TAX EXEMPTIONS How are laws granting tax exemptions construed?

Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorica l to be misinterpreted. Even for real properties owned by the national government, exemption from real p roperty taxes would not apply if their beneficial use has been granted to a taxa ble person because it is the beneficial use that determines taxability of real p roperty. SEA-LAND SERVICE, INC. vs. CA and CIR. G.R. No. 122605. April 30, 2001 FACTS: Sea-Land Service Incorporated (SEA-LAND), an American international shipp ing company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to tr ansport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. From the income derived aforesaid contract, SEA-LAND paid the income tax due the reon of 1.5% as required in Section 25 (a)(2) of the National Internal Revenue C ode (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,0 93.12. Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987. However, before the said cla im for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner-appellant filed a petition for review with the CTA docketed as CTA Case No. 4149, to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NI RC. On 21 February 1995, CTA rendered its decision denying SEA-LAND s claim for refund of the income tax it paid in 1984. On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to the Court of Appeals. After due proceedings, on October 26, 1995, the Court of Appeals promulgated its decision dismissing the appeal and affirming in toto the decision of the Court of Tax Appeals. Hence, this petition. ISSUE: The issue raised is whether or not the income that petitioner derived fro m services in transporting the household goods and effects of U.S. military pers onnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement. HELD: Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule an d exemption is the exception." The law "does not look with favor on tax exemptio ns and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted." Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Gove rnment agreed to exempt from payment of Philippine income tax nationals of the U nited States, or corporations organized under the laws of the United States, res idents in the United States in respect of any profit derived under a contract ma de in the United States with the Government of the United States in connection w ith the construction, maintenance, operation and defense of the bases. It is obvious that the transport or shipment of household goods and effects of U .S. military personnel is not included in the term "construction, maintenance, o peration and defense of the bases." Neither could the performance of this servic e to the U.S. government be interpreted as directly related to the defense and s ecurity of the Philippine territories. "When the law speaks in clear and categor ical language, there is no reason for interpretation or construction, but only f or application." Any interpretation that would give it an expansive construction to encompass petitioner s exemption from taxation would be unwarranted.

The avowed purpose of tax exemption "is some public benefit or interest, which t he lawmaking body considers sufficient to offset the monetary loss entailed in t he grant of the exemption." The hauling or transport of household goods and pers onal effects of U. S. military personnel would not directly contribute to the de fense and security of the Philippines. TAX AMNESTY What is a Tax Amnesty? Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncoll ected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed hi s previously untaxed income and must have paid the corresponding tax on such pre viously untaxed income. A tax amnesty, much like a tax exemption, is never favored nor presumed in law a nd if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the ta xing authority. However, when a law declaring a tax amnesty on unpaid income taxes contained no limitation whatsoever delimiting its applicability to assessments made prior to its effectivity, rather, it merely provided for general statement covering all t ax liabilities incurred for certain years, then, it has been designed to be in t he nature of a general grant of tax amnesty subject only to cases specifically e xcepted by it. BAAS vs. CA. G.R. No. 102967. February 10, 2000 FACTS: On February 20, 1976, petitioner Baas sold to AYALA a parcel of land for P 2,308,770.00. The Deed of Sale provided that upon the signing of the contract AY ALA shall pay P461,754.00. The balance was to be paid in four equal consecutive annual installments, with twelve (12%) percent interest per annum on the outstan ding balance. AYALA issued one promissory note covering four equal annual instal lments. The same day, petitioner discounted the promissory note with AYALA, for its face value. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn against BPI to the uniform amount of P205,224.00. In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset. In the succeeding years, until 1979 , petitioner reported a uniform income of, P230,877.00 as gain from sale of capi tal asset. On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners to examine the books and records of petitioner for the year 1976. They discover ed that petitioner had no outstanding receivable from the 1976 land sale to AYAL A and concluded that the sale was cash and the entire profit should have been ta xable in 1976 since the income was wholly derived in 1976. The examiners recomme nded deficiency tax assessment for P2,473,673.00. After reviewing the examiners' report, the tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer beyond twelve m onths pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). The deficiency tax assessment was P936,598.50. On June 27, 1980, respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be settled him immediately. On September 26, 1980, petitioner acknowledged receipt of the letter but insiste d that the sale of his land to AYALA was on installment. On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent r eturns, in violation of Section 51 of the Tax Code against petitioner. On June 17, 1981, a criminal complaint for tax evasion against the petitioner. On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740. On Nove mber 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840. In b

oth, petitioner did not recognize that his sale of land to AYALA was on cash bas is. Petitioner maintains that the proceeds of he promissory notes, not yet due, whic h he discounted to AYALA should not be included as income realized in 1976. ISSUES: (1) Does mere filing of tax amnesty return under P.D. 1740 and 1840 ipso facto shield a taxpayer from immunity against tax suits? (2) Should petitioner s income from the sale of the land be declared as a cash transaction in his tax re turn because the buyer discounted the promissory note issued to the seller on th e same day of the sale? HELD: (1) NO. The petitioner is not entitled to the benefits of P.D. Nos. 1740 a nd 1840. He did not meet the twin requirements of said tax amnesty laws, to wit, declaration of his untaxed income and full payment of tax due thereon. His disc losure did not include the income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his inco me tax return. He did not pay the tax which was considerably increased by the in come derived from the discounting. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate . It also gives the government a chance to collect uncollected tax from tax evad ers without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delin quencies, the tax payer must have voluntarily disclosed his previously untaxed i ncome and must have paid the corresponding tax on such previously untaxed income . It also bears noting that a tax amnesty, much like a tax exemption, is never fav ored nor presumed in law and if granted by statute, the terms of the amnesty lik e that of a tax exemption must be construed strictly against the taxpayer and li berally in favor of the taxing authority. (2) YES. As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale pri ce is received during such year, and a statute provides that income shall be tax able in the year in which it is "received," the profit from an installment sale is to be apportioned between or among the years in which such installments are p aid and received. In the present case, although the proceeds of a discounted promissory note is no t considered initial payment, still it must be included as taxable income on the year it was converted to cash. When petitioner had the promissory notes coverin g the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sa le as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discou nting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976. TAX ADMINISTRATIVE REGULATIONS What is the purpose of a Tax Ordinance? A municipal tax ordinance empowers a loc al government unit (LGU) to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activitie s of LGUs for the delivery of basic services essential to the promotion of the g eneral welfare. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordin ances are required to be done within certain time frames. The period for appeal provided in the law is clearly given for compliance as a prerequisite before see king redress in a competent court, therefore, mandatory. HARRISON MOTORS CORPORATION vs. NAVARRO. G.R. No. 132269. April 27, 2000 FACTS: Sometime in June of 1987 Harrison Motors Corporation through its presiden t, Renato Claros, sold two (2) Isuzu Elf trucks to private respondent Rachel Nav arro, owner of RN Freight Lines. Prior to the sale, Renato Claros represented to private respondent that all the BIR taxes and customs duties for the parts used

