Tax 2 Cabaneiro Babies Midterm Exam Case Digests PDF

Pray About Everything, Worry About Nothing. Unahin Natin Lagi Ang Diyos.
Tax II Cabaneiro Babies 18-19
TAX 2
PHILIPPINE AIRLINES, INC. V. COMMISSION OF GR NUMBER: 206079-80;
INTERNAL REVENUE; 206309
COMMISSION OF INTERNAL REVENUE V. DATE: Jan 17, 2018
PHILIPPINE AIRLINES, INC. PONENTE: Leonen, J.
PETITIONER: RESPONDENT:
Philippine Airlines, Inc. (PAL); Commission of Internal Revenue
Commission of Internal Revenue (CIR (CIR);
Philippine Airlines, Inc. (PAL)
NATURE OF THE ACTION
Two (2) consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court assailing the August 14, 2012 Decision 1 and February 25, 2013 Resolution 2 of
the Court of Tax Appeals En Ban
FACTS
These consolidated cases stem from a refund claim by Philippine Airlines, Inc. (PAL) for
final taxes withheld on its interest income from its peso and dollar deposits with China
Banking Corporation (Chinabank), JP Morgan Chase Bank (JPMorgan), Philippine Bank
of Communications (PBCom), and Standard Chartered Bank (Standard Chartered)
(collectively, Agent Banks)
PAL asserts that it is entitled to a refund of the withheld taxes because it is exempted
from paying the tax on interest income under its franchise, PD No. 1590. However, the
Commissioner refused to grant the claim, arguing that PAL failed to prove the remittance
of the withheld taxes to the BIR
2002 - PAL made US dollar and Philippine peso deposits and placements in the following
Philippine banks: Chinabank, JPMorgan, PBCom, and Standard Chartered. PAL earned
interest income from these deposits and the Agent Banks deducted final withholding taxes
2003 - Both PBCom and Standard, respectively, stated that the taxes withheld from PAL’s
interest income had been remitted by PBCom to the BIR
Nov 3, 2003 - PAL claiming it was exempted from final withholding taxes under its
franchise, PD No. 1590, PAL filed with the Commissioner a written request for a tax refund
of the withheld amounts.
The Commissioner failed to act on the request.
Feb 24, 2004 - PAL elevated the case to he CTA in Division
Nov 9, 2010 - In its decision, the CTA Special First Division partially granted PAL’s petition.
It granted by ordering the Commissioner to refund PAL the amount representing the final
income tax withheld and remitted by JPMorgan. It denied the remaining claim for refund
of the amount representing the final income tax withheld by Chinabank, PBCom, and
Arce-Baylon-Cabral-Cajigal-Guinto-Kiong-Loveria-Luzuriaga-Mawak-Montero-
Paglinawan-Regencia-Romano-Tolentino-Torres
Standard Chartered.
PAL was exempted from final withholding tax on interest on bank deposits. However,
PAL failed to adequately substantiate its claim because it did not prove that the Agent
Banks, with the exception of JPMorgan, remitted the withheld amounts to the BIR.
Certificates of Final Tax Withheld at Source are not sufficient to prove remittance.
Aug 14, 2012 - In its decision, CTA En Bancdenied the petitions (later, the MR’s) and affirmed
CTA Special First Division decision
PAL needed to prove the remittance of the withheld taxes because although remittance is
the responsibility of the banks as withholding agents, remittance was put in issue in this
cas
.
It found that PAL was able to establish the remittance of the taxes withheld by
JPMorgan because the monthly remittance returns were identied by PAL's witness and
were formally offered in the Court of Tax Appeals Special First Division without
objections to their admissibility. It ruled that the monthly remittance returns may be
considered even if they were only presented in the Court of Tax Appeals Special First
Division as it is a court of record and is required to conduct a formal trial.
It sustained that PAL failed to prove the remittance by Chinabank, PBCom, and Standard
Chartered because it did not show that the amounts remitted by these Agent Banks
pertained to the taxes withheld from PAL's interest income.
G.R. Nos. 206079-8

—
PAL questions the denial of its refund claim for the taxes withheld by Chinabank,
PBCom, and Standard Chartered, and argues that it adequately established the withholding
and remittance of final taxes through the Certicates of Final Taxes Withheld issued to it
by these Agent Banks. It contends that these Certicates are prima facie evidence of actual
remittance, and if they are uncontroverted, as in this case, they are sufficient proof of
remittance
PAL insists that it is exempt from final withholding taxes, and proof of actual remittance is not
necessary.
It is the function vested with the Agent Banks as the payors and withholding agents of the
Commissioner
G.R. No. 20630

—
Commissioner questions the grant of refund to PAL for the final income taxes withheld by
JPMorgan. She argues that PAL is not entitled to the refund as it failed to present its
documentary evidence before the Bureau of Internal Revenue when it filed its
administrative claim.
ISSUE/S
1. Whether or not evidence not presented in the administrative claim for refund in the BIR
can be presented in the CTA
2. Whether or not PAL was able to prove remittance of its final taxes withheld to the BIR
3. Whether or not proof of remittance is necessary for Philippine Airlines, Inc. to claim a
refund under its charter, PD No. 1590
RULING
The Supreme Court ruled in the negative and sustains the factual findings of the Court of
Tax Appeals that Philippine Airlines, Inc. failed to prove remittance of the withheld
taxes. Nonetheless, this Court grants the Petition of Philippine Airlines, Inc
First Issue
The Commissioner’s contention must fail.
The CTA is not limited by the evidence presented in the administrative claim in the BIR.
The claimant may present new and additional evidence to the CTA to support its case
for tax refund.
Sec 4 of the National Internal Revenue Code states that the Commissioner has the power
to decide on tax refunds, but his or her decision is subject to the exclusive appellate
jurisdiction of the CTA
RA 9282, amending RA 1125 is the governing law on the jurisdiction of the CTA. Sec 7
provides that the CTA has exclusive appellate jurisdiction over tax refund claims in case
the Commissioner fails to act on them
This means that while the Commissioner has the right to hear a refund claim first, if he
or she fails to act on it, it will be treated as a denial of the refund, and the Court of
Tax Appeals is the only entity that may review this ruling. The power of the Court of
Tax Appeals to exercise its appellate jurisdiction does not preclude it from considering
evidence that was not presented in the administrative claim in the Bureau of Internal
Revenue. Sec 8 of RA 1125 states that the Court of Tax Appeals is a court of recor
.
In the case at bar, the Commissioner failed to act on PAL's administrative claim. If she
had acted on the refund claim, she could have directed PAL to submit the necessary
documents to prove its case
Furthermore, considering that the refund claim will be litigated anew in the Court of
Tax Appeals, the latter may consider all pieces of evidence formally offered by PAL,
whether or not they were submitted in the administrative level.
Second Issue
In the case at bar, both the Court of Tax Appeals Special First Division and En Banc
ruled that PAL failed to suciently prove that Chinabank, PBCom, and Standard Chartered
had remitted the withheld taxes. It found that the presented documents only showed the
total amount of final taxes withheld for all branches of these Agent Banks. It did not
show that the amounts remitted by these Agent Banks pertained to the taxes withheld
from PAL's interest income. However, it found that PAL was able to prove the
remittance of the taxes withheld by JPMorgan because the monthly remittance returns
were identied by PAL's witness and were formally offered in the Court of Tax Appeals
Special First Division without objections to their admissibilit
.
The Court of Tax Appeals Special First Division stated:
To prove that petitioner earned interest income on its bank deposits and that they were
remitted to the BIR, petitioner offered in evidence the following certications and
Certicates of Final Tax Withheld at Source (BIR Form No. 2306) from various bank
A careful scrutiny of the evidence presented reveals that only documents pertaining to the
amount of taxes withheld and actually remitted to the BIR by depositary bank JP
Morgan Chase represents petitioner's valid claim
The Court of Tax Appeals Special First Division and En Banc based their ndings after
an examination of all pieces of evidence presented by PAL. Both parties failed to show
that the Court of Tax Appeals committed any gross error or abuse in making this factual
determination
Third Issue
The Supreme Court rules that PAL is entitled to its claim for refund for taxes withheld by
Chinabank, PBCom, and Standard Chartered. Remittance need not be proven. PAL
needs only to prove that taxes were withheld from its interest income.
A. PAL is uncontestedly exempt from paying the income tax on interest earned.
Sec 13 of PD No. 1590, under its franchise, PAL may either pay a franchise tax or the basic
corporate income tax, and is exempt from paying any other tax, including taxes on
interest earned from deposits.
In Commissioner of Internal Revenue v. Philippine Airlines, Inc., this Court ruled that
Sec 13 of PD No.1590 is clear and unequivocal in exempting PAL from all taxes other
than the basic corporate income tax or the 2% franchise t
x:
That the Legislature chose not to amend or repeal PD No. 1590 even after PAL was
privatized reveals the intent of the Legislature to let PAL continue to enjoy, as a private
corporation, the very same rights and privileges under the terms and conditions stated in
said charter
PAL is entitled to a tax refund or tax credit if excess payments are made on top of the
taxes due from it. Considering that PAL is not liable to pay the tax on interest income
from bank deposits, any payments made for that purpose are in excess of what is due
from it. Thus, if PAL erroneously paid for this tax, it is entitled to a refun
.
B. PAL is entitled to refund because it is not responsible for the remittance of the tax to
BIR
The taxes on interest income from bank deposits are in the nature of a withholding tax.
Thus, the party liable for remitting the amounts withheld is the withholding agent of the
Bureau of Internal Revenue.
Interest income from bank deposits is taxed under the National Internal Revenue Code:
Sec 27. Rates of Income Tax on Domestic Corporations.
xxx xxx xxx
(D) Rates of Tax on Certain Passive Incomes. —
(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes and from Trust Funds and Similar Arrangements, and Royalties. — A final
tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest
on currency bank deposit and yield or any other monetary benet from deposit substitutes
and from trust funds and similar arrangements received by domestic corporations, and
royalties, derived from sources within the Philippines: Provided, however, That interest
income derived by a domestic corporation from a depository bank under the expanded
foreign currency deposit system shall be subject to a nal income tax at the rate of seven
and one-half percent (7 1/2%) of such interest income. (Emphasis supplied)
The tax due on this income is a final withholding tax:
Sec 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations the
Secretary of Finance may promulgate, upon the recommendation of the Commissioner,
requiring the ling of income tax return by certain income payees, the tax imposed or
prescribed by Sections . . . 27(D)(1), . . . of this Code on specied items of income shall
be withheld by payor-corporation and/or person and paid in the same manner and subject
to the same conditions as provided in Section 58 of this Code
Final withholding taxes imposed on interest income are likewise provided for under
Revenue Regulations No. 02-98, Section 2.57.1 (G):
(G) Income Payment to a Domestic Corporation. — The following items of income shall
be subject to a nal withholding tax in the hands of a domestic corporation, based on the
gross amount thereof and at the rate of tax prescribed therefor:
(1) Interest from any currency bank deposit and yield or any other monetary benet from
deposit substitutes and from trust fund and similar arrangements derived from sources
within the Philippines — Twenty Percent (20%).
xxx xxx xxx
(3) Interest income derived from a depository bank under the Expanded Foreign Currency
Deposit System, otherwise known as a Foreign Currency Deposit Unit (FCDU) — Seven
and one-half percent (7.5%)
When a particular income is subject to a final withholding tax, it means that a

