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Republic vs. Mambulao (Feb 28, 1962)

Whether the sum of P9,127 paid by Mambulao Lumber to the govt as “reforestation
charges” from 1947 to 1956 may be set-off to the payment of the sum of P4,802 as
Forest charges due to the govt;
Mambulao argued that since the amount of P9,127 was never used by the govt in
the reforestation of the area covered by the license, the same is refundable or may be
applied to offset.

“Taxes are not in the nature of contracts between the

party and the government………. The personal consent of
the individual taxpayer is not required.”

Francia vs. IAC, (June 28, 1988)

“A taxpayer cannot refuse to pay a tax on the
ground that the govt. owes him an amount equal to or
greater than the amount being collected”
A portion of Francia’s property (125 / 328 sqm) was expropriated by the govt for the
sum of P4,116 (estim AV of the propty)
Francia owes the govt delinquent taxes for Real estate for the period 1963-1977 in the
amount of P2,400.
Is Francia’s tax delinquency of P2,400 extinguish by legal compensation since the govt
owes him P4,116?
Art 1278 of the Civil Code: By legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each other, are extinguished

Domingo vs. Garlitos ( June 29, 1963)

“However, compensation will follow by operation of
law if: both the claims of the govt. and the taxpayer
against each other has become due, demandable and
fully liquidated, and the amount due the taxpayer has
already been appropriated by law.
Estate and inheritance taxes – P40,058
Claims by the intestate vs. the govt for services rendered (262,200) has already been

Reconciliation between Francia and Domingo Case:

In Domingo, both the claims became due,

demandable and fully liquidated;

In Francia, the claim against the government is not

yet due and demandable


Tax statutes must be applied prospectively, except by

express provision of law.

In LORENZO vs. POSADAS, (64 PHIL 653), the CIR

assessed the estate of the decedent applying ACT No.
3606 which took effect in 1930. However, the decedent
died on May 1922, when a different law was in effect.

The SC ruled that the CIR cannot apply ACT 3606 in

assessing the estate, as the estate is governed by the
statute in force at the time of the death of the decedent.


A tax statute is strictly construed against the

government. Hence, it is the burden of the State to first
prove that a taxpayer is in fact covered by a statute.
(CIR vs. CA and ADMU, April 18, 1997).

However, once the tax is found to cover the taxpayer, a

claim of exemption must be strictly construed against the
taxpayer (Republic vs. IAC, April 26, 1991).

Tax refunds, in the nature of tax exemptions, are likewise

strictly construed vs. the taxpayer (Davao Gulf Lumber vs.
CIR, July 23, 1998).

Reason for the Application of Strictissimi Juris:

- Iifeblood theory
- Taxation is a high prerogative of sovereignty whose
relinquishment is never presumed.

Exceptions to the application of Strictissimi Juris:

1. Exemptions granted to religious, charitable,
educational institutions or their property
2. Exemptions in favor of the govt,
3. When the statute granting exemptions provides for
liberal construction


Gen Rule: The right to assess and to collect are imprescriptible

When the law provide for statute of limitations
Sec 203 NIRC – Assessment of internal revenue taxes within 3 years
after the last day prescribed by law for filing of ITR

For LGU, 5 years presctiptive period for assessment and collection

(Sec 194 and 170 of the LGC)


Gen Rule: Tax laws are prospective in application.

When the language of the Statute clearly demands or expresses
that it shall have a retroactive effect.

Non-retroactivity of Rulings:
Gen Rule: Rulings issued by the BIR which are revoked, modified or
reversed shall not be given retroactive application if it will
be prejudicial to the taxpayer (NIRC Sec 246)
1. When the taxpayer deliberately omits material facts in his ITR
2. When the taxpayer acted in bad faith


Tax Avoidance is reducing or totally escaping payment of taxes

through legally permissible means.

It is a tax saving device within the means sanctioned by law

Tax Evasion : an illegal means of escaping taxation.

It is a scheme used outside of those lawful means and when availed
of usually subjects the taxpayer to criminal or civil liabilities.

Indicia of Fraud in tax evasion:

1- failure to declare for tax purposes true and actual income derived frm
business for 2 consecutive years
2- Substantial under-declaration of income in the ITR for 4 consecutive
years coupled with intentional overstatement of deductions.
Willful blindness doctrine :

Under this doctrine, the taxpayer’s deliberate refusal or

avoidance to verify the contents of his ITR and other documents
constitutes “willful blindness” on his part.

A taxpayer can no longer raise the defense that the errors in their
tax returns are not their responsibility or that is the fault of the accountants
they hire. (People vs. Kintanar, Dec 3, 2010)

The taxpayer in Kintanar case is a person engaged in networking

services and relied primarily on her spouse to file the ITR. On the other
hand, the husband relied on their accountant for the filing of the ITR without
confirming if indeed the same was filed and duly paid.

However, in People vs Judy Ann Santos, the actress was charged for
failure to supply correct and accurate information in her ITR. She
interposed the defense of minority as she relied on her relied on her
manager to handle her tax transactions.

The CTA ruled that she was merely negligent , but not criminally
liable for her failure to supply correct and accurate information in her

1. Same property or subject matter is taxed twice;
2. Both taxes are levied for the same purpose
3. Imposed by the same taxing authority
- Within the same jurisdiction;
- Same taxing period
- Covering the same kind or character of tax

The City of Manila imposed local business taxes based on gross receipts on:

- Manufacturers of liquors, distilled spirit and wines

- On businesses subject to excise tax, VAT or percentage tax
There is direct duplicate taxation


This is best illustrated in the case of Villanueva vs. City of

loilo (26 SCRA 578) where at issue was the legality of Ordinance
11 imposing municipal license tax on persons engaged in the
business of tenement houses in the City of Iloilo. Petitioners who
were owners of tenement houses contended that the tax involved
was a real estate tax or a property tax which constituted double
taxation which was prohibited by law.

It is well-settled that a license tax may be levied upon a business or
occupation although the land or property used in connection therewith
is subject to property tax.
It has been shown that a real estate tax and the tenement tax (license)
imposed by the Ordinance, although imposed by the same taxing
authority (City of Iloilo) are not of the same kind or character.