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SECOND DIVISION Bureau of Internal Revenue

Diliman, Quezon City

Dear Mr. Deoferio:


G.R. No. 108524 November 10, 1994
This is to clarify a previous communication made by this Office about
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, copra in a letter dated 05 December 1990 stating that copra is not
vs. classified as food. The statement was made in the context of BFAD's
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF regulatory responsibilities which focus mainly on foods that are
INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS processed and packaged, and thereby copra is not covered.
ORIENTAL, respondents.
However, in the broader definition of food which include agricultural
MENDOZA, J.: commodities and other components used in the manufacture/
processing of food, it is our opinion that copra should be classified as an
This is a petition for prohibition and injunction seeking to nullify Revenue agricultural food product since copra is produced from coconut meat
Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue which is food and based on available information, more than 80% of
officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner products derived from copra are edible products.
organization. 1
Moreover, as the government agency charged with the enforcement of the law, the
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic opinion of the Commissioner of Internal Revenue, in the absence of any showing that
corporation whose members, individually or collectively, are engaged in the buying it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the
and selling of copra in Misamis Oriental. The petitioner alleges that prior to the Commissioner of Internal Revenue in the exercise of his power under § 245 of the
issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which NIRC to "make rulings or opinions in connection with the implementation of the
implemented VAT Ruling 190-90, copra was classified as agricultural food product provisions of internal revenue laws, including rulings on the classification of articles
under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from for sales tax and similar purposes."
VAT at all stages of production or distribution.
Second. Petitioner complains that it was denied due process because it was not
Respondents represent departments of the executive branch of government charged heard before the ruling was made. There is a distinction in administrative law
with the generation of funds and the assessment, levy and collection of taxes and between legislative rules and interpretative rules. 3 There would be force in
other imposts. petitioner's argument if the circular in question were in the nature of a legislative
rule. But it is not. It is a mere interpretative rule.
The pertinent provision of the NIRC states:
The reason for this distinction is that a legislative rule is in the nature of subordinate
Sec. 103. Exempt Transactions. — The following shall be exempt from legislation, designed to implement a primary legislation by providing the details
the value-added tax: thereof. In the same way that laws must have the benefit of public hearing, it is
generally required that before a legislative rule is adopted there must be hearing. In
(a) Sale of nonfood agricultural, marine and forest products in their
this connection, the Administrative Code of 1987 provides:
original state by the primary producer or the owner of the land where
the same are produced; Public Participation. — If not otherwise required by law, an agency shall,
as far as practicable, publish or circulate notices of proposed rules and
(b) Sale or importation in their original state of agricultural and marine
afford interested parties the opportunity to submit their views prior to
food products, livestock and poultry of a kind generally used as, or
the adoption of any rule.
yielding or producing foods for human consumption, and breeding stock
and genetic material therefor; (2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general
Under §103(a), as above quoted, the sale of agricultural non-food products in their
circulation at least two (2) weeks before the first hearing thereon.
original state is exempt from VAT only if the sale is made by the primary producer or
owner of the land from which the same are produced. The sale made by any other (3) In case of opposition, the rules on contested cases shall be observed.
person or entity, like a trader or dealer, is not exempt from the tax. On the other 4
hand, under §103(b) the sale of agricultural food products in their original state is
exempt from VAT at all stages of production or distribution regardless of who the In addition such rule must be published.5 On the other hand, interpretative rules are
seller is. designed to provide guidelines to the law which the administrative agency is in
charge of enforcing.
The question is whether copra is an agricultural food or non-food product for
purposes of this provision of the NIRC. On June 11, 1991, respondent Commissioner Accordingly, in considering a legislative rule a court is free to make three inquiries:
of Internal Revenue issued the circular in question, classifying copra as an (i) whether the rule is within the delegated authority of the administrative agency;
agricultural non-food product and declaring it "exempt from VAT only if the sale is (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper
made by the primary producer pursuant to Section 103(a) of the Tax Code, as procedure. But the court is not free to substitute its judgment as to the desirability
amended." 2 or wisdom of the rule for the legislative body, by its delegation of administrative
judgment, has committed those questions to administrative judgments and not to
The reclassification had the effect of denying to the petitioner the exemption it judicial judgments. In the case of an interpretative rule, the inquiry is not into the
previously enjoyed when copra was classified as an agricultural food product under validity but into the correctness or propriety of the rule. As a matter of power a
§103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds, which court, when confronted with an interpretative rule, is free to (i) give the force of law
will be presently discussed although not in the order raised in the petition for to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give
prohibition. some intermediate degree of authoritative weight to the interpretative rule. 6
First. Petitioner contends that the Bureau of Food and Drug of the Department of In the case at bar, we find no reason for holding that respondent Commissioner
Health and not the BIR is the competent government agency to determine the erred in not considering copra as an "agricultural food product" within the meaning
proper classification of food products. Petitioner cites the opinion of Dr. Quintin of § 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not food,
Kintanar of the Bureau of Food and Drug to the effect that copra should be that is, it is not intended for human consumption. Simply stated, nobody eats copra
considered "food" because it is produced from coconut which is food and 80% of for food." That previous Commissioners considered it so, is not reason for holding
coconut products are edible. that the present interpretation is wrong. The Commissioner of Internal Revenue is
not bound by the ruling of his predecessors. 7 To the contrary, the overruling of
On the other hand, the respondents argue that the opinion of the BIR, as the
decisions is inherent in the interpretation of laws.
government agency charged with the implementation and interpretation of the tax
laws, is entitled to great respect. Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative
of the equal protection clause of the Constitution because while coconut farmers and
We agree with respondents. In interpreting §103(a) and (b) of the NIRC, the
copra producers are exempt, traders and dealers are not, although both sell copra in
Commissioner of Internal Revenue gave it a strict construction consistent with the
its original state. Petitioners add that oil millers do not enjoy tax credit out of the
rule that tax exemptions must be strictly construed against the taxpayer and
VAT payment of traders and dealers.
liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of
copra as food was based on "the broader definition of food which includes The argument has no merit. There is a material or substantial difference between
agricultural commodities and other components used in the coconut farmers and copra producers, on the one hand, and copra traders and
manufacture/processing of food." The full text of his letter reads: dealers, on the other. The former produce and sell copra, the latter merely sell copra.
The Constitution does not forbid the differential treatment of persons so long as
10 April 1991
there is a reasonable basis for classifying them differently. 8
Mr. VICTOR A. DEOFERIO, JR.
It is not true that oil millers are exempt from VAT. Pursuant to § 102 of the NIRC,
Chairman VAT Review Committee
they are subject to 10% VAT on the sale of services. Under § 104 of the Tax Code,

