannot, and should not, prejudice
the government. Such is merely a procedural defect. It is axiomatic that the government can never be in
estoppel, particularly in matters involving taxes.
Taxation; tax refunds are in the nature of tax exemptions.-- Tax refunds are in the nature of tax
exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who
claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or
statute law . . . and cannot be permitted to exist upon vague implications.xxx Thus, when tax exemption is
claimed, it must be shown indubitably to exist, for every presumption is against it, and a well founded
doubt is fatal to the claim.
Commissioner of Internal Revenue vs. Smart Communication, Inc., 629 SCRA 342, G.R. Nos.
179045-46. August 25, 2010
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Del Castillo, J.
Facts:
( Smart entered into an agreement with Prism, a non-resident foreign corporation domiciled in Malaysia,
whereby prism will provide programming and consultancy services to smart. Thinking that the payments
to Prism were royalties, Smart withheld 25% under the RP-Malaysia tax Treaty. Smart then filed a refund
with the BIR alleging that the payments were not subject to Philippine withholding taxes given that they
constituted business profits paid to an entity without a permanent establishment in the Philippines.
Smart Communications, Inc. (Smart) entered into 3 agreements with Prism Transactive (M) Sdn.Bhd.
(Prism), a non-resident Malaysian corporation, under which Prism would provide programming and
consultancy services for the installation of the Service Download Manager (SDM Agreement) and the
Channel Manager (CM Agreement), and for the installation and implementation of Smart Money and
Mobile Banking Service SIM Applications and Private Text Platform (SIM Application Agreement). Prism
billed SmartUS$547,822.45. Thinking that the amount constituted royalties, Smart withheld from its
payments to Prism the amount ofUS$136,955.61 or P7,008,840.43, representing the 25% royalty tax under
the RP-Malaysia Tax Treaty. Within the 2-year period to claim a refund, Smart filed an administrative
claim with the Bureau of Internal Revenue(BIR) for the refund of the withheld amount (P7,008,840.43).
When the Commissioner of Internal Revenue (CIR) failed to act on its claim, Smart filed a Petition for
Review with the Court of Tax Appeals (CTA). Smart averred that its payments to Prism were not royalties
but business profits, as defined in the RP-Malaysian Tax Treaty, which were not taxable because Prism
did not have a permanent establishment in the Philippines. The CIR countered that Smart, as a withholding
agent was not a party-in-interest to file the claim for refund, and even if it were the proper party, there was
no showing that the payments to Prism constituted business profits.

The CTAs Second Division sustained Smarts right to file the claim for refund, citing the cases of
Commissioner of Internal Revenue vs. Wander Philippines, Inc. [243 Phil. 717 (1988)], Commissioner of
Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corporation (G.R. No. 66838, 2
December 1991, 204 SCRA 377) and Commissioner of Internal Revenue vs. The Court of Tax Appeals
[G.R. No. 93901, 11 February 1992 (Minute Resolution)]. However, it granted only the refund of the
withholding tax on Smarts payment for the SDM Agreement (P3,989,456.43) because only the payment
for the SDM Agreement constituted royalty which was subject to withholding tax. The court considered
the payments for the CM and SIM Application agreements as business profits which were not subject to
tax under the RP-Malaysia Tax Treaty.
On appeal, the CTA En Banc affirmed its Second Divisions ruling. The CIR, thus, brought the case to the
Supreme Court for review, arguing that the cases cited by the CTA in upholding Smarts right to claim the
refund, were inapplicable because the withholding agents therein were wholly owned subsidiaries of the
taxpayers, unlike in this case where the withholding agent was unrelated to the taxpayer. The CIR
maintained that the proper party to file the refund was the taxpayer, Prism, citing the case of Silkair
(Singapore) Pte, Ltd. vs. Commissioner of Internal Revenue (G.R. No. 173594, 6 February 2008, 544
SCRA 100). The CIR further argued that assuming Smart was the proper party to file the claim, it was still
not entitled to any refund because its payments to Prism were taxable as royalties, having been made in
consideration for the use of the programs owned by Prism
Issue:
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Whether or not Smart have the right to file the claim for refund?

