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It appears that by virtue of Letter of Authority, 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). The said examination resulted in a recommendation for the
issuance of an assessment.
Later, the Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC alleging evasion of taxes. PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability on the ground that no
formal assessment has as yet been issued by the Commissioner.. The CIR denied the urgent request
for reconsideration/reinvestigation of the private respondents.
Issue
Whether or not the revenue officers Affidavit-Report, which was attached to the criminal Complaint
filed with the Department of Justice, constitutes an assessment that could be questioned before the
Court of Tax Appeals.
Held
Not an assessment.
Neither the NIRC nor the revenue regulations governing the protest of assessments 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.
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. An assessment
must be sent to and received by a taxpayer, and must demand payment of the taxes described therein
within a specific period.
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. The NIRC provides that internal revenue taxes must
be assessed within three years from the last day within which to file the return. 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. 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.
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. It was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
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.
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Republic vs. CA
Facts
In a demand letter, the Commissioner of Internal Revenue assessed private respondent deficiency
taxes. Petitioner reiterated its demand upon private respondent for payment of said amount, per letters
dated 24 April 1956, 19 September 1956 and 9 February 1960. Private respondent did not contest the
assessment in the Court of Tax Appeals. On the theory that the assessment had become final and
executory, petitioner filed a complaint for collection of the said amount against private respondent
with the Court of First Instance of Manila. However, for failure to serve summons upon private
respondent, the complaint was dismissed, without prejudice. On motion, the order of dismissal was set
aside, at the same time giving petitioner sixty (60) days within which to serve summons upon private
respondent.
For failure anew to serve summons, the Court of First Instance of Manila dismissed without prejudice.
The complaint against private respondent for collection of the same tax was refilled
The Court of First Instance of Manila ordered private respondent Nielson & Co., Inc. to pay the
Government ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late
payment.
Issue
Whether or not there was proper notice of assessment.
Held
There was proper notice of assessment.
While the contention of petitioner is correct that a mailed letter is deemed received by the addressee in
the ordinary course of mail, still this is merely a disputable presumption, subject to controversion, 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.
Since petitioner has not adduced proof that private respondent had in fact received the demand letter
of 16 July 1955, it cannot be assumed that private respondent received said letter. Records, however,
show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating
its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955.
This follow-up letter is considered a notice of assessment in itself that was duly received by private
respondent in accordance with its own admission.
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals
within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the
case at bar, makes the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment or from invoking any
defense that would reopen the question of its liability on the merits.
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already
become final and executory, 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. ...
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Sy Po vs. CTA
Facts
Petitioner is the widow of the late Mr. Po Bien Sing. The deceased Po Bien Sing was the sole
proprietor of Silver Cup Wine Factory. He was engaged in the business of manufacture and sale of
compounded liquors, using alcohol and other ingredients as raw materials.
On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to millions of
pesos" an investigation was conducted and a subpoena duces tecum were issued against Silver Cup
requesting production of the accounting records and other related documents for the examination of
the team. Mr. Po Bien Sing did not produce his books of accounts as requested This prompted the
team with the assistance of the PC Company, Cebu City, to enter the factory bodega of Silver Cup and
seized different brands. On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax.
Petitioner protested the deficiency assessments.
Issue
Whether or not the assessments have valid and legal bases.
Held
Are valid and legal.
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.
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.
The tax figures arrived at by the Commissioner of Internal Revenue are by no means arbitrary.
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 favour of the correctness of tax assessments.
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 Government of the taxes due.
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the proceeding may suspend the said collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the amount with the Court.
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It is our considered opinion that the determination of the correctness or incorrectness of a tax
assessment to which the taxpayer is not agreeable falls within the jurisdiction of the Court of Tax
Appeals and not of the Court of First Instance, for under the aforequoted provision of law, 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 or other law or part of law administered by the Bureau of Internal
Revenue."
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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 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, on
February 12, 1971, well within the thirty-day prescriptive period. 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.4
4 The CIR shouldve waited until the 30-day period had prescribed.
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It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
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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.
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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.
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, he received a formal
assessment notice 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.
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The word "decisions" quoted above, has been interpreted to mean the decisions of the Commissioner
of Internal Revenue on the protest of the taxpayer against the assessments. Definitely, said word does
not signify the assessment itself.
Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same
because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals
only upon receipt of the decision of the Collector on the disputed assessment, . . .
Note that the law uses the word "decisions", not "assessments", further indicating the legislative
intention to subject to judicial review the decision of the Commissioner on the protest against an
assessment but not the assessment itself. Since in the instant case the taxpayer appealed the
assessment of the Commissioner of Internal Revenue without previously contesting the same, the
appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For,
as stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue on
disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take cognizance
only of such matters as are clearly within its jurisdiction.
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RCBC vs CIR
Facts
Petitioner Rizal Commercial Banking Corporation received a Formal Letter of Demand from the
respondent Commissioner of Internal Revenue for its tax liabilities particularly for Gross Onshore Tax
and
Documentary
Stamp
Tax.