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they are allowed to credit the input tax on the sale of copra by traders and dealers, On 28 February 2005, the parties agreed that the matters raised in the application
but there is no tax credit if the sale is made directly by the copra producer as the sale for preliminary injunction and the Motion to Dismiss would just be resolved
is VAT exempt. In the same manner, copra traders and dealers are allowed to credit together in the main case. Thus, on 10 March 2005, the RTC rendered its Decision11
the input tax on the sale of copra by other traders and dealers, but there is no tax without having to resolve the application for preliminary injunction and the Motion
credit if the sale is made by the producer. to Dismiss.

Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders The trial court ruled in favor of respondent, to wit:
and dealers would be forced to buy copra from coconut farmers who are exempt
from the VAT and that to the extent that prices are reduced the government would WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject
lose revenues as the 10% tax base is correspondingly diminished. Customs Memorandum Order 27-2003 is declared INVALID and OF NO FORCE AND
EFFECT. Respondents Commissioner of Customs, the District Collector of Subic or
This is not so. The sale of agricultural non-food products is exempt from VAT only anyone acting in their behalf are to immediately cease and desist from enforcing the
when made by the primary producer or owner of the land from which the same is said Customs Memorandum Order 27-2003.
produced, but in the case of agricultural food products their sale in their original
state is exempt at all stages of production or distribution. At any rate, the argument SO ORDERED.12
that the classification of copra as agricultural non-food product is counterproductive
is a question of wisdom or policy which should be addressed to respondent officials The RTC held that it had jurisdiction over the subject matter, given that the issue
and to Congress. raised by respondent concerned the quasi-legislative powers of petitioners. It
likewise stated that a petition for declaratory relief was the proper remedy, and that
WHEREFORE, the petition is DISMISSED. respondent was the proper party to file it. The court considered that respondent
was a regular importer, and that the latter would be subjected to the application of
SO ORDERED. the regulation in future transactions.

SECOND DIVISION With regard to the validity of the regulation, the trial court found that petitioners
had not followed the basic requirements of hearing and publication in the issuance
G.R. No. 179579 February 1, 2012 of CMO 27-2003. It likewise held that petitioners had "substituted the quasi-judicial
determination of the commodity by a quasi-legislative predetermination."13 The
COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE PORT OF lower court pointed out that a classification based on importers and ports of
SUBIC, Petitioners, discharge were violative of the due process rights of respondent.
vs.
HYPERMIX FEEDS CORPORATION, Respondent. Dissatisfied with the Decision of the lower court, petitioners appealed to the CA,
raising the same allegations in defense of CMO 27-2003.14 The appellate court,
DECISION however, dismissed the appeal. It held that, since the regulation affected substantial
rights of petitioners and other importers, petitioners should have observed the
SERENO, J.: requirements of notice, hearing and publication.

Before us is a Petition for Review under Rule 45,1 assailing the Decision2 and the Hence, this Petition.
Resolution3 of the Court of Appeals (CA), which nullified the Customs Memorandum
Order (CMO) No. 27-20034 on the tariff classification of wheat issued by petitioner Petitioners raise the following issues for the consideration of this Court:
Commissioner of Customs.
I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE
The antecedent facts are as follows: WHICH IS NOT IN ACCORD WITH THE LAW AND PREVAILING
JURISPRUDENCE.
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003.
Under the Memorandum, for tariff purposes, wheat was classified according to the II. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE
following: (1) importer or consignee; (2) country of origin; and (3) port of TRIAL COURT HAS JURISDICTION OVER THE CASE.
discharge.5 The regulation provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. Depending on these The Petition has no merit.
factors, wheat would be classified either as food grade or feed grade. The
corresponding tariff for food grade wheat was 3%, for feed grade, 7%. We shall first discuss the propriety of an action for declaratory relief.