Held:
YES. Smart as withholding agent may file a claim for refund.
The Court reiterated the ruling in Procter & Gamble stating that a person liable for tax has sufficient
legal interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the
withholding agent is an agent of the beneficial owner of the payments (i.e.., non-resident), the authority as
agent is held to include the filing of a claim for refund. The Silkair case held inapplicable as it involved
excise taxes and not withholding taxes.

Smart was granted a refund given that only a portion of its payments represented royalties since it is only
that portion over which Prism maintained intellectual property rights and the rest involved full transfer of
proprietary rights to Smart and were thus treated as business profits of Prism.
CASE SYLLABI:
Taxation; Tax Refunds; Withholding Tax; Parties; The person entitled to claim a tax refund is the
taxpayer, but in case the taxpayer does not file a claim for refund, the withholding agent may file the
claim.The person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not
file a claim for refund, the withholding agent may file the claim. In Commissioner of Internal Revenue v.
Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377 (1991), a withholding agent was
considered a proper party to file a claim for refund of the withheld taxes of its foreign parent company.
Same; Same; Same; Same; Although the fact that the taxpayer and the withholding agent are related
parties is a factor that increases the latters legal interest to file a claim for refund, there is nothing in
Commissioner of Internal Revenue v. Procter & Gamble Philippines Manufacturing Corporation, 204
SCRA 377 (1991), to suggest that such relationship is required or that the lack of such relation deprives
the withholding agent of the right to file a claim for refundwhat is clear in the decision is that a
withholding agent has a legal right to file a claim for refund.Petitioner, however, submits that this ruling
applies only when the withholding agent and the taxpayer are related parties, i.e., where the withholding
agent is a wholly owned subsidiary of the taxpayer. We do not agree. Although such relation between the
taxpayer and the withholding agent is a factor that increases the latters legal interest to file a claim for
refund, there is nothing in the decision to suggest that such relationship is required or that the lack of such
relation deprives the withholding agent of the right to file a claim for refund. Rather, what is clear in the
decision is that a withholding agent has a legal right to file a claim for refund for two reasons. First, he is
considered a taxpayer under the NIRC as he is personally liable for the withholding tax as well as for
deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to
be less than the amount that should have been withheld under law. Second, as an agent of the taxpayer, his
authority to file the necessary income tax return and to remit the tax withheld to the government impliedly
includes the authority to file a claim for refund and to bring an action for recovery of such claim.
Same; Same; Same; Same; Unjust Enrichment; While the withholding agent has the right to recover the
taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the
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principal taxpayer.In this connection, it is however significant to add that while the withholding agent
has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to
remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from
whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.
Same; Same; RP-Malaysia Tax Treaty; Words and Phrases; Royalties, and Permanent
Establishment, Defined.Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments
of any kind received as consideration for: (i) the use of, or the right to use, any patent, trade mark, design
or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or for the use
of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning
industrial, commercial or scientific experience; (ii) the use of, or the right to use, cinematograph films, or
tapes for radio or television broadcasting. These are taxed at the rate of 25% of the gross amount. Under
the same Treaty, the business profits of an enterprise of a Contracting State is taxable only in that State,
unless the enterprise carries on business in the other Contracting State through a permanent establishment.
The term permanent establishment is defined as a fixed place of business where the enterprise is wholly
or partly carried on. However, even if there is no fixed place of business, an enterprise of a Contracting
State is deemed to have a permanent establishment in the other Contracting State if it carries on supervisory
activities in that other State for more than six months in connection with a construction, installation or
assembly project which is being undertaken in that other State. In the instant case, it was established during
the trial that Prism does not have a permanent establishment in the Philippines. Hence, business profits
derived from Prisms dealings with respondent are not taxable. The question is whether the payments made
to Prism under the SDM, CM, and SIM Application agreements are business profits and not royalties.