on the two (2) trucks had been paid for. On 10 September 1987, the BIR and the LTO entered into a Memorandum of Agreement (MOA) which provided that prior to registration in the LTO of any assembled or re-assembled motor vehicle which used imported parts, a Certificate of Payment s hould first be obtained from the BIR to prove payment of all taxes required unde r existing laws. In December of 1988 government agents seized and detained the two (2) Elf trucks of respondent after discovering that there were still unpaid BIR taxes and cust oms duties thereon. The BIR and the BOC ordered private respondent to pay the pr oper assessments or her trucks would be impounded. Private respondent went to Cl aros to ask for the receipts evidencing payment of BIR taxes and customs duties; however, Claros refused to comply. Private respondent then demanded from Claros that he pay the assessed taxes and warned him that he would have to reimburse h er should she be forced to pay for the assessments herself. Her demands were aga in ignored. Private respondent paid the assessed BIR taxes and customs duties. Consequently, she returned to petitioner's office to ask for reimbursement, but petitioner ag ain refused, prompting her to send a demand letter through her lawyer. When peti tioner still ignored her letter, she filed a complaint for a sum of money on 24 September 1990 with the Regional Trial Court of Makati. Petitioner argues that it was no longer obliged to pay for the additional taxes and customs duties imposed on the imported component parts by the Memorandum Ord ers and the two (2) Memoranda of Agreement since such administrative regulations only took effect after the execution of its contract of sale with private respo ndent. Holding it liable for payment of the taxes specified in the administrativ e regulations, which have the force and effect of laws, would not only violate t he non-impairment clause of the Constitution but also the principle of non-retro activity of laws provided in Art. 4 of the Civil Code. Petitioner further claime d that private respondent should be the one to pay the taxes and duties because when the restrictions took effect, he was no longer the owner of the trucks. ISSUES: (1) Did the administrative regulations impose additional taxes that impa ir the obligations of contracts and violate the principles of non-retroactivity? (2) Is the importer-assembler/manufacturer liable to pay the BIR taxes and cust om duties, which the administrative regulations sought to enforce? HELD: (1) NO. What Sec. 10, Art. III, of the Constitution prohibits is the passa ge of a law which enlarges, abridges or in any manner changes the intention of t he contracting parties. The Memorandum Orders and the two (2) Memoranda of Agree ment do not impose any additional taxes which would unduly impair the contract o f sale between petitioner and private respondent. Instead, these administrative regulations were passed to enforce payment of existing BIR taxes and customs dut ies at the time of importation. While it is true that administrative rulings and regulations are generally prospective in nature, an inspection of the MOA, howe ver, demonstrates that their intent is to enforce payment of taxes on assemblers who import component arts without paying the correct assessments. (2) YES. although private respondent is the one required by the administrative r egulations to secure the Certificate of Payment for the purpose of registration, petitioner as the importer and the assembler/manufacturer of the two (2) Elf tr ucks is still the one liable for payment of revenue taxes and customs duties. Pe titioner's obligation to pay does not arise from the administrative regulations but from the tax laws existing at the time of importation. Hence, even if privat e respondent already owned the two (2) trucks when the Memorandum Orders and Mem oranda of Agreement took effect, the fact remains that petitioner was still the one duty-bound to pay for the BIR taxes and customs duties. It is also quite obvious that as between petitioner, who is the importer-assembl er/manufacturer, and private respondent, who is merely the buyer, it is petition er which has the obligation to pay taxes to the BIR and the BOC. Petitioner woul d be unjustly enriched if private respondent should be denied reimbursement. It would inequitably amass profits from selling assembled trucks even if it did no t pay the taxes due on its imported spare parts. Imposing the tax burden on priv ate respondent would only encourage the proliferation of smugglers who scheme to

evade taxes by passing on their tax obligations to their unsuspecting buyers. TAX REFUND How does a corporation exercise its tax refund? A corporation entitled to a refu nd may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year. When such claimant suffered a net loss in a particular year, as shown in the Returns, then it incurred no tax liability to which the t ax credit could be applied. Thus, it could not have applied the amount of excess creditable withholding tax paid for the previous year as a tax credit. BPI-FAMILY SAVINGS BANK, Inc vs. CA, CTA and CIR. G.R. No. 122480. April 12, 200 0. FACTS: The petitioner had excess withholding taxes for the year 1989 and was thu s entitled to a refund amounting to P112,491. It indicated in its 1989 Income Ta x Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner informed the Bureau of Internal Rev enue (BIR) that it would claim the amount as a tax refund, instead of applying i t as a tax credit. Petitioner averred that it did not apply the total refundable amount to its 1990 Annual ITR or other tax liabilities due to alleged business losses it incurred for the same year. When no action from the BIR was forthcomin g, petitioner filed its claim with the CTA. However, the CTA denied its claim fo r refund. Said decision was affirmed in toto by the respondent Court of Appeals. The respondent court ruled that thee is no basis to grant the claim for refund d ue to petitioner s failure to show proof that it has not credited to its 1990 ITR the total refundable amount it previously declared to be applied as a tax credit in 1990. Since tax refunds are in the nature of tax exemptions, they are regard ed as in derogation of sovereign authority and to be construed strictissimi juri s against the person or entity claiming the exemption. In other words, the burde n of proof rests upon the taxpayer to establish by sufficient and competent evid ence its entitlement to the claim for refund. The petitioner maintained that it suffered a net loss in 1990 and that it could not have applied the amount claimed as tax credits. ISSUE: Did the petitioner fail to prove that it has not credited to its 1990 ITR the total refundable amount it previously declared to be applied as tax credit for the same year? HELD: NO. Petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit. Petitioner also presented quarterly returns for the first two quarters of 1990. More importantly, a copy of the Final Adjustment Re turn for 1990 was attached to petitioner's Motion for Reconsideration filed befo re the CTA. A final adjustment return shows whether a corporation incurred a los s or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it cou ld not have applied the amount in dispute as a tax credit. The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at all. Because it ought to know the ta x records of all taxpayers, the CIR could have easily disproved petitioner's cla im. To repeat, it did not do so. True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specificall y provides that proceedings before it "shall not be governed strictly by the tec hnical rules of evidence." The paramount consideration remains the ascertainmen t of truth. Verily, the quest for orderly presentation of issues is not an absol ute. It should not bar courts from considering undisputed facts to arrive at a j ust determination of a controversy. In the present case, the Return attached to the Motion for Reconsideration clear ly showed that petitioner suffered a net loss in 1990. Contrary to the holding o f the CA and the CTA, petitioner could not have applied the amount as a tax cred it. In failing to consider the said Return, as well as the other documentary evi dence presented during the trial, the appellate court committed a reversible err