CMO 27-2003 further provided for the proper procedure for protest or Valuation Rule 63, Section 1 provides:
and Classification Review Committee (VCRC) cases. Under this procedure, the
release of the articles that were the subject of protest required the importer to post Who may file petition. – Any person interested under a deed, will, contract or other
a cash bond to cover the tariff differential.6 written instrument, or whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed violation thereof, bring an action in the appropriate Regional Trial Court to
a Petition for Declaratory Relief7 with the Regional Trial Court (RTC) of Las Pinñ as determine any question of construction or validity arising, and for a declaration of
City. It anticipated the implementation of the regulation on its imported and his rights or duties, thereunder.
perishable Chinese milling wheat in transit from China.8 Respondent contended that
CMO 27-2003 was issued without following the mandate of the Revised The requirements of an action for declaratory relief are as follows: (1) there must be
Administrative Code on public participation, prior notice, and publication or a justiciable controversy; (2) the controversy must be between persons whose
registration with the University of the Philippines Law Center. interests are adverse; (3) the party seeking declaratory relief must have a legal
interest in the controversy; and (4) the issue involved must be ripe for judicial
Respondent also alleged that the regulation summarily adjudged it to be a feed determination.15 We find that the Petition filed by respondent before the lower
grade supplier without the benefit of prior assessment and examination; thus, court meets these requirements.
despite having imported food grade wheat, it would be subjected to the 7% tariff
upon the arrival of the shipment, forcing them to pay 133% more than was proper. First, the subject of the controversy is the constitutionality of CMO 27-2003 issued
by petitioner Commissioner of Customs. In Smart Communications v. NTC,16 we
Furthermore, respondent claimed that the equal protection clause of the held:
Constitution was violated when the regulation treated non-flour millers differently
from flour millers for no reason at all. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
Lastly, respondent asserted that the retroactive application of the regulation was jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial
confiscatory in nature. review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts,
On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective including the regional trial courts. This is within the scope of judicial power, which
for twenty (20) days from notice.9 includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of
Petitioners thereafter filed a Motion to Dismiss.10 They alleged that: (1) the RTC did the courts of justice to settle actual controversies involving rights which are legally
not have jurisdiction over the subject matter of the case, because respondent was demandable and enforceable, and to determine whether or not there has been a
asking for a judicial determination of the classification of wheat; (2) an action for grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
declaratory relief was improper; (3) CMO 27-2003 was an internal administrative any branch or instrumentality of the Government. (Emphasis supplied)
rule and not legislative in nature; and (4) the claims of respondent were speculative
and premature, because the Bureau of Customs (BOC) had yet to examine Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of
respondent’s products. They likewise opposed the application for a writ of Finance Secretary,17 we said:
preliminary injunction on the ground that they had not inflicted any injury through
the issuance of the regulation; and that the action would be contrary to the rule that xxx [A] legislative rule is in the nature of subordinate legislation, designed to
administrative issuances are assumed valid until declared otherwise. implement a primary legislation by providing the details thereof. xxx

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In addition such rule must be published. On the other hand, interpretative rules are The clear object of the above-quoted provision is to give the general public adequate
designed to provide guidelines to the law which the administrative agency is in notice of the various laws which are to regulate their actions and conduct as citizens.
charge of enforcing. Without such notice and publication, there would be no basis for the application of
the maxim "ignorantia legis non excusat." It would be the height of injustice to
Accordingly, in considering a legislative rule a court is free to make three inquiries: punish or otherwise burden a citizen for the transgression of a law of which he had
(i) whether the rule is within the delegated authority of the administrative agency; no notice whatsoever, not even a constructive one.
(ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper
procedure. But the court is not free to substitute its judgment as to the desirability Perhaps at no time since the establishment of the Philippine Republic has the
or wisdom of the rule for the legislative body, by its delegation of administrative publication of laws taken so vital significance that at this time when the people have
judgment, has committed those questions to administrative judgments and not to bestowed upon the President a power heretofore enjoyed solely by the legislature.
judicial judgments. In the case of an interpretative rule, the inquiry is not into the While the people are kept abreast by the mass media of the debates and
validity but into the correctness or propriety of the rule. As a matter of power a deliberations in the Batasan Pambansa – and for the diligent ones, ready access to
court, when confronted with an interpretative rule, is free to (i) give the force of law the legislative records – no such publicity accompanies the law-making process of
to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give the President. Thus, without publication, the people have no means of knowing what
some intermediate degree of authoritative weight to the interpretative rule. presidential decrees have actually been promulgated, much less a definite way of
(Emphasis supplied) informing themselves of the specific contents and texts of such decrees. (Emphasis
supplied)
Second, the controversy is between two parties that have adverse interests.
Petitioners are summarily imposing a tariff rate that respondent is refusing to pay. Because petitioners failed to follow the requirements enumerated by the Revised
Administrative Code, the assailed regulation must be struck down.
Third, it is clear that respondent has a legal and substantive interest in the
implementation of CMO 27-2003. Respondent has adequately shown that, as a Going now to the content of CMO 27-3003, we likewise hold that it is
regular importer of wheat, on 14 August 2003, it has actually made shipments of unconstitutional for being violative of the equal protection clause of the
wheat from China to Subic. The shipment was set to arrive in December 2003. Upon Constitution.
its arrival, it would be subjected to the conditions of CMO 27-2003. The regulation
calls for the imposition of different tariff rates, depending on the factors enumerated The equal protection clause means that no person or class of persons shall be
therein. Thus, respondent alleged that it would be made to pay the 7% tariff applied deprived of the same protection of laws enjoyed by other persons or other classes in
to feed grade wheat, instead of the 3% tariff on food grade wheat. In addition, the same place in like circumstances. Thus, the guarantee of the equal protection of
respondent would have to go through the procedure under CMO 27-2003, which laws is not violated if there is a reasonable classification. For a classification to be
would undoubtedly toll its time and resources. The lower court correctly pointed out reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is
as follows: germane to the purpose of the law; (3) it is not limited to existing conditions only;
and (4) it applies equally to all members of the same class.22
xxx As noted above, the fact that petitioner is precisely into the business of
importing wheat, each and every importation will be subjected to constant disputes Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how
which will result into (sic) delays in the delivery, setting aside of funds as cash bond the quality of wheat is affected by who imports it, where it is discharged, or which
required in the CMO as well as the resulting expenses thereof. It is easy to see that country it came from.
business uncertainty will be a constant occurrence for petitioner. That the sums
involved are not minimal is shown by the discussions during the hearings conducted Thus, on the one hand, even if other millers excluded from CMO 27-2003 have
as well as in the pleadings filed. It may be that the petitioner can later on get a imported food grade wheat, the product would still be declared as feed grade wheat,
refund but such has been foreclosed because the Collector of Customs and the a classification subjecting them to 7% tariff. On the other hand, even if the importers
Commissioner of Customs are bound by their own CMO. Petitioner cannot get its listed under CMO 27-2003 have imported feed grade wheat, they would only be
refund with the said agency. We believe and so find that Petitioner has presented made to pay 3% tariff, thus depriving the state of the taxes due. The regulation,
such a stake in the outcome of this controversy as to vest it with standing to file this therefore, does not become disadvantageous to respondent only, but even to the
petition.18 (Emphasis supplied) state.

