Professional Documents
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TAXATION LAW
L-9141SUMMARY
OF DOCTRINES
GENERAL PRINCIPLES
Tax Exemption of Charitable Institutions
To determine whether an enterprise is a charitable institution/entity or not, the elements
which should be considered include the statute creating the enterprise, its corporate purposes, its
constitution and by-laws, the methods of administration, the nature of the actual work performed,
the character of the services rendered, the indefiniteness of the beneficiaries, and the use and
occupation of the properties.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-patient,
or confined in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating the institution.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to the
Constitutions and the law. [LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY AND
CONSTANTINO P. ROSAS. G.R. No. 144104. June 29, 2004.]
Tax Exemption; Trust Funds
The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released
prior to the retirement of the employees. The trust funds of employees other than those of private
employers are qualified for certain tax exemptions pursuant to Section 60(B), formerly Section
53(b), of the National Internal Revenue Code. [DEVELOPMENT BANK OF THE PHILIPPINES vs.
COMMISSION ON AUDIT. G.R. No. 144516. February 11, 2004.]
Income Tax; Final Withholding Tax; Gross Receipts Tax; Double Taxation
Although the 20% FWT on respondent Bank's interest income was not actually received by
respondent because it was remitted directly to the government, the fact that the amount
redounded to the bank's benefit makes it part of the taxable gross receipts in computing the 5%
GRT. The 5% GRT (Sec. 119 of the Tax Code) is included under "Title V. Other Percentage Taxes"
and is not subject to withholding. The 20% FWT, on the other hand, falls under Section 24(e)(1) of
"Title II. Tax on Income."
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the government for the
collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle
the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds
are either actual or constructive.
There is no double taxation because the taxes are imposed on two different subject
matters. The subject matter of the FWT is the passive income generated in the form of interest on
deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of
engaging in the business of banking. A tax based on receipts is a tax on business rather than on the
property; hence, it is an excise rather than a property tax. [CIR vs. SOLIDBANK CORP. G.R. No.
148191. November 25, 2003.]
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TAXATION LAW
determined by the court in the pending proceeding. [MERALCO vs. NELIA A. BARLIS. G.R. No.
114231. June 29, 2004.]
Tax Assessment; Proper Service
The legal obligation on the executor, administrator or any of the legal heirs, to inform
respondent CIR of the decedents death under Section 104 of the 1977 NIRC pertains only to all
cases of transfer subject to tax or where the gross value of the estate exceeds P3,000. It has
absolutely no applicability to a case for deficiency of income tax.
When an estate is under administration, notice must be sent to the administrator of the
estate, since it is the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all orders of the court.
[ESTATE OF THE LATE JULIANA DIEZ vs. CIR. G.R. No. 155541. January 27,2004.]
Tax Assessment; Proper Service
Where the notice of assessment is sent to the companys old business address, despite the
fact that the new address has been communicated to the BIR, there is then no valid assessment by
the BIR
Since there was a failure to effect a timely valid assessment, the period for filing a criminal
case for PAC's tax liabilities had prescribed by the time Commissioner instituted the criminal cases
against PACs former officers. [CIR vs. BPI, as LIQUIDATOR OF PARAMOUNT ACCEPTANCE
CORPORATION. G.R. No. 135446. September 23, 2003.]
Revenue Regulations; Nature; Application
Administrative issuances may be distinguished according to their nature and substance:
legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed
to implement a primary legislation by providing the details thereof. An interpretative rule, on the
other hand, is designed to provide guidelines to the law, which the administrative agency is in
charge of enforcing.
The principle is well entrenched that statutes, including administrative rules and
regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by
express terms or by necessary implication.
Tax refunds are in the nature of tax exemptions. As such, these are regarded as in
derogation of sovereign authority and are to be strictly construed against the person or entity
claiming the exemption. [BPI LEASING CORP. vs. COURT OF APPEALS. G.R. No. 127624.
November 18, 2003.]
LOCAL TAXATION
Local Taxation; Validity of a Municipal Ordinance
By express language of Sections 153 and 155 of RA No. 7160, local government units,
through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or
charges for the use of any public road, pier or wharf funded and constructed by them. A service fee
imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section
133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as all
other taxes or charges in any form whatsoever on goods or merchandise. [PALMA DEVELOPMENT
CORPORATION vs. MUNICIPALITY OF MALANGAS. G.R. No. 152492. October 16, 2003.]
Local Taxation; Powers of City Assessors
The determination made by the respondent City Assessor with regard to the taxability of
the subject real properties squarely falls within its power to assess properties for taxation purposes
subject to appeal before the Local Board of Assessment Appeals. The authority to receive evidence,
as basis for classification of properties for taxation, is legally vested on the respondent City
Assessor whose action is appealable to the Local Board of Assessment Appeals and the Central
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
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GENERAL PRINCIPLES
Tax Exemption of Charitable Institutions
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS
[G.R. No. 144104. June 29, 2004.]
CALLEJO, SR., J:
FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity by virtue
of Presidential Decree No. 1823. It is the registered owner of a parcel of land with a hospital in the
middle, located at Quezon City. A big space at the ground floor is being leased to private parties,
for canteen and small store spaces, and to medical or professional practitioners who use the same
as their private clinics. A big portion of the land is being leased for commercial purposes to a
private enterprise.
The petitioner accepts paying and non-paying patients. It also renders medical services to
out-patients, both paying and non-paying. It also receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for
real property taxes. The petitioner filed a Claim for Exemption from real property taxes with the
City Assessor, predicated on its claim that it is a charitable institution. The petitioner's request was
denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of
Quezon City (QC-LBAA). The petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. The QC-LBAA dismissed the petition
and held the petitioner liable for real property taxes.
The Central Board of Assessment Appeals of Quezon City and the Court of Appeals (CBAA)
affirmed QC-LBAAs decision.
ISSUES:
1. Whether petitioner is a charitable institution within the context of Presidential Decree
No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No.
7160.
2. Whether the real properties of the petitioner are exempt from real property taxes.
HELD: 1. YES. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual
work performed, the character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
Charity may be applied to almost anything that tend to promote the well-doing and wellbeing of social man. It embraces the improvement and promotion of the happiness of man. The
word "charitable" is not restricted to relief of the poor or sick. The test of a charity and a
charitable organization are in law the same. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained
for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which was
organized for the welfare and benefit of the Filipino people principally to help combat the high
incidence of lung and pulmonary diseases in the Philippines. The medical services of the petitioner
are to be rendered to the public in general in any and all walks of life including those who are poor
and the needy without discrimination.
As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-patient,
or confined in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating the institution.
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
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The fundamental ground upon which all exemptions in favor of charitable institutions are
based is the benefit conferred upon the public by them, and a consequent relief, to some extent,
of the burden upon the state to care for and advance the interests of its citizens.
2. NO. Even though the petitioner is a charitable institution, those portions of its real
property that are leased to private entities are not exempt from real property taxes as these are
not actually, directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that 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 effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be clearly shown and based on language in
the law too plain to be mistaken.
The tax exemption under Section 28(3), Article VI of the 1987 Philippine Constitution covers
property taxes only. What is exempted is not the institution itself; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing violence to the
Constitution and the law.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.
INCOME TAXATION
Tax-Exemption; Trust Funds
DEVELOPMENT BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT
[G.R. No. 144516. February 11, 2004]
CARPIO, J:
FACTS: On February 20, 1980, the Development Bank of the Philippines (DBP) Board of Governors
adopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the setting up of a
retirement fund to cover the benefits due to DBP retiring officials and employees under
Commonwealth Act No. 186, as amended.
In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP
Provident Fund and funded by placements from the Gratuity Plan Fund. Under the Special Loan
Program, a prospective retiree is allowed the option to utilize in the form of a loan a portion of his
outstanding equity in the gratuity fund and to invest it in a profitable investment or undertaking.
The earnings of the investment shall then be applied to pay for the interest due on the gratuity
loan which was initially set at 9% per annum subject to the minimum investment rate resulting from
the updated actuarial study. The excess or balance of the interest earnings shall then be
distributed to the investor-members.
Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of
P11,626,414.25 representing the net earnings of the investments for the years 1991 and 1992. The
payments were disallowed by the Auditor under Audit Observation Memorandum No. 93-2 dated
March 1, 1993, on the ground that the distribution of income of the Gratuity Plan Fund (GPF) to
future retirees of DBP is irregular and constituted the use of public funds for private purposes which
is specifically proscribed under Section 4 of P.D. 1445. The Auditor reasoned that the Fund is still
owned by the Bank, the Board of Trustees is a mere administrator of the Fund in the same way that
the Trust Services Department where the fund was invested was a mere investor and neither can
the employees, who have still an inchoate interest in the Fund be considered as rightful owner of
the Fund.
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
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ISSUE: Whether or not the distribution of income of the Gratuity Plan Fund (GPF) to future retirees
of DBP make it lose its tax-exempt status
HELD: YES. The Gratuity Plan will lose its tax-exempt status if the retirement benefits are
released prior to the retirement of the employees. The trust funds of employees other than those
of private employers are qualified for certain tax exemptions pursuant to Section 60(B), formerly
Section 53(b), of the National Internal Revenue Code.
The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be
released only upon retirement under the Plan. If the earnings and principal of the Fund are
distributed to DBP employees prior to their retirement, the Gratuity Plan will no longer qualify for
exemption under Section 60(B). To recall, DBP Resolution No. 794 creating the Gratuity Plan
expressly provides that since the gratuity plan will be tax qualified under the National Internal
Revenue Code xxx, the Banks periodic contributions thereto shall be deductible for tax purposes
and the earnings therefrom tax free. If DBP insists that its employees may receive the
P11,626,414.25 dividends, the necessary consequence will be the non-qualification of the Gratuity
Plan as a tax-exempt plan.
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agent pursuant to Section 50, and paid in the same manner and subject to the same conditions as
provided for in Section 51.
Two types of taxes are involved in the present controversy: (1) the GRT, which is a
percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both
taxes. A percentage tax is a national tax measured by a certain percentage of the gross selling price
or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings
derived by any person engaged in the sale of services. It is not subject to withholding. An income
tax, on the other hand, is a national tax imposed on the net or the gross income realized in a
taxable year. It is subject to withholding.
In a withholding tax system, the payee is the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts as no more than an agent of the government for the
collection of the tax in order to ensure its payment. Obviously, this amount that is used to settle
the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds
are either actual or constructive.
In our withholding tax system, possession is acquired by the payor as the withholding agent
of the government, because the taxpayer ratifies the very act of possession for the government.
There is thus constructive receipt. There being constructive receipt of such income part of which
is withheld RR 17-84 applies, and that income is included as part of the tax base upon which the
GRT is imposed.
2. There is NO double taxation. Double taxation means taxing the same property twice
when it should be taxed only once; that is, ". . . taxing the same person twice by the same
jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should
be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on
the same subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same kind or character.
First, the taxes herein are imposed on two different subject matters. The subject matter of
the FWT is the passive income generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is the privilege of engaging in the business of
banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise rather than a property tax. It is not an income tax, unlike the FWT.
Second, although both taxes are national in scope because they are imposed by the same
taxing authority the national government under the Tax Code and operate within the same
Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are
different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor
withheld, but is paid only after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.
Tax Exemption of Special Economic Zones
JOHN HAY PEOPLES ALTERNATIVE COALITION vs. VICTOR LIM
[G.R. No. 119775. October 24, 2003.]
CARPIO MORALES, J:
FACTS: Assailed in this case is Proclamation No. 420 issued by then Pres. Ramos in pursuance to
Republic Act No. 7227 which seeks to convert military bases such as Subic, Clark & Camp John Hay
into other productive uses. R.A. No. 7227 created the Subic Special Economic [and Free Port] Zone
(Subic SEZ) which under Sec. 12 thereof, granted the Subic SEZ incentives ranging from tax and
duty-free importations, exemption of businesses therein from local and national taxes, to other
hallmarks of a liberalized financial and business climate. R.A. No. 7227 expressly gave authority to
the President to create through executive proclamation, subject to the concurrence of the local
government units directly affected, other Special Economic Zones (SEZ) including Camp John Hay.
Subsequently, the Sanggunian of Bagiuo passed Resolution No. 255, seeking and supporting,
subject to its concurrence, the issuance by then President Ramos of a presidential proclamation
declaring an area of 288.1 hectares of the camp as a SEZ in accordance with the provisions of R.A.
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
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No. 7227. Then President Ramos issued Proclamation No. 420, which established a SEZ on a portion
of Camp John Hay providing for, among others, the same incentives granted to Subic.
Petitioners challenged the constitutionality and validity of Presidential Proclamation 420 in
so far as it grants tax exemptions. They contend that nowhere in RA 7227 can it be found an
express provision granting such tax exemption to Camp John Hay as a SEZ.
ISSUE: Whether Proclamation No. 420 is constitutional by providing for national and local tax
exemption within and granting other economic incentives to the John Hay Special Economic
Zone.
HELD: NO. Proclamation No. 420 is unconstitutional. Nowhere in R.A. No. 7227 is there a grant of
tax exemption to SEZs yet to be established in base areas, unlike the grant under Section 12
thereof of tax exemption and investment incentives to the therein established Subic SEZ. The grant
of tax exemption to the John Hay SEZ thus contravenes Article VI, Section 28(4) of the Constitution,
which provides that "No law granting any tax exemption shall be passed without the concurrence of
a majority of all the members of Congress.
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ that was granted
by Congress with tax exemption, investment incentives and the like. There is no express extension
of the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt
any person or corporation or class of property from taxation, its power to exempt being as broad as
its power to tax. Other than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from local taxes.
The claimed statutory exemption of the John Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on which it is based; it must be expressly granted in a
statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must
be categorically and unmistakably expressed. If it were the intent of the legislature to grant to the
John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so
expressly provided in the R.A. No. 7227.
Percentage tax on pawnshops; Validity of Revenue Memorandum Orders and Circulars
COMMISSIONER OF INTERNAL REVENUE vs. MICHEL J. LHUILLIER PAWNSHOP, INC.
[G.R. No. 150947. July 15, 2003.]
DAVIDE, JR., C.J:
FACTS: On 11 March 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91
imposing a 5% lending investor's tax on pawnshops because the principal activity of pawnshops is
lending money at interest and incidentally accepting a "pawn" of personal property delivered by the
pawner to the pawnee as security for the loan.
This RMO was clarified by Revenue Memorandum Circular (RMC) No. 43-91 on 27 May 1991,
providing for a uniform cut-off date, that is January 1, 1991 and also subjecting pawnshops to
documentary stamp taxes.
Pursuant to these issuances, the BIR issued an assessment notice against Lhuillier
demanding payment of deficiency percentage tax for 1994 inclusive of interest and surcharges.
Lhuillier filed an administrative protest with the Office of the Revenue Regional Director
contending that (1) neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on
the gross income of pawnshops; (2) pawnshops are different from lending investors; (3) RMO No. 1591 impliedly amends the Tax Code and is therefore taxation by implication, which is proscribed by
law; and (5) RMO No. 15-91 is a "class legislation" because it singles out pawnshops among other
lending and financial operations.
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ISSUES:
1. Are pawnshops included in the term lending investors for the purpose of imposing the
5% percentage tax under then Section 116 of the National Internal Revenue Code (NIRC)
of 1977, as amended by Executive Order No. 273?