withholding agent will withhold the tax due from the income earned to remit it to the
Bureau of Internal Revenue. Thus, the liability for remitting the tax is on the
withholding agent:
Under Revenue Regulations No. 02-98, Section 2.57:
Section 2.57. Withholding of Tax at Source. —
(A) Final Withholding Tax. — Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a full and nal payment of
the income tax due from the payee on the said income. The liability for payment of the
tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to
withhold the tax or in case of under withholding, the deciency tax shall be collected
from the payor/withholding agent. The payee is not required to le an income tax return
for the particular income. (Emphasis supplied)
Clearly, the withholding agent is the payor liable for the tax, and any deciency in its
amount shall be collected from it. Should the Bureau of Internal Revenue nd that the
taxes were not properly remitted, its action is against the withholding agent, and not
against the taxpayer
In the case at bar, PAL is the income earner and the payee of the final withholding tax,
and the Agent Banks are the withholding agents who are the payors responsible for the
deduction and remittance of the tax. The failure of the Agent Banks to remit the
amounts does not affect and should not prejudice PAL. In case of failure of remittance
of taxes, the Bureau of Internal Revenue's cause of action is against the Agent Banks.
Thus, PAL is not obliged to remit, let alone prove the remittance of, the taxes
withheld
C. To claim a refund, PAL only needs to prove that taxes were withheld
Taxes withheld by the withholding agent are deemed to be the full and nal payment of
the income tax due from the income earner or payee.
Sec 2.57. Withholding of Tax at Source. —
(A) Final Withholding Tax. — Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a constituted as a full and
final payment of the income tax due from the payee on the said full and nal payment of
the income tax due from the payee on the said income. The liability for payment of the
tax rests primarily on the payor income. The liability for payment of the tax rests
primarily on the payor as a withholding agent as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of under withholding, the deciency tax shall be
collected from the payor/withholding agent. The payee is not required to le an income
tax return for the particular income.
The finality of the withholding tax is limited only to the payee's income tax liability on
the particular liability on said income, such as when the said income is further subject to
a percentage tax. For example, if a bank receives income subject to nal withholding tax,
the same shall be subject to a percentage tax income.
Certicates of Final Taxes Withheld issued by the Agent Banks are sucient evidence to
establish the withholding of the taxes.
Commissioner of Internal Revenue v. Philippine National Bank:
The certicate of creditable tax withheld at source is the competent proof to establish the
fact that taxes are withheld. It is not necessary for the person who executed and
prepared the certicate of creditable tax withheld at source to be presented and to testify
personally to prove the authenticity of the certificates
Considering that these Certicates were presented, the burden of proof shifts to the
Commissioner, who needs to establish that they were incomplete, false, or issued
irregularly. However, the Commissioner did no such thing. Thus, these Certicates are
sufficient evidence to establish the withholding of th
taxes,
The taxes withheld from PAL are considered its full and nal payment of taxes.
Necessarily, when taxes were withheld and deducted from its income, PAL is deemed to
have paid them. Considering that PAL is exempted from paying the withholding tax, it is
rightfully entitled to a refund
D. While tax exemptions are strictly construed against the taxpayer, the government
should not misuse technicalities to keep money it is not entitled to
Considering that PAL presented sucient proof that: (i) it is exempted from paying
withholding taxes; (ii) amounts were withheld and deducted from its accounts; (iii) and
the Commissioner did not contest the withholding of these amounts and only raises that
they were not proven to be remitted, this Court nds that PAL suciently proved that it is
entitled to its claim for refund.
DETAILS THAT ARE NOT RELEVANT BUT MIGHT GET ASKED ANYWAY
E.g. A footnote, a dissent, a concurrence etc.
TAX 2 18-19
TAX 2 - Midterms
CIR vs. BPI GR NUMBER: 224327
DATE: June 11, 2018
PONENTE: PERALTA, J
PETITIONER: RESPONDENTS:
COMMISSIONER OF INTERNAL REVENUE BANK OF THE PHILIPPINE ISLANDS
TOPIC/S: CTA Jurisdiction, Right and Period of Assessment and Collection (Prescription)
FACTS
April 15, 1987: Citytrust Banking Corporation (CBC) filed its Annual Income Tax Returns
(ITR) for its Regular Banking Unit (RBU), and Foreign Currency Deposit Unit (FCDU) for
taxable year (TY) 1986.
August 11, 1989; July 12 and November 8, 1990: CBC executed Waivers of the Statute of
Limitations under NIRC.
March 7, 1991: CIR issued a Pre-Assessment Notice (PAN) against CBC for deficiency taxes,
among which is for Income Tax for TY 1986 for P19,202,589.97.
April 22, 1991: CBC filed its protest against the PAN.
But CIR instead issued a letter (dated May 6, 1991) demanding payment for the deficiency
within 30 days. Again, CBC protested but again CIR only demanded payment on February 5,
1992, now within 10 days. Another protest was made and in 1994, CBC requested a compromise
settlement for the said deficiency under RMO 45-93 by paying P1,721,503.40, or 20% of the
assessment. This compromise was received on March 30, 1994 by the CIR. On October 12,
CIR approved it but they said that P8,607,517.00 should be paid. Reconsideration was asked by
CBC and offered to pay P1,600,000, but to no avail. Hence, CBC again offered to pay
P3,200,000 instead. This offer was sent twice. On this point, CIR disapproved the Application
for Compromise Settlement this time. Due to this, CBC requested again for reconsideration and
offered to pay the increased amount of P4,303,758.50.
Meanwhile, on October 4, 1996, SEC approved the Articles of Merger between BPI and CBC,
with BPI as the surviving corporation.
In July 2011, CIR issued a Notice of Denial to BPI and issued another Letter to BPI, denying
the offer of compromise and requesting for the payment of P19,202,589.97, plus all increments
incident to delinquency.
September 21, 2011: CIR issued a Warrant of Distraint and/or Levy against BPI.
October 7, 2011: Warrant prompted BPI to file a Petition for Review with the CTA.
CTA Special Third Division: Decided in favor or BPI. Warrant of Distraint and/or Levy was
cancelled. It ruled that the Assessment Notices, being issued only on May 6, 1991, were already
issued beyond the three-year period to assess, counting from April 15, 1987. It also held that
Waivers of Statute of Limitations executed on July 12, 1990 and November 8, 1990 were not in
accordance with the proper form, thus, the waivers failed to extend the period given to petitioner
to assess.
CTA En Banc: affirmed CTA Division.
Hence, this petition.
BPI’s Comment:
1. CTA has jurisdiction over the case.
2. Assessment notice issued against it is not yet final and executory.
3. BPI is not estopped from claiming prescription as a defense against CIR (in relation to
the invalid Waivers).
4. Right of CIR to assess and collect deficiency income tax for TY 1986 had already
prescribed.
ISSUE/S
(See BPI’s Comments)
RULING
CTA’s Jurisdiction
CTA properly acquired jurisdiction over the case. Under Section 7 of R.A. No. 9282, CTA has
exclusive appellate jurisdiction to review by appeal inaction by the CIR in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matter arising under the NIRC or other laws administered by the
BIR, where the NIRC provides a specific period of action, in which case the inaction shall be
deemed a denial.
Assessments – Final and Unappealable?

Under Sec. 229 of NIRC, Assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable. If the protest is denied in whole and in part, the
individual, association or corporation adversely affected by the decision on the protest may
appeal to the CTA within 30 days from receipt of the said decision; otherwise, the decision shall
become final, executory and demandable.
Here, however, CIR, in the first place, failed to prove that it sent a notice of assessment and that
it was received by BPI. Also, there was an express admission on the part of the CIR that there
was no proof that indeed the alleged Final Assessment Notice was ever sent to or received by
BPI. Hence, assessment cannot be said to be final or unappealable if there’s no evidence that it
was sent nor received in the first place.
SC held that the release, mailing, or sending of the notice should be clearly and satisfactorily
proved. Mere notations made without the taxpayer's intervention, notice, or control, without
adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of
the revenue offices, without adequate protection or defense.
Estoppel in raising Prescription defense against CIR in relation to the Invalid Waivers
This contention was misplaced. CIR cannot implore the doctrine of estoppel just to compensate
its failure to follow the proper procedure.
It is well established that issues raised for the first time on appeal are barred by estoppel.
However, it cannot be applied in case where it gives validity to an act that is prohibited by law or
one that is against public policy. Hence, BPI is not estopped from raising the invalidity of the
Waivers as the BIR in this case caused the defects thereof. As such, the invalid Waivers did not
operate to toll or extend the period of prescription.
Prescription on CIR’s assessment and collection of deficiency taxes

Under the NIRC, assessment must be made within 3 years from the last day of filing of ITR or
from the day ITR was filed if it is filed late. Since PAN was sent by the BIR almost 4 years
(March 1991) after the April 15, 1987 and waivers executed were invalid, it is clear that the right
of CIR to assess has already prescribed.
For the period of collection, it also prescribed. If it will be reckoned, the period to collect from
May 6, 1991, or the alleged Final Demand Letter on February 5, 1992, counting the three-year
period therein to collect, the mode of collection through the issuance of Warrant of Distraint
and/or Levy on October 05, 2011 was made beyond the prescriptive period.
It must be remembered that the law imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations: that taxpayers should be able
to present their case and adduce supporting evidence. Although taxes are the lifeblood of the
government, their assessment and collection "should be made in accordance with law as
any arbitrariness
will negate the very reason for government itself."
CTA’s Findings of Facts:
Conclusions reached by the CTA which, by the very nature of its function of being dedicated
exclusively to the resolution of tax problems, has developed an expertise on the subject, is
accorded with highest respect, unless there has been an abuse or improvident exercise of
authority. These findings of facts can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the CTA. In the
absence of any clear and convincing proof to the contrary, It must be presumed that the CTA
rendered a decision which is valid in every respect.
From Living to Libing 18-19
TAX 2
CBK POWER COMPANY LIMITED v. G.R. Nos. 193383-84, G.R. Nos. 193407-
COMMISSIONER OF 08
INTERNAL REVENUE DATE: January 14, 2015
PONENTE: PERLAS-BERNABE, J.
CBK Power Company Limited Commissioner of Internal Revenue
Assailed in these consolidated petitions for review on certiorari are the Decision dated March 29,
2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals (CTA) En Banc.
FACTS
CBK Power is primarily engaged in the development and operation of the Caliraya, Botocan,
and Kalayaan hydroelectric power generating plants in Laguna (CBK Project).
To finance the CBK Project, CBK Power obtained a syndicated loan from several foreign banks
i.e., BNP Paribas, Dai-ichi Kangyo Bank, Ltd., Industrial Bank of Japan, Ltd., and Societe
General (original lenders), acting through an Inter-Creditor Agent, Dai-ichi Kangyo Bank, a
Japanese bank that subsequently merged with the Industrial Bank of Japan and Fuji Bank, with
the merged entity being named as Mizuho Corporate Bank (Mizuho Bank).
Certain portions of the loan were subsequently assigned by the original lenders to various other
banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral
Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its portion of the
loan to Fortis Bank S.A./N.V. (Fortis-Belgium),
Bank Country of Residence

Fortis Bank S.A./N.V. Belgium
Industrial Bank of Japan Japan
Raiffesen Zentral Bank Osterreich AG Austria
Mizuho Bank Japan
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-
Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted interest
payments from May 2001 to May 2003.
It allegedly withheld final taxes from said payments based on the following rates, and paid the
same to the Revenue District Office No. 55 of the BIR:
 15% for Fortis-Belgium, Fortis-Netherlands, and Raiffesen Bank; and
 20% for Industrial Bank of Japan and Mizuho Bank.
However, according to CBK Power, under the relevant tax treaties between the Philippines and
the respective countries in which each of the banks is a resident, the interest income derived by
the aforementioned banks are subject only to a preferential tax rate of 10%. Accordingly,
CBK Power filed a claim for refund of its excess final withholding taxes allegedly erroneously
withheld and collected for the years 2001 and 2002 with the BIR Revenue Region No. 9. The
claim for refund of excess final withholding taxes in 2003 was subsequently filed on March 4,
2005.
The Commissioner of Internal Revenue's (Commissioner) inaction on said claims prompted

CBK Power to file petitions for review before the CTA.
CTA:
 granted the petitions and ordered the refund of the amount of PhP15,672,958.42 upon
a finding that the relevant tax treaties were applicable to the case
 The required International Tax Affairs Division (ITAD) ruling was not a condition sine
qua non for the entitlement of the tax relief sought by CBK Power.
 However, upon motion for reconsideration filed by the Commissioner, the CTA First
Division amended its earlier decision by reducing the amount of the refund from to
PhP14,835,720.39 on the ground that CBK Power failed to obtain an ITAD ruling with
respect to its transactions with Fortis-Netherlands.
CBK Power elevated the matter to the CTA En Banc on petition for review. The Commissioner
likewise filed his own petition for review. Commissioner claimed that CBK Power failed to
exhaust administrative remedies when it filed its petitions before the CTA First Division, and
that said petitions were not filed within the 2-year prescriptive period for initiating judicial
claims for refund.
CTA En Banc:
 affirmed the ruling of the CTA First Division
 A prior application with the ITAD is indeed required by Revenue Memorandum Order
(RMO) 1-2000.
Hence, this petition.