Finally, the issue raised by respondent is ripe for judicial determination, because It is also not clear how the regulation intends to "monitor more closely wheat
litigation is inevitable19 for the simple and uncontroverted reason that respondent importations and thus prevent their misclassification." A careful study of CMO 27-
is not included in the enumeration of flour millers classified as food grade wheat 2003 shows that it not only fails to achieve this end, but results in the opposite. The
importers. Thus, as the trial court stated, it would have to file a protest case each application of the regulation forecloses the possibility that other corporations that
time it imports food grade wheat and be subjected to the 7% tariff. are excluded from the list import food grade wheat; at the same time, it creates an
assumption that those who meet the criteria do not import feed grade wheat. In the
It is therefore clear that a petition for declaratory relief is the right remedy given the first case, importers are unnecessarily burdened to prove the classification of their
circumstances of the case. wheat imports; while in the second, the state carries that burden.

Considering that the questioned regulation would affect the substantive rights of Petitioner Commissioner of Customs also went beyond his powers when the
respondent as explained above, it therefore follows that petitioners should have regulation limited the customs officer’s duties mandated by Section 1403 of the
applied the pertinent provisions of Book VII, Chapter 2 of the Revised Tariff and Customs Law, as amended. The law provides:
Administrative Code, to wit:
Section 1403. – Duties of Customs Officer Tasked to Examine, Classify, and Appraise
Section 3. Filing. – (1) Every agency shall file with the University of the Philippines Imported Articles. – The customs officer tasked to examine, classify, and appraise
Law Center three (3) certified copies of every rule adopted by it. Rules in force on imported articles shall determine whether the packages designated for examination
the date of effectivity of this Code which are not filed within three (3) months from and their contents are in accordance with the declaration in the entry, invoice and
that date shall not thereafter be the bases of any sanction against any party of other pertinent documents and shall make return in such a manner as to indicate
persons. whether the articles have been truly and correctly declared in the entry as regard
their quantity, measurement, weight, and tariff classification and not imported
xxx xxx xxx contrary to law. He shall submit samples to the laboratory for analysis when feasible
to do so and when such analysis is necessary for the proper classification, appraisal,
Section 9. Public Participation. - (1) If not otherwise required by law, an agency shall, and/or admission into the Philippines of imported articles.
as far as practicable, publish or circulate notices of proposed rules and afford
interested parties the opportunity to submit their views prior to the adoption of any Likewise, the customs officer shall determine the unit of quantity in which they are
rule. usually bought and sold, and appraise the imported articles in accordance with
Section 201 of this Code.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general Failure on the part of the customs officer to comply with his duties shall subject him
circulation at least two (2) weeks before the first hearing thereon. to the penalties prescribed under Section 3604 of this Code.1âwphi1