Petitioner
filed
a
protest
letter/request
for
reconsideration/reinvestigation. As the protest was not acted upon by the respondent, petitioner filed
on April 30, 2002 a petition for review with the CTA for the cancellation of the assessments.
The petition for review was dismissed because it was filed beyond the 30-day period following the
lapse of 180 days from petitioners submission of documents in support of its protest. Petitioner did
not file a motion for reconsideration or an appeal to the CTA En Banc from the dismissal of its
petition for review. Consequently, the Resolution became final and executory. Thereafter, respondent
sent a Demand Letter to petitioner for the payment of the deficiency tax assessments.
Later, petitioner filed a Petition for Relief from Judgment on the ground of excusable negligence of its
counsels secretary who allegedly misfiled and lost the September 10, 2003 Resolution. The CTA
denied the petition for relief from judgment
Issue
Whether or not after appealing to the CTA after the 180 day period, the taxpayer can still file another
appeal to the CTA once the BIR decides on the protest.
Held
Taxpayers options are mutually exclusive, one bars the other.
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.
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.
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, the Court of Tax Appeals for late filing
dismissed it. 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 that was
however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the
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final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext
that there is yet no final decision on the disputed assessment because of the Commissioner's inaction.
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determination of the commencement of the statutory thirty-day period, and place the petitioner and
for that matter, any taxpayer in a position, to delay at will and on convenience the finality of a tax
assessment.
The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter of
June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse of
thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner
sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced to
run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August 1,
1963 after the lapse of an additional sixteen days. The petition for review having been filed beyond
the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.
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the proceeding may suspend the said collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the amount with the Court.
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Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed
its petition for review. 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 appeal was filed out of time.
Held
We hold 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.
The directive is in consonance with this Court's dictum that the Commissioner should always indicate
to the taxpayer in clear and unequivocal language what constitutes his final determination of the
disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and
orderliness in administrative action.
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Within thirty days from the receipt of the above letter, petitioners filed a petition for review with the
respondent Court of Tax Appeals. The CTA dismissed the petition reasoning it was filed out of time.
Issue
Whether or not the appeal was filed out of time
Held
Appeal was timely filed
Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same
because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals
only upon receipt of the decision of the Collector on the disputed assessment. The period for appeal to
the respondent court in this case must, therefore, be computed from the time petitioners received the
decision of the respondent Collector of Internal Revenue on the disputed assessment, and not from the
time they received said assessment.
The next question now is: which is the decision of the Collector on the disputed assessment his
letter of April 6, 1955, received by petitioners on April 21, 1955, denying their first request for the
withdrawal and cancellation of the assessment; or his letter of July 11, 1955, received by petitioners
on July 25, 1955, denying their second request that the assessment be cancelled and withdrawn, and
stating that:
This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax
Appeals within the same period, in accordance with the provision of Republic Act No. 1125.
From the above-quoted statement appearing in his letter of July 11, 1955, it is evident that the
respondent Collector himself considered said letter as his final decision in the case. Prior to his letterdecision of July 11, 1955, then, the Collector must have held the matter under advisement and
considered his preceding rulings as merely tentative in character, pending his final determination and
resolution of the merits of the arguments of fact and law submitted by petitioners in support of their
requests for the cancellation and withdrawal of the assessment.
This must have been for this reason that, throughout the proceedings in the respondent Collector never
claimed that petitioners' appeal was filed out of time, and it was the Tax Court that motu proprio
dismissed the petition because it believed it was not filed within the period provided by Republic Act
No. 1125.
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Respondents assert that the Collector of Internal Revenue can not enlarge or extend the period for
appeal under section 11 of Republic Act No. 1125. This is not, however, a case where the respondent
Collector had enlarged or extended the period for appeal to the respondent Court; this is simply a case
where the Collector did not reach a final decision on the matter pending before him until July 11,
1955, when he released his letter-decision of the same date.
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Consequently, the Acting Commissioner of Internal Revenue addressed a letter to petitioner, the
pertinent portion of which reads:
In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax, forest charges and
surcharges,
Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the City Treasurer of Manila or
this office within ten (10) days from receipt hereof so that this case may be closed.
Petitioner requested for a reinvestigation of its tax liability. Subsequently, 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.
Issue
Whether or not petitioner can still raise the defense of prescription.
Held
Petitioner is barred from doing so.
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 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 thus making the assessment final and executory.
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 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 taxpayer's 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. 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. Petitioner is thus already precluded
from raising the defense of prescription.
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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.
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Revenue on the following November 3, or well within the two-year period, it is clear that the said
claim had not yet prescribed.
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The law clearly stipulates that after paying the tax, the citizen must submit a claim for refund before
resorting to the courts. The idea probably is, first, to afford the collector an opportunity to correct the
action of subordinate officers; and second, to notify the Government that such taxes have been
questioned, and the notice should then be borne in mind in estimating the revenue available for
expenditure. Previous objections to the tax may not take place of that claim for refund, because there
may be reason to believe that, in paying, the tax payer has finally come to realize the validity of
assessment. Anyway, strict compliance with the conditions imposed for the return of revenue collected
is a doctrine consistently applied here and in the United States.