Same; Same; The government has no right to retain what does not belong to it.The government has no
right to retain what does not belong to it. No one, not even the State, should enrich oneself at the expense
of another.
Koppel (Phil.), Inc. vs. Collector of Internal Revenue, 3 SCRA 17, NO. L-10550. September 19,
1961
Paredes, J.
Facts:
The petitioner, it appears, is a domestic corporation of American capital duly organized and existing by
virtue the Philippine laws. During the year 1942 to the early part of 1945, the petitioner sustained losses
arising from the occupation of the Philippines by the Japanese Military forces from 1941 to the battle of
liberation in 1945. On March 27, 1942, the U.S. Congress passed Public Law 506, (War Damage Insurance
Act), to cover insurance of all properties in the Philippines which might be damaged, destroyed or lost due
to the operations of war. The petitioner, relying on the provisions of this legislation, entered in its books as
"accounts receivable" from the U.S. Government the entire value of its properties damaged, destroyed and
lost during World War II. On April 30, 1946, the U.S. Congress enacted Public Law 370 (Philippine
Rehabilitation Act of 1946), which provided that the Philippine War Damage Commission supersedes the
War Damage Commission. Section 102 of the Public Law 370 states:
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. . . . Provided further, that in case the aggregate amount of the claims which would be payable to
anyone claimant under the foregoing provisions exceeds $500, the aggregate amount the claims
approved in favor of such claimant shall be reduced by 25 per centum of the excess over $500.
On January 15, 1947, the U.S.-Philippine War Damage Commission, the agency entrusted with the
enforcement of said Public Law 370, issued a notice to the effect that February 25, 1947, was the date
agreed upon as the initial date for the issuance of forms for the claimants of war damages and the claims
could not be filed until after March 1, 1947. In 1947, the petitioner came to know that its losses equivalent
to 25% or P256,054.88 could not be recovered, for which reason petitioner could not claim deduction for
said losses in its 1945 and 1946 income tax returns. Petitioner, therefore, in its book of accounts for the
year 1947, wrote off as "bad debts" the said amount of P256,054.88. On June 6, 1949, the respondent
Collector of Internal Revenue, assessed against the petitioner's income tax for 1947, the sum of P34,636.21,
corresponding to the amount of P256,054.88 as war losses sustained and ascertained to be recoverable in
1946. On June 29, 1949, the petitioner paid under protest with the Bureau of Internal Revenue the amount
of P34,636.21 (O.R. No. 58094) as alleged deficiency income tax due, based on the disallowed deduction
of P256,054.88. Petitioner repeatedly sought from respondent a reconsideration of the assessment and the
refund of the amount of P34,636.21 later reduced to P30,726.21, on the ground that said assessment was
illegal. The then Secretary of Finance, Pio Pedrosa, on September 11, 1951, sustained petitioner's stand and
that of other taxpayers similarly situated, setting rules to be followed. The respondent issued general
Circular No. V-123 addressed to all Internal Revenue officers and income tax examiners to apply the rules
in the investigation of income tax returns involving war damage losses. On September 21, 1951, petitioner
reiterated its demand for the refund of the amount of P30,726.53. Petitioner, on July 28, 1953, received a
communication denying the refund of the amount, on the ground that the ruling of Finance Secretary
Pedrosa had already been revoked by his successor, Secretary of Finance Aurelio Montinola.
On August 27, 1953, petitioner filed a petition for review with the then Board of Tax Appeals (B.T.A. Case
No. 157), praying that the respondent be ordered to refund to the petitioner the sum of P30,726.53, to
which on September 5, 1953 respondent answered, praying for the dismissal of the case. The case was
submitted for decision after the parties had filed their respective memoranda. Notwithstanding the lapse of
60 days from the filing of the petition for review, the Board of Tax Appeals, had not rendered any decision.
On November 4, 1953, petitioner gave notice of intention to file an appeal, pursuant to section 21 of
Executive Order No. 401-A. On November 13, 1953, petitioner received a copy of the decision of the
Board of Tax Appeals dated October 26, 1953, confirming the order of the respondent Collector of Internal
Revenue, in denying the refund requested by the petitioner. A petition for review was presented before this
Court, being case No. L-5701.