ISSUE/S
1. WON the BIR may add a requirement (prior application for an ITAD ruling), that is not
found in the income tax treaties signed by the Philippines, before a taxpayer can avail of
preferential tax rates under said treaties.
2. WON CBK is entitled to a refund in the amount of PhP1,143,517.21 for the period
covering taxable year 2003 as it allegedly failed to exhaust administrative remedies
before seeking judicial redress.
RULING
1st Issue: NO. Prior application for an ITAD ruling should not operate to divest entitlement to
the relief. It should merely operate to confirm the entitlement of the taxpayer to the relief.
The Philippine Constitution provides for adherence to the general principles of international law
as part of the law of the land. In this jurisdiction, treaties have the force and effect of law.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax
treaty relief, as required by RMO No. 1-2000, should not operate to divest entitlement to the
relief as it would constitute a violation of the duty required by good faith in complying with a
tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within
the prescribed period under the administrative issuance would impair the value of the tax treaty.
At most, the application for a tax treaty relief from the BIR should merely operate to confirm
the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of
RMO No. 1-2000. While the consequences sought to be prevented by RMO No. 1-2000 involve
an administrative procedure, these may be remedied through other system management
processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who
are entitled to the benefit of a treaty for failure to strictly comply with an administrative
issuance requiring prior application for tax treaty relief.
The objective of RMO No. 1-2000 in requiring the application for treaty relief with the ITAD
before a party's availment of the preferential rate under a tax treaty is to avert the consequences
of any erroneous interpretation and/or application of treaty provisions, such as claims for
refund/credit for overpayment of taxes, or deficiency tax liabilities for underpayment. However,
the underlying principle of prior application with the BIR becomes moot in refund cases — as
in the present case —where the very basis of the claim is erroneous or there is excessive
payment arising from the non-availment of a tax treaty relief at the first instance.
In parallel, CBK Power could not have applied for a tax treaty relief 15 days prior to its payment
of the final withholding tax on the interest paid to its lenders precisely because it erroneously
paid said tax. As stressed by the Court, the prior application requirement under RMO No. 1-
2000 then becomes illogical.
It bears reiterating that the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief. Since CBK Power had requested for
confirmation from the ITAD on June 8, 2001 and October 28, 2002 before it filed on April 14,
2003 its administrative claim for refund of its excess final withholding taxes, the same should be
deemed substantial compliance with RMO No. 1-2000. To rule otherwise would defeat the
purpose of Section 229 of the NIRC in providing the taxpayer a remedy for erroneously paid tax
solely on the ground of failure to make prior application for tax treaty relief.
2nd Issue: NO. The law does not require that the Commissioner first act upon the taxpayer's
claim, and that the taxpayer shall not go to court before he is notified of the Commissioner’s
action.
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer's claim must be filed within two (2) years
from the date of payment of the tax or penalty. However, Section 229 of the NIRC further
states the condition that a judicial claim for refund may not be maintained until a claim for
refund or credit has been duly filed with the Commissioner.
Indubitably, CBK Power's administrative and judicial claims for refund of its excess final
withholding taxes covering taxable year 2003 were filed within the 2-year prescriptive period,
as shown by the table below:
When Final Taxes When Remittance Last Day of the 2- When When Petition for
were Withheld Return Filed Year Prescriptive Administrative Review was Filed
Period Claim was Filed
February 2003 03/10/03 03/10/05 03/04/05 03/09/05
May 2003 06/10/03 06/10/05 03/04/05 03/09/05
With respect to the remittance filed on March 10, 2003, the claim of the Commissioner that
there was failure to exhaust administrative remedies holds no merit. Had CBK Power awaited
the action of the Commissioner on its claim for refund prior to taking court action knowing fully
well that the prescriptive period was about to end, it would have lost not only its right to seek
judicial recourse but also its right to recover the final withholding taxes it erroneously paid to the
government thereby suffering irreparable damage.
While it may be argued that, for the remittance filed on June 10, 2003, CBK Power could have
waited for, at the most, 3 months from the filing of the administrative claim on March 4, 2005,
the Court cannot, on that basis alone, deny a legitimate claim that was, for all intents and
purposes, timely filed in accordance with Section 229 of the NIRC. There was no violation of
Section 229 since the law, as worded, only requires that an administrative claim be priorly filed.
In no wise does the law (Section 229 of the NIRC), imply that the Commissioner first act upon
the taxpayer's claim, and that the taxpayer shall not go to court before he is notified of the
Commissioner’s action. The claim with the Commissioner was intended primarily as a notice
of warning that unless the tax or penalty alleged to have been collected erroneously or illegally
is refunded, court action will follow.
That being said, the foregoing refund claims of CBK Power should all be granted.
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.
— The Commissioner may —
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good condition
by the purchaser, and, in his discretion, redeem or change unused stamps that have been
rendered unfit for use and refund their value upon proof of destruction. No credit or refund of
taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
xxx xxx xxx
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to
have been collected without authority, of any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of any sum alleged to have been excessively
or in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment: . . .
TAX
Commissioner of Internal Revenue vs. Nagase CTA EB NO. 1048
Philippines Corporation June 22, 2015
PONENTE: Ringpis-Liban J.
PETITIONER: RESPONDENT:
Commissioner of Internal Revenue Nagase Philippines Corporation
For resolution is petitioner's "Motion for Reconsideration" of the Decision promulgated on
January 29,2015 denying the present petition for lack of merit. Petitioner prays that the Court En
Banc reconsider and set aside the Decision and a new one be rendered ordering respondent to
pay deficiency income tax in the amount of P36,433,548.87 plus accrued interest and
delinquency interest pursuant to Sections 249 (B) and (C) of the NIRC of 1997.
FACTS
The Commissioner of Internal Revenue (CIR) argues that:
 The Court En Banc erred in holding that her right to make an assessment had prescribed;
 That the Court En Banc erred in not holding that Nagase filed a false return;
 That in a false return, intent to evade the tax is not an element;
 That a re-investigation was conducted after the issuance of a Preliminary Assessment
Notice (PAN), hence, it effectively suspended the running of the prescriptive period for
the issuance of the Final Assessment Notice (FAN).
Nagase argues that:
 The Court's Decision was already final and executory when petitioner filed her "Motion
for Reconsideration," and
 The grounds and discussion in the Motion for Reconsideration is an almost word-for-
word replication of petitioner's Petition for Review dated August 22, 2013, which has
been thoroughly considered and dispensed by the Court En BanC in its Decision.
ISSUE/S
Whether or not there is merit in the motion for reconsideration.
RULING
The Court ruled in the NEGATIVE.
Petitioner insists that Nagase's request for re-investigation and the granting of the same
effectively suspended the running of the prescriptive period for the issuance of the FAN, hence
its right to make an assessment has not prescribed. However, as found by the Court En Banc, the
CIR failed to present any evidence to prove that Nagase requested for a reinvestigation. Hence,
the running of the prescriptive period was not tolled.
In the Assailed Decision, he Court En Bane unanimously ruled in this "An assessment that was
given beyond the statute of limitations can never become final and executory, hence, the
assessments would not be binding on the taxpayer except if there is a valid waiver for the
extension of the assessment and collection of the taxes due.
In this case, there is nothing on record to show that Nagase executed a waiver or that Nagase
requested for a Reinvestigation.
The Supreme Court had consistently ruled in a number of cases that a request for reconsideration
and reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax Code and implementing rules, will not
suspend the running thereof.
The CIR argues that her right to assess Nagase for deficiency income tax for the year 2003 has
not prescribed pursuant to Section 222 of the NIRC.
As correctly ruled by the Court in Division:

"Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.-
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection
thereof."
As provided above, in cases when a false or fraudulent return is ftled with the intent of evading
the tax or when no return was ftled at all, the CIR can assess or begin a court proceeding for the
collection without an assessment within ten years. In these cases, the ten-year period for
prescription begins, or is counted from the date of discovery of the falsity, fraud or omission.
Fraud is a question of fact which must be alleged and proved. It must be proved to exist by clear
and convincing evidence- mere preponderance of evidence is not even adequate to prove fraud.
As stated, not every mistake or deviation from the truth necessarily brings a particular return
under the coverage of Section 222 of the NIRC.
The fraud contemplated by Section 222 is actual and not constructive, and must amount to
intentional wrong-doing with the sole object of avoiding taxation, not merely error. Fraud must
be proven by clear and convincing evidence, and not by mere conjectures and speculations.
Beyond the allegation of fraud in its "Details of Discrepancies" and presentation of internal
Memoranda prepared by Revenue Officer Dionisio Lumagui mentioning the same, not much else
was asserted or presented to bolster the serious allegation. Neither was this allegation tackled in
Revenue Officer Lumagui's Judicial Affidavit, or subsequent testimony. It is a settled rule that an
assessment should not be based on mere presumptions no matter how reasonable or logical said
presumptions may be. Furthermore, fraud is a serious charge and to be sustained, it must be
supported by clear and convincing proof. Thus, due to respondent's failure to prove fraud on the
part of petitioner, the assessment issued against it beyond the three year period allowed by law,
is void."
Considering that the FAN and Details of Discrepancies were issued beyond the three year period
from the time Nagase filed its 2003 ITR, the assessment for Taxable Year 2003 dated September
12, 2007 is null and void and should therefore be cancelled."
In fine, We see no cogent reason to deviate from our previous ruling that due to petitioner's
failure to prove fraud on the part of Nagase, the assessment issued against Nagase beyond the
three year period, is therefore, void.
Facts of the January 29,2015 decision
April 14, 2004- Nagase Philippines Corporation (Nagase) filed its Annual Income Tax Return
(ITR)
September 14, 2007- Nagase received from the CIR a Formal Assessment Notice (FAN) dated
September 12, 2007, together with Details of Discrepancies, alleging that Nagase has deficiency
income tax liability in the amount of P36,433,548.87, inclusive of 50% surcharge and interest for
taxable year 2003.
October 10, 2007- Nagase flied its protest to the FAN, which was received by the CIR on
October 11, 2007, alleging that the CIR's assessment for alleged deficiency income tax has no
legal and factual bases, and requested that said assessment be reconsidered, withdrawn and
cancelled.
Nagase filed a Petition for Review before the Court in Division against the CIR, assailing the
assessment for alleged deficiency income tax, including the 50% surcharge and interest, for
taxable year 2003 issued by the CIR.
In the questioned decision, the Court En Banc ruled that:
Considering that the FAN and Details of Discrepancies were issued beyond the three-year period
from the time Nagase filed its 2003 ITR, the assessment for Taxable Year 2003 dated September
12, 2007 is null and void and should therefore be cancelled.
Cabañeiro Babies ’18-19
TAX Jurisdiction; Pre-Assessment Notice (PAN) and Final Assessment Notice