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The third paragraph of Section 309, aforequoted, clearly requires the filing by the taxpayer of a
written claim for credit or refund within two years after payment of the tax, before the Commissioner
of Internal Revenue can exercise his authority to grant the credit or refund. Such requirement is
therefore a condition precedent and non-compliance therewith precludes the Commissioner of Internal
Revenue from exercising the authority thereunder given.
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As noted, the Aguinaldos paid the income tax for 1953 on August 14, 1954 although the adjustment
took place on August 29, 1955. From both dates to January 13, 1958, when the claim for tax credit
was filed, more than two years have elapsed. Evidently, petitioner's claim for tax credit was filed
beyond the period stated in Section 309.
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tax at the time an income payment is paid or payable, whichever comes first, or the income payment
is accrued or recorded as an expense or asset, which is applicable, in its books. Such taxes deducted
and withheld shall be paid upon the filing of monthly remittance tax returns with the Bureau of
Internal Revenue within the prescribed period.
This Court cannot disregard the provisions requiring the claim for refund or issuance of a tax credit
certificate within two (2) years from date of payment. We do not agree with petitioner that the twoyear period, is not jurisdictional and may be suspended for reasons of equity and other special
circumstances.
As correctly argued by the respondent, there is no basis that the subject exemption was provided and
ascertained only through BIR Ruling No. DA-342-2003 since said BIR Ruling is not the operative act
from which an entitlement to refund is determined.
Simply put, there is no requirement in the law that petitioner must request first for a ruling from the
BIR for exemption before it can file a claim for refund in cases of erroneous payment or overpayment
of taxes. The 1997 National Internal Revenue Code provides for the exemption as well as the period
within which to file a claim for refund of erroneously paid taxes and not the BIR Ruling which merely
echoes whatever is provided by the law. Now therefore, considering the date of filing of returns and
payment of taxes and the date when petitioner administratively filed its claim with the respondent and
the date when it judicially filed the instant case before this Court, petitioner's claim for the refund of
taxes beyond the 2-year period already prescribed.
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Revenue on the following November 3, or well within the two-year period, it is clear that the said
claim had not yet prescribed.
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It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
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In this case, no assessment, whether tentative or final, has been issued to petitioner. Consequently, we
do not find any reason to deviate from the above rulings. Thus, the argument of the respondent that
petitioner's claim must be denied on the basis of the findings and recommendation in the
memorandum issued by the Revenue Officer does not deserve consideration.
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We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.
Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of
the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off."
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8 Distinguished from CIR vs. Leal: British Tobacco challenges the constitutionality of a
law. CIR vs. Leal challenges the constitutionality of a BIR ruling.
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9 Now 3 years
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Commissioner of Internal Revenue insists that his right to issue the assessment has not prescribed
inasmuch as the same was availed of before the 5-year period provided for in Section 331 of the Tax
Code expired, counting the running of the period from August 30, 1955, the date when the amended
return was filed.
The question is: Should the running of the prescriptive period commence from the filing of the
original or amended return?
The changes and alterations embodied in the amended income tax return consisted of the exclusion of
reinsurance premiums received from domestic insurance companies by Phoenix Assurance Co., Ltd.'s
London head office, reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines and various items of deduction attributable to such excluded reinsurance premiums
thereby substantially modifying the original return. Furthermore, although the deduction for head
office expenses allocable to Philippine business, whose disallowance gave rise to the deficiency tax,
was claimed also in the original return, the Commissioner could not have possibly determined a
deficiency tax thereunder because Phoenix Assurance Co., Ltd. declared a loss of P199,583.93 therein
which would have more than offset such disallowance of P15,826.35.
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.
To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for
taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and
amending the same more than five years later when the Commissioner of Internal Revenue has lost
his authority to assess the proper tax thereunder. The object of the Tax Code is to impose taxes for the
needs of the Government, not to enhance tax avoidance to its prejudice.
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10 Now 3-years
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Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the
filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,
respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was
filed beyond the reglementary period.
Issue
Whether or not the claim for refund was filed within the prescriptive period.
Held
Filed within the period.
The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year
prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not.
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, we ruled that a
year is equivalent to 365 days regardless of whether it is a regular year or a leap year. However, in
1987, the Administrative Code of 1987 was enacted.
Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of thirty days,
unless it refers to a specific calendar month in which case it shall be computed according to the number of days
the specific month contains; day, to a day of twenty-four hours and; night from sunrise to sunset.
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
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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.
Under the Civil Code, a year is 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.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, we
therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24 th
calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
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Petitioner objects to the application of this section 332(a) upon the ground that there is no affirmative
evidence that it had not filed the corresponding returns for the years 1948-1949.
Thus the issue boils down to which of the two parties had the burden of proving such failure to file
said returns. It is, however, clear that since prescription is one of the affirmative defenses set up by
petitioner herein, it was incumbent upon the latter, if it wanted to avail itself of the benefits of section
331, to prove that it had submitted said returns, and that, having failed to do so, the conclusion must
be that no such returns had been filed and that the Government had ten (10) years within which to
make the corresponding assessments, as it did in this case.
