PRC v.

CA
G.R. No. 118794
May 8, 1996
Sec. 3 Art. XVI of the Constitution: The State may not be sued without its consent.
(agency)
FACTS:
Petitioner Philippine Refining Company (PRC) was assessed by respondent
Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the
year 1985 in the amount of P1,892,584.00. Petitioner protested the assessment on
the grounds that it was based on the erroneous disallowances of "bad debts" and
"interest expense" although the same are both allowable and legal deductions.
Respondent Commissioner, however, issued a warrant of garnishment against the
deposits of petitioner at a branch of City Trust Bank, in Makati, Metro Manila, which
action the latter considered as a denial of its protest. Petitioner then filed a petition
for review with the Court of Tax Appeals (CTA) on the same assignment of error, that
is, that the "bad debts" and "interest expense" are legal and allowable deductions.
The CTA modified the findings of the Commissioner by reducing the deficiency
income tax assessment to P237,381.26, with surcharge and interest incident to
delinquency. In said decision, the Tax Court reversed and set aside the
Commissioner's disallowance of the interest expense of P2,666,545.19 but
maintained the disallowance of the supposed bad debts of thirteen (13) debtors in
the total sum of P395,324.27. Petitioner then elevated the case to respondent Court
of Appeals which, as earlier stated, denied due course to the petition for review and
dismissed the same
ISSUE:
1.

Whether or not the debt owed to AFPCES is worthless?

HELD:
1.
No , The Court held that the debt owed to AFPCES is not necessarily worthless
merely because of the fact that AFPCES is a government agency. AFPCES does not
enjoy immunity from suits, while discharging proprietary function.