REYES v.

ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are
leased and occupied as dwelling
units by tenants who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the Rental
Freezing Law was passed prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling
units where rentals do not exceed three hundred pesos (P300.00), so that the
Reyeses were precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City Assessor
of Manila re-classified and
reassessed the value of the subject properties based on the schedule of market
values, which entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum
of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable,
confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income
derived from their
properties. They argued that the income approach should have been used in
determining the land values instead
of the comparable sales approach which the City Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a 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
the
privileges
conferred
and
the
liabilities
imposed.
Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should
not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the
forfeiture of their properties.

CIR vs. Estate of Benigno Toda; Tax Evasion

G.R. No. 147188. September 14, 2004
Facts:
Cebiles Insurance Corporation authorized Benigno P. Toda, Jr., President and owner of
99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two
parcels of land on which the building stands for an amount of not less than P90 million.

Toda purportedly sold the property for P100 million to Rafael A. Altonaga. However,
Altonaga in turn, sold the same property on the same day to Royal Match Inc. for P200
million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public.
For the sale of the property to Royal Dutch, Altonaga paid capital gains tax [6%] in the
amount of P10 million.
Issue:
Whether or not the scheme employed by Cibelis Insurance Company constitutes tax
evasion.
Ruling:
Yes! The scheme, explained the Court, resorted to by CIC in making it appear that there
were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga
to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or equitable duty,
trust or confidence justly reposed, resulting in the damage to another, or by which an undue
and unconscionable advantage is taken of another.
It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only
5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole
purpose of acquiring and transferring title of the subject properties on the same day was to
create a tax shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and
without business purpose and economic substance. Doubtless, the execution of the two
sales was calculated to mislead the BIR with the end in view of reducing the consequent
income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate business purposes
constitutes one of tax evasion.
Generally, a sale or exchange of assets will have an income tax incidence only when it is
consummated. The incidence of taxation depends upon the substance of a transaction. The
tax consequences arising from gains from a sale of property are not finally to be determined
solely by the means employed to transfer legal title. Rather, the transaction must be viewed
as a whole, and each step from the commencement of negotiations to the consummation of
the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale
by another by using the latter as a conduit through which to pass title. To permit the true
nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax
liabilities, would seriously impair the effective administration of the tax policies of Congress.
To allow a taxpayer to deny tax liability on the ground that the sale was made through
another and distinct entity when it is proved that the latter was merely a conduit is to
sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded
for income tax purposes. The two sale transactions should be treated as a single direct sale
by CIC to RMI.

NAPOCOR vs. City of Cabanatuan

Facts: City of Cabanatuan filed a collection suit against NAPOCOR, a government-owned

and controlled corporation demanding that the latter pay the assessed franchise tax due,
plus surcharge and interest. It alleged that NAPOCORs exemption from local taxes has
already been withdrawn by the Local Government Code. NAPOCOR submitted that it is not
liable to pay an annual franchise because the citys taxing power is limited to private entities
that are engaged in trade or occupation for profit, and that the NAPOCOR Charter, being a
valid
exercise
of
police
power,
should
prevail
over
the
LGC.
Issue: Whether NAPOCOR is liable to pay annual franchise tax to the City of Cabanatuan
Held: Yes. The power to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other charges. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits of an exception, i.e.,
when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on
the aforementioned entities. Nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be
subject
to
tax.
A franchise is a privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right. It may be construed in two
senses: the right vested in the individuals composing the corporation and the right and
privileges conferred upon the corporation. A franchise tax is understood in the second
sense; it is not levied on the corporation simply for existing as a corporation but on its
exercise of the rights or privileges granted to it by the government. NAPOCOR is covered by
the franchise tax because it exercises a franchise in the second sense and it is exercising its
rights or privileges under this franchise within the territory of the City.

PBCom. vs. CIR(GR 112024. Jan. 28, 1999)

FACTS:
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation
duly organized under Philippine laws, filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00
by applying PBCom's tax credit memos for P3,401,701.00 and P1,615,253.00,
respectively. Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby
showing no income tax liability in its Annual Income Tax Returns for the year-ended
December 31, 1985. For the succeeding year, ending December 31, 1986, the petitioner
likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the
year.
But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in
1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner
of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld
by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals
(CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."

The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as
the same was filed beyond the two-year reglementary period. A motion for Reconsideration
was denied and the appeal to Court of Appeals was likewise denied. Thus, this appeal to
Supreme Court.
Issues
a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from
two (2) years to ten (10) years is valid.
b) Whether or not the petition for tax refund had already prescribed.
Ruling:
RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive
period is invalid.
Administrative issuances are merely interpretations and not expansions of the provisions of
law, thus, in case of inconsistency, the law prevails over them. Administrative agencies have
no legislative power.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that 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 Commissioner of Internal Revenue. It is widely accepted
that the interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great 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.
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or
errors of its officials or agents. As pointed out by the respondent courts, the nullification of
RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the
express provision of a statute. Hence, his interpretation could not be given weight for to do
so would, in effect, amend the statute.
By implication of the above, claim for refund had already prescribed.
Since the petition had been filed beyond the prescriptive period, the same has already
prescribed. The fact that the final adjusted return show an excess tax credit does not
automatically entitle taxpayer claim for refund without any express intent.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed
from is AFFIRMED, with COSTS against the petitioner.

CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21,
2008]
Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by
machine under several brands. Prior to January 1, 1997, Section 142 of the 1977 Tax Code

subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the
cigarette brands tax classification rates based on their net retail price. On January 1, 1997,
R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax
and also provides that: (1) the excise tax from any brand of cigarettes within the next three
(3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due
from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated
therein shall be increased by 12% on January 1, 2000; and (3) the classification of each
brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in
Annex D shall remain in force until revised by Congress.
The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12%
excise tax increase. RR No. 17-99 added the qualification that the new specific tax rate xxx
shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.
In effect, it provided that the 12% tax increase must be based on the excise tax actually
being paid prior to January 1, 2000 and not on their actual net retail price.
FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes
for the month of January 2000 and for the period January 1-December 31, 2002. It assailed
the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid
qualification. In this petition, petitioner CIR alleges that the literal interpretation given by
the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000
than that imposable during the transition period, which is contrary to the legislative intent to
raise revenue.
Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the
market as outlined in Section 145 of the 1997 Tax Code?
Held: YES. Section 145 is clear and unequivocal. It states that during the transition period,
i.e., within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from
any brand of cigarettes shall not be lower than the tax due from each brand on 1 October
1996. This qualification, however, is conspicuously absent as regards the 12% increase
which is to be applied on cigars and cigarettes packed by machine, among others, effective
on 1 January 2000.
Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine
due to the 12% increase effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that collected prior to this
date.
The qualification added by RR No. 17-99 imposes a tax which is the higher amount between
the ad valorem tax being paid at the end of the 3-year transition period and the specific tax
under Section 145, as increased by 12%a situation not supported by the plain wording of
Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or
modify the law, but must remain consistent with the law they intend to carry out.
Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift
from the ad valorem system to the specific tax system in the Code is likewise meant to
promote fair competition among the players in the industries concerned and to ensure an
equitable distribution of the tax burden.