It is urged that in alleging, in its amended answer to the amended petition filed with the Court of Tax
Appeals, that "petitioner had failed to declare its correct taxable receipts during the years in question",
the Government had admitted impliedly that petitioner had declared its receipts, though not correctly,
thus relieving petitioner of the burden of proving that it had filed the corresponding returns. That the
conclusion thus drawn from the above quoted averment is unwarranted becomes patent when we
consider that petitioner omitted the clause following said allegation, namely: "hence, the assessment
and collection of said taxes are authorized under the provisions of section 332 of the National Internal
Revenue Code." In short, the Government relied upon the "failure to file a return", referred to in said
section 332, not to mere inaccuracies in the return filed, which fall under section 331.
11 This is the earliest assessment made, but numerous other assessments followed.
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The ordinary period of prescription of 5 years 12 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 should be the one enforced.
There being undoubtedly false tax returns in this case, We 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.
12 Now 3-years
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report its income for the year 1974 was sufficient compliance with the legal requirement to file a
return.
Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with
the intent to evade tax, or that it had failed to file a return at all, the period for assessments has
obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot
prejudice taxpayers, considering that the prescriptive period was precisely intended to give them
peace of mind.
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specify his objections to the assessment and execute "the enclosed forms for waiver, of the statute of
limitations." The last part of the letter was a warning that unless the waiver "was accomplished and
submitted within 10 days the collection of the deficiency taxes would be enforced by means of the
remedies provided for by law."
It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the
defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. By October 4, 1955, more than
five years had elapsed since assessment in question was made, and hence prescription had already set
in, making subsequent events in connection with the said assessment entirely immaterial. Even the
written waiver of the statute signed by the defendant on December 17, 1959 could no longer revive
the right of action, for under the law such waiver must be executed within the original five-year
period within which suit could be commenced.
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CIR vs. CA
Facts
On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax
Return for taxable year ending September 30, 1981; and its Manufacturers/Producers Percentage Tax
Return for the quarter ending September 30, 1981.
On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation signed three separate "waivers
of the Statute of Limitations Under the National Internal Revenue Code" wherein it:
. . . waives the running of the prescriptive period provided for in sections 318 and 319 and other related
provisions of the National Internal Revenue Code and consents to the assessment and collection of the taxes
which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the
period of limitations fixed by said sections 318 and 319 and other relevant provisions of the National Internal
Revenue Code, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later
waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer (petitioner
herein) does not waive any prescription already accrued in its favor.
The waivers were not signed by the BIR Commissioner or any of his agents. On August 5, 1987,
Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to pay
deficiency income tax, deficiency sales tax and deficiency sales tax on undeclared sales, all for the
year 1981. This demand letter was accompanied by assessment Notices.
In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a
reconsideration and reinvestigation thereof. These protests were denied by the BIR Commissioner in a
letter dated March 15, 1988.
Issue
Whether or not the three (3) waivers signed by the private respondent are valid and binding as to toll
the running of the prescriptive period for assessment and not bar the Government from issuing subject
deficiency tax assessments.
Held
The waivers arent valid and binding as to toll the running of the prescriptive period.
The decision of the Court of Appeals affirming what the Court of Tax Appeals decided, established
that subject assessments of July 29, 1987 were issued outside the statutory prescriptive period.
Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September
30, 1981 on January 15, 1982 and November 20, 1981, respectively.
Private respondent's 1981 income and sales taxes could have been validly assessed only until January
14, 1987 and November 19, 1986, respectively. However, Carnation's income and sales taxes were
assessed only on July 29, 1987, beyond the five-year prescriptive period.
Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not
signed by the BIR Commissioner because:
1. When the BIR agents/examiners extended the period to audit and investigate Carnation's tax
returns, the BIR gave its implied consent to such waivers;
2. The signature of the Commissioner is a mere formality and the lack of it does not vitiate
binding effect of the waivers; and
3. That a waiver is not a contract but a unilateral act of renouncing ones right to avail of the
defense of prescription and remains binding in accordance with the terms and conditions set
forth in the waiver.
Petitioner's submission is inaccurate. The same tax code is clear on the matter. The Court of Appeals
itself also passed upon the validity of the waivers executed by Carnation, observing thus:
We cannot go along with the petitioner's theory. Section 319 of the Tax code earlier quoted is clear and explicit
that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner
and the taxpayer.
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Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner
as required by law. We agree with the CTA in holding "these "waivers" to be invalid and without any
binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent
(Commissioner of Internal Revenue)."
For sure, no such written agreement concerning the said three waivers exists between the petitioner
and private respondent Carnation.
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The other defect noted in this case is the date of acceptance which makes it difficult to fix with
certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period.
Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 2090, the waiver must be executed in three copies with the second copy for the taxpayer. When the
petitioners comptroller signed the waiver on September 22, 1997, it was not yet complete and final
because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only
after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the
taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of
the acceptance by the BIR and the perfection of the agreement.