or. It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present act ion if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. To repeat, the undisputed fact is that peti tioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the p etitioner. INCOME TAXATION Securities Becoming Worthless; Capital Loss Not Deductible From Gross Income Is an equity investment a capital or ordinary asset? An equity investment is cap ital, not ordinary, asset of the investor the sale or exchange of which results in either a capital gain or a capital loss. When the shares held by such investo r become worthless, the loss is deemed to be a loss from the sale or exchange of capital assets. Capital Loss Not Deductible From Gross Income. Capital losses are allowed to be deducted only to the extent of capital gains and not from any other income of th e taxpayer. CHINA BANKING CORPORATION vs. CA, CIR and CTA. G.R. No. 125508. July 19, 2000 FACTS: Sometime in 1980, petitioner China Banking Corporation made a 53% equity investment in the First CBC Capital (Asia) Ltd., a Hong Kong subsidiary engaged in financing and investment with "deposit-taking" function. The investment amou nted to P16,227,851.80, consisting of 106,000 shares with a par Value of P100 pe r share. In the course of the regular examination of the financial books and investment p ortfolios of petitioner conducted by Bangko Sentral in 1986, it was shown that F irst CBC Capital (Asia), Ltd., has become insolvent. With the approval of Bangk o Sentral, petitioner wrote-off as being worthless its investment in First CBC C apital (Asia), Ltd., in its 1987 Income Tax Return and treated it as a bad debt or as an ordinary loss deductible from its gross income. Respondent Commissioner of Internal Revenue disallowed the deduction and assesse d petitioner for income tax deficiency in the amount of P8,533,328.04, inclusive of surcharge, interest and compromise penalty. The disallowance of the deducti on was made on the ground that the investment should not be classified as being worthless. Petitioner contested the ruling of respondent Commissioner before the CTA. The tax court sustained the Commissioner, holding that the securities had not indeed become worthless and ordered petitioner to pay its deficiency income tax for 19 87 of P8,533,328.04 plus 20% interest per annum until fully paid. When the deci sion was appealed to the Court of Appeals, the latter upheld the CTA. In its in stant petition for review on certiorari, petitioner bank assails the CA decision . ISSUE: Is the investment that had become worthless deductible from gross income as a ordinary loss (bad debt)? HELD: NO. The claim of petitioner that the shares of stock in question have beco me worthless is based on a Profit and Loss Account for the Year-End 31 December 1987, and the recommendation of Bangko Sentral that the equity investment be wri tten-off due to the insolvency of the subsidiary. While the matter may not be i ndubitable (considering that certain classes of intangibles, like franchises and goodwill, are not always given corresponding values in financial statements) th ere may really be no need, however, to go of length into this issue since, even to assume the worthlessness of the shares, the deductibility thereof would still be nil in this particular case. At all events, the Court is not prepared to ho ld that both the tax court and the appellate court are utterly devoid of substan tial basis for their own factual findings. An equity investment is a capital, not ordinary, asset of the investor the sale

or exchange of which results in either a capital gain or a capital loss. The ga in or the loss is ordinary when the property sold or exchanged is not a capital asset. When the shares held by such investor become worthless, the loss is deeme d to be a loss from the sale or exchange of capital assets. The loss sustained b y the holder of the securities, which are capital assets (to him), is to be trea ted as a capital loss as if incurred from a sale or exchange transaction. A cap ital gain or a capital loss normally requires the concurrence of two conditions for it to result: (1) There is a sale or exchange; and (2) the thing sold or ex changed is a capital asset. When securities become worthless, there is strictly no sale or exchange but the law deems the loss anyway to be "a loss from the sa le or exchange of capital assets. Capital losses are allowed to be deducted only to the extent of capital gains, i .e., gains derived from the sale or exchange of capital assets, and not from any other income of the taxpayer. In the case at bar, First CBC Capital (Asia), Ltd., the investee corporation, is a subsidiary corporation of petitioner bank whose shares in said investee corpo ration are not intended for purchase or sale but as an investment. Unquestionab ly then, any loss therefrom would be a capital loss, not an ordinary loss, to th e investor. Improperly Accumulated Earnings Tax Burden of Proof. If the CIR determined that the corporation avoided the tax on s hareholders by permitting earnings or profits to accumulate, and the taxpayer co ntested such a determination, the burden of proof is on the taxpayer. And in ord er to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon shareholders, it must be shown that the contro lling intention of the taxpayer is manifested at the time of accumulation, not i ntentions declared subsequently, which are mere afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the close of the taxable years. CYANAMID PHILIPPINES, INC. vs. CA, CTA and CIR. G.R. No. 108067 January 20, 2000 FACTS: Petitioner, Cyanamid Philippines, Inc., is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods, and an importer/indentor. On February 7, 1985, the CIR sent an assessment letter to petitioner and demanded the payment of deficiency income tax. Petitioner pro tested the assessments particularly, (1) the 25% Surtax Assessment; (2) 1981 Def iciency Income Assessment; and 1981 Deficiency Percentage Assessment. Petitioner claimed, among others, that the surtax for the undue accumulation of earnings w as not proper because the said profits were retained to increase petitioner's wo rking capital and it would be used for reasonable business needs of the company. On October 20, 1987, the CIR refused to allow the cancellation of the assessmen t notices. Petitioner appealed to the Court of Tax Appeals. During the pendency of the case , however, both parties agreed to compromise the 1981 deficiency income tax asse ssment. However, the surtax on improperly accumulated profits remained unresolve d. ISSUE: Is a manufacturing company liable for the accumulated earnings tax, despi te its claim that earnings were accumulated to increase working capital and to b e used for its reasonable needs, if it fails to present evidence to prove such a llegations? HELD: YES. The respondent court correctly decided that the petitioner is liable for the improperly accumulated earnings tax for the year 1981 based on the follo wing grounds: 1) The amendatory provision of Section 25 of the 1977 NIRC, which was PD 1739, e numerated the corporations exempt from the imposition of improperly accumulated tax: (a) banks; (b) non-bank financial intermediaries; (c) insurance companies; and (d) corporations organized primarily and authorized by the Central Bank of t he Philippines to hold shares of stocks of banks. Petitioner does not fall among those exempt classes.

Besides, the rule on enumeration is that the express mention of one person, thin g, act, or consequence is construed to exclude all others. Laws granting exempti on from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exceptio n. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed, a burden which petitioner her e has failed to discharge. 2) If the CIR determined that the corporation avoided the tax on shareholders by permitting earnings or profits to accumulate, and the taxpayer contested such a determination, the burden of proving the determination wrong, together with the corresponding burden of first going forward with evidence, is on the taxpayer. This applies even if the corporation is not a mere holding or investment company and does not have an unreasonable accumulation of earnings or profits. In order to determine whether profits are accumulated for the reasonable needs t o avoid the surtax upon shareholders, it must be shown that the controlling inte ntion of the taxpayer is manifest at the time of accumulation, not intentions de clared subsequently, which are mere afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the close of the taxable ye ar. In the instant case, petitioner did not establish, by clear and convincing e vidence, that such accumulation of profit was for the immediate needs of the bus iness. 3) In the present case, the Tax Court opted to determine the working capital suf ficiency by using the ratio between current assets to current liabilities. The w orking capital needs of a business depend upon nature of the business, its credi t policies, the amount of inventories, the rate of the turnover, the amount of a ccounts receivable, the collection rate, the availability of credit to the busin ess, and similar factors. Petitioner, by adhering to the "Bardahl" formula, fail ed to impress the tax court with the required definiteness envisioned by the sta tute. We agree with the tax court that the burden of proof to establish that the profits accumulated were not beyond the reasonable needs of the company, remain ed on the taxpayer. Hence, this Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, i s dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improv ident exercise of authority. Disposition of Capital Asset on Cash Basis vs. On Installment The general rule is that the whole profit accruing from a sale of property is ta xable as income in the year the sale is made. But, if not all of the selling pri ce is received during such year, income shall be taxable in the year in which it is received , the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received. Proceeds in the discounting of promissory notes covering the succeeding installm ent payments are not considered initial payment. However, the amount received mu st be included as taxable income the year the promissory notes were discounted o r converted to cash. (Bilbiano Banas vs. Court of Appeals, et al. supra) Accrual Basis Method of Accounting State the nature of an Accrual Basis Method of Accounting? Under the accrual bas is method of accounting, income is reported when all events have occurred that f ix the taxpayer s right to receive the income, and the amount can be determined wi th reasonable accuracy. Thus, it is the right to receive income, and not the act ual receipt that determines when to include the amount in the gross income. Glea nable from this notion are the following requisites of accrual method of account ing, to wit: (1) that the right to receive the amount must be valid, uncondition al and enforceable; (2) the amount must be reasonably susceptible of accurate es timate; and (3) there must be a reasonable expectation that the amount it will b e paid in due course. When does the Liability to Withhold Income Tax Arise? The liability to withhold tax at source on income payments to non-resident foreign corporation arises upon