2. Are RMO No. 15-91 and RMC No. 43-91 valid?
HELD: 1. NO. Pawnshops are not subject to the 5% lending investors tax. Under Section 157(u) of
the NIRC of 1986, as amended, the term lending investor includes "all persons who make a practice
of lending money for themselves or others at interest." A pawnshop, on the other hand, is defined
under Section 3 of P.D. No. 114 as "a person or entity engaged in the business of lending money on
personal property delivered as security for loans and shall be synonymous, and may be used
interchangeably, with pawnbroker or pawn brokerage."
While it is true that pawnshops are engaged in the business of lending money, they are not
considered "lending investors" for the purpose of imposing the 5% percentage taxes for the following
reasons:
First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977,
prior to its amendment by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd)
and (ff), of the NIRC of 1986, pawnshops and lending investors were subjected to different tax
treatments
Second. Congress never intended pawnshops to be treated in the same way as lending
investors. We note that the definition of lending investors found in Section 157 (u) of the NIRC of
1986 is not found in the NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked by
the CIR is found.
Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage
tax dealers in securities and lending investors only. There is no mention of pawnshops. Under the
maxim expressio unius est exclusio alterius, the mention of one thing implies the exclusion of
another thing not mentioned.
Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 4391 that pawnshops were not subject to the 5% percentage tax imposed by Section 116 of the NIRC
of 1977, as amended by E.O. No. 273.
2. NO. RMO No. 15-91 and RMC No. 43-91 are invalid. Since Section 116 of the NIRC of 1977,
which breathed life on the questioned administrative issuances, had already been repealed, RMO
15-91 and RMC 43-91, which depended upon it, are deemed automatically repealed. Hence, even
granting that pawnshops are included within the term lending investors, the assessment from 27
May 1994 onward would have no leg to stand on. Adding to the invalidity of the RMC No. 43-91 and
RMO No. 15-91 is the absence of publication. While the rule-making authority of the CIR is not
doubted, like any other government agency, the CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative powers.
A legislative rule is in the nature of subordinate legislation, designed to implement a
primary legislation by providing the details thereof. An interpretative rule, on the other hand, is
designed to provide guidelines to the law which the administrative agency is in charge of enforcing.
When an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance, for it gives no real consequence more than what the law
itself has already prescribed. When, on the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the implementation of the
law but substantially increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter to be duly informed, before
that new issuance is given the force and effect of law.
Without these disputed CIR issuances, pawnshops would not be liable to pay the 5%
percentage tax, considering that they were not specifically included in Section 116 of the NIRC of
1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of the
requirements of notice, hearing, and publication should not have been ignored.
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2. Whether or not the RTC did commit any grave abuse of discretion when it denied the
respondent's motion to dismiss on the claim that for the petitioner's failure to appeal
from the 1986 notice of assessment of the Municipal Assessor, the assessment had
become final and enforceable under Section 64 of P.D. No. 464.
3. Whether or not the letters sent to the petitioner by the respondent municipal treasurer
can be considered as notices of assessment.
4. Whether or not the courts are prohibited from entertaining any suit assailing the
validity of a tax assessed under the Real Property Tax Code until the taxpayer shall
have paid, under protest.
HELD:
1. YES, MERALCO is the taxpayer for purposes of assessment and collection. The fact that
NAPOCOR is the present owner of the Sucat power plant machineries and equipment does not
constitute a legal barrier to the collection of delinquent taxes from the previous owner, MERALCO,
who has defaulted in its payment. In Testate Estate of Concordia T. Lim vs. City of Manila, the
Court held that the unpaid tax attaches to the property and is chargeable against the person who
had actual or beneficial use and possession of it regardless of whether or not he is the owner. To
impose the real property tax on the subsequent owner that was neither the owner nor the
beneficial user of the property during the designated periods would not only be contrary to law but
also unjust.
2. NO. The RTC did not commit any grave abuse of discretion when it denied the
respondent's motion to dismiss on the claim that for the petitioner's failure to appeal from the 1986
notice of assessment of the Municipal Assessor, the assessment had become final and enforceable
under Section 64 of P.D. No. 464.
Section 22 of P.D. No. 464 states that, upon discovery of real property, the provincial, city
or municipal assessor shall make an appraisal and assessment of such real property in accordance
with Section 5 of the law, irrespective of any previous assessment or taxpayer's valuation thereon.
An assessment fixes and determines the tax liability of a taxpayer. It is a notice to the
effect that the amount therein stated is due as tax and a demand for payment thereof. The
assessor is mandated under Section 27 of the law to give written notice within thirty days of such
assessment, to the person in whose name the property is declared. For purposes of giving effect to
such assessment, it is deemed made when the notice is released, mailed or sent to the taxpayer. As
soon as the notice is duly served, an obligation arises on the part of the taxpayer to pay the amount
assessed and demanded.
If the taxpayer is not satisfied with the action of the local assessor in the assessment of his
property, he has the right, under Section 30 of P.D. No. 464, to appeal to the Local Board of
Assessment Appeals by filing a verified petition within sixty (60) days from service of said notice of
assessment. If the taxpayer fails to appeal in due course, the right of the local government to
collect the taxes due becomes absolute upon the expiration of such period, with respect to the
taxpayer's property.
Conformably to Section 57 of P.D. No. 464, it is the local treasurer who is tasked with
collecting taxes due from the taxpayer. The duty of the local treasurer to collect the taxes
commences from the time the taxpayer fails or refuses to pay the taxes due, following the latter's
failure to question the assessment in the Local Board of Assessment Appeals and/or to the Central
Board of Assessment Appeals. This, in turn, renders the assessment of the local assessor final,
executory and demandable, thus, precluding the taxpayer from disputing the correctness of the
assessment or from invoking any defense that would reopen the question of its liability on the
merits.
The records, however, are bereft of any evidence showing actual receipt by petitioner of
the real property tax declaration sent by the Municipal Assessor.
3. NO. The letters cannot qualify as notices of tax assessment. A notice of assessment as
provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a
specific property, or proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of properties. The notices do not contain the essential information that
a notice of assessment must specify, namely, the value of a specific property or proportion thereof
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
14
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TAXATION LAW
which is being taxed, nor does it state the discovery, listing, classification and appraisal of the
property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect
unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authorize
the government to auction off the properties subject to taxes.
The petitioner is also correct in pointing out that the last paragraph of the said notices that
inform the taxpayer that in case payment has already been made, the notices may be disregarded
is an indication that it is in fact a notice of collection.
Indeed, respondent did not issue any notice of assessment because statutorily, he is not the
proper officer obliged to do so. Under Chapter VIII, Sections 90 and 90-A of the Real Property Tax
Code, the functions related to the appraisal and assessment for tax purposes of real properties
situated within a municipality pertains to the Municipal Deputy Assessor and for the municipalities
within Metropolitan Manila, the same is lodged, pursuant to P.D. No. 921, on the Municipal
Assessor.
4. YES. The trial court is without authority to address the alleged irregularity in the
issuance of the notices of assessment without prior tax payment, under protest, by petitioner.
Section 64 of the RPTC, prohibits courts from declaring any tax invalid by reason of irregularities or
informalities in the proceedings of the officers charged with the assessment or collection of taxes
except upon the condition that the taxpayer pays the just amount of the tax, as determined by the
court in the pending proceeding. As petitioner failed to make a protest payment of the tax
assessed, any argument regarding the procedure observed in the preparation of the notice of
assessment and collection is futile as the trial court in such a scenario cannot assume jurisdiction
over the matter.
Tax Assessment; Proper Service
ESTATE OF THE LATE JULIANA DIEZ vs. COMMISSIONER OF INTERNAL REVENUE
[G.R. No. 155541. January 27, 2004]
YNARES-SANTIAGO, J:
FACTS: During the lifetime of the decedent, Juliana vda. De Gabriel, her business affairs where
managed by the Philippine Trust Companies (Philtrust). The decedent died on April 3, 1979. Two
days after her death, Philtrust filed her income tax return for 1978 without indicating that the
decedent died. Philtrust also filed a petition for appointment as a special administrator with the
RTC, but the court appointed one of the heirs.
On November 18, 1982, BIR sent by registered mail a demand letter and assessment notice
addressed to the decedent c/o Philippine Trust Companies, Sta. Cruz Manila, which was the
address stated in her 1978 income tax return. Philtrust made no response.
On June 18, 1984, respondent issued warrants of distraint and levy to enforce collection of
the decedents deficiency income tax liability, which were served upon her heir, Francisco Gabriel.
On November 22, 1984, respondent filed a Motion for Allowance of Claim and for an Order of
Payment of Taxes with the court a quo. A letter of protest was filed with the Litigation Division of
the BIR, which was not acted upon because the assessment notice had allegedly become final,
executory and incontestable.
The trial court issued an order denying respondent claim against the estate after finding
that there was no notice of its tax assessment on the proper party. The Appellate Court reversed
the decision claiming that Philtrust in filing the decedents 1978 income tax return had constituted
itself as the administrator of the estate of the deceased at least in so far as the said return is
concerned.
ISSUES:
1. Whether or not there was a proper service of deficiency tax assessment through
Philtrust
2. Whether or not the assessment became final and executory and incontestable.
HELD: 1. NO. There was no proper service. The relationship between the decedent and Philtrust
was one of agency, which is a personal relationship between agent and principal. Under the Civil
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
15
TAXATION LAW
Code, death of the agent or principal automatically terminates the agency. Since the relationship
between Philtrust and the decedent was automatically severed at the moment of the Taxpayers
death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on
Philtrust of the demand letter and Assessment Notice was improperly done. There was absolutely
no legal obligation on the part of Philtrust to either 1) respond to the demand letter and
assessment notice; 2) inform respondent of the decedents death; or 3) inform the petitioner that
it had received said demand letter and assessment notice.
The legal obligation on Philtrust to inform respondent of the decedents death under
Section 104 of the 1977 NIRC pertains only to all cases of transfer subject to tax or where the
gross value of the estate exceeds P3,000. It has absolutely no applicability to a case for
deficiency of income tax, such as the case at bar.
When an estate is under administration, notice must be sent to the administrator of the
estate, since it is the said administrator, as representative of the estate, who has the legal
obligation to pay and discharge all debts of the estate and to perform all orders of the court.
2. NO. Since there was never any valid notice of this assessment, it could not have become
final, executory and incontestable, and, for failure to make the assessment within the five-year
period provided in Section 318 of the National Internal Revenue Code of 1977, respondents claim
against the petitioner Estate is barred.
Tax Assessment; Proper Service
COMMISSIONER OF INTERNAL REVENUE vs. BANK OF THE PHILIPPINE ISLANDS, as liquidator of
PARAMOUNT ACCEPTANCE CORPORATION
[G.R. No. 135446. September 23, 2003.]
CORONA, J:
FACTS: Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount Acceptance
Corporation (PAC), a financing corporation which was dissolved on July 17, 1989. After the
dissolution of the PAC, respondent BPI learned that petitioner CIR filed certain criminal cases
against Horacio V. Poblador and Ramon A. Albert, former president and treasurer of PAC,
respectively, for willful failure to pay the corporation's final deficiency tax assessments for the
years 1981 and 1982.
Respondent informed petitioner that it was willing to compromise and pay the deficiency
tax. At the same time, respondent asked for the withdrawal of the criminal cases against Poblador
and Albert. The parties agreed to settle. Respondent paid to the petitioner a total amount of
P119,815.13.
However, in spite of the payment, petitioner continued to prosecute the criminal cases
against Poblador and Albert: Criminal Cases Nos. 91-5800, 91-5801 and 91-5802, involving the 1981
assessments, before the Regional Trial Court of Makati, Branch 150; and, Criminal Case No. 91-4007
involving the 1982 percentage tax deficiency, pending in the Regional Trial Court of Makati, Branch
143.
Respondent, in a letter to petitioner, pointed out that the assessments were not sent to the
proper address and asked for the refund of the P119,815.13 it paid under the compromise
agreement since the criminal cases against Poblador and Albert were not dropped as agreed upon.
ISSUE: Is PAC liable to pay the tax assessments?
HELD: NO. PAC is not liable. The RTC of Makati City, Branch 143, rendered a decision in Criminal
Case No. 91-4007 acquitting Poblador and Albert of willful failure to pay the corporate percentage
tax deficiency for 1982. Furthermore, a copy of the said decision was served on petitioner by
registered mail, prior to the submission of its memorandum in this case.
In its decision in Criminal Case No. 91-4007, the trial court ruled that the prosecution failed
to establish that PAC was in fact liable for deficiency taxes prior to its liquidation. Assuming
arguendo that there was a deficiency tax for which PAC was liable, petitioners failed to make a
valid assessment on it since the notice of assessment was sent to the PAC's old (and therefore
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
16
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TAXATION LAW
improper) office address. PAC already indicated its new address in its 1986 tax return filed with the
BIR's Makati office. This notwithstanding, petitioner CIR sent the notice of assessment to PAC's old
business address instead of its new address, which was also BPI's (PAC's liquidator) office address.
Since there was a failure to effect a timely valid assessment, the period for filing a criminal
case for PAC's tax liabilities had prescribed by the time petitioner instituted the criminal cases
against PACs former officers.
Case Digests
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TAXATION LAW
an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be
applicable to all leases written on or after the said date." Being clear on its prospective
application, it must be given its literal meaning and applied without further interpretation. Thus,
BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it
received prior to January 1, 1987.
It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are
regarded as in derogation of sovereign authority and are to be strictly construed against the person
or entity claiming the exemption. The burden of proof is upon him who claims the exemption and
he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and
he cannot be permitted to rely upon vague implications.
LOCAL TAXATION
Local Taxation; Validity of a Municipal Ordinance
PALMA DEVELOPMENT CORPORATION vs. MUNICIPALITY OF MALANGAS
[G.R. No. 152492. October 16, 2003.]
PANGANIBAN, J:
FACTS: Petitioner Palma Development Corporation is engaged in milling and selling rice and corn to
wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur as
transshipment point for its goods.
Municipal Revenue Code No. 09, Series of 1993, was passed and approved on August 4,
1994. Section 5G.01 of the ordinance reads:
Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the
municipal road[s] or streets leading to the wharf and to any point along the shorelines within
the jurisdiction of the municipality and for police surveillance on all goods and all equipment
harbored or sheltered in the premises of the wharf and other within the jurisdiction of this
municipality
The service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under
protest. It contended that under Republic Act No. 7160, otherwise known as the Local Government
Code of 1991, municipal governments did not have the authority to tax goods and vehicles that
passed through their jurisdictions.
The trial court declared the entire Municipal Revenue Code No. 09 as ultra vires and,
hence, null and void. The CA held that local government units already had revenue-raising powers
as provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purview
of these provisions and therefore valid is Section 5G.01, which provides for a "service fee for
the use of the municipal road or streets leading to the wharf and to any point along the shorelines
within the jurisdiction of the municipality" and "for police surveillance on all goods and all
equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of
this municipality."
ISSUE: Is Section 5G.01 of Municipal Revenue Code No. 09 valid?
HELD: NO. The imposition of a service fee for police surveillance on all goods harbored or
sheltered in the premises of the municipal port of Malangas under Sec. 5G.01 of the Malangas
Municipal Revenue Code No. 09, series of 1993, is NULL AND VOID for being violative of Republic Act
No. 7160.
By express language of Sections 153 and 155 of RA No. 7160, local government units,
through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or
charges for the use of any public road, pier or wharf funded and constructed by them. A service fee
imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section
133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as all
other taxes or charges in any form whatsoever on goods or merchandise.