In this Court, respondent did not file his brief, instead on April 21, 1954, he presented a motion to dismiss
the appeal. On April 29, 1954, this Court dismissed the petitioner's appeal in said case "without prejudice,
following the decision in University of Sto. Tomas vs. Board of Tax Appeals, G.R. No. L-6701". On May
18, 1954, petitioner filed a complaint with the Manila Court of First Instance, Civil Case No. 22893,
entitled "Koppel (Philippines), Inc. plaintiff v. Collector of Internal Revenue, defendant," praying that the
latter be ordered to refund to the former the sum of P30,726.53. Upon motion of the Solicitor General, the
Manila Court of First Instance remanded the case to the Court of Tax Appeals, pursuant to section 22 of
Rep. Act No. 1125, in which Court, on December 14, 1955, the parties submitted a stipulation of facts. On
March 5, 1956, the Court of Tax Appeals rendered a decision, that the petitioners cause of action has
already prescribed.
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Issue:
Whether or not a claim of petitioners refund has already prescribed.
Held:
The petitioner is estopped by laches. The record reveals that on June 29, 1949, the petitioner paid to the
respondent the deficiency tax in question. From the said date, the two years within which to file an action
in court for the recovery of the tax expired on June 29, 1951. Within the said period, the petitioner failed to
file an action for refund either in the Court of First Instance or the Board of Tax Appeals, immediately after
the creation of the Board under Executive Order No. 401-A promulgated on Jan. 5, 1951. Petitioner just
waited for the decision of the respondent Collector of Internal Revenue in its claim for refund, which was
handed down on July 28, 1953, after more than four (4) years from payment. It is clearly ruled in the
Kiener case that the petitioner should not have folded his arms and wait for the decision, knowing, that the
"time for bringing an action for a refund of income tax, fixed by statute, is not extended by the delay of the
Collector of Internal Revenue in giving notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656,
51 S. Ct. 284)" (II Araas, N.I.R. Code p. 719). There was an assessment; the petitioner paid; the petitioner
asked for refund; it was denied; a motion for reconsideration was presented and no resolution was
forthcoming from the respondent Collector. Aware of the provisions of the law, it was the duty of the
petitioner to have urged the respondent for his decision and wake him up from his lethargy or file his action
within the time prescribed by law. While it is true that there was a ruling couched in general terms, by the
Secretary of Finance on the matter, which was really controversial, because the same was later revoked by
another Secretary of Finance, said pronouncement, however, was not a decision by the respondent
Collector on the specific controversy relative to the refund of the deficiency tax in question. The court
should not give a premium to a litigant who sleeps on his rights. The lawyers of the petitioner may not
come now and invoke estoppel when they have been in laches themselves. The government is never
estopped by error or mistake on the part of its agents (Pineda, et al. v. CFI and Coll. of Int. Rev., 52 Phil.
803). The reservation made by the Supreme Court in the case No. L-5701 should not be interpreted as
permitting the petitioner to file another case under all circumstances, but as the facts and circumstances
might warrant under the law. The ruling in the Kiener case is still a sound one, and should be, as it is
applied, as a matter of public policy, in the enforcement of tax laws.
CASE SYLLABI:
Taxation; Income tax; Action for refund; Taxpayer need not wait for collectors decision; Time for
bringing action not extended by delay in giving notice of the rejection of claim.Knowing that the time
for bringing an action for a refund of income tax is not extended by the delay of the Collector of Internal
Revenue in giving notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656, 51 S. Ct. 284; II
Araas, N.I.R. Code, p. 719), a taxpayer should not fold his arms and wait for the decision of the Collector
before bringing the action for refund (Kiener Co., Ltd. vs. S. David, L-5157, April 22, 1953, 49 O.G. No. 5,
1852).
Same; Same; Taxpayer duty bound to file action within the time prescribed by law; Prescription.