accrual thereof, and not upon actual remittance of the amounts due to the forei gn creditors. The withholding agent who adopts the accrual method of accounting in reporting its income and expenses is liable to withhold the tax from payments in favor of the creditor even before the latter s actual receipt thereof. FILIPINAS SYNTHETIC FIBER CORPORATION vs. CA, CTA and CIR. G.R. Nos. 118498 & 12 4377 October 12, 1999 FACTS: Filipinas Synthetic Fiber Corporation, a domestic corporation received on December 27, 1979 a letter of demand from the Commissioner of Internal Revenue assessing it for deficiency withholding tax at source for the period from the fo urth quarter of 1974 to the fourth quarter of 1975. The bulk of the deficiency w ithholding tax assessment, however, consisted of interest and compromise penalti es for alleged late payment of withholding taxes due on interest loans, royaltie s and guarantee fees paid by the petitioner to non-resident corporations. The as sessment was seasonably protested by the petitioner. Respondent denied the prote st on the following ground: For Philippine internal revenue tax purposes, the li ability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of ac tual payment or remittance thereof. ISSUE: Does the liability to withhold tax at source on income payments to non-re sident foreign corporation arise upon accrual thereof and not upon remittance of the amounts due to the foreign creditors? HELD: YES. On the other hand, "under the accrual basis method of accounting, inc ome is reportable when all the events have occurred that fix the taxpayer's righ t to receive the income, and the amount can be determined with reasonable accura cy. Thus, it is the right to receive income, and not the actual receipt, that de termines when to include the amount in gross income." Gleanable from this notion are the following requisites of accrual method of accounting, to wit: "(1) that the right to receive the amount must be valid, unconditional and enforceable, i .e., not contingent upon future time; (2) the amount must be reasonably suscepti ble of accurate estimate; and (3) there must be a reasonable expectation that th e amount will be paid in due course." In the case at bar, after a careful examination of pertinent records, the Court concurred in the finding by the Court of Appeals in CA GR. SP No. 32922 "that th ere was a definite liability, a clear and imminent certainty that at the maturit y of the loan contracts, the foreign corporation was going to earn income in an ascertained amount, so much so that petitioner already deducted as business expe nse the said amount as interests due to the foreign corporation. This is allowed under the law, petitioner having adopted the "accrual method" of accounting in reporting its incomes." All things studiedly considered, the Court is of the opinion, and holds, that th e Court of Appeals erred not in ruling that: . . . Petitioner cannot now claim that there is no duty to withhold and remit in come taxes as yet because the loan contract was not yet due and demandable. Havi ng "written-off" the amounts as business expense in its books, it had taken adva ntage of the benefit provided in the law allowing for deductions from gross inco me. Moreover, it had represented to the BIR that the amounts so deducted were in curred as a business expense in the form of interest and royalties paid to the f oreign corporations. It is estopped from claiming otherwise now. ESTATE TAXATION What does administration expenses include? Judicial expenses are expenses of adm inistration. Administration Expenses, as an allowable deduction from the gross e state of the decedent to arrive at the value of the net estate, have been constr ued to include all expenses essential to the collection of the assets, payment o f debts or the distribution of the property to the persons entitled to it. In ot her words, the expenses must be essential to the proper settlement of the estate . CIR vs. CA, CTA and PAJONAR, G.R. No. 123206 March 22, 2000

FACTS: Pedro Pajonar, was a part of the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina became his guardian, wh ile his property was placed under the guardianship of PNB. When Pedro died on Ja nuary 10, 1988, PNB filed an accounting of the decedent s property under guardians hip valued at P3,037,672.09, however, it did not file an estate tax return, inst ead it advised Pedro s heirs to execute an extrajudicial settlement and pay the ta xes on his estate. The estate of Pedro paid taxes in the amount of P2,557. Pursuant to a second assessment by the BIR for deficiency estate tax, Josefina P ajonar, filed a protest on January 11, 1989 with the BIR praying that the estate tax payment or at least some portion of it, be returned to the heirs. However, without waiting for her protest to be resolved by the BIR, Josefina Paj onar filed a petition for review with the Court of Tax Appeals (CTA), praying fo r the refund of erroneously paid estate tax. On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund J osefina Pajonar the amount of P252,585.59, representing erroneously paid estate tax for the year 1988. Among the deductions from the gross estate allowed by th e CTA were the amounts of P60,753 representing the notarial fee for the Extrajud icial Settlement and attorney's fees in Special Proceedings No. 1254 for guardia nship. On June 15, 1993, the CIR filed a motion for reconsideration asserting, among ot hers, that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses. On June 7, 1994, the CTA issued the assailed Resolution ordering the Commissione r of Internal Revenue to refund Josefina Pajonar, as administratrix of the estat e of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estat e tax for the year 1988. Also, the CTA upheld the validity of the deduction of t he notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings. On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Ap peals a petition for review of the CTA's May 6, 1993 Decision and its June 7, 19 94 Resolution, questioning the validity of the abovementioned deductions. On Dec ember 21, 1995, the Court of Appeals denied the Commissioner's petition. Hence, the present appeal by the Commissioner of Internal Revenue. ISSUE: Whether or not the notarial fee paid for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowed as deductions f rom the gross estate of decedent in order to arrive at the value of the net esta te. HELD: We answer this question in the affirmative. Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriv ing at the value of the net estate, have been construed to include all expenses essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. In other words, the expenses must be essential to the proper settlement of the estate. Coming to the case at bar, the notarial fee paid for the extrajudicial settlemen t is clearly a deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees pa id to PNB for acting as the guardian of Pedro Pajonar's property during his life time should also be considered as a deductible administration expense. PNB provi ded a detailed accounting of decedent's property and gave advice as to the prope r settlement of the latter's estate, acts which contributed towards the collecti on of decedent's assets and the subsequent settlement of the estate. VALUE ADDED TAX State the nature of VAT? VAT is a tax on transactions, imposed at every stage o f the distribution process on the sale, barter, exchange of goods or property, o n the performance of services (and on the importation of goods), even in the abs ence of profit attributable thereto. The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental ther