(FAN) indispensable for the validity of assessment and subsequent
warrant of distraint and levy
COMMISSIONER OF INTERNAL REVENUE CTA EB CASE NO. 1076 (CTA Case
vs. ALPHA RIGGING & MOVING SYSTEMS, No. 8135)
INC. DATE: January 8, 2015
PONENTE: Mindaro-Grulla, J.
Commissioner of Internal Revenue Alpha Rigging and Moving Systems, Inc.
NATURE OF THE ACTION: This is a Petition for Review under Rule 4, Section 2(a)(1), in
relation to Rule 8, Section 3(b) of the 2005 Revised Rules of the Court of Tax Appeals
(RRCTA) of the Decision dated July 12, 2013 rendered by the Special Third Division of the
CTA in CTA Case No. 8135 and its Resolution dated October 9, 2013 which declared the
Warrant of Distraint and Levy for deficiency tax liabilities for years 2000 and 2001 issued by
petitioner against respondent as null and void and which dismissed petitioner’s motion for
reconsideration for lack of merit, respectively.
FACTS
 Alpha is a domestic corporation providing services primarily in the fields of industrial
transfer, rigging, hauling, machinery moving, engineering, civil works and crating,
machinery and equipment moving, installation, repair and maintenance, sales and leasing
of machinery, equipment and tools.
 Alpha filed its Annual ITRs for taxable years 2000 and 2001 on April 18, 2001 and April
15, 2002, respectively.
 On October 2, 2002, a Letter of Authority was issued against Alpha for the examination
of its books of accounts and other accounting records for all internal revenue taxes for
taxable year 2000. On August 15, 2003, BIR issued another LOA against Alpha for
taxable year 2001.
 On May 9, 2005, the Acting Regional Director of Revenue Region No. 9 issued a
Preliminary Assessment Notice (2000 PAN). On May 31, 2005, a Formal Letter of
Demand (2000 FLD) and Final Assessment Notices were issued against Alpha,
assessing it for deficiency income tax, VAT, DST, and compromise penalties for taxable
year 2000, in the total amount of P34,715,373.06, inclusive of interest, 25% surcharge,
and compromise penalties. Alpha filed its protest letter on June 3, 2005.
 On August 11, 2005, the Acting Regional Director issued a Preliminary Assessment
Notice (2001 PAN). On October 11, 2005, Alpha received the Formal Letter of Demand
(2001 FLD) and FAN No. 59/2001, all dated September 30, 2005, assessing Alpha for
deficiency income tax, EWT, and FBT for taxable year 2001, in the total amount of
P13,769,750.60, inclusive of interest, 25% surcharge, and compromise penalties. On
October 25, 2005, Alpha filed its protest letter.
 On March 6, 2008, Alpha availed of the Tax Amnesty Program under Republic Act 9480
by paying the amnesty tax amounting to P100,000.00.
 But in a letter dated February 22, 2010, RDO No. 59 informed Alpha that it is not
entitled to enjoy the benefits and privileges granted under the Tax Amnesty Program,
pursuant to RMC No. 19- 2008. On June 15, 2010, a Warrant of Distraint and/or Levy
(WDL) No. 059-10-018 was issued against Alpha, pertaining to Alpha's deficiency tax
liabilities for taxable years 2000 and 2001.
 On July 23, 2010, Alpha filed a Petition for Review before CTA seeking the cancellation
and/or withdrawal of WDL as well as the corresponding deficiency tax assessments
covering taxable years 2000 and 2001.
 On July 12, 2013, CTA Division granted the petition of Alpha. The formal letter of
demand, assessment notices for 2000 and 2001, and warrant of distraint and levy were
invalidated due to the failure of the CIR to prove that the Preliminary Assessment Notice
(PAN) and Final Assessment Notice (FAN) were sent and received by taxpayer, a
violation of due process.
 CIR's MR was denied for lack of merit, hence, the present petition.
ISSUE/S
 Whether the CTA Division went too far when it examined the validity of the undisputed
assessment - NO
 Whether the testimonial evidence of CIR, documentary evidence by both parties &
Alpha’s admission by silence bolster the disputable presumption
that the mail was received in ordinary course of mail - NO
 Whether the CTA Division erred in invalidating the 2001 assessment for failure to serve
the PAN when it is not an issue and that respondent even
admitted it was informed of the PAN – NO
RULING
1. The jurisdiction of the Court of Tax Appeals over "other matters arising under the
National Internal Revenue Code (NIRC) or other laws or part of law administered by the
Bureau of Internal Revenue" is not limited to the timeliness and validity of the collection
procedure itself. The second part of the provision covers other cases that arise out of the
NIRC or related laws administered by the Bureau of Internal Revenue. The wording of
the provision is clear and simple. It gives the CTA the jurisdiction to determine if the
warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of statute
of limitations was validly effected.
In the Philippine Journalist case, the validity of the assessment was determined.
Consequently, the Supreme Court concluded that a warrant of distraint and levy would be
a nullity if issued from an invalid assessment.
2. In the Metro Star Superama case, the Supreme Court ruled that failure to strictly comply
with notice requirements prescribed under Section 228 of the National Internal Revenue
Code of 1997 and R.R. No. 12-99 is tantamount to a denial of due process, regardless of
the failure to file a protest in the assessment, for it is well-settled that a void assessment
bears no fruit. Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement.
In the case at bar, the CTA Division found that while petitioner's witness testified that
FLD and FAN 59/2000 and 2001 PAN were mailed and received by respondent,
however, CIR failed to mark, offer, identify and admit as evidence any registry receipt
and return card to prove the fact of mailing and receipt.
Based on RR No. 12-99, the due process requirements are as follows: (1) a notice of
informal conference; (2) a preliminary assessment notice sent to taxpayer at least by
registered mail; and (3) a formal letter of demand and assessment notice sent to the
taxpayer only by registered mail or by personal delivery. The absence of one requirement
shall render the entire process null and void.
It is settled in our jurisprudence that if the assessment is served by registered mail, and
the original was not returned to the BIR, the presumption is that the taxpayer received
said assessment in the regular course of mail pursuant to Section 3(v), Rule 131 of the
Rules of Court. The facts to be proved in order to raise this presumption are: (a) that the
letter was properly addressed with postage prepaid; and (b) that it was mailed. Once these
facts are proved, the presumption is that the letter was received by the addressee as soon
as it could have been transmitted to him in the ordinary course of the mail. But if one of
the said facts fails to appear, the presumption does not lie.
On the 2000 FLD and FAN No. 59/2000

A perusal of FAN No. 59/2000 reveals that it was properly addressed to respondent.
However, while petitioner's witness made mention of a registry receipt, supposedly to
establish the fact of mailing and receipt of the FAN by respondent, petitioner's witness
failed to properly identify any registry receipt during trial. And no registry receipt was
marked, offered and admitted as evidence for petitioner.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As
cases filed before it are litigated de novo, party-litigants shall prove every minute aspect
of their cases. The testimonial evidence presented by petitioner was not sufficient to give
rise to the presumption that the 2000 FLD and FAN No. 59/2000 were received by
respondent in the regular course of mail.
Even assuming that the evidence presented by petitioner has given rise to the
presumption that the 2000 FLD and FAN No. 59/2000 were received by respondent in
the regular course of mail, said presumption is merely a disputable one. A direct denial of
the receipt of the mail shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee.
On the 2001 FLO and FAN No. 59/2001
Respondent contends that it was deprived of its right to file a Reply because it did not
receive the 2001 Ten-Day PAN. Here, petitioner's witness testified on cross-examination
that the 2001 PAN was sent to respondent by registered mail as evidenced by a return
card. While petitioner's witness testified that the 2001 Ten-Day PAN (actually a Notice
of Informal Conference) and the 2001 PAN were sent through registered mail to
respondent as supposedly evidenced by return cards, said return cards were ALSO not
properly identified and marked during trial. More so, they were not offered or admitted as
evidence for petitioner.
3. A perusal of the respondent taxpayer's pre-trial brief reveals that among the issues raised
is that CIR did not afford the taxpayer its right to due process. Also, the CTA Division, a
court of competent jurisdiction is vested with the authority to resolve even unassigned
issues and it can do so when such is indispensable or necessary to a just resolution of
issues raised in a particular pleading or when the unassigned issues are inextricably
linked or germane to those that have been pleaded.
WHEREFORE premises considered, the petition is DENIED. The Decision of the Special
Third Division of this Court in CTA Case No. 8135, promulgated on July 12, 2013 and its
Resolution, promulgated on October 9, 2013, are hereby AFFIRMED. No pronouncement as to
costs.
E.g. A footnote, a dissent, a concurrence etc.
TAX 2
PHILIPPINE AIRLINES V. CIR CTA CASE NO 7152
DATE: May 18, 1956
PONENTE: Montemayor, J.
Philippine airlines CIR
FACTS
Submitted anew for Decision, by virtue of petitioner's Motion for Reconsideration of the
Decision dated 22 October 2014 and Supplement (To Petitioner's Motion for Reconsideration
dated 10 November 2014), is a consolidation of seven (7) Petitions for Review filed pursuant to
and in accordance with Sections 108(B)(3) and 112(A), in relation to 112(C) of the 1997
National Internal Revenue Code, as amended ("1997 NIRC") and Section 7(a)(1)1 of Republic
Act ("RA") No. 11252, as amended by RA No. 92823 and RA No. 95034, in relation to Section
3(a)(1)5, Rule 4 of the Revised Rules of the Court of Tax Appeals
("RRCTA")6, which prays for the refund of the aggregate amount of (Php953,820,553.84)
representing specific taxes paid for petitioner's importation of aviation turbo jet fuel or Jet A-1
for its domestic operations from the period of February 2003 to December 2004.
In the Decision, the Court referred to Section 13 of Presidential Decree ("PD") No. 1590, which
allows an exemption from all taxes due on all importation subject to the following conditions:
(1) articles or supplies or materials are imported for the use in its transport and non-transport
operations and other activities incidental thereto; and (2) not locally available in reasonable
quantity, quality, or price. While the Court found that petitioner fulfilled the first condition, it
held that there was failure to prove the existence of the secon
.
ISSUE/S
Whether or not PAL is entitled to the refund.
RULING
Yes. Petitioner was able to comply with all the requisites under Section 13 ofPD No. 1590 for it
to be exempt from payment of the specific taxes on its importations of Jet A-1 used for its
transport operations, but in the reduced amount of Php897,445,271.84. Imported Jet A-1 was
used in petitioner's transport and non- transport operations, and other activities incidental thereto
was able to sufficiently show that the imported Jet A-1 was not locally available in reasonable
quantity and price at the time of the importations. But those excise tax on the importation of Jet
A-1 whixh was not supported with any IERD shall be deducted.
Tax 2 caban 18-19
TAX 02
COMMISSIONER OF INTERNAL REVENUE CTA CASE NO. 8940
v. PREMIUM LEISURE CORP. DATE: 25 April 2018
PONENTE: Castaneda Jr., J.
Commissioner of Internal Revenue Premium Leisure Corporation (Formerly
Sinophil Corporation)
NATURE OF THE ACTION Before the Court En Banc is a Petition for Review filed by
petitioner Commissioner of Internal Revenue (CIR) under Section 4(b), Rule 8 of the Revised
Rules of the Court of Tax Appeals (RRCT A). It seeks the reversal of the Decision dated March
14, 2017, (assailed Decision) as well as the Resolution dated July 20, 2017 (assailed Resolution)
of the Third Division (Court in Division) of this Court in CTA Case Nos. 8940 entitled
"Premium Leisure Corp. (Formerly: Sinophil Corporation) v. Commissioner of Internal
Revenue".
FACTS
Premium Leisure Corporation is a domestic corporation duly organized and existing under
and by virtue of the laws of the Philippines. It is primarily established to invest in, purchase, or
otherwise acquire and own, hold, use, develop, lease, sell, assign, transfer, mortgage, pledge,
exchange, operate, or otherwise dispose of all properties of every kind, nature and description.
Formerly, under the name of Sinophil Corporation.
CIR is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) empowered
to perform the duties of his office, including, among others, to act on and approve claims for
refund or tax credit as provided by law.
Premium Leisure Corporation is the registered holder of 74,027,418 shares of the capital
stock of Belle Bay City Corporation (BBCC). SEC approved BBCC's Amended Articles of
Incorporation, wherein Article IV thereof was amended to shorten the term of BBCC's existence
only until January 31, 2004.
Pursuant to BBCC's letter, requesting confirmation from the BIR of its opinion as regards certain
tax implications in relation to the transfer of its lots to its stockholders as liquidating dividends,
the BIR issued BIR Ruling DA-316-2007 declaring that the transfer by BBCC of the
reclaimed lots to its stockholders as liquidating dividends is not subject to income tax,
creditable withholding tax, and documentary stamp tax; and that the receipt of reclaimed lots
as liquidating dividends by the stockholder is a taxable income or a deductible loss, as the
case maybe.
BBCC executed a Deed of Conveyance in favor of Premium Leisure Corporation, transferring a