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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.
Estoppel does not apply in this case
We find no merit in petitioners claim that respondent is now estopped from claiming prescription
since by executing the waivers, it was the one which asked for additional time to submit the required
documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, the doctrine of estoppel
prevented the taxpayer from raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied as
an exception to the statute of limitations on collection of taxes and not on the assessment of taxes, as
the BIR was able to make an assessment within the prescribed period. More important, there was a
finding that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes.
Conversely, 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 20-90 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 three-year period because with or without the required documents, the CIR has the power
to make assessments based on the best evidence obtainable.
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of limitation refers to reinvestigation of a prior assessment paving the way for a new or revised
assessment. Such period spent reinvestigating is deducted from the total period prescribed by law.
The period spent for reinvestigation should be deducted from the three-year period to issue another
assessment.
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On February 11, 1957, after the reinvestigation, the Collector of Internal Revenue made a final
assessment of the income taxes of Ablaza. Ablaza protested the assessments, on the ground that the
income taxes are no longer collectible for the reason that they have already prescribed.
The Government claims that the prescriptive period has not fully run at the time of the assessment, in
view especially of the letter of the accountants of Ablaza, dated March 10, 1954, pertinent provisions
of which are quoted above.
Issue
Whether or not the Governments right to collect the tax has already prescribed.
Held
The right has already prescribed.
It is of course true on October 14, 1951, Ablaza's accountants requested a reinvestigation of the
assessment of the income taxes against him, the period of prescription of action to collect the taxes
was suspended. The provision of law on prescription was adopted in our statute books upon
recommendation of the tax commissioner of the Philippines which declares:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to
the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax
within 5 years from the date of assessment thereof.
The question in the case at bar boils down to the interpretation of the letter dated March 10, 1954. If
said letter be interpreted as a request for further investigation or a new investigation, different and
distinct from the investigation demanded or prayed for in Ablaza's first letter, then the period of
prescription would continue to be suspended thereby. but if the letter in question does not ask for
another investigation, the result would be just the opposite. In our opinion the letter in question dated
March 10, 1954 does not ask for another investigation. Its first paragraph quoted above shows that the
reinvestigation then being conducted was by virtue of its request of October 16, 1951. All that the
letter asks is that the taxpayer be furnished a copy of the computation.
The request may be explained in this manner: As the reinvestigation was allowed on October 3, 1951
and on October 16, 1951, the taxpayer supposed or expected that at the time, March, 1954, the
reinvestigation was about to be finished and he wanted a copy of the re-assessment in order to be
prepared to admit or contest it. Nowhere does the letter imply a demand or request for a
reinvestigation already requested and, therefore, the said letter may not be interpreted to authorize or
justify the continuance of the suspension of the period of limitations.
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because of the many requests for postponement, reinvestigation, revaluation, or other matters which
had the effect of delaying or postponing the execution of said warrant. Were it not for said requests for
postponement or revaluation, the warrant would have been fully executed well within the period
prescribed by law. Indeed, if by acceding to the request for postponement of a taxpayer the period of
prescription would be allowed to run even if there is no voluntary desistance on the part of the tax
collector, we would not only countenance the commission of an injustice but would place the
collection of the tax at the mercy or caprice of the taxpayer to the prejudice of the Government. Such
a theory certainly cannot be entertained.
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It would be interesting to note that when the Commissioner of Internal Revenue issued the final
deficiency assessments on January 5, 1954, he had already lost, by prescription, the right to collect the
tax (except that for 1950) by the summary method of warrant of distraint and levy. Ker & Co., Ltd.
immediately thereafter requested suspension of the collection of the tax without penalty incident to
late payment pending the filing of a memorandum in support of its views. As requested, no tax was
collected. On May 22, 1954 the projected memorandum was filed, but as of that date the
Commissioner's right to collect by warrant of distraint and levy the deficiency tax for 1950 had
already prescribed. So much so, that on March 1, 1956 when Ker & Co., Ltd. filed a petition for
review in the Court of Tax Appeals, the Commissioner of Internal Revenue had but one remedy left to
collect the tax, that is, by judicial action. However, as stated, an independent ordinary action in the
Court of First Instance was not available to the Commissioner pursuant to Our ruling in Ledesma, et
al. v. Court of Tax Appeals, supra, in view of the pendency of the taxpayer's petition for review in the
Court of Tax Appeals.
By the time the Supreme Court affirmed the order of dismissal of the Court of Tax Appeals, more than
five years had elapsed since the final assessments were made on January 5, 1954.
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 We 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.
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place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised this
point before the lower court apparently as an alternative theory, which, however, is untenable.
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After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was
seeking reconsideration of the tax assessments.
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. By virtue of these letters, the Bureau of Internal
Revenue reviewed the assessment made.
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 record of Wyeth Suaco,
in accordance with its request for reinvestigation, rendered a final assessment. This final assessment
was dated December 10, 1979 and received by private respondent on January 2, 1980. It was only
upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to
run again.
Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco
on December 19, 1974. However, when Wyeth Suaco protested the assessments and sought its
reconsideration in two (2) letters received by the Bureau of Internal Revenue on January 20 and
February 10, 1975, the prescriptive period was interrupted. This period started to run again when the
Bureau of Internal Revenue served the final assessment to Wyeth Suaco on January 2, 1980. Since the
warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four
(4) months of the five-year prescriptive period was used.
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The protest letter of petitioner BPI did not specifically request for either a reconsideration or
reinvestigation but the protest letter of petitioner BPI was in the nature of a request for
reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax
Code of 1977, as amended, on the suspension of the running of the statute of limitations should not
apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the
prescriptive periods for assessment and collection.
Conclusion
The statute of limitations on collection may only be interrupted or suspended by:
1. A valid waiver executed and
2. The existence of the circumstances enumerated in Section 224 of the same Code, which
include a request for reinvestigation granted by the BIR Commissioner.
3. Even when the request for reconsideration or reinvestigation is not accompanied by a valid
waiver or there is no request for reinvestigation that had been granted by the BIR
Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the
defense of prescription of the statute of limitations on collection when, by his own repeated
requests or positive acts, the Government had been, for good reasons, persuaded to postpone
collection to make the taxpayer feel that the demand is not unreasonable or that no harassment
or injustice is meant by the Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that
1. The statute of limitations for collection of the deficiency DST in issued against petitioner BPI,
had already expired; and
2. None of the conditions and requirements for exception from the statute of limitations on
collection exists herein:
a. Petitioner BPI did not execute any waiver of the prescriptive period on collection;
b. The protest filed by petitioner BPI was a request for reconsideration, not a request for
reinvestigation that was granted by respondent BIR Commissioner which could have
suspended the prescriptive period for;
c. Petitioner BPI, other than filing a request for reconsideration of Assessment did not
make repeated requests or performed positive acts that could have persuaded the
respondent BIR Commissioner to delay collection, and that would have prevented or
estopped petitioner BPI from setting up the defense of prescription against collection
of the tax assessed, as required in the Suyoc case.
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CIR vs. CA
Facts
Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax
Return, for calendar year ending December 31, 1985, declaring a Net Income. The income tax due
thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax.
After deducting Paramount's total quarterly income tax payments from its income tax of
P1,153,681.00, the return, filed April 2, 1986, showed a refundable amount of P65,259.00. The
appropriate box in the return was marked with a cross (x) indicating "To be refunded" the amount of
P65,29,00.
In April 14, 1988, petitioner BPI, as liquidator of Paramount filed a letter dated April 12, 1988
reiterating its claim for refund of P65,259.00 as overpaid income tax for the calendar year 1985. The
following day or on April 15, 1988. BPI filed the instant petition with this Court in order to toll the
running of the prescriptive period for filing a claim for refund of overpaid income taxes.
Issue
Whether or not the two-year period of prescription for filing a claim for refund, as provided in 230
of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate
income tax return was actually filed or from April l5, 1986 when, according to 70(b) of the NIRC,
the final adjustment return could still be filed without incurring any penalty.
Held
April 2 1986.
Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the twoyear prescriptive period should be computed from April 2, 1984, when the final adjustment return was
actually filed, because that is the time of payment of the tax, within the meaning of 230 of the NIRC.
We agree.
In the contest of 230, which provides for a two-year period of prescription counted "from the date of
payment of the tax" for actions for refund of corporate income tax, the two-year period should be
computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This
is so because at that point, it can already be determined whether there has been an overpayment by the
taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time the return is filed.
In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However,
private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14,
1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus
barred by prescription.
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respondent Commissioner who failed to take any action thereon and considering further that the nonresolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its
claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent
appellate court manifestly committed a reversible error in affirming the holding of the tax court that
ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return
is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its
tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.
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mere installments of the annual tax due. These quarterly tax payments which are computed based on
the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income,
should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. Consequently, the two-year prescriptive period provided in Section 292 (now
Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held
that when a tax is paid in installments, the prescriptive period of two years provided in Section 306
(Section 292) of the National internal Revenue Code should be counted from the date of the final
payment. This ruling is reiterated in Commission of Internal Revenue v. Carlos Palanca (18 SCRA
496 [1966]), wherein this Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code,
should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982,
TMX Sales, Inc. is not yet barred by prescription.
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Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the
filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,
respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was
filed beyond the reglementary period.
Issue
Whether or not the claim for refund was filed within the prescriptive period.
Held
Filed within the period.
The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year
prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not.
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, we ruled that a
year is equivalent to 365 days regardless of whether it is a regular year or a leap year. However, in
1987, the Administrative Code of 1987 was enacted.
Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of thirty days,
unless it refers to a specific calendar month in which case it shall be computed according to the number of days
the specific month contains; day, to a day of twenty-four hours and; night from sunrise to sunset.
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
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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.
Under the Civil Code, a year is 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.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, we
therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24 th
calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
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Lim vs. CA
Facts
Petitioners were engaged in the dealership of various household appliances. They filed income tax
returns for the years 1958 and 1959.