eto, ay any person regardless of whether or not the person engaged therein is a non-stock, non-profit organization or government entity. CIR vs. CA and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATIONs. G.R. No. 12535 5 March 30, 2000 FACTS: On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an asses sment to private respondent COMASERCO for deficiency value-added tax (VAT) for t axable year 1988. COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical a ssistance, including functioning as an internal auditor, were on a "no-profit, r eimbursement-of-cost-only" basis. It averred that it was not engaged in the busi ness of providing services to Philamlife and its affiliates. COMASERCO was estab lished to ensure operational orderliness and administrative efficiency of Philam life and its affiliates, and not in the sale of services. COMASERCO stressed tha t it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. Petiti oner avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner maintains that the services rendered by COM ASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It i s immaterial whether profit is derived from rendering the service. ISSUE: Is COMASERCO engaged in the sale of services, and thus liable to pay VAT thereon? HELD: YES. Sec. 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E. O.) No. 273 in 1988, provides that: Sec. 99. Persons liable. Any person who, in the course of trade or business, sell s, barters or exchanges goods, renders services, or engages in similar transacti ons and any person who, imports goods shall be subject to the value-added tax (V AT) imposed in Sections 100 to 102 of this Code. Contrary to COMASERCO's contention the above provision clarifies that even a non -stock, non-profit, organization or government entity, is liable to pay VAT on t he sale of goods or services. VAT is a tax on transactions, imposed at every sta ge of the distribution process on the sale, barter, exchange of goods or propert y, and on the performance of services, even in the absence of profit attributabl e thereto. The term "in the course of trade or business" requires the regular co nduct or pursuit of a commercial or an economic activity regardless of whether o r not the entity is profit-oriented. The definition of the term "in the course of trade or business" present law appl ies to all transactions even to those made prior to its enactment. Executive Ord er No. 273 stated that any person who, in the course of trade or business, sells , barters or exchanges goods and services, was already liable to pay VAT. The pr esent law merely stresses that even a nonstock, nonprofit organization or govern ment entity is liable to pay VAT for the sale of goods and services. VAT ZERO-RATING ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION vs. CIR. G.R. No. 134467 Nov ember 17, 1999 FACTS: Petitioner is engaged in the business of mining, production and sale of v arious mineral products, consisting principally of copper concentrates and gold and duly registered with the BIR as a VAT enterprise. Respondent [BIR] duly app roved petitioner's application for VAT zero-rating of the following sales: a. Gold to the Central Bank (CB) b. Copper concentrates to the PASAR; and c. Pyrite Philphos. The BIR's approval of sales to CB and PASAR was dated April 21, 1988 while zerorating of sales to PHILPHOS was approved effective June 1, 1988. On April 20, 1990, petitioner filed a VAT return with the BIR for the first quar ter of 1990 whereby it declared its sales to the CB, PASAR and Philphos, as zero -rated sales and therefore not subject to any output VAT.

On or about July 24, 1990, petitioner filed a claim with respondent for refund/c redit of VAT input taxes on its purchase of goods and services for the first qua rter of 1990. On or about September 2, 1992, petitioner filed an Amended Application for tax c redit/refund in the amount of P 35,522,056.58. On September 9, 1992, respondent resolved petitioner's claim for VAT refund/cred it by allowing only P2,518,122.32 as refundable/creditable while disallowing the rest. However, after the BIR examiners submitted a supplemental report of investigatio n the allowable input tax credit was increased from P2,518,122.32 to P12,101,569 .11. The parties further stipulated that the issues to be resolved are: (1) the appli cability of 10% VAT rating with regard to the above mentioned sales; and (2) app licability of Rev. Regulation 2-88 in that it requires the purchaser to export m ore than 70% of its total sales for the supplier to be zero-rated. The Ca held that the parties were bound by the Joint Stipulation of Facts and th at the petitioner is registered with the BIR as a VAT enterprise effective Augus t 15, 1990. It upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that the "zero-percent rating" of BOI-registered enterprises shall be set in proportion to the amount of its a ctual exports; and that EPZA and BOI registrations were by themselves not enough for zero-rating to apply. ISSUES: 1) Was the petitioner VAT-registered for the 1st quarter of 1990 despite clear e vidence showing the date of effectivity of petitioner's VAT registration to be J anuary 1, 1988. 2) Should the totality of sales to EPZA-registered enterprises be zero-rated, no t merely apportioned to the actual exports enterprise? 3) Is Sec. 21 of Revenue Regulations No. 5-87 invalid insofar as it went beyond the law by disallowing input VAT for purchases not covered by VAT invoices? HELD: 1) YES. As a rule, a judicial admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not apply when there is a showing that (1) the admission was made through a "pa lpable mistake," or that (2) "no such admission was made." (Section 4 of Rule 12 9 of the Rules of Court) In the present case, we are convinced that a "palpable mistake" was committed. True, petitioner was VAT-registered under Registration N o. 32-A-6-00224, as indicated in the Stipulation and became effective August 15, 1990. But the actual VAT Registration Certificate, which petitioner mentioned i n the stipulation, is numbered 32-A-6-002224 and became effective on January 1, 1988, thereby showing that petitioner had been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy, since the VAT regist ration number stated in the joint stipulation is NOT the one mentioned in the ac tual Certificate attached to the BIR Records. The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the wrong BIR record, which was evident, or in attaching the wro ng VAT Registration Certificate. The Court of Appeals should have corrected the unintended clerical oversight. In any event, the indelible fact is: the petition er was VAT-registered as of January 1, 1988. However, we believe that petitioner should be taxed only for such amount and und er such circumstances as are true, fair and equitable. After all, even the respo ndent commissioner, as shown in the other provisions of the joint stipulation, h as granted it VAT exemption for the period even prior to the first quarter of 19 90; that is, as early as January 1, 1988. In view of the foregoing, we stress th at a litigation is neither a game of technicalities nor a battle of wits and leg alisms. Rather, it is an abiding search for truth, fairness and justice. We beli eve, and so hold, that substantial justice is on the side of petitioner on this issue. 2) YES. An examination of Section 4.100.2 of Revenue Regulation 7-95 14 in relat ion to Section 102 (b) of the Tax Code shows that sales to an export-oriented en

terprise whose export sales exceed 70 percent of its annual production are to be zero-rated, provided the seller complies with other requirements, like registra tion with the BOI and the EPZA. The said Regulation does not even hint, much les s expressly mention, that only a percentage of the sales would be zero-rated. (P hrased elsewise, the totality of sales to an expert-oriented enterprise whose ex port sales exceed 70% of its annual production are to be zero rated, not merely the proportion of such sales to actual exports of said enterprise.) 3) NO. It is clear that a VAT invoice can be used only for the sale of goods and services that are subject to VAT. The corresponding taxes thereon shall be allo wed as input tax credits for those subject to VAT. Section 21 of Revenue Regulat ion 5-87 is not invalid, as it simply prescribes the penalty for failure to comp ly with the accounting and invoicing requirements laid down in Section 108, a pe nalty similar to that found in Sections 111 and 263. In short, Section 108 provi des the guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of the Tax Code provide penalties for different types of violations of Sect ion 108; and Section 21 of Revenue Regulation 5-87 specifies the penalty for a s pecific violation of Section 108. PERCENTAGE TAXES AMUSEMENT TAXES The "proprietor, lessee or operator of . . . professional basketball games" is r equired to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national ta x. For the purpose of the amusement tax, the term gross receipts' embraces all t he receipts of the proprietor, lessee or operator of the amusement place. The fo regoing definition of gross receipts is broad enough to embrace the cession of a dvertising and streamer spaces as the same embraces all the receipts of the prop rietor, lessee or operator of the amusement place. The law being clear, there is no need for an extended interpretation. PBA vs. CA, CTA ,and CIR. G.R. No. 119122. August 8, 2000 FACTS: On June 21, 1989, the petitioner received an assessment letter from the C ommissioner of Internal Revenue (respondent Commissioner) for the payment of def iciency amusement tax. Petitioner contested the assessment by filing a protest w ith respondent Commissioner who denied the same on November 6, 1989. Its protest was, however, denied in an order dated November 6, 1989. On January 8, 1990, pe titioner filed a petition for review but the same was dismissed for lack of meri t. Petitioner presented a motion for reconsideration4 of the said decision but t he same was denied by respondent CTA. The Court of Appeals affirmed the decision of the CTA and dismissed petitioner's appeal. Petitioner filed a Motion for Rec onsideration of said decision but to no avail. Hence, this petition. Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and authority to levy and collect amusement taxes from the sale of admission tickets to places of amusement from the national government t o the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 prov iding that the power to levy and collect amusement tax on admission tickets was transferred to the local governments by virtue of the Local Tax Code; and BIR Ru ling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross receipts from admission tickets to places of amusement was transferred to local governments under P.D. No. 231, as amended. ISSUES: 1) Is the amusement tax on admission tickets to PBA games a national or local ta x? Otherwise put, who between the national government and local government shoul d petitioner pay amusement taxes? 2) Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc . (VEI) subject to the payment of amusement tax? HELD: 1) The amusement tax is payable to the national government. The laws on the matt er are succinct and clear and need no elaborate disquisition. Section 13 of the Local Tax Code provides:

"SECTION 13. Amusement tax on admission. The province shall impose a tax on admi ssion to be collected from the proprietors, lessees, or operators of theaters, c inematographs, concert halls, circuses and other places of amusement . . ." The foregoing provision of law in point indicates that the province can only imp ose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement. The autho rity to tax professional basketball games is not therein included, as the same i s expressly embraced in PD 1959, which amended PD 1456 thus: "SECTION 44. Section 268 of this Code, as amended, is hereby further amended to read as follows: 'Sec. 268. Amusement taxes. There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, prof essional basketball games, Jai-Alai, race tracks and bowling alleys xxx (Now Sec. 125, NIRC with certain changes) 2) YES. It is clear that the "proprietor, lessee or operator of . . . profession al basketball games" is required to pay an amusement tax equivalent to fifteen p er centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. The payment of said payment of amusement tax is in l ieu of all other percentage taxes of whatever nature and description. For the pu rpose of the amusement tax, the term gross receipts' embraces all the receipts o f the proprietor, lessee or operator of the amusement place. The foregoing defin ition of gross receipts is broad enough to embrace the cession of advertising an d streamer spaces as the same embraces all the receipts of the proprietor, lesse e or operator of the amusement place. The law being clear, there is no need for an extended interpretation. GROSS RECEIPTS The term "gross receipts" means all amounts received by the prime or principal c ontractor as the total price, undiminished by the amount paid to the subcontract or under a subcontract arrangement. Hence, gross receipts could not be diminishe d by employer's SSS, SIF and Medicare contributions. Furthermore, it has been co nsistently ruled by the BIR that the salaries paid to security guards should for m part of the gross receipts, subject to tax. PROTECTOR'S SERVICES, INC. vs. CA & CIR. G.R. No. 118176 April 12, 2000 FACTS: Petitioner PSI was assessed for deficiency percentage taxes including sur charges, penalties and interests thereon for the years 1983, 1984 and 1985. Peti tioner sent a protest letter dated January 02, 1988, to the BIR claiming that it s gross receipts subject to percentage taxes should exclude the salaries of the security guards as well as the corresponding employer's share of Social Security System (SSS), State Insurance Fund (SIF) and Medicare contributions. On Novembe r 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to the petition er which denied with finality the latter's protest against the subject assessmen ts, holding that the salaries paid to the security guards form part of your taxa ble gross receipts in the determination of the 3% and 4% contractor's tax. On De cember 5, 1990, petitioner filed a petition for review before the CTA but the sa me was denied for lack of merit. After its motion for reconsideration was denied , petitioner appealed to the Court of Appeals. The Court of Appeals affirmed the decision of the CTA. Hence, the petitioner filed with the Supreme Court a petit ion for review on certiorari. ISSUE: Does the term gross receipts of a contractor (which) is subject to percenta ge tax, include the salaries paid to its employees, (as well as their) SSS, SIR and Medicare contributions? HELD: YES. Contractor's tax on gross receipts imposed on business agents includi ng private detective watchman agencies, was a tax on the sale of services or lab or, imposed on the exercise of a privilege. The term "gross receipts" means all amounts received by the prime or principal contractor as the total price, undimi nished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicar e contributions. Furthermore, it has been consistently ruled by the BIR that the

salaries paid to security guards should form part of the gross receipts, subjec t to tax, to wit: . . . This Office has consistently ruled that salaries of security guards form pa rt of the taxable gross receipts of a security agency for purposes of the 4% [fo rmerly 3%] contractors tax under Section 205 of the Tax Code, as amended. The re ason is that the salaries of the security guards are actually the liability of t he agency and that the guards are considered their employees; hence, for percent age tax purposes, the salaries of the security guards are includible in its gros s receipts. (BIR Ruling No.271-81 citing BIR Ruling No. 69-002). These rulings were made by the CIR in the exercise of his power to "make judgmen ts or opinions in connection with the implementation of the provisions of the in ternal revenue code." The opinions and rulings of officials of the government ca lled upon to execute or implement administrative laws, command respect and weigh t. We see no compelling reason in this case to rule otherwise. TAX ADMINISTRATION AND ENFORCEMENT Forfeiture Proceedings in the Bureau of Customs Jurisdiction. An action for annulment of the act of the Collector of Customs fal ls within the jurisdiction of the Commissioner of Customs whose decision is appe alable to the Court of Tax Appeals. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions for certiorari, pr ohibition or mandamus. ALEMAR'S (SIBAL & SONS), INC. vs. CA. G.R. No. 94996,January 26, 2001 FACTS: In September 1983, petitioner Alemars imported various books, office supp lies and equipment which, on November 29, 1983, arrived in Manila, addressed to RPB, as consignee. After a year or on November 27, 1984, Alemars applied with th e Bureau of Customs for an Import Entry and Permit to Deliver Goods which was de nied on the ground that the imported articles subject thereof had been declared abandoned under the Omnibus Notice and Declaration of Abandonment in Abandonment Proceedings No. 84-1643 of the Bureau of Customs. Alemars, on December 12, 1984 , filed with the Law Division, Bureau of Customs a letter expressly manifesting that it has no intention of abandoning subject shipment. Nevertheless, the aucti on sale proceeded with Luis Cua as the highest bidder. To prevent the delivery o f the subject goods to Luis Cua and to obviate its subsequent sale and dispositi on which would render whatever claims it has over said goods ineffective, RPB fi led on January 22, 1985, with the Regional Trial Court, Manila, a petition for p rohibition with preliminary prohibitory injunction and/or restraining order agai nst respondents to enjoin them from releasing and delivering subject goods to Lu is Cua. The petition was subsequently amended to include Alemars as petitioner. The trial court issued a TRO enjoining respondents from releasing and delivering to Luis Cua subject importation, but later on dismissed the petition for want o f jurisdiction. The Court of Appeals likewise dismissed the petition. ISSUE: Does the Regional Trial Court have jurisdiction over the subject matter o f the petition filed by Alemars and RPB to enjoin the auction sale of subject go ods imported by petitioners declared by customs authorities as abandoned. HELD: NO. Petitioner primarily seeks the annulment of the act of the Collector o f Customs declaring the subject importation abandoned and ordering it sold at pu blic auction, claiming that the abandonment proceeding held by the Collector of Customs was irregular since the latter did not give notice to petitioner of the abandonment before declaring the importation abandoned. If petitioner was not satisfied with the action of the Collector of Customs, it may avail itself of the administrative remedies provided for in the Tariff and C ustoms Code. However, petitioner sought recourse in the trial court. Such recourse was fatal to petitioner's cause as the proper remedy was to elevate the case to the Commis sioner of Customs whose decision was appealable to the Court of Tax Appeals. "Th e Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