parcel of land with an area of 4,348 square meters, more or less, located in Aseana Business
Park, Roxas Blvd. Paranaque City and is duly covered by Transfer Certificate of Title (TCT) No.
169887, as liquidating dividends.
Premium Leisure Corporation filed before the BIR its Withholding Tax Remittance Return and
Documentary Stamp Tax Declaration/Return without having remitted or paid any corresponding
withholding tax or documentary stamp tax In its 2012 Annual Income Tax Return, petitioner
reported the fact of its receipt of liquidating dividends from BBCC by recognizing a net
liquidating gain of:P33,324,175.00 as part of its 'Other Taxable Income not Subjected to Final
Tax,' thus, subjecting said liquidating gains to the thirty percent (30%) regular corporate income
tax.
Premium Leisure Corporation filed its Capital Gains Tax Return with the Land Bank of the
Philippines (LBP), and paid under protest the amount of P6,522,000.00 allegedly
representing capital gains tax arising from its receipt of real property by way of liquidating
dividends From BBCC.
Premium Leisure Corporation filed an application for refund and/or issuance of TCC, through
a Letter to recover the capital gains tax previously remitted in the amount of P6,522,000.00 in
relation to the conveyance of real properties by BBCC to petitioner by way of liquidating
dividends. There being no action taken by the CIR on petitioner's administrative claim for
refund or issuance of TCC, Premium Leisure Corporation filed the present Petition for Review
before this Court.
Respondent filed his Answer (with Motion to Dismiss), through registered mail on February 23,
2015 and received by the Court on March 5, 2015, interposing as Special and Affirmative
Defenses: that petitioner claims that as a condition precedent for the imposition of such tax (6%
capital gains tax), it is required that there must be a closed and completed transaction in which
the transferor corporation has the potential to realize income; that capital gains tax is a final tax
assessed on the presumed gain derived by Belle Bay City Corporation ('BBCC') from the
disposition of their parcel of land in exchange of common shares of stock owned by petitioner;
that it is not essential that a gain must be realized first before a Corporation may be held liable
under Section 27 (D)(5) of the National Internal Revenue Code since gain is presumed from the
disposition of their real property considered as capital asset.
The CIR issued BIR Ruling DA-316-07 to address the query of BBCC which provides that,
BBCC's transfer of real properties by way of liquidating dividends to its stockholders is not
considered as a sale of such assets for tax purposes. Consequently, the same will not give
rise to any liability for payment of income tax, withholding tax and documentary stamp tax
since BBCC, as a corporation undergoing the process of liquidation, will not realize any taxable
gain or loss during such process. However, any liquidating gain that may be realized by its
stockholders, which represents the difference between the fair market value of the properties
received and the and the cost basis of their investment in BBCC, shall be treated as a gain from
the sale or exchange of shares which is subject only to regular income tax.
Petitioner filed its Reply on March 9, 2015. In the Resolution dated April 20, 2015, the Court
held that the interests of justice would be more adequately served if trial would ensue and both
parties are given the opportunity to present evidence to back up their respective claims. Hence,
respondent's Motion to Dismiss was denied.
The Court in Division ordered petitioner to refund or to issue a tax credit certificate in favor of
respondent in the amount of P6,522,000 representing its erroneously paid capital gains tax from
its receipt of real property by way of liquidating dividends from BBCC. Aggrieved, petitioner
filed a Motion for Reconsideration on April 5, 2017 which the Court in Division denied in the
Assailed Resolution.
ISSUE/S
Whether or not Premium Leisure Corporation shall be entitled to a refund or issuance of Tax
Credit Certificate (TCC)? – YES.
RULING
The Petition for Review is bereft of merit. The Court En Banc holds that respondent is entitled to
a refund of the erroneously paid capital gains tax (CGT) on the liquidating dividends received by
respondent from BBCC.
Mere distribution of liquidating dividends of a corporation is not to be treated as sale for

purposes of the imposition of CGT. The Court in Division held that CGT is a tax on the gain
from sale of taxpayer's property from part of capital assets and such definition implies that in
order to be liable for payment of CGT, one has to profit or gain from sale, exchange or
disposition of the real property. Thus, in the absence of income from or the absence of sale,
disposition or conveyance of real property, the imposition of CGT does not arise.
Receipt by a stockholder, whether corporate or individual, of liquidating dividends is not

subject to CGT. The basis for this position is not because of the absence of income from or the
absence of sale, disposition or conveyance of real property, but because such transaction is
subject to ordinary income tax on the part of the individual stockholders, or corporate income tax
for corporate stockholders.
Section 73(A) of the 1997 NIRC definitely provides that any gain derived, or any loss
sustained by a stockholder from its receipt of liquidating dividends shall be treated as
taxable income or deductible loss, as the case may be.
Upon surrender by the investor of the shares in exchange for cash and property distributed by the
issuing corporation upon its dissolution and liquidation of all assets and liabilities, the investor
shall recognize either capital gain or capital loss upon such surrender of shares computed by
comparing the cash and fair market value of property received against the cost of the investment
in shares. The difference between the sum of the cash and the fair market value of property
received and the cost of the investment in shares shall represent the capital gain or capital loss
from the investment, whichever is applicable. If the investor is an individual, the rule on holding
period shall apply and the percentage of taxable capital gain or deductible capital loss shall
depend on the number of months or years the shares are held by the investor. Section 39 of the
Tax Code, as amended, shall herein apply in all possible situations.
The capital gain or loss derived therefrom shall be subject to the regular income tax rates
imposed under the Tax Code, as amended, on individual taxpayers or to the corporate income tax
rate, in case of corporations."
At any rate, it was already established before the Court in Division that respondent had reported
its receipt of the liquidating dividends in its 2012 ITR and had recognized a net liquidating gain
of P33,324,175.00 as part of its "Other Taxable Income not Subjected to Final Tax".
Accordingly, respondent had subjected the said gain to 30% regular corporate income tax. 21
Having already paid corporate income tax for the gains it derived from its receipt of liquidating
dividends from BBCC, respondent's payment of CGT for the same income is clearly erroneous
and should be refunded.
WHEREFORE, the present Petition for Review is DENIED for lack of merit.
TAX 2 WHAT CONSTITUTES A FINAL DECISION ON A DISPUTED

ASSESSMENT
SOLID-ONE MILLS vs. CIR CTA Case No. EB 1562
June 1, 2018
Castañeda, Jr., J.
SOLID-ONE MILLS, PHILS., INC. COMMISSIONER OF INTERNAL
REVENUE
FACTS
 April 15, 2008: Petitioner filed its Annual Income Tax Return (ITR) for Taxable Year 2007.
 August 5, 2008: Petitioner received a Letter of Authority for the examination of petitioner’s
books of
 accounts and other accounting records.
 November 23, 2010: A Notice of Informal Conference was issued to petitioner finding it
liable for
 deficiency taxes for Income Tax, Expanded Withholding Tax, Withholding Tax on
Compensation, and
 Improperly Accumulated Earnings Tax.
 July 25, 2011: Petitioner received a Formal Letter of Demand assessing it for various tax
liabilities
 covering the taxable year 2007.
 August 24, 2011: Petitioner filed a protest with the BIR.
 March 16, 2012: Petitioner received a letter issued by BIR that since petitioner failed to
submit
 supporting documents, the assessment was deemed final and executory.
 May 2012: A Warrant of Distraint and/or Levy was received by Petitioner issued by
respondent for its tax
 liabilities for taxable year 2008.
 September 19, 2012: Petitioner received a Demand Letter stating that its internal tax revenue
liabilities in the assessment notice remains unpaid and must be paid immediately.
 October 18, 2012: Petitioner filed a Petition for Review before the CTA.
 June 21, 2016: The Court in Division dismissed the Petition for Review for lack of
jurisdiction.
ISSUE/S
Whether or not the CTA has jurisdiction to entertain the instant Petitioner
RULING
NO, the CTA has no jurisdiction.
 Sec. 11 of RA 1125, as amended by RA 9282 states that a party adversely affected by a

decision or inaction of the CIR may file an appeal with the CTA within 30 days after
receipt of such decision ruling.
 Sec. 3.1.4 of RR No. 12-99, as amended, provides that if the protest is denied, in whole
or in part, by the CR, the taxpayer may appeal to the CTA within 30 days from receipt of
said decision.
 Petitioner received the BIR-issued letter on March 16, 2012. Based on that letter, it was
categorically stated that the assessment had already become final and executory. The
letter already informed the petitioner that its case shall already be forwarded to the BIR’s
collection division.
 Oceanic Wireless Network v. CIR: A demand letter may be considered the final decision
on a disputed assessment, if the language used or the tenor thereof shows a character of
finality, which is tantamount to a rejection of the request for reconsideration.
 In this case, the letter constitutes the final decision of respondent that is appealable to the
CTA. There is no doubt that respondent had already made a conclusion to deny
petitioner’s request and he had the clear resolve to collect the subject taxes.
 Petitioner had 30 days from March 16, 2012 or until April 15, 2012, within which to file
its Pet Rev. However, petitioner filed its petition only on October 18, 2012.
TAX 2 CABAN
TAX 2 - Midterms Jurisdiction of CTA; Excise Tax