On October 5, 1959, a raid was conducted at their business address by the National Bureau of
Investigation by virtue of a search warrant. A similar raid was made on petitioners' premises. 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 March 15, 1967, petitioners protested the assessment and requested for a reinvestigation.
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. 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 for violation of
Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code.
Issue
Whether or not the right to prosecute the crimes have already prescribed.
Held
The right to prosecute hasnt prescribed yet.
Preliminarily, it must be made clear that what we are dealing here are criminal prosecutions for filing
fraudulent income tax returns and for refusing to pay deficiency taxes.
Refusal to pay deficiency taxes
However, petitioners maintain that the five-year period of limitation 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 petitioner.
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.
Fraudulent income tax returns
Petitioners contend that the said crimes have likewise prescribed. They advance the view that the fiveyear 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 as the date the fraudulent nature of the returns was
unearthed.
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
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final decision holding that there was no ground for the reversal of the assessment and therefore
required the petitioners to pay 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. 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. 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.
Unless amended by the legislature, Section 354 stays in the Tax Code as it was written during the days
of the Commonwealth. And as it is, must be applied regardless of its apparent one-sidedness in favor
of the Government. In criminal cases, statutes of limitations are acts of grace, a surrendering by the
sovereign of its right to prosecute. They receive a strict construction in favor of the Government and
limitations in such cases will not be presumed in the absence of clear legislation.
Judgement includes payment of deficiency taxes
The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the
payment of deficiency taxes. 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.
Conclusion
In resume we therefore rule:
1. Criminal Cases Nos. 1788-1789 and 1790-1791, having been instituted by the Government on
June 23, 1970, are not time-barred pursuant to Section 354 of the National Internal Revenue
Code;
2. The then Court of First Instance of Manila, Branch 6 is devoid of jurisdiction to direct the
collection and payment of the unpaid deficiency taxes in Criminal Case Nos. 1788-1789
because prior to the amendment introduced by Presidential Decree No. 69, such imposition
was not sanctioned under Section 316;
3. The fine imposed in the four (4) aforementioned criminal cases is hereby affirmed in the case
of petitioner Antonia Sun Lim in accordance with the provision of Section 73 of the Tax
Code. The fine is deemed extinguished in the ease of the deceased petitioner Emilio E. Lim,
Sr. pursuant to Section 89 of the Revised Penal Code.
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14 Distinguished from the PBCom case:Here, the law wasnt clear here, in PBCom,
the law was clear
2. Here, the CIR revoked the earlier ruling, in PBCom, it was the courts.
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It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of
Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35%
of the "gross income."
This Court is not unaware of the well-entrenched principle that the Government is never estopped
from collecting taxes because of mistakes or errors on the part of its
agents. But, like other principles of law, this also admits of exceptions in the interest of justice and
fairplay. The Commissioner of Collector is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom, or where there has been a misrepresentation
to the taxpayer.
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Moreover, in BIR Ruling No. 31-83 dated March 1, 198, this Office has ruled that an option to buy, in
the hands of a taxpayer who does not deal in options, is a capital asset and the sale thereof gives rise
to a capital gain.
Since Read Rite does not deal in leasehold rights and options in its ordinary course of trade or
business, the pre-termination of the leases and cancellation of the options to purchase will not be
made in the ordinary course of trade or business of Read Rite.
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Moreover, your projected sale of P2.5 million is a strong basis for subjecting your sales transactions to
VAT.
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Whether or not a person is engaged in business is determined by his intent for doing an act or series of
acts. An initial or single act may be constituted done in the course of business if the same is done with
the intent of carrying on a business. "However, there may be a business without any sequence of acts,
for if an isolated transaction, which if repealed would be a transaction in a business is proved to have
been undertaken with the intent that it should be the first of several transactions, that is, with intent of
carrying on a business, then it is a first transaction in an existing business.
For example, where a person makes all necessary preparations to carry on the business of a wholesale
liquor dealer, and holds himself out and solicits trade as such, and makes one sale without a license,
intending to continue the business, he is engaged in, or carrying on, the business within the meaning
of the statute regulating the business." Your client has been engaged in communications business at
the time it contracted with PHILCOM. There is no necessity to prove your client's intent in selling
technical services to PHILCOM. It is more than apparent your client sold its services while engaging
in worldwide communications business. That its transaction with PHILCOM was isolated may not,
however, detract from the fact that the same was entered into because it was, as it is presently, its line
of business.
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Under Section 4.102-1 of the same Rev. Regs. No. 7-95, the phrase sale or exchange of services
shall likewise include, among others, the supply of technical service, assistance or services rendered
in connection with technical management or administration of any scientific, industrial or commercial
undertaking, project or scheme.
Thus, as an entity that renders services to its affiliated companies and receives payments for such
assistance, although on a reimbursement-of-cost basis, it is subject to VAT on such services rendered.
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entity provides service for a fee, remuneration or consideration, then the service rendered is subject to
VAT.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out
by the Commissioner, the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT.