Aware of the provisions of the law, it is the duty of the taxpayer to urge the Collector for his decision and
wake him up from his lethargy or file his action within the time prescribed by law. The petitioner not
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having filed his claim within the time fixed by law, his cause of action has prescribed, and the court should
not give a premium to a litigant who sleeps on his rights.
Same; Same; Government not estopped by errors of its agents.Having failed to file his action for refund
on time petitioner may not now invoke estoppel when he himself is guilty of laches. The government is
never estopped by error or mistake on the part of its agents (Pineda, et al. vs. CFI and Collector of Internal
Revenue, 52 Phil. 803).
Commissioner of Internal revenue vs . Far East Bank &amp; Trust Company (now Bank of the
Philippine Island), 615 SCRA 417, G.R. No. 173854. March 15, 2010
Del Castillo, J.
Entitlement to a tax refund is for the taxpayer to prove and not for the government to disprove.
Facts:
On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two Corporate Annual Income Tax
Returns, one for its Corporate Banking Unit (CBU)[4] and another for its Foreign Currency Deposit Unit (FCDU),[5] for
the taxable year ending December 31, 1994. The return for the CBU consolidated the respondents overall income tax
liability for 1994, which reflected a refundable income tax of P12,682,864.00.
Pursuant to Section 69[7] of the old National Internal Revenue Code (NIRC), the amount of P12,682,864.00 was
carried over and applied against respondents income tax liability for the taxable year ending December 31,
1995. On April 15, 1996, respondent filed its 1995 Annual Income Tax Return, which showed a total overpaid
income tax in the amount of P17,443,133.00.
Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by respondent. As
to the remaining P3,798,024.00, respondent opted to carry it over to the next taxable year. On May 17, 1996,
respondent filed a claim for refund of the amount of P13,645,109.00 with the BIR. Due to the failure of petitioner
Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent was compelled to bring the matter
to the CTA on April 8, 1997 via a Petition for Review docketed as CTA Case No. 5487.
On October 4, 1999, the CTA rendered a Decision denying respondents claim for refund on the ground that
respondent failed to show that the income derived from rentals and sale of real property from which the taxes were
withheld were reflected in its 1994 Annual Income Tax Return. On October 20, 1999, respondent filed a Motion for
New Trial based on excusable negligence. It prayed that it be allowed to present additional evidence to support its
claim for refund. However, the motion was denied on December 16, 1999 by the CTA.
On appeal, the CA reversed the Decision of the CTA. The CA found that respondent has duly proven that the income
derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part
of the gross income. Hence, this present recourse.

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Issue:
Whether respondent has proven its entitlement to the refund.
Held:
We find that the respondent miserably failed to prove its entitlement to the refund. Therefore, we grant the petition
filed by the petitioner CIR for being meritorious.
A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:
1)

The claim must be filed with the CIR within the two-year period from the date of payment of the tax;

2)
3)

It must be shown on the return that the income received was declared as part of the gross income; and
The fact of withholding must be established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld.[12]

The two-year period requirement is based on Section 229 of the NIRC of 1997 which provides that:
SECTION 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Formerly Section 230 of the old NIRC)
While the second and third requirements are found under Section 10 of Revenue Regulation No. 6-85, as
amended, which reads:
Section 10. Claims for tax credit or refund. Claims for tax credit or refund of income
tax deducted and withheld on income payments shall be given due course only when it is shown on
the return that the income payment received was declared as part of the gross income and the fact of
withholding is established by a copy of the statement duly issued by the payer to the payee (BIR
Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom.
Respondent timely filed its claim for refund. There is no dispute that respondent complied with the first
requirement. The filing of respondents administrative claim for refund on May 17, 1996 and judicial claim for refund
onApril 8, 1997 were well within the two-year period from the date of the filing of the return on April 10, 1995.