Petron Corporation v. CIR CTA EB NO. 1499
DATE: June 4, 2018
PONENTE: Fabon-Victorino, J.
Petron Corporation COMMISSIONER OF INTERNAL
REVENUE, COMMISSIONER OF
CUSTOMS and COLLECTOR OF
CUSTOMS (PORT OF LIMAY,
BATAAN)
Assailed in this Petition for Review filed by Petron Corporation on August 23, 2016 are: (1) the
Decision dated May 17, 2016 rendered by the Court in Division in CTA Case No. 8544, denying
its Petition for Review and Supplemental Petition for Review on jurisdictional ground; and (2)
the Resolution dated July 21, 2016, denying its Motion for Reconsideration of the adverse
Decision.
FACTS
Petitioner is a domestic corporation engaged in the business of manufacturing and marketing
petroleum products, with principal office located at San Miguel Corporation Head Office
Complex, 40 San Miguel Avenue, 1550 Mandaluyong City.
In compliance with Republic Act (RA) No. 8749, otherwise known as the Clear Air Act of 1999,
and RA No. 9367, also known as the Biofuels Act of 2006, petitioner imports on various dates
alkylate as raw material or blending component for its manufacture of ethanol-blended motor
gasoline.
For the period January 2009 to August 2011, as well as or the month of April 2012, petitioner
made several importations of alkylate for which respondent CIR issued Authorities to Release
Imported Goods (ATRIGs), categorically stating that petitioner's importation of alkylate is
exempt from the payment of the excise tax as it was "not among those articles enumerated
under Title VI of the NIRC of 1997".
On June 2012, petitioner imported 12,802,660 liters or 79,231 barrels of alkylate and paid value-
added tax (VAT) in the total amount of P41,657,533.00, as evidenced by Import Entry and
Internal Revenue Declaration (IEIRD) No. SN 122406532. However, upon the instruction of
respondent COC, the said importation was subjected by respondent Collector of Customs
of Port of Limay, Bataan to excise taxes of P4.35 per liter, or in the aggregate amount of
P55,691,571.00, and consequently, to an additional VAT of 12°/o on the imposed excise tax in
the amount of P6,682,989.00, per Final Computation. The imposition of the excise tax was
allegedly pursuant to Customs Memorandum Circular (CMC) No. 164-2012 dated July 18,
2012, implementing the Letter dated June 29, 2012 issued by respondent CIR, which reads as
follows:
Alkylate which is a product of distillation similar to that of naphta, is subject to excise tax under
Section 148(e) of the National Internal Revenue Code (NIRC) of 1997.
This prompted petitioner to file a Petition for Review before the Court in Division on August
22, 2012, questioning the propriety of CMC No. 164-2012 which imposed excise tax on its
alkylate importation.
 The Court in Division ruled in favor of the respondent holding that CTA has no
jurisdiction over the Petition for Review. However, it reversed itself upon motion for
reconsideration by the petitioner. Hence, the respondent filed a Petition for Certiorari
before the Supreme Court which ruled in favor of him in a decision dated July 15, 2015.
This prompted the petitioner to file a Motion for Reconsideration.
ISSUE/S
Whether or not the Court of Tax Appeals has jurisdiction over cases interpreting tax laws as
falling under the clause "other matters" arising under the Tax Code or other laws or portions
thereof administered by the BIR.
RULING
As per the resolution issued by the Supreme Court dated February 14, 2018 in the Motion
for Reconsideration filed by petitioner, YES, the CTA has jurisdiction. (No explanation
included in this case).
Here are the contentions of the two parties:
Petitioner:
1. This stance is in accord with the ruling in Philam case where the Supreme Court clarified
and settled that it is the CTA that has the power to take cognizance of appeals
questioning a ruling or issuance of the CIR and upheld by the Secretary of Finance.
2. While generally, no recourse to courts can be had until all administrative remedies have
been exhausted, petitioner submits that this rule is not applicable where the challenged /
administrative act is patently illegal, amounting to lack or in excess of jurisdiction and
where the question(s) involved is essentially judicial. Petitioner opines that its immediate
resort to the CTA is justified under attendant circumstances as an exception to the rule on
non-exhaustion of administrative remedies.
3. Petitioner likewise contends that an assessment is not a condition precedent before the
CTA can acquire jurisdiction over an appeal questioning a ruling, regulation or issuance
of respondent CIR
Respondent:
1. Pursuant to Section 4 of the NIRC, any interpretation he made is subject to the review of
the Secretary of Finance and ultimately, of the regular courts. In the present case,
petitioner never questioned or appealed his interpretation of the cited provision before the
Secretary of Finance.
2. Respondent CIR also argues that the Phi/am case is not in all fours with the present case.
In Phi/am case, there was a ruling or issuance that was upheld by the Secretary of
Finance which is not obtaining in the present case. Under the doctrine of exhaustion of
administrative remedies, an administrative decision must first be appealed to the
administrative superiors up to the highest level before it may be elevated to a court of
justice for review.
TAX II
CIR V. LUDO & LUYM CORPORATION CTA EB NO. 1559 (CTA Case No.
8613)
DATE: June 8, 2018
PONENTE: CASTANEDA, JR., J.
COMMISSIONER OF INTERNAL REVENUE LUDO& LUYM CORPORATION
NATURE OF THE ACTION
This Petition for Review filed by petitioner Commissioner of Internal Revenue, seeks to
reconsider and modify the Court of Tax Appeals (CTA) 3rd Division's Decision dated August 8,
2016 and Resolution dated November 10, 2016, respectively.
FACTS
"On July 1, 2008, the Large Taxpayers District Office – Cebu ('LTDO'), Cebu Office of the BIR
issued Letter of Authority No. 00007074 for the examination of petitioner's [now respondent]
books of accounts for CY 2007 covering all internal revenue taxes, which petitioner received on
July 16, 2008.
On September 23, 2010, petitioner received a letter from the Large Taxpayer Service ('LTS')
dated September 22, 2010, informing the former of the results of the investigation, and inviting
petitioner to an informal conference on September 29, 2010.
On March 16, 2011, the L TS issued a Preliminary Assessment Notice ('PAN') informing
petitioner of its assessment for deficiency income tax, VAT, and expanded withholding tax
('EWT') for CY 2007 in the aggregate amount of Php194,543,838.71. Under the PAN, petitioner
was given a period of fifteen (15) days within which to reply. Petitioner received the PAN on
March 17, 2011.
On April 1l, 2011, the L TS issued a Final Assessment Notice ('FAN') informing petitioner of its
assessment for deficiency income tax, VAT, and EWT for CY 2007 in the aggregate amount of
Php195,542,828.83, which petitioner received on even date. Under the FAN, respondent found
the following discrepancies, among others:
Income Tax
 Alleged fictitious expenses arising from alleged bank overdrafts or negative balance
in the amount of [Php] 154,964,207.83 which it added to the taxable income of
petitioner for CY 2007
 Disallowance of Interest Expense in the amount of [Php ]223, 794,203.46
Value-Added Tax
 Additional Taxable Sales in the amount of [Php] 1 ,540,088l.OO]
 Disallowance on Input - expenses with no corresponding documents ([Php] 18,848,21
0.95)
On December 21, 2011, L TS issued a Final Decision on Disputed Assessment ( 'FDDA') stating
that it has reconsidered the assessment against petitioner. Petitioner received the FDDA on
January 3, 2012. The FDDA stated:
 Alleged fictitious expenses arising from alleged bank overdrafts or negative balance
in the amount of [Php] 80,425,042.37 which it added to the taxable income of
petitioner for CY 2007
 Disallowance of Interest Expense in the amount of [Php ]223, 794,203.46
Value-Added Tax
 Additional Taxable Sales in the amount of [Php] 1 ,540,088l.OO]
 Disallowance on Input - expenses with no corresponding documents ([Php] 18,848,21
0.95)
Within thirty (30) days from receipt of the CIR's Decision, or on February 27, 2013, petitioner
filed the instant Petition for Review.
In the assailed Decision, the Court in Division affirmed petitioner's assessments, as follows: (1)
fictitious expenses arising from bank overdrafts with Eastwest Banking Corporation and
International Exchange Bank; (2) disallowed bad debts; and (3) disallowed miscellaneous
expense. However, the Court in Division cancelled the assessments in relation to: (1)
disallowance of interest expense; (2) additional gross income on unrecorded purchases. Further,
it held that petitioner's VAT assessment had already prescribed.
ISSUE/S
(1) Whether respondent is liable for deficiency income tax and Value-Added Tax for taxable
year 2007 in the total amount of P57,863,909.86; and
(2) Whether the VAT assessment is already barred by prescription.
RULING
RULING NO. 1
According to the Court in Division, the BSP exercises supervisory and regulatory powers over
banks and quasi-banks. Further, the Court in Division explained that respondent is engaged in
the business of processing and selling coconut oil and other products, which does not fall within
the jurisdiction of the BSP. Thus, the Court in Division cancelled the disallowance of interest
expense in the amount ofP223,794,203.46.
Meanwhile, petitioner asserts that the principal basis for the disallowance of interest expense is
anchored on Revenue Regulations No. (RR) 13-2000, and not on BSP Circular No. 202. 22 In
this regard, Section 3 of RR 13-2000, implementing Section 34(B) of the National Internal
Revenue Code (NIRC) of 1997, as amended, provides the requirements for deductibility of
interest expense, to wit:
"SECTION 3. Requisites for Deductibility of Interest Expense. - In general, subject to
certain limitations, the following are the requisites for the deductibility of interest
expense from gross income, viz:
(a) There must be an indebtedness;
(b) There should be an interest expense paid or incurred upon such indebtedness;
(c) The indebtedness must be that of the taxpayer,
(d) The indebtedness must be connected with the taxpayer's trade, business or exercise of
profession;
(e) The interest expense must have been paid or incurred during the taxable year;
(f) The interest must have been stipulated in writing;
(g) The interest must be legally due;
(h) The interest payment arrangement must not be between related taxpayers as mandated
in Sec. 34(B)(2)(b ), in relation to Sec. 36(B), both of the Tax Code of 1997;
(i) The interest must not be incurred to finance petroleum operations; and
(j) In case of interest incurred to acquire property used in trade, business or exercise of
profession, the same was not treated as a capital expenditure."
As examined by the ICPA, respondent's outstanding loans amounted to Pl,992,563,685.51.
Respondent uses the accrual method of accounting. In other words, respondent accrues interest
expense as incurred, although not yet paid.
The Court in Division explained that the accrual of income and expense is permitted when the
all-events test, i.e., the right to income or liability should be fixed and that the amount of such
income or liability be determined with reasonable accuracy, is met. It held that the accrual
method relies upon the taxpayer's right to receive amounts or its obligation to pay them, in
opposition to actual receipt or payment, which characterizes the cash method of accounting.
Amounts of income accrue where the right to receive them become fixed or where there is
created an enforceable liability. Similarly, liabilities are accrued when fixed and determinable in
amount, without regard to the indeterminacy merely of the time of payment.
Under the accrual method of accounting, respondent recorded its interest expense in the total
amount of P223, 794,203.46 on the date of their occurrence, and not on the date in which they
were actually paid for. Thus, petitioner-appellee complied with the requirement that there should
be an interest expense paid or incurred upon its indebtedness.
Petitioner asserts that the loans were already contingent liabilities, and there was no reasonable
expectation that the amount will be paid in due course. 30 He cites Sections 1 and 4 ofBSP
Circular No. 202 Series of 1999, to wit:
"SECTION 1. Non-performing loans - Definition. Non-performing loans shall, as a
general rule, refer to loan accounts whose principal and/or interest is unpaid for thirty
(30) days or more after due date or after they have become past due in accordance with
existing rules and regulations. This shall apply to loans payable in lump sum and loans
payable in quarterly, semi-annual or annual installments, in which case, the total
outstanding balance thereof shall be considered non-performing. . .
Petitioner contends, by analogy, that since banks are not allowed to recognize interest
receivable/income on non-performing loans, the corresponding interest expense of respondent is
not legally due and demandable.
To reiterate, BSP Circular No. 202 Series of 1999 pertains to reporting of interest
receivable/income on non-performing loans which applies to banks only. Respondent's line of
business simply does not fall within the jurisdiction of the BSP.
Moreover, respondent failed to comply with the 4th requisite for the deductibility of interest
expense. In other words, respondent failed to prove that the indebtedness is connected with its
trade or business.
Even so, respondent will still not be liable for any deficiency income tax for CY 2007, computed
as follows:
At any rate, even if the said amount of interest expense is added to respondent's taxable income,
petitioner is still not liable for any deficiency income, as shown above.
RULING NO. 2
Finally, petitioner asserts that his right to assess respondent's deficiency VAT has not yet
prescribed because respondent filed false or fraudulent return. Thus, the tax may be assessed
within ten (10) years after the discovery of the falsity. According to petitioner, this is evident
from the final decision signed by former Commissioner Kim Jacinto Henares where she imposed
a fifty percent (50%) surcharge against petitioner.
In Commissioner of Internal Revenue v. Asalus Corporation, the Supreme Court explained the
doctrine on the presumption of falsity of returns, as follows:
" Under Section 248(B) of the NIRC, there is a prima facie evidence of a false return if
there is a substantial underdeclaration of taxable sales, receipt or income. The failure to
report sales, receipts or income in an amount exceeding 30% what is declared in the
returns constitute substantial underdeclaration. A prima facie evidence is one which that
will establish a fact or sustain a judgment unless contradictory evidence is produced.
In other words, when there is a showing that a taxpayer has substantially underdeclared
its sales, receipt or income, there is a presumption that it has filed a false return. As such,
the CIR need not immediately present evidence to support the falsity of the return, unless
the taxpayer fails to overcome the presumption against it.
In the instant case, there is no showing that respondent has substantially underdeclared its sales,
receipt or income. Meanwhile, the presumption of falsity of returns cannot arise by mere
assertion that the former commissioner imposed surcharge against respondent. Hence, in the
absence of proof of substantially underdeclared sales, receipt or income, the presumption of
falsity of returns cannot be applied. Therefore, respondent had only three (3) years to assess
respondent's deficiency VAT under Section 203 of the NIRC of 1997, as amended.
TAX 2 - Midterms
General Foods (Phils.), Inc. v. CIR CTA CASE NUMBER: 4386
DATE: February 8, 1994
PONENTE:
 GENERAL FOODS, (PHILIPPINES), INC.  COMMISSIONER ON
INTERNAL REVENUE
This is an assessment case for alleged deficiency income tax in the amount of P2,635,141.42 for
fiscal year ended February 28, 1985.
FACTS
Petitioner General Foods, Inc. is a domestic corporation engaged in the manufacture and
sale of various consumer products such as “Tang”, “Calumet”, and “Kool-Aid”.
On June 14, 1985, it filed its Corporate Annual Income Tax Return for fiscal year ended
February 28, 1985 and claimed P9,461,246.00 as deduction under “Marketing Expenses”,
(Media Advertising).
Respondent CIR disallowed fifty percent (50%) thereof or P4,730,623.00 on the ground that said
expenses are in the nature of capital expenditures which should be amortized for two (2) years.
The disallowance resulted to an alleged deficiency income tax of P2,635,141.42.
In the present appeal, petitioner averred that the amount being claimed is reasonable considering
the grave economic situation that took place after the Aquino assassination characterized by
capital flight, strong deterioration of the purchasing power of the Philippine peso and the
slackening demand for consumer products.
ISSUE/S
W/N THE MEDIA ADVERTISING EXPENSES PAID OR INCURRED BY
PETITIONER CONSTITUTE ORDINARY AND NECESSARY EXPENSES FULLY
DEDUCTIBLE UNDER THE TAX CODE
RULING
Before an expense is allowed as deduction from gross income, it must satisfy the following
requirements:
1. It must be both ordinary and necessary;
2. It must be paid or incurred within the taxable year;
3. It must be incurred in carrying on a trade or business.
The CTA held in Visayan Cebu Terminal Co., Inc. v. Collector of Internal Revenue that an
expense is necessary when the expenditure is appropriate or helpful in the development of
the taxpayer’s business or that the same is proper for the purpose of realizing a profit or
minimizing a loss, as distinguished from one not pertinent to the business of the taxpayer.
General Rule: Advertising expenses are deductible in the year when paid or incurred.
Limitations:
1. The reasonableness of the amount.
2. Whether or not the questioned advertising expenses are actually capital outlays to
create “goodwill” to the product and/or business, and hence, considered as capital
expenditure to be spread over the life of the asset.
Kinds of advertising:
1. Advertising to stimulate the current sale of merchandise or use of services;
o Incurred in whole or in part to create or maintain some form of good will for the
taxpayer’s trade or business
o Deductible as business expenses, provided the amount is reasonable
2. Advertising designed to stimulate the future sale of merchandise or use of services.
o Normally are spread over a reasonable period of time
Here, petitioner General Foods, Inc. failed to comply with the two aforementioned limitations.
The advertising expenses incurred by petitioner constitute almost ½ of petitioner’s claim for
“Marketing Expenses”. Such amount is almost twice over General and Administrative Expenses,
and it excludes the amount of P2,678,328 being claimed under “Other advertising and
promotions” expense.
The CTA held that the said amount was incurred to create some form of goodwill for petitioner’s
trade or business, and thus, is not a deductible business expense but rather a capital expenditure.
Efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses
related thereto are not business expense but capital expenditures. (Atlas Mining and
Development Corp. v. CIR)
TAX 2 - Midterms
ARMCO-MARSTEEL ALLOY C.T.A. Case No. 4592
CORPORATION v. COMMISSIONER OF DATE: July 1, 1993
INTERNAL REVENUE PONENTE: Acosta, J
ARMCO-MARSTEEL ALLOY CORPORATION COMMISSIONER OF INTERNAL