It is therefore irrelevant if the fees imposed are actually for police surveillance on the
goods, because any other form of imposition on goods passing through the territorial jurisdiction of
the municipality is clearly prohibited by Section 133(e).
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
18
Case Digests
TAXATION LAW
Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed against the
cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure
received and/or discharged by vessel." It is apparent that a wharfage does not lose its basic
character by being labeled as a service fee "for police surveillance on all goods."
Case Digests
19
TAXATION LAW
20
Case Digests
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Case Digests
TAXATION LAW
21
Penalty
If a withholding agent like NDC fails to withhold the requisite withholding tax on the
income received from Philippine sources by a Japanese non-resident foreign corporation, such
withholding agent (NDC) is liable to pay the tax that it did not withhold as "penalty" for its failure
to withhold the tax of the foreign corporation. [National Development Co. vs. CIR. GR No. L
53961. June 30, 1987]
License Fees
To be considered a license fee, the imposition questioned must relate to an occupation or
activity that so engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not only the cost of
direct regulation but also its incidental consequences as well. Accordingly, a charge of a fixed sum
which bears no relation at all to the cost of inspection and regulation may be held to be a tax
rather than an exercise of the police power. [Progressive Development Co. vs Quezon City. GR
No. 36081. April 24, 1989]
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
22
Case Digests
TAXATION LAW
If the purpose is primarily revenue or if revenue is at least one of the real and substantial
purposes, then the exaction is a tax. Hence, motor vehicle registration fees are taxes because the
legislative intent is mainly to raise funds for the construction and maintenance of highways and, to
a much lesser degree, to pay for the expenses of the Land transportation Office, a regulatory
agency of the Government. [Philippine Airlines Inc. vs. Edu. GR No. L41383, August 15, 1988]
While it is true that the first part which requires that the alien shall secure an employment
permit from the Mayor involves the exercise of discretion and judgment in the processing and
approval or disapproval of applications for employment permits and therefore is regulatory in
character, the second part which requires the payment of P50.00 as employees fee is not
regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens
who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise
money under the guise of regulation. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646.
November 10, 1978]
Judging from the amount of the fees fixed in the ordinances in question, the so-called fees
were in reality taxes for city revenue. The fees cannot possibly be considered as mere expense
incurred for, or the cost of the inspection of each animal and the issuance of the corresponding
permit. There would be no doubt that the fees collected would amount to a sizable sum and
augment greatly the revenues of the municipal corporation. [Saldana vs. City of Iloilo GR No. L
10470. June 26, 1958]
Incidentally, exemption from tax does not include building permit fee and special
assessments as these are not taxes but regulatory fees in the case of the license fee, and levy on
account of benefits to land for the special assessments. [Apostolic Prefect of the Mountain
Province vs. City Treasurer of Baguio. GR No. 47252. April 18, 1941]
The amount of exaction or charge, if it is to be a license fee, must only be of a sufficient
amount to include expenses of (1) issuing the license; and (2) cost of necessary inspection or police
surveillance. [Cuunjieng vs. Patstone. GR No. 16254. February 21, 1922]
Case Digests
TAXATION LAW
23
be set off against the taxpayer's real estate tax liability to the City of Pasay was the amount of
money that the taxpayer was supposed to receive as payment for his property that was
expropriated by the National Government. Taxes are not subject to compensation. [Francia vs.
Intermediate Appellate Court. GR No. L67649. June 28, 1988]
In this case, what appeared to be a due and demandable debt of the Government to the
estate of the late Walter Scott Price, as payment for the latter's services, was allowed as a set-off
against the transfer taxes due from the decedent's estate. The Court opined, citing Arts. 1279 and
1290 of the Civil Code, that when two obligations are both due and demandable and all the
requisites for a valid compensation are present, compensation of the two obligations takes effect
by operation of law. [Domingo vs. Carlitos. GR No. L18994. June 29, 1963]
Both a license fee and tax may be imposed on the same business or occupation for selling
the same article and this is not in violation of the rules against double taxation. [Compania vs.
General de Tobacos de Filipinas. GR No. L16619. June 29, 1963]
TAXPAYERS SUIT
A duly elected Senator of the Philippines and a taxpayer thereof has the legal capacity to
file an action for certiorari, prohibition and mandamus to question the legality of a claimed refund
of indirect taxes like the tax on oil products, since the refund itself, if found to be without legal
basis, constitutes an illegal expenditure of public funds. [Maceda vs. Macaraig. GR No. 88291.
June 8, 1993]
The right of a taxpayer to file an action questioning the validity or constitutionality of a
statute or law has been recognized, on the theory that the expenditure of public funds by an
officer of the Government for the purpose of administering or implementing an unconstitutional or
invalid law, constitutes a misapplication of such funds.
The present case, however, is not an action to question the constitutionality or validity or a
statute or law. It is an action to annul and set aside the "Agreement to Arbitrate". Hence,
petitioners have no legal standing to file the petition. [Gascon vs. Arroyo. GR No. 78389. October
16, 1989]
24
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TAXATION LAW
Public Purpose
Generally, under the express and implied provisions of the constitution, public funds may
be used only for a public purpose. The right of the legislature to appropriate public funds is
correlative with its right to tax, and, under constitutional provisions against taxation except for
public purposes and prohibiting the collection of tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than a public purpose.
[Pascual vs. Sec. of Public Works. GR No. L10405. December 29, 1960]
The promotion of general welfare is the State's paramount concern. Thus, a law imposing a
tax on sugar produced by sugar centrals for the purpose of using the proceeds thereof in the
rehabilitation and upliftment of the sugar industry is a tax levied for a public purpose. [Lutz vs.
Araneta. GR No. L7859. December 22, 1955]
In the imposition of taxes, public purpose is presumed. Hence, where an ordinance did not
specifically state the purpose for which the tax was to be used, it is presumed that said tax is
created for a public purpose. [Mendoza Santos and Co. vs. Municipality of Meycauayan. GR No.
L6069. April 30, 1954]
Case Digests
TAXATION LAW
25
The city can tax the sale of matches where shipments or deliveries are made directly to
customer outside the city provided the sales are booked and paid for in the city to a carrier for
shipment to the buyer. Generally, delivery to the carrier is delivery to the buyer. [Philippine
Match Co., Ltd. vs. City of Cebu. GR No. L30745. January 18, 1978]
In case of additional sales tax on the sale of fuels and oils, said tax may not be applied to
deliveries outside the municipality since the consummation of the sale is determined by the
delivery of the things which are the subject matter of the contract. The situs of the sale for tax
purposes is not the place where the contract of sale is perfected but the place of its
consummation. [The Shell Co. of the Philippines, Ltd. vs. Municipality of Sipocot. GR No. L
12680. March 20, 1959]
The shares of stock left behind by a non-resident alien decedent in an anonymous
partnership in the Philippines are subject to Philippine inheritance tax notwithstanding the mobilia
rule. The mobilia rule should yield to reason. The shares of stock are also taxable in the situs of
their actual location, i.e., the Philippines. [Wells Fargo Bank & Union Trust Co. vs. Collector of
Internal Revenue. GR No. 46720. June 28, 1940]
In case of fire insurance covering property situated in the Philippines, even though the
insurance contract was executed outside the Philippines, said premiums are taxable against the
insurer in the Philippines because the Philippine Government must get something in return for the
protection it gives to the insured property in the Philippines, and by reason of such protection, the
insurer is benefited thereby. [Manila Electric Co. vs. Yatco. GR No. 45697. November 1, 1939]
CONSTITUTIONAL LIMITATIONS
26
Case Digests
TAXATION LAW
is in conflict with the interests of such taxpayer. [Maceda vs. Macaraig. GR No. 88291. May 31,
1991]
When tax turns out to be of a confiscatory nature, such an imposition could very well be
considered as being violative of the due process principle. Due process clause in the Constitution
may be invoked where a tax statute is so arbitrary that it finds no support in the Constitution.
The taxing power has the authority to make reasonable and natural classification for
purposes of taxation but the Government's act must not be prompted by a spirit of hostility or, at
the very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different both in privileges conferred and the
liabilities imposed. [Reyes vs. Almanzor. GR Nos. 49839-46. April 26, 1991]
Due process was not violated when the VAT law (E.O. 273) was promulgated because there
was no grave abuse of discretion incident to its promulgation. Petitioners failed to show that E.O
273 was issued capriciously and whimsically or in an arbitrary or despotic manner by passion or
personal hostility since it appears that a comprehensive study of the VAT was made before E.O. 273
was issued. [Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan. GR No.
81311. June 30, 1988]
The Modified Schedular Income Tax whereby individual income was classified into three
different classes under different tax rates is not a denial of due process because there is no proof
of arbitrariness in the imposition of tax rates. [Sison, Jr. vs. Ancheta. GR No. 59431. July 25,
1984]
Due process was not observed when the trial court, an action for declaratory relief,
declared that certain property owned by the Roman Catholic Church in Bangued, Abra was taxexempt under the 1973 Constitution, it appearing that no court hearing was conducted thereon.
[Province of Abra vs. Hernando. GR No. L49336. August 31, 1981]
There is a denial of due process on account of the passage of an ordinance in the City of
Manila which imposes a permit fee of P50.00 on aliens as a condition to employment or engaging in
any business or occupation, where it appears that under said ordinance, the City Mayor of Manila
could withhold or refuse issuance of such permit at will. Aliens, once admitted in the Philippines,
cannot be deprived of life without due process of law and this guarantee includes the means of
livelihood. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646. November 10, 1978]
A law (R.A. 3843) which imposes a preferential franchise tax rate of 2% on a particular
franchise grantee while other franchise grantees are subject to 5% is not violative of the equal
protection or equality of taxation rule in the Constitution. The legislature has the inherent power
not only to select the subjects of taxation but also to grant tax exemptions. [CIR vs. Lingayen
Gulf. GR No. L23771. August 4, 1988]
The VAT law does not discriminate unduly against customs brokers who are subject to said
tax. The exclusion of said brokers from the exemption granted to professionals under Sec. 103 (r) of
the Tax Code is justified by the fact that customs brokers differ from tax-exempt professionals
considering that the activities of customs brokers partake of the nature of a business rather than a
profession. [Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan. GR No.
81311. June 30, 1988]
The schedular income tax which imposes graduated rates from 0% to 35% without
deductions on compensation of individuals, and a rate scheme of from 5% to 60% on business and
other income with deductions does not violate rule on equal protection clause since there is no
infirmity if classifications are made to rest on substantial distinctions. [Sison, Jr. vs. Ancheta. GR
No. 59431. July 25, 1984]
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
27
Where it appears that Sec. 109 of the Tax Code (before its implied repeal) which required
skimmed milk manufacturers to place a warning sign on their products stating that skimmed milk is
"not suitable for feeding infants less than one year" is enforced only against manufacturers of
evaporated filled milk and not against makers of condensed skimmed milk like SIMILAC, SMA or
BREMIL, such action is discriminatory and is a denial of equal protection of the law. [Vera vs.
Cuevas. GR No. L33693-94. May 31, 1979]
Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular delegation. The amount of P50.00 collected
from every employed alien, whether he is casual or permanent, part time or full time or whether
he is lowly employee or a highly paid executive, is unreasonable because it fails to consider valid
substantial differences in situation among individual aliens. [Villegas vs. Hiu Chiong Tsai Pao Ho.
GR No. L-29646. November 10, 1978]
The fact that the taxpayer is the only sugar central or refiner in the municipality where the
tax ordinance is enacted does not make said ordinance discriminatory. The reason for this is that
since other refineries to be established in the future would also be taxable, no singling out of the
taxpayer to its disadvantage has ever taken place. [Victorias Milling vs. Municipality of
Victorias. GR No. L21183. September 27, 1968]
A tax ordinance levied on centrifugal sugar milled by Ormoc Sugar Co., mentioning only this
company by name is discriminatory. The ordinance does not satisfy the requisites of reasonable
classification. Although Ormoc Sugar was the only sugar central existing at that time, the ordinance
is defective because even if similar company is later set up, it cannot be subject to the tax since
the ordinance specifically points to Ormoc as the one to be taxed. [Ormoc Sugar Co. Inc. vs.
Treasurer of Ormoc. GR No. L23794. February 17, 1968]
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates
discrimination within a class in that while professionals with offices in manila have to pay the tax,
outsiders who have no offices in the city but practice their profession therein are not subject to the
tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the
tax upon every person exercising or pursuing in the City of Manila naturally any one of the
occupations named, but does not say that such person must have his office in manila. What
constitutes exercise or pursuit of a profession in the city is a matter of judicial determination.
[Punsalan vs. Municipal Board of the City of Manila. GR No. L4817. May 26, 1954]
A tax on "installation manager" is not discriminatory just because at the time said tax was
imposed, there was no other person in the locality who exercised such occupation. The tax is and
will be applicable to any person or firm who exercises such calling or occupation designated as
installation manager. [Shell Co. of the Philippines vs. Vano. GR No. L6093. February 24, 1954]
A local ordinance which levies an ad valorem tax on motor vehicles registered in Manila
without also taxing those which are registered outside the city but which enter the city and use its
streets occasionally violates the rule on the equality of taxation. [Association of Customs Brokers
vs. Municipality Board. GR No. L4376. May 22, 1953]
The remission or condonation of taxes due and payable to the exclusion of taxes already
collected does not constitute unfair discrimination. Each set of taxes is a class by itself and the law
would be open to attack as a class legislation only if all taxpayers belonging to one class were not
treated alike. [Juan Luna Subdivision, Inc. vs. Sarmiento. GR No. L3538. May 28, 1952]
28
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TAXATION LAW
of a preacher. It is quite another thing to exact a tax on him for delivering a sermon. [Philippine
Airlines, Inc. vs. Secretary of Finance. GR No.115852. Oct.30, 1995]
A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit
missionary organization at a little profit constitutes a curtailment of religious freedom and worship
which is guaranteed by the Constitution. [American Bible Society vs. City of Manila. GR No. L
9637. April 30, 1957]
Non-impairment of Contracts
The constitutional prohibition of the impairment of the obligation of contracts does not
prohibit every change in existing laws. To fall within the prohibition, the change must not only
impair the obligation of the existing contract, but the impairment must be substantial. Moreover,
to constitute impairment, the law must affect a change in the rights of the parties with reference
to each other and not with respect to non-parties. [Philippine Rural Electric Cooperatives Assoc.
Inc. vs. Secretary of DILG. GR No. 143076. June 10, 2003]
Non-impairment may not be invoked in the case of a public utility franchise grantee. This is
so because under Sec. 8, Art. XIV of the 1935 Constitution and Sec. 5, Art. XIV of the 1973
Constitution (now, Sec. 11, Art. XII, 1987 Constitution), the legislature can impair a grantee's
franchise since a franchise is subject to amendment, alteration or repeal by the Congress when the
public interest so requires. [Cagayan Electric Power and Light Co. vs. CIR. GR No. 60216.
September 25, 1985]
Where a mining concession was granted under a Royal Decree and where it appears that
under said decree no other taxes except those mentioned therein shall be imposed on mining and
metallurgical industries, the levy of a tax on said mining claim plus an ad valorem tax on mineral
output under a subsequent law (Act 1189) constitute an impairment of contract because a mining
concession is a contract. [Casanovas vs. Hord. GR No. L3473. March 22, 1907]
Tax Exemption of Properties Actually, Directly and Exclusively Used for Religious,
Charitable and Educational Purposes
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
29
The test of exemption from taxation is the use of the property for the purposes mentioned
in the Constitution. For purposes of tax exemption, "use" overrides "ownership" such that if
property, although actually owned by a religious, charitable or educational institution, is actually
used for non-exempt purpose, the exemption from tax of said property vanishes.