Jurisdiction. The Collector of Customs sitting in seizure and forfeiture proceed ings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. Regional Trial Courts have no revi ew powers over such proceedings is anchored upon the policy of placing no unnece ssary hindrance on the government's drive, not only to prevent smuggling and oth er frauds upon Customs, but more importantly, to render effective and efficient the collection of import and export duties due the State, which enables the gove rnment to carry out the functions it has been instituted to perform. BOC and EIIB vs. OGARIO and MONTELIBANO. G.R. No. 138081, March 30, 2000 FACTS: On December 9, 1998, Felipe A. Bartolome, District Collector of Customs o f Cebu, issued a Warrant of Seizure and Detention 1 of 25,000 bags of rice illeg ally imported. The report stated that the rice was landed in Palawan by a foreig n vessel and then placed in sacks marked "SNOWMAN," Milled in Palawan." It was t hen shipped to Cebu City on board the vessel M/V "Alberto." Forfeiture proceedin gs were started in the customs office in Cebu, docketed as Cebu Seizure Identifi cation Case No. 17-98. On December 10, 1998, respondent Mark Montelibano, the co nsignee of the sacks of rice, and his buyer, respondent Elson Ogario, filed a co mplaint for injunction (Civil Case No. CEB-23077) in the Regional Trial Court of Cebu City. The petitioners sought the dismissal of the complaint on the ground that the RTC had no jurisdiction, but their motions were denied. ISSUE: Does RTC have jurisdiction to enjoin the forfeiture proceedings in the Bu reau of Customs? HELD: NO. There is no question that Regional Trial Courts are devoid of any comp etence to pass upon the validity or regularity of seizure and forfeiture proceed ings conducted by the Bureau of Customs and to enjoin or otherwise interfere wit h these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclu sive jurisdiction to hear and determine all questions touching on the seizure an d forfeiture of dutiable goods. The Regional Trial Courts are precluded from ass uming cognizance over such matters even through petitions of certiorari, prohibi tion or mandamus. It is likewise well-settled that the provisions of the Tariff and Customs Code a nd that of Republic Act No. 1125, as amended, otherwise known as "An Act Creatin g the Court of Tax Appeals," specify the proper fora and procedure for the venti lation of any legal objections or issues raised concerning these proceedings. Th us, actions of the Collector of Customs are appealable to the Commissioner of Cu stoms, whose decision, in turn, is subject to the exclusive appellate jurisdicti on of the Court of Tax Appeals and from there to the Court of Appeals. Back Taxes Liability for Payment of Back Taxes. It is an accepted principle in taxation tha t taxes are paid by the person obliged to declare the same for taxation purposes . Under the Real Property Tax Code, the duty to declare the true value of real p roperty for taxation purposes is imposed upon the owner, or administrator, or th eir duly authorized representatives. They are thus the taxpayers. When these per sons fail or refuse to make a declaration of the true value of their real proper ty within the prescribed period, the provincial or city assessor shall declare t hen property in the name of the defaulting owner and assess the property for tax ation. In this wise, the taxpayer assumes the character of a defaulting owner, o r defaulting administrator, or defaulting authorized representative, liable to p ay back taxes. MERALCO vs. BARLIS. G.R. No. 114231, May 18, 2001 FACTS: From 1975 to 1978 MERALCO paid the real property taxes on the its propert ies on the basis of their assessed value as stated in the tax declarations. On 2 9 December 1978 MERALCO sold all the power-generating plants including the lands ite to the National Power Corporation (NAPOCOR), a corporation fully owned and c ontrolled by the Philippine government. In 1985, the Municipal Treasurer of Muntinlupa discovered, among others, that ME

RALCO, for the period beginning 1 January 1976 to 29 December 1978, misdeclared and/or failed to declare for taxation purposes a number of real properties, cons isting of several equipment and machineries, found in the said power plants. A r eview of the Deed of Sale which MERALCO executed in favor of NAPOCOR when it sol d the power plants to the latter convinced the municipal government of Muntinlup a of the misdeclaration/non-declaration of the true value of the said machinerie s and equipment. The Municipal Assessor of Muntinlupa then declared and assessed the subject real properties for taxation purposes and issued several collection notices to MERAL CO, ordering it to pay the deficiency in the real property taxes covering the ma chineries and equipment found in the said power plants. Still MERALCO did not pa y the tax assessed. The Municipality of Muntinlupa sought the assistance of the Bureau of Local Gove rnment Finance-Department of Finance (BLGF-DOF). The BLGF-DOF issued a Letter-En dorsement declaring MERALCO liable to pay the deficiency or delinquent real prop erty taxes. The Municipal Treasurer then issued warrants of garnishment, copies of which wer e served on MERALCO on 10 October 1990, ordering the attachment of the bank depo sits of MERALCO to the extent of its unpaid real property taxes. Immediately, MERALCO filed before the Regional Trial Court (RTC) of Makati, Metr o Manila a Petition for Prohibition with Prayer for Writ of Preliminary Mandator y Injunction and/or Temporary Restraining order (TRO) to enjoin the Municipal Tr easurer of Muntinlupa from enforcing the warrants of garnishment. For its part, the Municipal Treasurer filed a Motion to Dismiss on the grounds o f: (1) lack of jurisdiction since, under Sec. 64 of the Real Property Tax Code, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall gave paid, under protest, the tax assessed against him; and (2) lack of cause of action by reason of MERALCO's fai lure to question the notice of assessment issued to it by the Municipality of Mu ntinlupa before the Local Board of Assessment Appeals. In its 17 June 1991 Order the trial court denied the said motion. On a Petition for Certiorari filed before the Supreme Court, later endorsed to t he Court of Appeals, the Municipal Treasurer of Muntinlupa assailed the order of 17 June 1991 of the RTC. On 11 August 1993 the Court of Appeals in its Decision granted the petition declaring the assailed order "void and without life in law , having been issued without jurisdiction, on a petition that further does not s tate a sufficient cause of action, filed by a party who had not exhausted availa ble administrative remedies," MERALCO moved for a reconsideration of the Decisio n, but was denied for lack of merit in a Resolution dated 28 February 1994. ISSUES: 1) Do trials courts have jurisdiction to entertain petition for prohibition abse nt payment under protest of tax assessed? 2) Is the former owner of property subsequently sold liable for payment of back taxes incurred prior to the sale? 3) Since the real property tax constitutes a lien on the property subject to tax , is the local government constrained only in proceeding against the real proper ty itself or any personal property located therein? HELD: 1) NO. The trial court has no jurisdiction to entertain a Petition for Prohibiti on absent petitioner's payment, under protest, of the tax assessed as required b y Sec. 64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to entertain it. The restriction upon the power of courts to impeach tax assessment without a pri or payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the needed serv ices to the people, and its machinery gravely disabled. 2) YES. Petitioner is begging the question when it asserts that it is not the ta