REVENUE
This case involves petitioner’s claim for refund or in the alternative tax credit of alleged
overpaid income tax for the fiscal year ending October 31, 1989 in the amount of P5,061,899.00.
FACTS
 Petitioner is a domestic corporation registered with the Board of Investments as a preferred
pioneer enterprise engaged in the business of producing/manufacturing grinding balls and
billets.
 Petitioner is entitled to avail as an incentive under R.A. 5186 the allowable deductions of
the accelerated depreciation.
 For the succeeding taxable fiscal year ending October 31, 1990, petitioner suffered a loss.
Thus, petitioner was not able to apply the refundable amount as an automatic tax credit
pursuant to the provision of Section 69 of the National Internal Revenue Code.
 Petitioner filed a claim for refund in the amount of P5,061,899.00 citing as basis Section 69
of the said Code.
 Respondent answered that the petition states no cause of action for failure on the part of
petitioner to allege the date/s when the quarterly income tax payments were made. In
addition, all payments made prior to April 3, 1989 have prescribed.
 Respondent also claimed that instead of a refund petitioner was found to be liable for
deficiency income tax in the amount of P5,333,742.34.
ISSUE/S
Whether or not petitioner is entitled to the refund or tax credit of P5,061,899.00, representing
overpaid income tax for the fiscal year ending October 31, 1989?
RULING
YES
 The corporate quarterly and annual income tax return for the fiscal year ending October
31, 1989 as well as the confirmation receipts and payment orders showing the amount
of taxes paid, were all attached to the petition. It clearly shows the date when said taxes
in questioned were paid – the petitioner therefore, states a cause of action
 The quarterly income tax payments for the first and second quarters of fiscal year 1989
should only be considered mere instalments of the annual tax due.
 R.A. 5186 prescribes a minimum requirement of notification and not approval by the
BIR of the availment of the incentive adopting the accelerated depreciation. The option
to use the accelerated depreciation is on the preferred pioneer enterprise. Having
exercised its power of choice, petitioner's only obligation is to notify respondent of that
choice. Petitioner can validly deduct the accelerated depreciation from its income.
 The repairs and maintenance cost must be ordinary and necessary business expense in
order to be deductible from income. "The cost of incidental repairs, which neither
materially add to the value of the property nor appreciably prolong its life and which
were made to keep the property in an ordinarily efficient operating condition, may be
deducted as an expense.”
 Sec. 69. Final Adjustment Return. – Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year the
corporation shall either:
a) Pay the excess tax still due; or
b) Be redunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income taxes
paid, the refundable amount shown on its final adjustment return may be, credited against
the estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable year.
 Sec. 7. Incentives to a Registered Enterprise. - A registered enterprise, to the extent
engaged in a preferred area of investment, shall be granted the following incentive
benefits.
a) xxx xxx xxx.
b) Accelerated Depreciation - At the option of the taxpayer and in accordance with
the procedure established by the Bureau of Internal Revenue, fixed assets may be
(1) depreciated to the extent of not more than twice as fast as normal rate of
depreciation or depreciated at normal rate of depreciation if expected life is ten
years or less; or (2) depreciated over any number of years between five years and
expected life if the latter is more than ten (10) years; and the depreciation thereon
allowed as a deduction from taxable income: Provided, that the taxpayer notifies
the Bureau of Internal Revenue, at the beginning of the depreciation period which
depreciation rate allowed by this section will be used by it.
TAX II
COMMISSIONER OF INTERNAL REVENUE GR NUMBER: 195909
vs. ST. LUKE’S MEDICAL CENTER, INC. DATE: September 26, 2012
PONENTE: CARPIO, J
CIR ST. LUKE’S MEDICAL CENTER,
INC.
These are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court
assailing the Decision of 19 November 2010 of the Court of Tax Appeals (CTA) En Banc and its
Resolution 2 of 1 March 2011 in CTA Case No. 6746. This Court resolves this case on a pure
question of law, which involves the interpretation of Section 27 (B) vis-à-vis Section 30 (E) and
(G) of the National Internal Revenue Code of the Philippines (NIRC), on the income tax
treatment of proprietary non-profit hospitals.
FACTS
St Luke’s Medical Center Inc. (St Luke’s) is a non-profit hospital in Manila. On 16 December
2002, the Bureau of Internal Revenue (BIR) assessed St Luke’s deficiency taxes amounting to
₱76,063,116.06 for 1998, comprising deficiency income tax, value-added tax, withholding tax
on compensation and expanded withholding tax. The BIR reduced the amount to ₱63,935,351.57
during trial in the First Division of the Court of Tax Appeals (CTA).
This was a review on certiorari under Rule 45 of the Rules of Court of the Decision of 19
November 2010 of the CTA and its Resolution of 1 March 2011 in CTA Case No. 6746. The
Supreme Court resolved this case on a pure question of law, which involved the interpretation of
sub-section 27(B) and its interaction with sub-sections 30(E) and (G) of the National Internal
Revenue Code of the Philippines (NIRC), on the income tax treatment of proprietary non-profit
hospitals.
St Luke’s contends that St. Luke's contended that the BIR should not consider its total revenues,
because its free services to patients was P218,187,498 or 65.20% of its 1998 operating income
(i.e., total revenues less operating expenses) of P334,642,615. 8 St. Luke's also claimed that its
income does not inure to the benefit of any individual. St. Luke's further maintained that it is a
non-stock and non-proft institution for charitable and social welfare purposes under Section 30
(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy its income
tax exemption.
The BIR argued before the CTA that section 27(B) of the NIRC, which imposes a 10%
preferential tax rate on the income of proprietary non-profit hospitals, should be applicable to St
Luke’s. According to the BIR, section 27(B), introduced in 1997, ‘is a new provision intended to
amend the exemption on non-profit hospitals that were previously categorized as non-stock, non-
profit corporations under Section 26 of the 1997 Tax Code…’. It is a specific provision which
prevails over the general exemption on income tax granted under sub-sections 30(E) and (G) for
non-stock, non-profit charitable institutions and civic organisations promoting social welfare.
The BIR contended that St Luke’s was not really operating for charitable purposes, but was for
profit, on the basis that only 13% of its revenues came from its charitable purposes.
ISSUE/S
Whether St. Luke's is liable for deficiency income tax in 1998 under Section 27 (B) of the NIRC,
which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
RULING
St. Luke's Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 based
on the 10% preferential income tax rate under Section 27 (B) of the National Internal Revenue
Code. However, it is not liable for surcharges and interest on such deficiency income tax under
Sections 248 and 249 of the National Internal Revenue Code.
The Court held that charitable institutions were not automatically granted tax exemptions. Tax
exemptions are given by the Congress under specific laws (except for exemption from real
property taxation which was given by the Constitution of the Philippines). Section 30(E) of the
NIRC defines a charitable institution as:
(1) a non-stock corporation or association;
(2) organised exclusively for charitable purposes;
(3) operated exclusively for charitable purposes; and
(4) with no part of its net income or assets belonging to or inuring to the benefit of any member,
organiser, officer or any specific person.
There was no doubt that St Luke’s was organised as a non-stock, non-profit charitable
institution. However, this did not automatically exempt it from paying taxes. The last paragraph
of section 30 of the NIRC stated that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code. (emphasis added)
Therefore, the Court said that ‘if a tax exempt charitable institution conducts ‘any’ activity for
profit, such activity is not tax exempt even if its not-for profit activities remain tax exempt’. The
Court added that:
The Court cannot expand the meaning of the words ‘operated exclusively’ without violating the
NIRC. Services to paying patients are activities conducted for profit. They cannot be considered
any other way. There is a ‘purpose to make profit over and above the cost’ of services. The
₱1.73 billion total revenues from paying patients is not even incidental to St. Luke’s charity
expenditure of ₱218,187,498 for non-paying patients. (emphasis in original)
The Court therefore held that St Luke’s was not operated exclusively for charitable or social
welfare purposes. It received income from paying patients. This income was subject to 10%
taxation under section 27(B) of the NIRC. As the Court held:
St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke’s, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-
profit activities.
TAX 2 INCOME TAX ON FOREIGN CORPORATIONS

SOUTH AFRICAN AIRWAYS v. CIR G.R. No. 180356
February 16, 2010
PONENTE: Velasco Jr., J
SOUTH AFRICAN AIRWAYS COMMISSIONER OF INTERNAL
REVENUE
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the July 19, 2007
Decision and October 30, 2007 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA
E.B. Case No. 210, entitled South African Airways v. Commissioner of Internal Revenue. The
assailed decision affirmed the Decision dated May 10, 2006 and Resolution dated August 11,
2006 rendered by the CTA First Division.
FACTS
Petitioner South African Airways is a foreign corporation organized and existing under and by
virtue of the laws of the Republic of South Africa. Its principal office is located
at Airways Park, Jones Road, Johannesburg International Airport, South Africa. In
the Philippines, it is an internal air carrier having no landing rights in the country.
Petitioner has a general sales agent in the Philippines, Aerotel Limited Corporation (Aerotel).
Aerotel sells passage documents for compensation or commission for petitioners off-line flights
for the carriage of passengers and cargo between ports or points outside the territorial
jurisdiction of the Philippines. Petitioner is not registered with the Securities and Exchange
Commission as a corporation, branch office, or partnership. It is not licensed to do business in
the Philippines.
For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for
its off-line flights. Thereafter, on February 5, 2003, petitioner filed with the Bureau of Internal
Revenue, Revenue District Office No. 47, a claim for the refund of the amount of PhP
1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year
2000. Such claim was unheeded. Thus, on April 14, 2003, petitioner filed a Petition for
Review with the CTA for the refund of the abovementioned amount.
CTA First Division: DENIED.