For tax exemption purposes, the term exclusively used is not limited to total or absolute
use for religious, charitable or educational purposes. If the property is incidentally used for the
aforementioned purposes, it is clear from decided cases that tax exemptions may still subsist.
Where the main building of an educational institution is used both as classrooms for its high
school and college students as well as residence of the School Director and his family, the tax
exempt character of such property remains despite the fact that it is used as such, as the same may
be justified as being only incidental or complementary to its main or primary purpose of providing
education to its students. [Abra Valley College Inc. vs. Aquino. GR No. L39086. June 15, 1988]
The present Constitution added charitable institutions, mosques and non-profit
cemeteries and required that for the exemption of lands, buildings and improvements, they
should not only be exclusively but also actually and directly used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It must duly
taken into consideration. Reliance on past decisions would have sufficed were the words actually
as well as directly not added. There must be proof therefore of the actual and direct use of the
lands, buildings and improvements for religious or charitable purposes to be exempt from taxation.
[Province of Abra vs. Hernando. GR No. L49336. August 31, 1981]
The constitutional provision, Sec. 28(3), Art. VI, 1935 Constitution, which grants tax
exemption applies only to property or realty taxes assessed on such properties used directly,
actually and exclusively for religious, charitable and educational purposes. It does not apply to
donor's and donee's gift on the cash donation for the church building. [Lladoc vs. Commissioner of
Internal. GR No. L19201. June 16, 1965]
Exclusive use for educational purposes includes, as in the case of a hospital, a school for
training nurses, home and housing facilities for interns, resident doctors, superintendents and other
members of the hospital staff, recreational facilities, etc.
The admission of pay patients does not detract from the charitable character of the
hospital if all the funds are devoted exclusively to the maintenance of the charitable institution as
a public charity. The fact that the hospital which is a charitable institution admits pay patients
does not bar it from claiming that it is devoted exclusively to benevolent purposes if it appears that
the income derived from pay patients is devoted to the improvement of the charity wards which
represents almost two-thirds of the total bed capacity aside from "out charity" patients who come
only for consultation. (See also Commissioner vs. Bishop of the Missionary District. GR No. L19445.
August 31, 1965) [Herrera vs. Quezon City Board of Assessment Appeals. GR No. L15720.
September 30, 1961]
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Case Digests
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Case Digests
TAXATION LAW
31
Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity. In the present case, although the taxpayer would have to pay two
taxes on the same income but the Philippine government only receives the proceeds of one tax,
there is no obnoxious double taxation. [CIR vs. V.E. Lednicky. GR No. L-18169. July 31, 1964]
TAX EXEMPTIONS
The NPC is not excluded from the coverage of the franchise tax notwithstanding that its tax
are wholly owned by the national government and its charter characterize it non-profit
organization. To stress, a franchise tax is imposed based not on ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation, not the
individual stockholders. By virtue of its charter NPC was created as a separate and distinct entity
from the national government thus the ownership by the national government of its entire capital
stock does not necessarily imply that NPC is not engaged in business. [National Power Corporation
vs. City of Cabanatuan. GR No. 149110. April 9, 2003]
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 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 his
previously untaxed income and must have paid the corresponding tax on such previously untaxed
income.
A tax amnesty, much like a tax exemption, is never favored nor presumed in law and 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 taxing authority. [Baas vs. Court of
Appeals. GR No. 102967. February 10, 2000]
The National Power Corporation (NPC), a government controlled corporation, could
justifiably claim for the refund of the tax on pertroleum products that it had purchased from
several oil companies, where it appears that under a number of tax exemption laws and
presidential decrees enacted for said entity, its exemption from the payment of said taxes was
clearly shown.
It should be noted in this connection that this rule on strict interpretation also does not
apply in case of exemptions granted in favor of a government political subdivision or
instrumentality like public corporations. [Maceda vs. Macaraig. GR No. 88291. June 8, 1993]
The salaries of the Chief Justice and Associate Justices of the Supreme Court as well as
those judges of inferior courts are taxable. The clear intent of the Constitutional Commission was
to delete the proposed express grant of exemption from payment of income tax to members of the
judiciary, so as to give substance to equality among the three branches of Government. In the
course of the deliberations in the Constitutional Commission, it was expressly made clear that the
salaries of the members of the judiciary would be subject to general income tax applied to all
taxpayers. [Nitafan vs. CIR. GR No. L-78780. July 23, 1987]
The Congress could impair petitioners legislative franchise by making it liable for income
tax which heretofore it was exempted by virtue of the exemption provided for in Section 3 of its
franchise. The Constitution provides that a franchise is subject to amendment, alteration, or
repeal by the Congress. [Cagayan Electric Co. vs. Commissioner. GR No. L601026. September
25, 1985]
Under Section 29 of the Charter of the City of Bacolod, the properties in question, which
are concededly owned by the government, are exempt from realty taxes. It bears emphasis that the
said section does not contain any qualification whatsoever in providing for the exemption from real
estate taxes of "lands and buildings owned by the Commonwealth or Republic of the Philippines."
Hence, when the legislature exempted lands and buildings owned by the government from payment
of said taxes, what it intended was a broad and comprehensive application of such mandate,
regardless of whether such property is devoted to governmental or proprietary purpose.
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
32
Case Digests
TAXATION LAW
Furthermore, PD No. 24, which amended the Social Security Act of 1954, has already removed all
doubts as to the exemption of the SSS from taxation. [Social Security System vs. City of Bacolod.
GR No. L-35726. July 21, 1982]
Tax exemptions are strictly construed against the taxpayer, they being highly disfavored.
He who claims an exemption must be able to point to some positive provision of law creating the
right; it cannot be allowed to exist upon a mere vague implication or inference. One who claims to
be exempt from the payment of a particular tax must do so under clear and unmistakable terms
found in the statute. The right of taxation will not be held to have been surrendered unless the
intention to surrender is manifested by words too plain to be mistaken. [Manila Electric Company
vs. Vera. GR No. L-29987. October 22, 1975]
If two meanings of a stipulation are admissible, that which is least to the advantage of the
party for whose benefit the stipulation was inserted in the treaty should be preferred. Thus, an
ambiguity in the tax exemption provision in the Military Bases Agreement cannot be interpreted in
favor of the American Government or the party claiming under it, like a taxpayer. It is well-settled
that the exception contained in tax statutes must be strictly construed against the one claiming
exemption 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. [CIR vs. P.J. Kiener Company, Ltd. GR No. L24754. July 18, 1975]
In the case of two electric power plants, which are operating in the same locality, it cannot
be presumed that the exemption of one should also be enjoyed by the other. The legal principle on
the matter is firmly established and well-observed: for exemption to be recognized, the grant must
be clear and expressed, it cannot be made to rest on vague implications. [Davao Light & Power
Co. vs. Commissioner of Customs. GR No. L-28739. March 29, 1972]
The exemption from income tax on Base-connected income of non-resident American Base
personnel under the U.S. Bases Treaty does not extend to the income realized from the sale by an
American civilian Base employee of his car inside the Base to another American national. (See also
CIR vs. Robertson. GR Nos. L-70116-19. August 12, 1986.) [Reagan vs. CIR. GR No. L-26379.
December 27, 1969]
Exemption from taxation is not favored and is never presumed; in fact, if it is granted, the
grant must be strictly construed against the taxpayer. Affirmatively put, the law requires courts to
frown on alleged exemptions from taxation, hence, an exempting provision in a legislative
enactment should be construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority. Taxation is the rule and tax exemption is the exception. (See also Lealda Electric
Co., Inc. vs. CIR. GR No. L-16428. April 30, 1963; Wonder Mechanical Engineering Corp. vs. CTA. GR
Nos. L-22805 & L-27858. June 30, 1975; and CIR vs. Mitsubishi Metal Corp.. GR No. 54908. January
22, 1990.) [Rodriguez, Inc. vs. Collector of Internal Revenue. GR No. L-23041. 31 July 1969]
The condonation of a tax liability is equivalent and is in the nature of a tax exemption.
Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended
beyond the plain meaning of those terms. [Surigao Consolidated Mining Co., Inc. vs. Collector.
GR No. L-14878. December 26, 1963]
The exemption clause provided for in Section 3 of RA No. 79 merely intends to exempt the
racing club in whose premises or tracks the races are held by the Philippine Charity Sweepstakes
Office from the payment of required municipal or national taxes in connection with said races. It
cannot refer to any income tax that may be imposed on the rentals that may be paid for the use of
those tracks and other paraphernalia. That is an income that the racing club has to account for
income tax purposes. It is an income that, strictly speaking, did not come from the horse races held
by said club but it came to it as rentals paid for the use of its property. The tax paid for such
income cannot therefore be considered as one connected with those races within the purview of
the exemption clause. [Manila Jockey Club, Inc. vs. Collector of Internal Revenue. GR No. L8755. March 23, 1956]
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
33
34
Case Digests
TAXATION LAW
Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred
from the circumstances of the case. The failure of the appellant to declare for taxation purposes
his true and actual income derived from his furniture business for two consecutive years is an
indication of his fraudulent intent to cheat the Government of its taxes. [Republic vs. Gonzales.
GR No. L-17962. April 30, 1965]
The acts of the petitioner in declaring as incomes in his income tax returns for three years
amounts representing only small fractions of his actual incomes, justify the finding of the lower
court that there has been fraud subject to be penalized by law.
Where the petitioner has been guilty of fraud, the period within which he may be subject to
liability begins from the moment the fraud is discovered and not when the income tax return was
filed. [Avelino vs. Collector of Internal Revenue. GR No. L-17715. July 31, 1963]
Case Digests
TAXATION LAW
35
It is a well-established rule that a statute will not be construed as imposing a tax unless it
does so clearly, expressly and unambiguously. A tax cannot be imposed without clear and express
words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are
not to be extended by implication. [Marinduque Iron Mines vs. Municipality of Hinabangan. GR
No. L-18924. June 30, 1964]
In every case of doubt, tax statutes are construed most strongly against the Government
and in favor of the citizens, because burdens are not to be imposed beyond what the statutes
expressly and clearly import. [Collector of Internal Revenue vs. La Tondea. GR No. L-10431.
July 31, 1962]
PUBLICATION REQUIREMENT
Executive and administrative orders and proclamations shall be published in the Official
Gazette, except such as have no general applicability. CMO No. 20-87 requiring collectors of
customs to comply strictly with Section 12 of the Plan, is an issuance which is addressed only to
particular persons or a class of persons (the customs collectors). It need not be published, on the
assumption that it has been circularized to all concerned. [Yaokasin vs. Commissioner of
Customs. GR No. 84111. December 22, 1989]
The following require publication as a condition for their effectivity: statutes, including
those of local application and private laws, presidential decrees and executive orders promulgated
by the President in the exercise of legislative powers, and administrative rules and regulations if
their purpose is to enforce or implement existing law pursuant to a valid delegation.
However, interpretative regulations and those merely internal in nature, that is, regulating
only the personnel of the administrative agency and not the public, need not be published. Neither
is publication required of the so-called letters of instructions issued by administrative superiors
concerning the rules or guidelines to be followed by their subordinates in the performance of their
duties. [Taada vs. Tuvera. GR No. 63915. December 29,1986]
When an administrative agency renders an opinion by means of a circular or memorandum
it merely interprets a pre-existing law and no publication is required for its validity. [Romualdez
vs. Arca. GR No. L-25924. April 18, 1969]
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Case Digests
TAXATION LAW
connection, that the Internal Revenue Code, being a special law, prevails over a general law.
[Republic vs. Gancayco. GR No. L-18307. June 30, 1964]
TAX REGULATIONS
A Revenue Memorandum Circular issued by the Commissioner of Internal Revenue changing
the prescriptive period of two years to ten years on claims of excess quarterly income tax payments
creates a clear inconsistency with the provision of Section 230 of the 1977 NIRC. In so doing, the
BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed
by Congress.
Revenue memorandum circulars are considered administrative rulings (in the sense of more
specific and less general interpretations of tax laws) which are issued from time to time by the CIR.
It is widely accepted that the interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to greater respect by the courts. Nevertheless, such interpretation
is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony
with, the law they seek to apply and implement. [Philippine Bank of Communications vs. CIR. GR
No. 112024. January 28, 1999]
Without RMC 37-93, the enactment of RA 7654 would have had no new tax rate
consequence on private respondents products. Evidently, in order to place Hope Luxury,
Premium More and Champion cigarettes within the scope of the amendatory law and subject
them to an increased tax rate, the disputed RMC 37-93 had to be issued. In so doing, the BIR not
simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due
observance of the requirements of notice, hearing and publication should not have then ignored.
[CIR vs. Court of Appeals. GR No. 119761. Aug. 29, 1961]
NON-RETROACTIVITY OF RULINGS
Rulings, rules and regulations promulgated by the Commissioner of Internal Revenue would
have no retroactive application if to so apply them would be prejudicial to the taxpayers.
Bad faith, as an exception to the rule of non-retroactivity under Section 246 of the Tax
Code, imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It
partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill
will. The failure of a taxpayer to consult the Bureau of Internal Revenue before using a
computation mandated by a BIR Ruling which was clear and categorical, thus leaving no room for
interpretation, does not imply bad faith on the part of the former.
While the government is not estopped from collecting taxes legally due because of mistakes
or errors of its agents, this admits of exceptions in the interest of justice and fair play as where
injustice will result to the taxpayer. [CIR vs. Court of Appeals and Alhambra Industries. GR No.
117982. February 6, 1997]
To make the respondent Corporation liable for specific tax after it had made the
importation, would surely prejudice petitioner as it would be subject to a tax liability of which the
BIR has not made it fully aware. As a result, the ruling of May 8, 1978 and February 15, 1980 having
been issued long after the importation of June 21 and August 17, 1977 cannot be applied with legal
effect in this case because to do so will violate the prohibition against retroactive application of
the rulings of executive bodies. [CIR vs. Mega General Merchandising Co. GR No. 69136.
September 30, 1988]
The Memorandum Circular cannot be given retroactive effect in the light of Section 327 of
the NIRC on the non-retroactivity of ruling. Any revocation, modification, or reversal of any of the
rules and regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayer except in the following
cases: (a) where the taxpayer deliberately mistakes or omits material facts from his return or in
any document required of him by the BIR; (b) where the facts subsequently gathered by the BIR are
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
37
materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in
bad faith." [CIR vs. Burroughs Limited. GR No. L-66653. June 19, 1986]
The Tax Code is explicit in saying that rulings or circulars promulgated by the CIR have no
retroactive effect where the same is prejudicial to the taxpayer. The circular was issued only in
1971 or three years after 1968. Petitioner was no longer in a position to withhold taxes from the
foreign film distributors because it had already remitted said withheld taxes and has no more
control over them when the new circular was issued. [ABS-CBN Broadcasting Corp. vs. CTA. GR
No. L-52306. October 12, 1981]
Like other statutes, tax laws operate prospectively, whether they enact, amend or repeal,
unless, the purpose of the legislature to give retrospective effect is expressly declared or may
clearly be implied from the language used. [Cebu Portland Cement Co. vs. Collector. GR No. L20563. October 29, 1968]
INCOME TAXATION
INCOME VS. CAPITAL
Income may be defined as an amount of money coming to a person or corporation within a
specified time, whether as payment for services, interest or profit from investment. Unless
otherwise specified, it means cash or its equivalent. Income can also be thought of as a flow of the
fruits of ones labor. [Conwi vs. Court of Tax Appeals. GR No. 48532. August 21, 1992]
Income as contrasted with capital or property is to be the test. The essential difference
between capital and income is that capital is a fund; income is a flow. Capital is wealth, while
income is the service of wealth. Income means profits or gains. [Madrigal vs. Rafferty. GR No.