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The term "gross receipts" for purposes of applying the 4% contractor's tax shall refer only to cash
actually received and shall not include receivables not yet received.
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As demonstrated by jurisprudence, gross receipts subject to tax under the Tax Code do not include
monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt
such monies and receipts within the meaning of gross receipts under the Tax Code.
Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondent do
not form part of its gross receipts within the definition of the Tax Code. The said receipts never
belonged to the private respondent. The private respondent never benefited from their payment to the
local hotels. As stated earlier, this arrangement was only to accommodate the foreign travel agencies.
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As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach
of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with the consumption of its output abroad. In the present case, the facilitation of the collection
of receivables is different from the utilization or consumption of the outcome of such service. While
the facilitation is done in the Philippines, the consumption is not. Respondent renders assistance to its
foreign clients -- the ROCs outside the country -- by receiving the bills of service establishments
located here in the country and forwarding them to the ROCs abroad. The consumption contemplated
by law, contrary to petitioners administrative interpretation, does not imply that the service be done
abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performers release from any past or future liability x x x." The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined end of a course" when
determining the service "location or position x x x for legal purposes." Respondents facilitation
service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in
the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at
the rate of 10 percent.
Respondents Services Exempt from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP]." Thus, for the
supply of service to be zero-rated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of
the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent.
Its facilitation service is performed in the Philippines. It falls under the second category found in
Section 102(b) of the Tax Code, because it is a service other than "processing, manufacturing or
repacking of goods" as mentioned in the provision. Undisputed is the fact that such service meets the
statutory condition that it be paid in acceptable foreign currency duly accounted for in accordance
with BSP rules. Thus, it should be zero-rated.
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4. Another essential condition for qualification to zero-rating is that the recipient of such
services is doing business outside the Philippines.
The services covered are in the nature of export sales since the payer-recipient of services is doing
business outside the Philippines.
In this case, the payer-recipient of respondents services is the Consortium which is a joint-venture
doing business in the Philippines. While the Consortiums principal members are non-resident
foreign corporations, the Consortium itself is doing business in the Philippines.
Considering this length of time, the Consortiums operation and maintenance of NAPOCORs power
barges cannot be classified as a single or isolated transaction. The Consortium does not fall under
Section 102(b)(2) which requires that the recipient of the services must be a person doing business
outside the Philippines. Therefore, respondents services to the Consortium, not being supplied to a
person doing business outside the Philippines, cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power barges
in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in
foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign
currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme
does not entitle respondent to 0% VAT. An essential condition for entitlement to 0% VAT under
Section 102(b)(1) and (2) is that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the Consortium, which is doing business not
outside, but within the Philippines because it has a 15-year contract to operate and maintain
NAPOCORs two 100-megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the destination principle
(exports are zero-rated whereas imports are taxed). However, as the Court stated in American Express,
there is an exception to this rule. This exception refers to the 0% VAT on services enumerated in
Section 102 and performed in the Philippines. For services covered by Section 102(b)(1) and (2), the
recipient of the services must be a person doing business outside the Philippines.
Thus, to be exempt from the destination principle under Section 102(b)(1) and (2), the services must
be
1. Performed in the Philippines;
2. For a person doing business outside the Philippines; and
3. Paid in acceptable foreign currency accounted for in accordance with BSP rules.
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Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Philippine pesos is hereby confirmed.
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Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Philippine pesos is hereby confirmed.
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Assuming that the petitioner is VAT-exempt (Sec. 103), its exemption is limited only to those for
which it is directly liable. Hence, it will be exempt from income tax, documentary stamp tax, customs
duties and even VAT output tax. In other words, petitioner is not liable for VAT output tax on sales
made to its members but is liable for VAT input tax passed on to it by its suppliers.
The tax exemption from "any government taxes or fees imposed under the internal revenue laws and
other laws" does not include indirect taxes such as VAT and sales tax passed on by the seller to the
buyer. For a taxpayer to be exempt from indirect taxes, there should be a clear intention on the part
of the Legislature to grant such exemption. The exempting law should categorically or specifically
provide for exemption from indirect taxes.
Respondent is correct in saying that the persons liable for the VAT are not the buyers or purchasers but
the sellers or importers of goods and those performing services for a fee. Being the buyer or
purchaser, petitioner has no legal standing to claim for the refund of the input taxes it paid on its
purchases.
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Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner
of Internal Revenue, et al., the 3% contractor's tax fans directly on Gotamco and cannot be shifted to
the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case,
since the Host Agreement specifically exempts the WHO from "indirect taxes."
We agree.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or
to be paid by it.
The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.
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September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund
or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which,
for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for
the filing of a claim therefor.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment
of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions
apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
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Sec. 5. Each local government shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the
tax power must be deemed to exist although Congress may provide statutory limitations and
guidelines.
The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that:
1. The taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions;
2. Each local government unit will have its fair share of available resources;
3. The resources of the national government will not be unduly disturbed; and
4. Local taxation will be fair, uniform, and just.
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