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Part I: REMEDIES UNDER THE NIRC

Respondent failed to prove that the income derived from rentals and sale of real property were included
in the gross income as reflected in its return. To establish the fact of withholding, respondent submitted
Certificates of Creditable Tax Withheld at Source and Monthly Remittance Returns of Income Taxes Withheld, which
pertain to rentals and sales of real property, respectively. However, a perusal of respondents 1994 Annual Income
Tax Return shows that the gross income was derived solely from sales of services. In fact, the phrase NOT
APPLICABLE was printed on the schedules pertaining to rent, sale of real property, and trust income.[16] Thus, based
on the entries in the return, the income derived from rentals and sales of real property upon which the creditable
taxes were withheld were not included in respondents gross income as reflected in its return. Since no income
was reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return
the income upon which any creditable tax is required to be withheld at the source.[17]
Respondents explanation that its income derived from rentals and sales of real properties were included in the gross
income but were classified as Other Earnings in its Schedule of Income[18] attached to the return is not supported by
the evidence. There is nothing in the Schedule of Income to show that the income under the heading Other Earnings
includes income from rentals and sales of real property. No documentary or testimonial evidence was presented by
respondent to prove this. In fact, respondent, upon realizing its omission, filed a motion for new trial on the ground of
excusable negligence with the CTA. Respondent knew that it had to present additional evidence showing the
breakdown of the Other Earnings reported in its Schedule of Income attached to the return to prove that the income
from rentals and sales of real property were actually included under the heading Other Earnings.
Respondent failed to present all the Certificates of Creditable Tax Withheld at Source. The CA likewise
failed to consider in its Decision the absence of several Certificates of Creditable Tax Withheld at
Source. It immediately granted the refund without first verifying whether the fact of withholding was
established by the Certificates of Creditable Tax Withheld at Source as required under Section 10 of
Revenue Regulation No. 6-85. As correctly pointed out by the CTA, the certifications (Exhibit UU) issued
by respondent cannot be considered in the absence of the required Certificates of Creditable Tax Withheld
at Source.
The burden is on the taxpayer to prove its entitlement to the refund. Moreover, the fact that
the petitioner failed to present any evidence or to refute the evidence presented by respondent does
not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a
taxpayers claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund
rests on the taxpayer.[20]
And while the petitioner has the power to make an examination of the returns and to assess the correct
amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness
of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we
have said, there is no automatic grant of a tax refund. [21]
Hence, for failing to prove its entitlement to a tax refund, respondents claim must be denied. Since tax
refunds partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer,
evidence in support of a claim must likewise be strictissimi scrutinized and duly proven.
CASE SYLLABI:
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Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

Taxation; Tax Refund; Requisites for taxpayer claiming for a tax credit or refund of creditable
withholding tax.A taxpayer claiming for a tax credit or refund of creditable withholding tax must
comply with the following requisites: 1) The claim must be filed with the CIR within the two-year period
from the date of payment of the tax; 2) It must be shown on the return that the income received was
declared as part of the gross income; and 3) The fact of withholding must be established by a copy of a
statement duly issued by the payor to the payee showing the amount paid and the amount of the tax
withheld.
Same; Same; It is incumbent upon the taxpayer to reflect in his return the income upon which any
creditable tax is required to be withheld at the source.Based on the entries in the return, the income
derived from rentals and sales of real property upon which the creditable taxes were withheld were not
included in respondents gross income as reflected in its return. Since no income was reported, it follows
that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the income
upon which any creditable tax is required to be withheld at the source.
Same; Same; It is not the duty of the government to disprove a taxpayers claim for refund; the burden
of establishing the factual basis of a claim for a refund rests on the taxpayer.The fact that the
petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso
facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayers
claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the
taxpayer.
Same; Same; There is no automatic grant of a tax refund.And while the petitioner has the power to
make an examination of the returns and to assess the correct amount of tax, his failure to exercise such
powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still
present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a
tax refund.
Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No. L-23912. March 15, 1968
Fernando, J.