12287. August 7, 1918]
GROSS RECEIPTS
Gross receipts subject to tax do not include monies or receipts entrusted to the taxpayer
which do not belong to them and do not redound to the taxpayers benefit; and it is not necessary
that there must be a law or regulation which would exempt such monies or receipts within the
meaning of gross receipts under the Tax Code. Parenthetically, the room charges entrusted by the
foreign travel agencies to the private respondent do not form part of its gross receipts within the
definition of the Tax Code. [CIR vs. Tours Specialists, Inc. GR No. 66416. March 21, 1990]
38
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The original purpose was to divide the lots for residential purposes. If later on they found
it not feasible to build their residences on the lots because of the high cost of construction, then
they had no choice but to resell the same to dissolve the co-ownership. The division of profit was
merely incidental to the dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later. [Obillos vs. CIR. GR No. L-68118.
October 29, 1985]
For tax purposes, the co-ownership of inherited properties is automatically converted into
an unregistered partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with the intent to produce profits for the heirs in proportion
to their respective shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the corresponding testate or
intestate proceeding. [Oa vs. CIR. GR No. L-19342. May 25, 1972]
Plaintiffs organized a partnership of a civil nature because each of them put up money to
buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as
they did in fact. Having organized and constituted a partnership of a civil nature, the said entity is
one bound to pay the income tax. It should not be prorated among them and paid individually.
[Gatchalian vs. Collector of Internal Revenue. GR No. 45425. April 29, 1939]
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39
credit by the US Internal Revenue Service to P&G-USA before the preferential 15% dividend rate
becomes applicable. [CIR vs. Procter & Gamble Phil. Manufacturing Corp. GR No. 66838.
December 2, 1991]
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41
Margin fees are not expenses in connection with the business of the petitioners. Since the
margin fees were incurred for the remittance of funds to petitioners Head Office in New York,
which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal
abroad, it can never be said therefore that the margin fees were appropriate and helpful in the
development of petitioners business in the Philippines exclusively or for the purpose of realizing a
profit or of minimizing a loss in the Philippines exclusively. [Esso Standard Eastern, Inc. vs. CIR.
GR Nos. 28508-9. July 7, 1989]
There is absolutely no evidence of any service actually rendered by petitioners (officers)
services which could be the basis of a grant to them of a bonus out of the profit derived from the
sale. This being so, the payment of a bonus to them (officers) out of the gain realized from the
sale cannot be considered as a selling expense; nor can it be deemed reasonable and necessary so
as to make it deductible for tax purposes. [Aguinaldo Industries Corp. vs. CIR. GR No. L29790.
February 25, 1982]
To be deductible as a business expense, three conditions are imposed, namely: (1) the
expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year,
and (3) it must be paid or incurred in carrying in a trade or business. In addition, not only must the
taxpayer meet the business test, he must substantially prove by evidence or records the deductions
claimed under the law, otherwise, the same will be disallowed.
Ordinarily, an expense will be considered "necessary" where the expenditure is appropriate
and helpful in the development of the taxpayer's business. It is "ordinary" when it connotes a
payment which is normal in relation to the business of the taxpayer and the surrounding
circumstances. The term "ordinary" does not require that the payments be habitual or normal in the
sense that the same taxpayer will have to make them often; the payment may be unique or nonrecurring to the particular taxpayer affected.
That the expense in question was incurred to create a favorable image of the corporation in
order to gain or maintain the publics and stockholders patronage, does not make it deductible as
business expense. [Atlas Consolidated Mining & Development Corp. vs. CIR. GR No. L26911.
January 21, 1981]
The conditions precedent to the deduction of bonuses to employees are: (1) the payment of
the bonuses is in fact compensation; (2) it must be for personal services actually rendered; (3) the
bonuses, when added to the salaries, are reasonable when measured by the amount and quality of
the services performed with relation to the business of the particular taxpayer.
There is no fixed test for determining the reasonableness of a given bonus as compensation.
This depends upon many factors, one of them being the amount and quality of the services
performed with relation to the business. [C. M. Hoskins & Co., Inc. vs. CIR. GR No. L24059.
November 28, 1969]
Contributions to a government entity are deductible when used exclusively for public
purpose.
Contribution to the chapel at a private university ground owned by an educational
institution that gives dividends to its stockholders is not deductible from the gross income of the
taxpayer for the reason that the net income of said university inures to the benefit of the
stockholders. [Roxas vs. Court of Tax Appeals. GR No. L25043. April 26, 1968]
The income tax law does not authorize the depreciation of an asset beyond its acquisition
cost. Hence, a deduction over an above cost cannot be claimed and allowed. The reason is that
deductions from gross income are privileges, not matters of right. Moreover, the recovery, free of
income tax, of an amount more than the invested capital in an asset will transgress the underlying
purpose of a depreciation allowance. Recover in due time through depreciation of investment
made is the philosophy behind depreciation allowance; the idea of profit on the investment made
has never been the underlying reason for the allowance of a deduction for depreciation. [Basilan
Estates, Inc. vs. CIR. GR No. L22492. September 5, 1967]
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Although taxes already due have not, strictly speaking, the same concept as debts, they
are, however obligations that may be considered as such. In Commissioner vs. Prieto, it was held
that while the distinction between taxes and debts was recognized in this jurisdiction, the variance
in their legal conception does not extend to the interests paid on them. Thus, it follows that the
interest paid on the estate and inheritance tax is deductible from gross income. [CIR vs. Palanca.
GR No. L16626. October 29, 1966]
The exigencies of the husband-taxpayers high executive position, not to mention social
standing, demanded and compelled them to live in a more spacious and pretentious quarters like
the ones they occupied. That is why his employer-corporation had to grant him allowances for
rental and utilities in addition to his annual basic salary to take care of those extra expenses for
rental and utilities in excess of their personal needs. Hence, the fact that the taxpayers had to live
or did not have to live in the apartments chosen by the husband-taxpayers employer-corporation is
of no moment, for no part of the allowances in question redounded to their personal benefit or was
retained by them. [Collector of Internal Revenue vs. Henderson. GR No. L12954. February 28,
1961]
DIVIDENDS
As a qualified by the phrase such time and in such manner, the exception was not
intended to characterize as taxable dividend every distribution of earnings arising from a
redemption of stock dividends. So that, whether the amount distributed in the redemption should
be treated as the equivalent of a taxable dividend is a question of fact, which is determinable on
the basis of the particular facts of the transaction in question.
The test for taxability therefore, as would make the redemption essentially equivalent to
the distribution of a taxable dividend, is whether the redemption resulted into a flow of wealth.
If no flow of wealth is realized from the redemption, there may not be a dividend equivalence
treatment.
Before realization, stock dividends are nothing but a representation of an interest in the
corporate properties. As capital, it is not yet subject to income tax. [CIR vs. Court of Appeals, A.
Soriano Corp. GR No. 108576. January 20, 1999]
Where corporate earnings are used to purchase outstanding stock treated as treasury stock
as a technical, but prohibited device, to avoid income taxation, distribution of said corporate
earnings in the form of stock dividends will subject stockholders receiving them to income tax. [CIR
vs. Manning. GR No. L28398. August 6, 1975]
Under Section 16 of our Corporation Law, no corporation may make or declare any dividend
except from the surplus profits arising from its business. Any dividend, therefore, whether cash or
stock, represents surplus profits. Article 471 of the Civil Code provides that the usufructuary shall
be entitled to receive all the natural, industrial and civil fruits of the property in usufruct. The
stock in dividend in question in this case is a civil fruit of the original investment. [Bachrach vs.
Seifert and Elianoff. GR No. L2659. October 12, 1950]
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The Commissioner of Internal Revenue cannot delegate the power to make final
assessments. Thus, despite the Commissioners order granting the Regional Directors authority to
close tax cases, the latter may not do so. It is the Commissioner alone who is entrusted by law to
make assessments final assessments. [City Lumber vs. Domingo. GR No. L18611. January 30,
1964]
Section 306 (now Section 229, NIRC) of the Tax Code which provides that a taxpayer must
first file a claim for refund for tax credit with the Collector of Internal Revenue before maintaining
a suit or proceeding in any court for the recovery of any Internal Revenue Tax alleged to have been
erroneously or illegally assessed or collected is mandatory and a condition precedent to the
prosecution of a suit for the recovery of said taxes, non-compliance with which bars the action and
subjects the claim to dismissal for lack of cause of action. [Republic vs. Limaco. GR No. L13081.
August 31, 1962]
The rule is that an action for the recovery of the taxes assessed and collected, the taxpayer
has the burden of proving that the assessment is illegal. All presumptions are in favor of the
correctness of tax assessments. The good faith of the tax assessors and the validity of the actions
are presumed. It is a logical outgrowth of the presumption in favor of the validity of the
assessments, when such assessments are assailed, the burden of proof is upon the complaining
party.
It is incumbent upon him clearly to show that the assessments are erroneous.
[Interprovincial Autobus Co. vs. Collector. GR No. L6741. January 31, 1956]
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not be placed in the crucible of criminal prosecution. [CIR vs. Court of Appeals. GR No. 119322.
June 4, 1996]
The claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of
distraint of personal property but from the time the tax became due and payable
Article 110 of the Labor Code which gives workers first preference as regards the wages due
them for services rendered, does not purport to create a lien in favor of the workers or employees
for unpaid wages upon all of the properties or upon any particular property owned by their
employer. Furthermore, said provision applies only in case of bankruptcy or judicial liquidation of
the employer. [CIR vs. NLRC. GR No. 74965. November 9, 1994]
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt
to defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate
return, and the governments failure to discover the error and promptly to assess has no
connections with the commission of the crime. [Ungab vs. Cusi, Jr. GR Nos. L41919-24. May 30,
1980]
If the Government did not raise the defense of prescription in its original answer but
pleaded the same in its answer to the amended petition for review, the Government has not waived
the defense of prescription. The latter superseded the answers filed before it so that any defense
or defenses raised in its latest answer would be considered as though contained in its original
answer. For the rule is that an amended complaint and the answer thereto, when filed, take the
place of the originals. The latter are then regarded as abandoned and cease to perform any
further functions as pleadings. [Cebu Portland Cement Co. vs. Collector of Internal Revenue. GR
No. L20563. October 29, 1968]
PRESCRIPTIVE PERIODS
Section 229 (now Section 228) of the Tax Code mandates that a request for reinvestigation
must be made within 30 days from the taxpayers receipt of the tax deficiency assessment,
otherwise the assessment becomes final and unappealable and, therefore, demandable. A request
for reconsideration does not suspend the running of the prescriptive period of three (now five)
years for collection by distraint or levy provided under Section 223 (c) [now Section 222 (c)] of the
same Code.
It has been held in previous cases that the timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency in the sense that the disposition of
the attached properties might well take time to accomplish, extending even after the lapse of the
statutory period for collection. It should be noted, however, that in those cases, the BIR did not file
any collection case but merely relied on the summary remedy of distraint and levy to collect the
tax deficiency. [Republic vs. Hizon. GR No. 130430. December 13, 1999]
For the purpose of safeguarding our taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of taxes.
Thus, the law on prescription, being a remedial measure, should be liberally construed in order to
afford such protection. As a corollary, the exceptions to the law on prescription should perforce be
strictly be construed. [CIR vs. B.F. Goodrich Phils. GR No. 104171. February 24, 1999]
The five-year prescriptive period for violations of any provisions of the Tax Code provided
for under Section 354 (now Section 281) thereof should be reckoned from the date the final notice
and demand was served on the taxpayer. It is only from the service of the final notice and demand
for payment of the deficiency taxes that the cause of action on the part of the BIR accrued. This is
because prior to the receipt of the letter-assessment, no violation has yet been committed by the
taxpayers.
Furthermore, under Section 354, there must be a judicial proceeding for the investigation
and punishment of the tax offense before the five-year limiting period begins to run. As section 354
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
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Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
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Case Digests
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47
stands in the statute book (and to this day it has remained unchanged) it would indeed seem that
the tax cases are practically imprescriptible for as long as the period from the discovery and
institution of judicial proceedings for its investigation and punishment, up to the filing of the
information in court does not exceed five (5) years. [Lim, Sr. vs. Court of Appeals. GR Nos.
48134-37. October 18, 1990]
While it is correct that a mailed letter (of assessment) is deemed received by the addressee
(taxpayer) in the ordinary course of mail pursuant to the Rules of Court, this is merely a disputable
presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden
upon the party favored by the presumption to prove that the mailed letter was indeed received by
the addressee,
Under Section 7 of R.A. No. 1125, the assessment is appealable to the Court of Tax Appeals
within 30 days from the receipt of the letter of assessment. The taxpayers failure to appeal in due
time makes the assessment final, executory and demandable. Thus, the taxpayer is barred from
disputing the correctness of the assessment or from invoking any defense that would reopen the
question of its liability of the merits. [Republic vs. Court of Appeals. GR No. L38540. April 30,
1987]
Fraud is a question of fact and the circumstances constituting fraud must be alleged and
proved in the lower court. The finding of the trial court as to its existence and non-existence is
final and cannot be reviewed unless clearly shown to be erroneous. Fraud is never lightly to be
presumed because it is a serious charge. [CIR vs. Ayala Securities Corp. GR No. L29485. March
31, 1976]
The proper and reasonable interpretation of Section 332(a) [now Section 222 (a)] of the
NIRC should be that in the three different cases of (1) false return, (2) fraudulent return with
intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any time within ten years after
the discovery of the (1) falsity, (2) fraud or (3) omission. The view that the law should mean a
separation of the three different situations of false return, fraudulent return with intent to evade
tax, and failure to file a return, is strengthened immeasurably by the last portion of the provision,
which segregates the situations into three different classes, namely falsity, fraud and
omission. That there is a difference between false return and fraudulent return cannot be
denied. While the first merely implies deviation from the truth, whether intentional or not, the
second implies intentional or deceitful entry with intent to evade the taxes due. [Aznar vs. Court
of Appeals. GR No. L20569. August 23, 1974]
A judicial action for the collection of tax is begun by the filing of a complaint with the
proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by
filing an answer to the taxpayers petition for review wherein payment of the tax is prayed for.
This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the
CTA, the said court is vested with the authority to pronounce judgment as to the taxpayers
liability to the exclusion of any other court. [Fernandez Hermanos, Inc. vs. CIR. GR No. L21551.
September 30, 1969]
An assessment is deemed made when the notice is released, mailed or sent by the Collector
of Internal Revenue to the taxpayer and it is not required that the notice be received by the
taxpayer within the prescriptive period therefor. [Basilan Estates, Inc. vs. CIR. GR No. L22492.
September 5, 1967]
Under the Penal Code, the civil liability is incurred by reason of the offenders criminal act.
The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally
liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the
income tax law is opposite. Civil liability to pay taxes arises from fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the
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factual premises and foundation principles of the two cases is one of the reasons for not imposing
civil indemnity on the criminal infractor of the income tax law.