xpayer contemplated under Sec. 64 of the RPTC. It is an accepted principle in ta xation that taxes are paid by the person obliged to declare the same for taxatio n purposes. Under the Real Property Tax Code, the duty to declare the true value of real property for taxation purposes is imposed upon the owner, or administra tor, or their duly authorized representatives. They are thus the taxpayers. When these persons fail or refuse to make a declaration of the true value of their r eal property within the prescribed period, the provincial or city assessor shall declare then property in the name of the defaulting owner and assess the proper ty for taxation. In this wise, the taxpayer assumes the character of a defaultin g owner, or defaulting administrator, or defaulting authorized representative, l iable to pay back taxes. Respondent Municipal Treasurer claims that petitioner MERALCO misdeclared and/or failed to declare the true value of the Sucat power plant machineries and equip ment during the taxable years 1976-1978 when it was still the owner thereof, and that it is the deficiency in the realty tax on the real property's reassessed v alue which it seeks to collect. Based on the foregoing, the notice of assessment and collection was directed to petitioner, not because it is still the present owner of the subject real property including the machineries and equipment there on, but because it is the defaulting owner thereof who has failed to make proper tax declaration and the proper tax payment thereon. Thus, petitioner is the tax payer contemplated under Sec. 64 of the RPTC, and payment under protest of the t ax assessed is necessary for the trial court to acquire jurisdiction over its pe tition. 3) NO. the Real Property Tax Code, as amended, affords local government units th ree (3) concurrent and simultaneous remedies to enforce the Code's provisions, n amely; (a) distraint of personal property, (b) sale of delinquent real property, and (c) collection of real property tax through ordinary court action. From the foregoing, respondent argues that it is not limited to the enforcement of tax l ien but is also authorized to proceed against the personal properties of the def aulting taxpayer unless it could be shown that the personal properties being sub ject to distraint are exempt from attachment, which the bank deposits are not. The remedy of levy can be pursued by putting up for sale the real property subje ct of tax, i.e., the delinquent property upon which the tax lien attaches, regar dless of the present owner or possessor thereof. The remedy of distraint and lev y of personal property meanwhile allows the taxing authority to subject any pers onal property of the taxpayer to execution, save certain exceptions as enumerate d under Sec. 69 of the RPTC, bank deposits are not among those exceptions. TAX REMEDIES Sale of Real Estate Property Due to Tax Delinquency Notice to Non-registered Owner. For purposes of real property taxation, the regi stered owner of a property is deemed the taxpayer and, hence, the only one entit led to a notice of tax delinquency and the resultant proceedings relative to an auction sale. TALUSAN vs. TAYAG. G.R. No. 133698,April 4, 2001 FACTS: Petitioners bought the subject property covered by Condominium Certificat e of Title No. 651, from its former owner, Elias Imperial, as evidenced by a Dee d of Absolute Sale. Elias Imperial and his entire family emigrated to Australia in 1974. On October 15, 1985, respondent Juan D. Hernandez in his capacity as Ci ty Treasurer of Baguio City, wrote a letter to the former owner Elias at his old address in Cubao, Quezon City. Imperial informing him that the above described property would be sold at public auction on December 9, 1985, to satisfy the del inquent real estate taxes, penalties and cost of sale, and demanded payment of t he sum of P4,039.80, representing total taxes due and penalties thereon. Thereaf ter, respondent Hernandez sold the above-described property to Tayag for P4,400. 00 without any notice to the former owner thereof, [or] to [petitioners], and wit hout compliance with the provisions of PD No. 464, as evidenced by the Certifica te of Sale. Petitioners a complaint against the Treasurer of Baguio and Tayag to nullify the sale and Tayag s title on the ground of irregularities, inadequate pr

ice, and non-compliance with statutory requirements, particularly those relative to notice, publication and posting. The trial court dismissed the complaint, wh ich was affirmed by the Court of Appeals. ISSUE: Is a non-registered owner of a real property entitled to notice of tax de linquency? HELD: NO. For purposes of the real property tax, the registered owner of the pro perty is deemed the taxpayer. Hence, only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale. Not be ing registered owners of the property, petitioners cannot claim to have been dep rived of such notice. In fact, they were not entitled to it. In the present case, the notice of delinquency was sent by registered mail to th e permanent address of the registered owner in Manila. In that notice, the city treasurer of Baguio City directed him to settle the charges immediately and to p rotect his interest in the property. Under the circumstances, we hold that the n otice sent by registered mail adequately protected the rights of the taxpayer, w ho was the registered owner of the condominium unit. Protest Payment The trial court has no jurisdiction to entertain a Petition for Prohibition abse nt petitioner's payment, under protest, of the tax assessed as required by Sec. 64 of the RPTC. Payment of the tax assessed under protest, is a condition sine q ua non before the trial court could assume jurisdiction over the petition and fa ilure to do so, the RTC has no jurisdiction to entertain it. The restriction upon the power of courts to impeach tax assessment without a pri or payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the needed serv ices to the people, and its machinery gravely disabled. Prescription By its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot b e said that the offense has been committed upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has no t committed any violation for nonpayment of the deficiency tax. The offense was committed only after the finality of the assessment coupled with taxpayer's will ful refusal to pay the taxes within the allotted period. Thus, the five (5) year prescriptive period shall start to run when the assessment became final and una ppealable. TUPAZ vs. ULEP and PEOPLE. G.R. No. 127777 October 1, 1999 FACTS: Petitioner was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner c ontends that applying the 3-year period provided under BP 700 which amended the 1977 NIRC, the said assessment was made out of time. The Solicitor General on th e other had, asserts that the provision of BP 700 applies to assessments and col lections beginning taxable year 1984. Petitioner also contends that the offense charged has already prescribed. Petiti oner invokes Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides t hat violations of any provision of the Code prescribe in five (5) years. Petitio ner asserts that in this case, it began to run in 1979, when she failed to pay t he correct corporate tax due during that taxable year. Hence, when the BIR insti tuted criminal proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code with the Department of Justice for preliminary investigation it was beyond the prescriptive period of five (5) years. At most, the BIR had until 1984 to institute criminal proceedings. ISSUE: (1) Is the 3-year period of assessment provided under BP700 applicable to this case? (2) Does the 5-year prescriptive period (for filing complaints for f

ailure to pay deficiency taxes) commence to run from filing of the income tax re turn? HELD: 1) NO. he shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700, effective April 5, 1984, specifical ly states that the shortened period of three years shall apply to assessments an d collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the five-year period if the taxe s assessed cover taxable years prior to January 1, 1984. The deficiency income tax under consideration is for taxable year 1979. Th us, the period of assessment is still five (5) years, under the old law. The inc ome tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the return is filed, whichever comes later. 2) NO. by its nature the violation could only be committed after service of noti ce and demand for payment of the deficiency taxes upon the taxpayer. Hence, it c annot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assess ment, the taxpayer has not committed any violation for nonpayment of the tax. Th e offense was committed only after the finality of the assessment coupled with t axpayer's willful refusal to pay the taxes within the allotted period. In this c ase, when the notice of assessment was issued on July 16, 1984, the taxpayer sti ll had thirty (30) days from receipt thereof to protest or question the assessme nt. Otherwise, the assessment would become final and unappealable. As he did not protest, the assessment became final and unappealable on August 16, 1984. Conse quently, when the complaint for preliminary investigation was filed with the Dep artment of Justice on June 8, 1989, the criminal action was instituted within th e five (5) year prescriptive period. ?? ?? ?? ?? Taxation Law