 RATIO: Petitioner is a resident foreign corporation engaged in trade or business in
the Philippines. It further ruled that petitioner was not liable to pay tax on its GPB
under Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997. The
CTA, however, stated that petitioner is liable to pay a tax of 32% on its income derived
from the sales of passage documents in the Philippines. On this ground, the CTA
denied petitioners claim for a refund.
CTA En Banc: AFFIRMED.
Before the SC the petitioner contends:
With the new definition of GPB, it is no longer liable under Sec. 28(A)(3)(a) of the NIRC.
Further, because of the 2 ½ % tax on GPB is inapplicable to it, it is thereby EXCLUDED from
the imposition of any income tax.
They further argue that the CIR v. British Overseas Airways (see notes) is inapplicable to them
because the same was decided under the 1939 NIRC, not the 1997 one. Petitioner alleges that
the 1939 NIRC taxes resident foreign corporations, such as itself, on all income from
sources within the Philippines. Petitioners interpretation of Sec. 28(A)(3)(a) of the 1997
NIRC is that, since it is an international carrier that does not maintain flights to or from the
Philippines, thereby having no GPB as defined, it is exempt from paying any income tax at
all.
ISSUE/S
Whether or not petitioner, as an off-line international carrier selling passage documents through
an independent sales agent in the Philippines, is engaged in trade or business in the Philippines
subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC—YES
RULING
Petitioner Is Subject to Income Tax at the Rate of 32% of Its Taxable Income
 An action for a tax refund partakes of the nature of an exemption, which cannot be
allowed unless granted in the most explicit and categorical language, it is strictly
construed against the claimant who must discharge such burden convincingly. Petitioner
has failed to overcome such burden.
GPB HISTORY OF AMENDMENTS
Sec. 28(b)(2) of the 1939 NIRC Sec. 24(B)(2) of the 1977 NIRC In the 1986 and 1993 NIRCs
(2) Resident Corporations. A Gross Philippine billings include Gross Philippine Billings means
corporation organized, gross revenue realized from gross revenue realized from
authorized, or existing under the uplifts anywhere in the world by uplifts of passengers anywhere in
laws of a foreign country, any international carrier doing the world and excess baggage,
engaged in trade or business business in the Philippines of cargo and mail originating from
within the Philippines, shall be passage documents sold the Philippines, covered by
taxable as provided in subsection therein, whether for passenger, passage documents sold in
(a) of this section upon the total excess baggage or mail, provided the Philippines.
net income received in the the cargo or mail originates from
preceding taxable year from all the Philippines.
sources within the
Philippines: Provided, however,
that international carriers shall
pay a tax of two and one-half
percent on their gross Philippine
billings.
Sec. 28(A)(3)(a) 1997 NIRC (See notes)
Gross Philippine Billings refers to the amount of gross revenue derived from carriage of persons, excess
baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the ticket or passage document.
Essentially, prior to the 1997 NIRC, GPB referred to revenues from uplifts anywhere in the
world, provided that the passage documents were sold in the Philippines. Legislature departed
from such concept in the 1997 NIRC. Now, it is the place of sale that is irrelevant; as long as the
uplifts of passengers and cargo occur to or from the Philippines, income is included in GPB.
As correctly pointed out by petitioner, inasmuch as it does not maintain flights to or from
the Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997 NIRC. This much was also
found by the CTA. But petitioner further posits the view that due to the non-applicability of
Sec. 28(A)(3)(a) to it, it is precluded from paying any other income tax for its sale of
passage documents in the Philippines. THIS IS UNTENABLE.
 In Re: CIR v British Overseas Airways
- First, the difference cited by petitioner between the 1939 and 1997 NIRCs with
regard to the taxation of off-line air carriers is more apparent than real. We point out
that Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any categorical term, exempt
all international air carriers from the coverage of Sec. 28(A)(1) of the 1997 NIRC.
Certainly, had legislatures intentions been to completely exclude all international air
carriers from the application of the general rule under Sec. 28(A)(1), it would have
used the appropriate language to do so; but the legislature did not.
- Clearly, no difference exists between British Overseas Airways and the instant case,
wherein petitioner claims that the former case does not apply.
- Petitioner further reiterates its argument that the intention of Congress in amending
the definition of GPB is to exempt off-line air carriers from income tax by citing the
pronouncements made by Senator Juan Ponce Enrile during the deliberations on the
provisions of the 1997 NIRC. Such pronouncements, however, are not controlling
on this Court.
 Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations
are liable for 32% tax on all income from sources within the Philippines. Sec.
28(A)(3) is an exception to this general rule.
 In the instant case, the general rule is that resident foreign corporations shall be liable for
a 32% income tax on their income from within the Philippines, except for resident
foreign corporations that are international carriers that derive income from carriage of
persons, excess baggage, cargo and mail originating from the Philippines which shall be
taxed at 2 1/2% of their Gross Philippine Billings.
Petitioner, being an international carrier with no flights originating from

the Philippines, does not fall under the exception. As such, petitioner must fall under
the general rule. This principle is embodied in the Latin maxim, exception firmat regulam
in casibus non exceptis, which means, a thing not being excepted must be regarded as
coming within the purview of the general rule.
 As to REFUND: Here, petitioners similar tax refund claim assumes that the tax return
that it filed was correct. Given, however, the finding of the CTA that petitioner, although
not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the
correctness of the return filed by petitioner is now put in doubt. As such, we cannot grant
the prayer for a refund.
 It must be remembered that the tax under Sec. 28(A)(3)(a) is based on GPB, while
Sec. 28(A)(1) is based on taxable income, that is, gross income less deductions and
exemptions, if any. It cannot be assumed that petitioners liabilities under the two
provisions would be the same. There is a need to make a determination of petitioners
liability under Sec. 28(A)(1) to establish whether a tax refund is forthcoming or that
a tax deficiency exists. The assailed decision fails to mention having computed for the
tax due under Sec. 28(A)(1) and the records are bereft of any evidence sufficient to
establish petitioners taxable income. There is a necessity to receive evidence to establish
such amount vis--vis the claim for refund. It is only after such amount is established that
a tax refund or deficiency may be correctly pronounced
NOTES
In Commissioner of Internal Revenue v. British Overseas Airways Corporation (British
Overseas Airways), which was decided under similar factual circumstances, this Court ruled that
off-line air carriers having general sales agents in the Philippines are engaged in or doing
business in the Philippines and that their income from sales of passage documents here is
income from within the Philippines. Thus, in that case, we held the off-line air carrier
liable for the 32% tax on its taxable income.
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation organized,

authorized, or existing under the laws of any foreign country, engaged in trade or business within
the Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of
the taxable income derived in the preceding taxable year from all sources within the
Philippines: provided, That effective January 1, 1998, the rate of income tax shall be thirty-four
percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%), and
effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
xxxx
(3) International Carrier. - An international carrier doing business in the Philippines shall pay
a tax of two and one-half percent (2 1/2%) on its Gross Philippine Billings as defined hereunder:
(a) International Air Carrier. Gross Philippine Billings refers to the amount of
gross revenue derived from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage document: Provided, That tickets
revalidated, exchanged and/or indorsed to another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided,
further, That for a flight which originates from the Philippines, but transshipment of passenger
takes place at any port outside the Philippines on another airline, only the aliquot portion of the
cost of the ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings.
TAX 2
Commissioner of Internal Revenue v. The Hon. GR NUMBER: 95022
Court of Appeals, The Court of Tax Appeals, DATE: March 23, 1992
GCL Retirement Plan PONENTE: Melencio-Herrera, J.
Commissioner of Internal Revenue The Hon. Court of Appeals, Court of Tax
Appeals, GCL Retirement Plan
NATURE OF THE ACTION: Petitioner, the CIR, seeks a reversal of the decision of
respondent CA which affirmed the decision of the CTA, ordering a refund, in the sum of
P11,302.19, to the GCL Retirement Plan representing the withholding tax on income from
money market placements and purchase of treasury bills, imposed pursuant to Presidential
Decree No. 1959
FACTS
Private respondent, GCL Retirement Plan (GCL, for brevity) is an employees’ trust maintained
by the employer, GCL Inc., to provide retirement, pension, disability and death benefits to its
employees. The Plan as submitted was approved and qualified as exempt from income tax by
petitioner Commissioner of Internal Revenue in accordance with RA 4917.
In 1984, GCL made investments and earned therefrom interest income from which was withheld
the fifteen per centum (15%) final withholding tax imposed by PD No. 1959, which took effect
on 15 October 1984.
On January 15, 1985, GCL filed with petitioner a claim for refund for the amounts withheld by
Anscor Capital and Investment Corp., and by Commercial Bank of Manila. In a letter GCL
disagreed with the collection of 15% final withholding tax from the interest income claiming it
was exempt under RA 4917 in relation to Sec. 56 (b) of the Tax Code.
The claim for refund having been denied, GCL elevated the matter to the CTA. The latter ruled
in favor of GCL. Upon appeal, the CTA’s decision was affirmed. Hence this petition.
CIR’s argument: Petitioner submits that the deletion of the exempting and preferential tax
treatment provisions under the old law (PD No. 1739) is a clear manifestation that the single
15% (now 20%) rate is imposed on all interest incomes from deposits, deposit substitutes, trust
funds and similar arrangements, regardless of the tax status or character of the recipients thereof.
In short, petitioner's position is that from 15 October 1984 when PD No. 1959 was promulgated,
employees' trusts ceased to be exempt and thereafter became subject to the final withholding tax
GCL’s argument: Private respondent contends that the tax exempt status of the employees'
trusts applies to all kinds of taxes, including the final withholding tax on interest income. That
exemption, according to GCL, is derived from Section 56(b) and not from Section 21 (d) or 24
(cc) of the Tax Code, as argued by petitioner.
ISSUE/S
Whether or not the GCL Plan is exempt from the final withholding tax on interest income from
money placements and purchase of treasury bills required by PD No. 1959
RULING
Yes. Exemption upheld.
The tax-exemption privilege of employees' trusts, as distinguished from any other kind of
property held in trust, springs from the foregoing provision (Sec. 56(b) of the Tax Code, as
amended by RA 1983 which took effect June 22, 1957 and RA 4917 which was approved on
June 17, 1967). It is unambiguous. Manifest therefrom is that the tax law has singled out
employees' trusts for tax exemption.
And rightly so, by virtue of the raison de'etre behind the creation of employees' trusts.
Employees' trusts or benefit plans normally provide economic assistance to employees upon the
occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. It provides security against certain hazards to which members of the Plan may be
exposed. It is an independent and additional source of protection for the working group. What is
more, it is established for their exclusive benefit and for no other purpose.
The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in order to encourage the
formation and establishment of such private Plans for the benefit of laborers and employees
outside of the Social Security Act. Enlightening is a portion of the explanatory note to H.B. No.
6503, now R.A. 1983, reading:
“Considering that under Section 17 of the social Security Act, all contributions collected and
payments of sickness, unemployment, retirement, disability and death benefits made
thereunder together with the income of the pension trust are exempt from any tax, assessment,
fee, or charge, it is proposed that a similar system providing for retirement, etc. benefits for
employees outside the Social Security Act be exempted from income taxes. (Congressional
Record, House of Representatives, Vol. IV, Part. 2, No. 57, p. 1859, May 3, 1957; cited in
Commissioner of Internal Revenue v. Visayan Electric Co., et al., G.R. No. L-22611, 27 May
1968, 23 SCRA 715); emphasis supplied.”
It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust.
Otherwise, taxation of those earnings would result in a diminution accumulated income and
reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul
of the very intendment of the law.
The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential
tax rates under the old law, therefore, cannot be deemed to extend to employees' trusts. Said
Decree, being a general law, cannot repeal by implication a specific provision, Section 56(b)
(now 53 [b]) in relation to Rep. Act No. 4917 granting exemption from income tax to employees'
trusts. Rep. Act 1983, which excepted employees' trusts in its Section 56 (b) was effective on 22
June 1957 while Rep. Act No. 4917 was enacted on 17 June 1967, long before the issuance of
Pres. Decree No. 1959 on 15 October 1984. A subsequent statute, general in character as to its
terms and application, is not to be construed as repealing a special or specific enactment, unless
the legislative purpose to do so is manifested. This is so even if the provisions of the latter are
sufficiently comprehensive to include what was set forth in the special act.

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Pray About Everything, Worry About Nothing. Unahin Natin Lagi Ang Diyos.

Tax II Cabaneiro Babies 18-19

G.R. Nos. 206079-8

G.R. No. 20630

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Hence, this petition.

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Prescription on CIR’s assessment and collection of deficiency taxes

Bank Country of Residence

The Commissioner of Internal Revenue's (Commissioner) inaction on said claims prompted

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xxx xxx xxx

xxx xxx xxx

As correctly ruled by the Court in Division:

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BBCC executed a Deed of Conveyance in favor of Premium Leisure Corporation, transferring a

Mere distribution of liquidating dividends of a corporation is not to be treated as sale for

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From Living to Libing 18-19

From Living to Libing 18-19

The disallowance resulted to an alleged deficiency income tax of P2,635,141.42.

ARMCO-MARSTEEL ALLOY CORPORATION COMMISSIONER OF INTERNAL

(1) a non-stock corporation or association;

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(3) operated exclusively for charitable purposes; and

TAX 2 INCOME TAX ON FOREIGN CORPORATIONS

CTA First Division: DENIED.

CTA En Banc: AFFIRMED.

Before the SC the petitioner contends:

GPB HISTORY OF AMENDMENTS

Sec. 28(A)(3)(a) 1997 NIRC (See notes)

Petitioner, being an international carrier with no flights originating from

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a corporation organized,

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