Since the taxpayers civil liability is not included in the criminal action, his acquittal in the
criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His
legal duty to pay taxes cannot be affected by his attempt to evade payment. Said obligation is not
a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from a crime that could be wiped out by the judicial declaration of non-existence of the
criminal acts charged. [Republic vs. Patanao. GR No. L22356. July 21, 1967]
In case of an amendment of the return, the prescriptive period for the assessment of
internal revenue taxes shall commence from the filing of the original return, if the original return
was a complete return from which the Commissioner of Internal Revenue may intelligently compute
and determine the tax liability of the taxpayer. But if the amended return is substantially different
from the original return, the period of prescription of the right to issue the same should be counted
from the filing of the amended return. Otherwise, taxpayers will be able to evade the payment of
taxes by simply reporting in their original return heavy losses and amending the same beyond the
prescriptive period when the Commissioner has lost his authority to assess the proper tax
thereunder. The object of the Tax Code is to impose taxes for the needs of the Government, not to
enhance tax avoidance to its prejudice. [CIR vs. Phoenix Assurance Co., Ltd. GR No. L19727.
May 20, 1965]
When there is fraudulent filing of tax returns, the ten-year prescriptive period applies in
lieu of the three-year period prescriptive limit. The prescriptive period in this instance is counted
from the filing of the fraudulent return. [Avelino vs. Collector of Internal Revenue. GR No. L17715. July 31, 1963]
The taxpayer cannot invoke prescription against collection of the tax due from him under
the provisions of Section 331 (now Section 222) of the Tax Code if, more than five years from the
date of assessment, the Collector of Internal Revenue filed an action against him upon a bond
executed and filed by him to guarantee payment in six monthly equal installments of his tax
liability under the NIRC provided that such action was commenced within the prescriptive period of
ten years from the execution of such bond. To sustain the taxpayers defense of prescription would
in effect nullify their undertaking in the bond which was executed and filed by them to lighten
their tax obligations or burden by being allowed to pay six equal installments.
The bond cannot be nullified for alleged lack of approval by the Collector since the act of
the Collector in receiving and keeping the bond, deferring the collection of the tax, and suing on
the bond upon the failure of the taxpayer to pay the tax, the payment of which is guaranteed by
the bond, meant or amounted to approval thereof. [Republic vs. Araneta. GR No. L14142. May
30, 1961]
It is to the interest of the taxpayer to file said return if he wishes to avail himself of the
benefits of the three-year prescriptive period. If this notwithstanding, he does not file a return at
all, then an assessment may be made at any time within the ten year prescriptive period. [Bisaya
Land Transportation Co., Inc. vs. Collector. GR Nos. L12100 & L11812. May 29, 1959]
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49
overpayment by the taxpayer. Moreover, under Section 49(a) of the NIRC, payment is made at the
time the return is filed. [CIR vs. Court of Appeals, CTA and BPI. GR No. 117254. January 21,
1999]
A withholding agent which is a wholly owned subsidiary of its foreign parent company may
claim reimbursement of the alleged overpaid taxes. The fact that it became a withholding agent of
the government, which was not by choice but by compulsion under the Tax Code, cannot be
considered as an abdication of its responsibility to its mother company. The obligation imposed
under Section 53 (b) [now Section 57 (b)] upon the withholding agent is compulsory. It is a device to
insure the collection by the Philippine Government of taxes on incomes, derived from sources in
the Philippines, by aliens who are outside the taxing jurisdiction of the Court. In fact, the
withholding agent may be assessed for deficiency withholding tax at source, plus penalties
consisting of surcharge and interest. Therefore, as the Philippine counterpart, such withholding
agent is the proper party to claim for the refund or credit of overpaid withholding tax on dividends
paid or remitted by its foreign parent company. [CIR vs. Wander Philippines, Inc. GR No. L68375. April 15, 1998]
Prior approval by the Commissioner of Internal Revenue of the tax credit under Section 86
(now section 76) of the Tax Code would appear to be the most reasonable interpretation to be
given to said section. An opportunity must be given the internal revenue branch of the government
to investigate and confirm the veracity of the claims of the taxpayer. If absolute freedom is given
to taxpayers to automatically credit tax payments against their tax liabilities for a succeeding
taxable year, it would easily give rise to confusion and abuse, depriving the government of the
authority and control over the manner by which the taxpayers credit and offset their tax liabilities,
not to mention the resultant loss of revenue to the government under such a scheme. [San Carlos
Milling Co., Inc. vs. CIR. GR No. 103379. November 23, 1993]
Section 292 (now Section 229) provides a two-year prescriptive period to file a suit for a
refund of a tax erroneously or illegally paid, counted from the time the tax was paid. But a literal
application thereof in a case which involves quarterly income tax payments may lead to absurdity
and inconvenience. The most reasonable and logical application of the law would be to compute
such period at the time of the filing of the Final Adjustment Return or the Annual Income Tax
Return, that is truly reflective of the results of the operations of a business enterprise, when it can
finally be ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a
refund of overpaid income tax.
Therefore, the filing of quarterly income tax returns required in Section 85 (now Section
75) and payment of quarterly income tax should be considered mere installments of the annual tax
due. These quarterly tax payments should be treated as advances or portions of the annual income
tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87
(now Section 76) which provides for the filing of adjustment returns and final payment of income
tax. [CIR vs. TMX Sales, Inc. GR No. 83736. January 15, 1992]
There is a need to file a return first before a claim for refund can prosper inasmuch as the
Commissioner of Internal Revenue by his own rules and regulations mandates that the corporate
taxpayer opting to ask for a refund must show in its final adjustment return the income it received
from all sources and the amount of withholding taxes remitted by its withholding agents to the
Bureau of Internal Revenue. The two-year prescriptive period within which to claim a refund
commences to run, at the earliest, on the date of the filing of the adjusted final return. [ACCRA
Investments Corp. vs. Court of Appeals. GR No. 96322. December 20, 1991]
The Bureau of Internal Revenue should not be allowed to defeat an otherwise valid claim
for refund by raising the question of the alleged incapacity of the party claiming such refund for
the first time on appeal. In the absence of explicit statutory provisions to the contrary, the
Government must follow the same rules of procedure, which bind private parties.
A taxpayer is defined in our NIRC as referring to any person subject to tax imposed by the
Title (on tax on Income). Under Section 53 (c) (now Section 57) thereof, the withholding agent
who is required to deduct and withhold any tax is made personally liable for such tax and
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
50
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indeed is indemnified against any claims and demands which the stockholder might wish to make in
questioning the amount of payments effected by the withholding agent in accordance with the
provisions of the NIRC. He is directly and independently liable for the correct amount of tax that
should be withheld from the dividend remittances. He is, moreover, subject to and liable for
deficiency assessments, surcharges and penalties should the amount of tax withheld be finally
found to be less than the amount that should have been withheld under law. A person liable for
tax has been held to be a person subject to tax and properly considered a taxpayer. The
terms liable for tax and subject to tax and subject to tax both connote legal obligation or
duty to pay a tax. It is very difficult, indeed impossible, to consider a person who is statutorily mad
liable for tax as not subject to tax. Consequently, a withholding agent is a party in interest, or
as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were
illegally collected from him. [CIR vs. Procter & Gamble Philippine Manufacturing Corp. GR No.
66838. December 2, 1991]
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a
taxpayers request for reconsideration before he can go to the court for the purpose of collecting
the tax assessed. On the contrary, the Tax Code withheld from all courts, except the Court of Tax
Appeals under Republic Act No. 1125, the authority to restrain the collection of any national
internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector
of Internal Revenue much latitude in the speedy and prompt collection of taxes.
The requirement for the Commissioner to rule on disputed assessments before bringing an
action for collection is applicable only in cases where the assessment was actually disputed,
adducing reasons in support thereto. If the taxpayer did not actually contest the assessments by
stating the basis thereof, the Commissioner need not rule on their request.
In case of a suit for the collection of internal revenue taxes where the assessment has
already become final and executory, the action to collect is akin to an action to enforce the
judgment. No inquiry can be made therein as to the merits of the original case or the justness of
the judgment relied upon. [Dayrit vs. Cruz. GR No. L39910. September 26, 1988]
A taxpayer, resident or non-resident, who contributes to the withholding tax system, does
not really deposit an amount to the Commissioner of Internal Revenue, but in truth, to perform and
extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities
for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to
have paid his tax liability when the same falls due at the end of the tax year. It is from this latter
date then, or when the tax liability falls due, that the two-year prescriptive period under Section
306 (now Section 229) of the Revenue Code starts to run with respect to payments effected through
the withholding tax system. It is of no consequence whatever that a claim for refund or credit
against the amount withheld at the source may have been presented and may have remained
unresolved since the delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute. [Gibbs vs. CIR. GR No. L17406. November 29, 1965]
When a tax is paid in installments, the prescriptive period of two years provided in Section
306 (now Section 229) of the Tax Code should be counted from the date of the final payment.
[Collector of Internal Revenue vs. Prieto. GR No. L11976. August 29, 1961]
Prescriptive period for filing claims for refund is suspended provided two conditions are
present: (1) there is a pending litigation between two parties, i.e., the Government and the
taxpayer, as to the proper tax to be paid and of the proper interpretation of the taxpayers charter
in relation to the disputed tax; and (2) the Commissioner in that litigated case agreed to abide by
the decision of the Supreme Court as to the collection of taxes relative thereto.
On moral and equitable grounds, a taxpayer is entitled to refund from the date of the claim
for refund. Moreover, under section 309 of the Tax Code, the Collector is authorized to credit or
refund taxes erroneously or illegally received, for a period of two years from the date of the claim
for refund. If the Collector not only offered to credit but took steps to credit the taxpayer with
overpayment for a period of two years from the date of the claim for refund, he has waived the
prescriptive period of two years from the date of the actual filing of the suit. [Panay Elec. Co. vs.
Collector of Internal Revenue. GR No. L10574. May 28, 1958]
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
51
52
Case Digests
TAXATION LAW
In case of a suit for the collection of internal revenue taxes where the assessment has already
become final and executory, the action to collect is akin to an action to enforce the judgment. No
inquiry can be made therein as to the merits of the original case or the justness of the judgment
relied upon. [Dayrit vs. Cruz. GR No. L39910. September 26, 1988]
The filing by the Bureau of Internal Revenue of an action for the collection of deficiency
taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the
Commissioner of Internal Revenue.
The Court of First Instance can acquire jurisdiction over a claim for
collection of deficiency taxes only after the assessment made by the Commissioner
of
Internal
Revenue has become final and unappealable. If the contrary is
established, the Court of Tax Appeals has exclusive jurisdiction over the case. [Yabes vs. Flojo.
GR No. L46954. July 20, 1982]
The language used by the Court of Tax Appeals as to the existence of fraud must be given
due weight and force. The finding of facts of the CTA is entitled to the highest respect. [Raymundo
vs. De Joya. GR No. L27733. December 3, 1980]
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied
and whose appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew
to recover such taxes, already paid under protest, his action is devoid of merit. For in the same
way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of
distraint and levy cannot be utilized to test the legality of an assessment which had become
conclusive and binding on the taxpayer, so is section 360 of the Tax Code not available to revive
the right to contest the validity of an assessment which had become final for failure to appeal the
same on time. [CIR vs. Concepcion. GR No. L23912. March 15, 1968]
The thirty-day period prescribed by Section 11 of Republic Act 1125, as amended, within
which a taxpayer adversely affected by a decision of the Commissioner of Internal Revenue should
file his appeal with the tax court, is a jurisdictional requirement, and the failure of a taxpayer to
lodge his appeal within the prescribed period bars his appeal and renders the questioned decision
final and executory. (See also Sea Land Service vs. Court of Appeals. GR No. 122605. April 30,
2001) [Surigao Electric Co., Inc. vs. Court of Tax Appeals. GR No. L-25289. June 28, 1974]
In defining the cases that may be reviewed by the Court of Tax Appeals, the law begins by
enumerating them and then adds a general clause pertaining to other matters that may arise under
the National Internal Revenue Code, the Customs Law and the Assessment Law. This shows that the
other matters that may come under the general clause should be of the same nature as those
that have preceded them applying the rule of construction known as ejusdem generis. Otherwise, it
should be deemed foreign or extraneous and is not included. [Ollada vs. Court of Tax Appeals, et
al. GR No. L8878. July 24, 1956]
LOCAL TAXATION
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies from the coverage of local taxation. The legislative purpose to
withdraw tax privileges under existing law or charter is clearly manifested by the language used on
Secs. 137 & 193. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. [National Power
Corporation vs. City of Cabanatuan. G.R. No. 149110. April 9, 2003.]
The fact is that after petitioner's tax exemption by R.A. No. 7082 had been withdrawn by
the LGC, no amendment to re-enact its previous tax exemption has been made by Congress.
Considering that the taxing power of local government units under R.A. No. 7160 is clear and is
ordained by the Constitution, petitioner has the heavy burden of justifying its claim by a clear grant
of exemption.
Case Digests
TAXATION LAW
53
The phrase in lieu of all taxes found in special franchises should give way to the
peremptory language of section 193 of the LGC specifically providing for the withdrawal of such
exemption privileges. Thus, the rule that a special law must prevail over the provisions of a later
general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under
existing laws or charters is apparent from the express provisions of sections 137 and 193 of the LGC.
(Reiterated in City Government of San Pablo, Laguna vs. Reyes. GR No. 127708. March 25, 1999)
[Phil. Long Distance Telephone Co. vs. City of Davao. GR NO. 143867. March 25, 2003]
Sec. 187 of the LGC requires that the dissatisfied taxpayer who questions the validity or
legality of a tax ordinance must file his appeal to the Secretary of Justice within 30 days from the
effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for
an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60
days, a party could already proceed to seek relief in court. These three separate periods are given
for compliance as a prerequisite before seeking redress in a competent court. [Jardine Davies
Insurance Brokers, Inc. vs. Aliposa. GR No. 118900. February 27, 2003]
While Section 13 of the Local Tax Code mentions other places of amusement,
professional basketball games are definitely not within its scope. Under the principle of ejusdem
generis, where general words follow an enumeration of persons or things, by words of a particular
and specific meaning, such general words are not to be construed in their widest extent, but are to
be held as applying only to persons or things of the same kind or class as those specifically
mentioned. Thus in determining the meaning of the phrase other places of amusement, one must
refer to the prior enumeration of theaters, cinematographs, concert halls, and circuses with artistic
expression as their common characteristic. Professional basketball games do not fall under the
same category as theaters, cinematographs, concert halls and circuses as the latter basically belong
to artistic forms of entertainment while the former caters to sports and gaming. [Philippine
Basketball Association vs. Court of Appeals. GR No. 119122. August 8, 2000]
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and
self-sufficiency of local government units by directly granting them general and broad tax powers.
Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer
will not be overburdened or saddled with multiple and unreasonable impositions; (b) each local
government will have its fair share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be fair, uniform and just.
Indicative of the legislative intent to carry out the constitutional mandate of vesting broad
tax powers to local government units, the Local Government Code has effectively withdrawn, under
Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities.
(Reiterated in National Power Corporation vs. City of Cabanatuan. GR No. 149110. April 9, 2003)
[Manila Electric Company vs. Province of Laguna. GR No. 131359. May 5, 1999]
Section 534 (f), the repealing clause of the Local Government Code, provides that all
general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations or parts thereof which are inconsistent with any of the provisions of the
Code are hereby repealed or modified accordingly. This clause partakes of the nature of a general
repealing clause. It is certainly not an express repealing clause because it fails to designate the
specific act or acts identified by number or title, that are intended to be repealed.