Facts:
An assessment in the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50
shares of stock of Edward J. Nell Company issued in the names of both spouses as joint tenants with full
rights of survivorship and not as tenants in common was made by the Commissioner of Internal Revenue
on the ground that there was a transmission to the husband of one-half share thereof upon the death of the
wife, the above shares being conjugal property. Jose Concepcion, as ancillary administrator of the estate of
Mary H. Mitchell-Roberts, and Jack F. Mitchell-Roberts, husband of the deceased, opposed and maintained
that there was no transmission of property since under English law, ownership of all property acquired
during the marriage vests in the husband, and that the shares of stock were issued to the spouses as joint
tenants with full rights of survivorship and not as tenants in common. Not being agreeable to the theory
entertained by the Commissioner of Internal Revenue, Concepcion and Mitchell-Roberts, in CTA Case 168,
appealed such a decision under RA 1125. The Court of Tax Appeals, however and on 29 April 1957,
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Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of
30 days. That decision became final.
On 14 June 1957, Concepcion and Mitchell-Roberts paid the taxes in question amounting to P1,181.33 (as
estate tax) and P2,616.10 (as inheritance tax), inclusive of delinquency penalties, and at the same time filed
a claim for the refund of said amounts. Without waiting for the decision of the Commissioner of Internal
Revenue on the claim for refund, Concepcion and Mitchell-Roberts instituted an appeal with the Court of
Tax Appeals on 11 June 1959 in order to avoid the prescriptive period of two years provided for in Section
306 of the Revenue Code. The Court of Tax Appeals ordered the Commissioner of Internal Revenue to
refund the inheritance and estate taxes paid in the amount of P3,797.43. The Commissioner filed a petition
for review with the Supreme Court.
Issue:
Whether a taxpayer who had lost his right to dispute the validity of an assessment, the period for appealing
to the Court of Tax Appeals having expired, as found by such Court in a previous case in a decision now
final, and who thereafter paid under protest could then, relying on Section 306 of the National Internal
Revenue Code sue for recovery on the ground of its illegality?
Held:
No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was reaffirmed categorically in
this language: "Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in
question final, executory and demandable, And when the action was instituted on September 2, 1958 to
enforce the deficiency assessment in question, it was already barred from disputing the correctness of the
assessment or invoking any defense that would reopen the question of his tax liability on the merits.
Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense." Once
the matter has reached the stage of finality in view of the failure to appeal, it logically follows, in the
appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could no
longer be reopened through the expedient of an appeal from the denial of petitioner's request for
cancellation of the warrant of distraint and levy."
In the same way then that the expedient of an appeal from a denial of a tax request for cancellation of
warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment,
which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in
Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity
of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by
the lapse of the reglementary period within which to appeal could have been taken. Clearly then, the
liability of respondent Concepcion as an ancillary administrator of the estate of the deceased wife and of
respondent Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate tax and P2,616.10 as
inheritance tax was beyond question. Having paid the same, respondents are clearly devoid of any legal
right to sue for recovery.
CASE SYLLABUS:
Taxation; Recovery of tax illegally collected, denied where taxpayer had failed to appeal in due time.
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose
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Taxation II Case Digests based on Atty. Bobby Locks Course Outline


Part I: REMEDIES UNDER THE NIRC

appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such
taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an
appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to
test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section
360 of the Tax Code not available to revive the right to contest the validity of an assessment which had
become final for failure to appeal the same on time.
Commissioner of Internal Revenue vs. Court of Appeals, 234 SCRA 348, G.R. No. 106611. July 21,
1994
Regalado, J.
Facts:
In a letter dated August 26, 1986, herein private respondent corporation filed a claim for refund with the
Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate of
the excess of its carried-over total quarterly payments over the actual income tax due, plus carried-over
withholding tax payments on government securities and rental income, as computed in its final income tax
return for the calendar year ending December 31, 1985. 3 Two days later, or on August 28, 1986, in order to
interrupt the running of the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals,
docketed therein as CTA Case No. 4099, claiming the refund of its income tax overpayments for the years
1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund. On June 24, 1991, herein petitioner filed with the tax court a manifestation
and motion praying for the suspension of the proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of
the required confirmation receipts which would show whether or not the aforestated amount