Section 193 of the Local Government Code prescribes the general rule, viz., the tax
exemptions or incentives granted to or presently enjoyed by natural or juridical persons are
withdrawn upon the effectivity of the LGC except with respect to those entities expressly
enumerated. [City Government of San Pablo, Laguna vs. Reyes. GR No. 127708. March 25,
1999]
54
Case Digests
TAXATION LAW
The definition of common carriers in the Civil Code makes no distinction as to the means
of transporting, as long as it is by land, water or air. It does not provide that the transportation of
the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipes line
operators are considered common carriers.
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a duplication
of the so-called common carriers tax. Petitioner is already paying 3% common carriers tax on its
gross sales/earnings under the NIRC. To tax petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the LGC. [First Philippine
Industrial Corp vs. Court of Appeals. GR No. 125948. December 29, 1998]
It is clearly apparent from Section 151 of the NIRC levies a tax on all quarry resources,
regardless of origin, whether extracted from public or private land. Thus, a province may not
ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are
already taxed under the NIRC. The province can, however, impose a tax on stones, sand, gravel,
earth and other quarry resources extracted from public land because it is expressly empowered to
do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry
resources extracted from private land, however, it may not do so, because of the limitation
provided by Section 133 of the Code in relation to Section 151 of the NIRC.
A province may not invoke the Regalian doctrine to extend the coverage of its ordinance to
quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed
beyond what the applicable statute expressly and clearly declares, tax statutes being construed
strictissimi juris against the government. [Province of Bulacan vs. Court of Appeals [GR No.
126232. November 27, 1998]
Where the Secretary of Justice reviews, pursuant to law, a tax measure enacted by a local
government unit to determine if the officials performed their function in accordance with law, that
is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers
under the Local Government Code, the same is an act of mere supervision, not control. [Drilon vs.
Lim. GR No. 112497. August 4, 1997]
The Court may refuse the preliminary injunction with or without notice to the adverse
party where ground for objection is apparent from the complaint itself. Section 7 of Rule 58 of the
Rules of Court merely specify the actions that the court may take on the application for the writ if
there is a hearing on the merits; it does not declare that such hearing is mandatory or a
prerequisite therefore.
A court should issue a writ of preliminary injunction only when the
petitioner assailing a statute has made out a case of unconstitutionality or
invalidity
strong
enough
to
overcome,
in
the
mind
of
the
judge,
the
presumption of validity, aside from a showing of a clear legal right to the remedy sought.
[Valley Trading Co. Inc vs. CFI of Isabela. GR No. 49529. March 31, 1989]
For tax purposes, a manufacturer does not necessarily become engaged in the separate
business of selling simply because it sells the products it manufactures. In certain cases, however, a
manufacturer may also be considered as engaged in the separate business of selling its products.
In determining whether a manufacturer is engaged in the separate business of selling, the
companys marketing system must be considered. In several cases the Court had occasion to
distinguish two marketing systems: Under the first system, a manufacturer enters into sales
transactions and invoices the sales at its main office where purchase orders are received and
approved before delivery orders are sent to the companys warehouses, where in turn actual
deliveries are made. No warehouse sales are made; nor are separate stores maintained where
products may be sold independently from the main office. The warehouses only serve as storage
sites and delivery points of the products earlier sold at the main office. Under the second system,
sales transactions are entered into and perfected at stores or warehouses maintained by the
company. Anyone who desires to purchase the product may go to the store or warehouse and there
purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating
under the first system are NOT considered engaged in the separate business of selling or dealing in
their products, independent of their manufacturing business. Entities operating under the second
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
55
system are considered engaged in the separate business of selling. [Iloilo Bottlers, Inc vs. City of
Iloilo. GR No. L-52019. August 19, 1988]
A manufacturer with a factory in Pasig, Rizal but who employed a sales broker in Manila is
subject to Manilas tax ordinance on manufacturers, as said tax is dependent on where taxable act
is performed. The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the excise, nor upon the
physical location of the property and in connection with the act or occupation taxed, but depends
upon the place in which the acts is performed or occupation engaged in. [Allied Thread Co. Inc.
vs. City Mayor of Manila. GR No. L-40296. November 21, 1984]
A CFI judge has authority to pass upon the validity of a city tax ordinance even after its
validity had been contested before the Secretary of Justice and a decision rendered thereon by said
official. Tersely and bluntly, petitioner would deny the jurisdiction of respondent Judge to pass
upon the validity of a challenged ordinance is an appropriate action. To say the least, there is
unorthodoxy in such an approach. What immediately calls the attention is its novelty. It is opposed
to and is not in conformity with the accepted judicial norm that the validity of a statute, an
executive order or ordinance is a matter for the judiciary to decide and that whenever in the
disposition of a pending case such a question becomes unavoidable, then it is not only the power
but the duty of the Court to resolve such a question. [San Miguel Corporation vs. Avelino. GR No.
L-39699. March 14, 1979]
The city can validly tax the sales of matches to customers outside of the city as long as the
orders were booked and paid for in the companys branch office in the city. Those matches can be
regarded as sold in the city, as contemplated in the ordinance, because the matches were
delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. A
different interpretation would defeat the tax ordinance in question or encourage tax evasion
through the simple expedient of arranging for the delivery of the matches at the outskirts of the
city although the purchases were effected and paid for in the companys branch office in the city.
[Philippine Match Co. Ltd. vs. City of Cebu. GR No. L-30745. January 18, 1978]
The imposition of a tax of one centavo (P0.01) on each gallon of volume capacity on all
soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. The volume capacity of the taxpayers production of
soft drinks is considered solely for purposes of determining the tax rate on the products, but there
is no set ratio between the volume of sales and the amount of the tax.
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, cigars and cigarettes, matches, bunker fuel oil,
diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
drugs. Soft drinks is not one of those specified. [Pepsi-Cola Bottling Co. of the Phils., Inc. vs.
Municipality of Tanauan, Leyte. GR No. L-31156. February 27, 1976]
When we consider that the tax shall be based and computed from the cargo manifest or bill
of lading showing the number of cases not sold but received by the taxpayer, the intention to
limit the application of the ordinance to softdrinks and carbonated drinks brought into the City
from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of
an import duty, which is beyond the defendants authority to impose by express provision of law.
[Pepsi-Cola Bottling Co of the Phils., Inc. vs. City of Butuan. GR No. L-22814. August 28, 1968]
56
Case Digests
TAXATION LAW
value for the property to be appraised. Petitioner submits that in the instant case, no comparison
with any similar property was ever made. Instead, the comparison was made to a bid price.
Moreover, in using as basis the valuation of the APT, the LBAA failed to take into account other
circumstances of value such as goodwill and future business potential. We agree that Section 28 of
the Real Property Tax Code provides for a formula for computing the current market value of
machineries. However it must be read in consonance with Section 3(n), which defines market
value. Under the latter provision, the LBAA and CBAA were not precluded from adopting various
approaches to value determination including the APT floor bid price for petitioners properties.
[Cagayan Robina Sugar Milling Co. vs. Court of Appeals. GR No. 122451. October 12, 2000]
Though the creation of the LRTA was impelled by public service to provide mass
transportation to alleviate the traffic and transportation situation in Metro Manila its operation
undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate
powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private
corporation engaged in the mass transport industry. Given that it is engaged in a service oriented
endeavor, its carriageways and terminal stations are patrimonial property subject to tax,
notwithstanding its claim of being a government owned or controlled corporation.
Under the Real Property Tax Code, real property is classified for assessment purposes on the basis
of actual use. Unlike public roads, which are open for use by everyone, the LRT is accessible only
to those who pay the required fare. Although petitioner is a public utility, it is nonetheless profit
earning. [Light Rail Transit Authority vs. Central Board of Assessment Appeals. GR No.
127316. October 12, 2000]
Based on the evidence presented by the parties, the steps to be followed for the mandatory
conduct of General Revision of Real Property assessments, pursuant to the provisions of Section 219
of RA 7160 are as follows: 1. The preparation of Schedule of Fair Market Values 2. The enactment
of Ordinances: a) levying an annual ad valorem tax on real property and an additional tax
accruing to the SEF; b) fixing the assessment levels to be applied to the market values of real
properties; c) providing necessary appropriation to defray expenses incident to general revision of
real property assessments; and d) adopting the Schedule of Fair Market Values prepared by the
assessors.
Coming down to specifics, we find it desirable to lay down the procedure in computing the
real property tax. With the introduction of assessment levels, tax rates could be maintained,
although tax payments can be made either higher or lower depending on their percentage
(assessment level) applied to the fair market value of property to derive its assessed value which is
subject to tax. Moreover, classes and values of real properties can be given proper consideration,
like assigning lower assessment levels to residential properties and higher levels to properties used
in business. The procedural steps in computing the real property tax are as follows: 1) Ascertain
the assessment level of the property; 2) Multiply the market value by the applicable assessment
level of the property; 3) Find the tax rate which corresponds to the class (use) of the property and
multiply the assessed value by the applicable tax rates. [Lopez vs. City of Manila. GR No.
127139. February 19, 1999]
Section 3(n) of PD 464 merely defines market value. It does not in any way direct that
the market value as defined therein should be used as basis in determining the value of a property
for purposes of real property taxation. On the other hand, Section 5 provides unequivocally that
all real property, whether taxable or exempt, shall be appraised at the current and fair market
value prevailing in the locality where the property is situated.
Section 24 merely lays down the general rule that assessments under PD 464 are to be given
prospective application. It cannot be construed in such a manner as to eliminate the imposition of
back taxes. If Section 24, instead of Section 25, were made to apply as suggested by the
petitioner, he would in effect be excused from the payment of back taxes on the undeclared excess
area of his property. The Court cannot allow a taxpayer to evade his obligation to the Government
by letting him pay taxes on a property based on its gross undervaluation. [Sesbreno vs. Central
Board of Assessment of Appeals. GR No. 106588. March 24, 1997]
Since the last paragraph of the LGC unequivocally withdrew, upon effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
57
government owned or controlled corporations, except as provided in the said section, and Mactan
Cebu International Airport Authority is a government-owned corporation, it necessarily follows that
its exemption from such tax granted it by Section 14 of its Charter RA 6958, has been withdrawn.
[Mactan Cebu International Airport Authority vs. Marcos. GR No. 120082. September 11,
1996]
It is a basic rule of statutory construction that repeals by implication are not favored and
this is based on the rationale that the will of the legislature cannot be overturned by the judicial
function of construction and interpretation. Courts cannot take the place of Congress in repealing
statutes. Their function is to try to harmonize, as much as possible, seeming conflicts in the law
and resolve doubts in favor of their validity and co-existence.
While RA 7160 covers almost all governmental functions delegated to local government
units all over the country, PD 921 embraces only the Metropolitan Manila area and is limited to the
administration of financial services therein, especially the assessment and collection of real estate
(and some other local) taxes.
Although, as a rule, administrative remedies must first be exhausted before resort to
judicial action can prosper, there is a well-settled exception in cases where the controversy does
not involve questions of fact but only of law. Thus, there was no need to file an appeal with the
LBAA since the petitioners are not questioning merely the amounts of the increase of the tax but on
the very validity of any increase. [Ty vs. Trampe. GR No. 117577. December 1, 1995]
Tax declarations are not conclusive of the nature of the property for zoning purposes. Even
if we are to examine the evidentiary value of a tax declaration under the Real Property Tax Code, a
tax declaration only enables the assessor to identify the same for assessment levels. In fact, it does
not bind a provincial/city assessor, for under Section 22 of the Real Estate Tax Code, appraisal and
assessment are based on the actual use irrespective of any previous assessment or taxpayers
valuation thereon, which is based on a taxpayers declaration. [Patalinghug vs. Court of
Appeals. GR No. 104786. January 27, 1994]
Section 9 of PD 921 is specific and mandatory. The undisputed fact that the City Assessor of
Quezon City solely prepared the Schedule of Market Values in question, without the participation of
the other City Assessors of Metropolitan Manila indicates that the said Schedule of Market Values
was prepared contrary to and unauthorized under Section 9 of PD921.
Laws are repealed only by subsequent ones. An executive order like EO 392 cannot repeal
legislative act like PD921. A legislative Act can only be repealed by a subsequent legislative Act.
[Mathay, Jr. vs. Macalincag. GR No. 97618. December 16, 1993]
Under PD 464, notices of the sale of the public auction may be sent to the delinquent
taxpayer either (i) at the address as shown in the tax rolls or property tax record cards of the
municipality or city where the property is located or (ii) at his residence, if known to such treasurer
or barrio captain. [Pecson vs. Court of Appeals. GR No. 105360. May 25, 1993]
Under the Real Property Tax Code (PD 464, as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be appraised at its current and fair market value. In this case, the
Income Approach should be used. The properties covered by PD 20 definitely has a lower market
value than those properties not covered in view of the restrictions imposed thereon. There were
no willing buyers so that there can be no reasonable basis for the conclusion that these properties
are comparable with other residential properties. [Reyes vs. Almanzor. GR No. 49839-46. April
26, 1991]
Gasoline station equipment and machineries are permanent fixtures for purposes of realty
taxation. Improvements on land are commonly taxed as realty even though for some purposes they
might be considered personalty. It is a familiar phenomenon to see things classed as real property
for purposes of taxation which on general principle might be considered personal property.The said
equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as
to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
58
Case Digests
TAXATION LAW
station, for without them the gas station would be useless, and which have been attached or
affixed permanently to the gas station site or embedded therein, are taxable improvements and
machinery within the meaning of the Assessment Law and the Real Property Tax Code. For real
property tax purposes such personal properties may be considered as real property if they are
essential and principal elements of the business being conducted in said land or building. [Caltex
(Phil.) Inc. vs. Central Board of Assessment Appeals. GR No. L-50466. May 31, 1982]
Meralco Securities insists that its pipeline is not subject to realty tax because it is not real
property within the meaning of Article 415 NCC. This contention is not sustainable under the
provision of the Assessment Law, the Real Property Tax Code and the Civil Code. Section 2 of the
Assessment Law provides that the realty tax is due on real property, including land, buildings,
machineries and other improvements not specifically exempted in Section 3 thereof. It is
incontestable that the pipeline of Meralco Securities does not fall within any of the classes of
exempt real property enumerated.
Realty tax has always been imposed by the law-making body and later by the President of
the Philippines in the exercise of his lawmaking powers. The realty tax is enforced throughout the
Philippines and not merely in a particular municipality or city but the proceeds of the tax accrue to
the province, city, municipality and barrio where the realty taxed is situated. In contrast, a local
tax is imposed by municipal or city council by virtue of the Local Tax Code. [Meralco Securities
Industrial Corporation vs. Central Board of Assessment Appeals. GR No. L-46245. May 31,
1982]
An installment purchaser of land and building within the housing project of the GSIS is
liable to pay real estate taxes from the time possession was transferred to him although pending
full payment of the purchase price. The delivery of possession by the seller GSIS to the purchaser
was clearly with the intention of passing to the latter the possession, use and control over said
property, and all the other attributes of ownership short of the naked ownership, such that it
included in said transfer the incidental obligation to pay the taxes thereon, for nothing more was
left to the GSIS except its right to receive full payment of the purchase price. [City of Baguio vs.
Busuego. GR No. L-29772. September 18, 1980]
Movable equipments, to be immobilized in contemplation of Article 415 of the Civil Code,
must be the essential and principal elements of the industry or works which are carried on in a
building or on a piece of land. Thus, where the business is one of transportation, which is carried
on without a repair or service shop, and its rolling equipment is repaired or serviced in a shop
belonging to another, the tools and equipments in its repair shop which appear movable are merely
incidentals and may not be considered immovables, and, hence, not subject to assessment as real
estate for purposes of real estate tax. [Mindanao Bus Co. vs. City Assessor and Treasurer. GR
No. L-17870. September 29, 1962]
Case Digests
TAXATION LAW
59
The legality of seizure can be contested only by the party whose rights have been impaired
thereby, and the objection to an unlawful search and seizure cannot be availed of by third parties.
[Uy vs. Bureau of Internal Revenue. GR No. 129651. October 20, 2000]
The forfeiture of the subject machineries is not dependent on whether or not the
importation was terminated; rather it is premised on the illegal withdrawal of goods from Customs
custody. Regardless of the termination of importation, Customs authorities may validly seize goods,
which for all intents and purposes, still belong to the government. This is so because forfeiture
takes effect immediately upon commission of the offense. The forfeiture of the subject
machineries therefore, retroacted to the date they were illegally withdrawn from Customs custody.
[Carrara Marble Philippines, Inc. vs. Commissioner of Customs. GR No. 129680. September 1,
1999]
As a means of settlement, redemption of forfeited property is unavailing in three instances,
namely, when there is fraud, when the importation is absolutely prohibited or where the release of
the property would be contrary to law.
The fraud contemplated by law must be actual and not constructive it must be
intentional, consisting of deception willfully and deliberately done or resorted to in order to induce
another to give up some right. Misdeclarations in the manifest and ride cannot ascribe to the
consignee where it was not the one that prepared them. [Transglobe International, Inc. vs. Court
of Appeals. GR No. 126634. January 25, 1999]
Under the Tariff and Customs Code, declarations and statements contained in the Import
Entry Permit are presumed to be true and correct under the penalties of falsification and perjury.
Moreover, descriptions in entries and other documents are admissions against interest and
presumptively correct. [Caltex (Philippines), Inc. vs. Court of Appeals. GR No. 104781. July 10,
1998]
RTCs are devoid of any competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere
with these proceedings. The Collector of Customs has exclusive jurisdiction to hear and determine
all questions touching on the seizure and forfeiture of dutiable goods. The RTCs are precluded from
assuming cognizance over such matters even through petitions of certiorari, prohibition or
mandamus.
Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose
decision in turn is subject to the exclusive appellate jurisdiction of the CTA. [Jao vs. Court of
Appeals. GR No. 104604. October 6, 1995]
Under Section 3601 of the Tariff and Customs Code, smuggling is committed by any person
who: (1) fraudulently imports or brings into the Philippines or assists in importing or bringing into
the Philippines any article, contrary to law; or (2) receives, conceals, buys, sells or in any manner
facilitates the transportation, concealment or sale of such article after importation, knowing the
same to have been imported contrary to law. Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with intention to unload and is deemed
terminated upon payment of the duties, taxes and other charges due upon the articles and the
legal permit for withdrawal shall have been granted. If the articles are free of duties, taxes and
other charges, importation is terminated until the articles have legally left the jurisdiction of the
customs. If upon trial the defendant is found to have been in possession of smuggled articles, this
shall be sufficient to authorize conviction unless the defendant explains his possession to the
satisfaction of the court. [Rodriguez vs. Court of Appeals. GR No. 115218. September 18, 1995]
The enforcement of the import ban under Section 36, par (1) of the Revised Forestry Code
is within the exclusive realm of the Bureau of Customs, and direct recourse of petitioner to the RTC
to compel the Commissioner of Customs to enforce the ban is devoid of merit.
The claim of petitioner that no procedure is outlined for the enforcement of the import ban
under the Tariff and Customs Code, if true, does not at all diminish the jurisdiction of the Bureau
of Customs over the subject matter. The enforcement of statutory rights is not foreclosed by the
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
60
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absence of statutory procedure. The Commissioner has the power to promulgate all rules and
regulations necessary to enforce the provisions of this (Tariff and Customs) Code subject to the
approval of the Secretary of Finance. [Provident Tree Farms, Inc. vs. Batario, Jr. GR No.
92285. March 28, 1994]
The penalty of forfeiture is imposed on any vessel engaged in smuggling if the conditions
enumerated in section 2530 (a) are present. These conditions are: (1) the vessel is used unlawfully
in the importation or exportation of articles into or from the Philippines; (2) the articles are
imported or exported into or from any Philippine port or place, except a port of entry; or (3) if
the vessel has a capacity of less than 30 tons and is used in the importation of articles into any
Philippine port or place other than a port of the Sulu Sea, where importation in such vessel may be
authorized by the Commissioner, with the approval of the department head.
A vessel engaged in smuggling in a port of entry cannot be forfeited. This is the clear and
plain meaning of the law. It is not within the province of the Court to inquire into the wisdom of
the law, for indeed we are bound by the words of the statute.
Forfeiture proceedings are proceedings in rem and are directed against the res. It is no
defense that the owner of the vessel sought to be forfeited had no actual knowledge that his
property was used illegally. The absence or lack of actual knowledge of such use is a defense
personal to the owner himself which cannot in any way absolve the vessel from the liability of
forfeiture. [Commissioner of Customs vs. Manila Star Ferry, Inc. GR Nos. 31776-78. October
21, 1993]
The port of Kiwalan not being included in the list of national ports appended to Customs
Memorandum Circular No. 33-73, nor in EO 72, it follows that the Court may not properly consider
said port as a National Port. It is the considered opinion of the Court that under Section 2901 of the
tariff and Customs Code as amended by PD 34, only vessels berthing at National Ports are liable for
berthing fees. Thus, no berthing charges may be collected from vessels moored at municipal ports
nor may berthing charges be imposed by municipal council. [Commissioner of Customs vs. Court
of Tax Appeals and Litonjua Shipping Company. GR 48886-88. July 21, 1993]
Under Section 2530 (m) subparagraph (3) and (4) of the Tariff and Customs Code, the
requisites for forfeiture are: (1) the wrongful making by the owner, importer, exporter, or
consignee of any declaration or affidavit, or the wrongful making or delivery by the same persons of
any invoice, letter or paper all touching on the importation or exportation of merchandise; and
(2) that such declaration, affidavit, invoice, letter or paper is false. The fraud contemplated by law
must be actual and not constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up some right. [Farolan, Jr.
vs. Court of Tax Appeals. GR 42204. January 21, 1993]
Section 28 (2) of Article VI of the Constitution provides as follows: (2) The Congress may,
by law authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national development program of the
Government. The President may increase tariff rates as authorized by law even for revenue
purposes only. The levying of customs duties on imported goods may have in some measure and
effect of protecting local industries where such local industries actually exist and are producing
comparable goods. Simultaneously, however, the very same customs duties inevitably have the
effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely,
if not ever, designed to achieve one policy objective only. [Garcia vs. Executive Secretary. GR
No. 101273. July 3, 1992]
That search and seizure must be supported by a valid warrant is not an absolute rule. There
are at least three well-recognized exceptions. These are (1) a search incidental to an arrest; (2) a
search of a moving vehicle; and (3) seizure of evidence in plain view. The circumstances of the case
clearly show that the search in question was made as regards a moving vehicle. Therefore a valid
warrant is not necessary to effect the search on appellant. The fact that there is actual conveyance
of the prohibited drugs suffices to support a finding that the act of transporting was committed. It
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
61
is immaterial whether or not the place of destination is reached. [People vs. Lo Ho Wing. GR No.
88017. January 21, 1991]
A notice of hearing posted on the bulletin board of public respondent in a forfeiture
proceeding where the owner of the alleged prohibited article is known does not constitute
sufficient compliance with proper service of notice and procedural due process. Time and time
again, the Court has emphasized the imperative necessity for administrative agencies, like the
Bureau of Customs, to observe the elementary rules of due process.
Inasmuch as it would be contrary to law, i.e. BP 73 which prohibits the importation of
gasoline powered cars with engine displacement of a certain kind in order to conserve energy, to
allow the petitioner to redeem the Mercedes Benz in question, there is, therefore, no alternative,
as correctly claimed by public respondents, but to forfeit the same. [Paterok vs. Bureau of
Customs. GR Nos. 90660-61. January 21, 1991]
In fine, Central Bank Circular Nos. 265 and 534 requiring prior Central Bank authority for
the taking out of the country of foreign currency should not be made to encompass foreign currency
depositors whose rights are expressly defined and guaranteed in a special law, Foreign Currency
Deposit Act (RA 6426, as amended). As a foreign currency depositor, therefore, petitioner cannot
be adjudged to have violated the aforesaid Central Bank Circulars. It follows that neither is there
room for the application of Section 2530 (f) of the Tariff and Customs Code, as amended, which
provides for the forfeiture of any article and other objects, the exportation of which is effected or
attempted contrary to law. [Cancio vs. Court of Tax Appeals. GR No. L-73882. October 22,
1987]
It is hard to imagine that an incoming passenger who had all the intentions of declaring a
large quantity of fancy jewelries and stones (3,000 pieces) would undertake the trouble of
painstakingly and meticulously sewing said articles one by one beneath the lining of her bag and the
corners of a blanket only to tear open the linings and detach the articles one by one for inspection.
Her tenuous explanation that she did it for security reasons is too flimsy a pretense to be admitted
as true. [Tan vs. Court of Appeals. GR No. L-56866. June 27, 1985]
In our view, the complementary, if collateral use, of the Cessna plane for smuggling
operation is sufficient for it to be deemed to have been used unlawfully in the importation or
smuggling of blue seal cigarettes. Under Section 2530(a) of the Tariff and Customs Code, in order to
warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband.
There is nothing in the law that so requires. [Llamado vs. Commissioner of Customs. GR No. L28809. May 16, 1983]
The law is clear and mandatory. The dutiable value of an imported article subject to an ad
valorem rate of duty is based on its home consumption value or price as freely offered for sale in
wholesale quantities in the ordinary course of trade in the principal markets of the country from
were exported on the date of exportation to the Philippines. That home consumption value or price
is the value or price declared in the consular, commercial, trade or sales invoice. Where there is a
reasonable doubt as to the value of the imported article, the correct dutiable value is to be
ascertained from the reports of the Revenue Attach or Commercial Attach and from such other
information that may be available to the Bureau of Customs. [Acting Commissioner of Customs vs.
Wise and Company, Inc. GR No. 47890. October 16, 1982]
The court a quo has no jurisdiction over the res subject of the warrant of seizure and
detention. By express provision of law, amply supported by well-settled jurisprudence, the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and regular
courts cannot interfere with his exercise thereof or stifle or put it to naught.
That in his complaint private respondent alleges ownership over several vehicles which are
legally registered in his name, having paid all the taxes and corresponding licenses incident
thereto, neither divests the Collector of Customs of such jurisdiction nor confers upon the said trial
court regular jurisdiction over the case. Even the illegality of the warrant of seizure and detention
cannot justify the trial courts interference with the Collectors jurisdiction. In the first place,
TAXATION LAW COMMITTEE AND DIGEST POOL
CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles), Casiano
Ilagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real Property Taxation) Christian
Cabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes) DIGEST POOL: Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,
Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, Eliseo
Pitargue, Froshell Saure, Charrisimae Ventura
62
Case Digests
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there is a distinction between the existence of the Collectors power to issue it and the regularity
of the proceeding taken under such power. In the second place, even if there be such an
irregularity in the latter, the RTC does not have the competence to review, modify or reverse
whatever conclusions may result from them. [Mison vs. Natividad. GR No. 82586. September 11,
1982]
The Code authorizes persons having police authority under Section 2203 of the Tariff and
Customs Code to enter, pass through or search any land, inclosure, warehouse, store or building,
not being a dwelling house, and also to inspect, search and examine any vessel or aircraft and any
trunk, package, box or envelope or any person on board, or stop and search and examine any
vehicle, beast or person suspected of holding or conveying any dutiable or prohibited article
introduced into the Philippines contrary to law, without mentioning the need of a search warrant in
said cases. But in the search of a dwelling house, the Code provides that said dwelling house may
be entered and searched only upon warrant issued by a judge or justice of the peace . It is our
considered view, therefore, that except in the cause of the search of a dwelling house, persons
exercising police authority under the customs law may effect search and seizure without a search
warrant in the enforcement of customs laws. [Viduya vs. Berdiago. GR No. L-29218. October 29,
1976]
Although the illegally imported subject tobacco may not be absolutely prohibited, but only
qualifiedly prohibited under Section 102 (K) of the Tariff and Customs Code, for it may be imported
subject to certain conditions, it is nonetheless prohibited and is a contraband, and the legal effects
of the importation of qualifiedly prohibited articles are the same as those of absolutely prohibited
articles.
The importer of the subject tobacco, the importation of which is prohibited by law, has no
right that the tobacco be released to him even if he puts up a bond to be determined by the
collector. [Auyong Hian vs. Court of Tax Appeals. GR No. L-28782. September 12, 1974]
The Collector of Customs may order seizure of untaxed goods without being liable for
usurpation of judicial function. The Collector of Customs has the requisite authority to issue a
warrant of seizure and detention for an automobile whose duties and taxes have not been paid for.
In exercising this authority, the collector has not committed a violation of the constitutional right
against unreasonable search and seizure and he may not be prosecuted for the criminal offense of
usurpation of judicial function. [Pacis vs. Pamaran. GR No. L-23996. March 15, 1974]
Merchandise, when used with reference to importations or exportations, includes goods,
wares, and in general anything that may be made the subject of importation or exportation. US
dollars, having ceased to be legal tender in the Philippines, fall within the meaning of the term
merchandise. In addition, that part of the definition of merchandise which states, in general
anything that may be made the subject of importation or exportation is sufficiently clear and
comprehensive to include checks and money orders. [Bastida vs. Acting Commissioner of
Customs. GR No. L-24011. October 24, 1970]
Importation is deemed terminated only upon the payment of the duties, taxes and other
charges upon the articles, or secured to be paid, at the port of entry and the legal permit for
withdrawal shall have been granted. The payment of the duties taxes, fees and other charges must
be in full. Merchandise, the importation of which is effected contrary to law, is subject to
forfeiture, and goods released contrary to law are subject to seizure and forfeiture.
Even if the goods in question have been brought out of the customs area and that the
Bureau of Customs had lost jurisdiction over the same, nevertheless, when said goods were
intercepted at the Agrifina Circle by members of the Manila Police Department acting under
directions and orders of their chief who had been formally deputized by the Commissioner of
customs, the Bureau of customs had regained jurisdiction and custody of the goods.
It is the settled rule, therefore, that the Bureau of Customs acquires exclusive jurisdiction
over imported goods, for the purposes of enforcement of the customs laws, from the moment goods
are actually in its possession or control even if no warrant or detention had previously been issued
by the collector of Customs in connection with seizure and forfeiture proceedings. The Tariff and
Customs Code does not require any search warrant issued by a competent court before police
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VCFinance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law),
Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie
Lou Bautista (Legal Ethics)
Case Digests
TAXATION LAW
63
authorities can effect the seizure. But the Code requires it in case of search of a dwelling house.
Therefore, except if in the case of the search of a dwelling house, persons exercising police
authority under the customs laws may effect search and seizure without a search warrant in the
enforcement of customs laws. [Papa vs. Mago. GR No. L-27360. February 28, 1968]