(3) In case of opposition, the rules on contested cases shall be observed. The provision mandates that the customs officer must first assess and determine the
classification of the imported article before tariff may be imposed. Unfortunately,
When an administrative rule is merely interpretative in nature, its applicability CMO 23-2007 has already classified the article even before the customs officer had
needs nothing further than its bare issuance, for it gives no real consequence more the chance to examine it. In effect, petitioner Commissioner of Customs diminished
than what the law itself has already prescribed. When, on the other hand, the the powers granted by the Tariff and Customs Code with regard to wheat
administrative rule goes beyond merely providing for the means that can facilitate importation when it no longer required the customs officer’s prior examination and
or render least cumbersome the implementation of the law but substantially assessment of the proper classification of the wheat.
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, It is well-settled that rules and regulations, which are the product of a delegated
before that new issuance is given the force and effect of law.20 power to create new and additional legal provisions that have the effect of law,
should be within the scope of the statutory authority granted by the legislature to
Likewise, in Tanñ ada v. Tuvera,21 we held: the administrative agency. It is required that the regulation be germane to the

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objects and purposes of the law; and that it be not in contradiction to, but in 1. WHETHER THE COURT OF APPEALS HAS JURISDICTION OVER A
conformity with, the standards prescribed by law.23 PETITION FOR CERTIORARI UNDER RULE 65 OF THE RULES OF COURT
WHERE THE AUTHORITY OF THE REGIONAL TRIAL COURT TO REVIEW
In summary, petitioners violated respondent’s right to due process in the issuance of THE SUBJECT REVENUE ORDERS IS BEING QUESTIONED;
CMO 27-2003 when they failed to observe the requirements under the Revised
Administrative Code. Petitioners likewise violated respondent’s right to equal 2. WHETHER IT IS THE RTC OR THE COURT OF TAX APPEALS WHICH
protection of laws when they provided for an unreasonable classification in the HAS JURISDICTION OVER THE INSTANT CASE.
application of the regulation. Finally, petitioner Commissioner of Customs went
beyond his powers of delegated authority when the regulation limited the powers of Anent the first issue, petitioner contends that the Court of Appeals has "original
the customs officer to examine and assess imported articles. jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus and
quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate
WHEREFORE, in view of the foregoing, the Petition is DENIED. jurisdiction," pursuant to Section 9(1) of Batas Pambansa Blg. 129. Petitioner thus
claims that his petition for certiorari filed with the Court of Appeals pursuant to Rule
SO ORDERED. 65 of the Rules of Court is the proper recourse to assail the RTC order denying his
motion to dismiss.
THIRD DIVISION
Petitioner’s contention is meritorious. The Court of Appeals erred in holding that it
G.R. No. 113459 November 18, 2002 has no jurisdiction over petitioner’s special civil action for certiorari under Rule 65
of the Rules. While this Court exercises original jurisdiction to issue the
COMMISSIONER OF INTERNAL REVENUE petitioner, extraordinary writ of certiorari (as well as the writs of prohibition, mandamus, quo
vs. warranto, and habeas corpus),14 such power is not exclusive to this Court but is
JOSEFINA LEAL, respondent. concurrent with the Court of Appeals15 and the Regional Trial Courts.16 We reiterate
our pronouncement on this issue in Morales vs. Court of Appeals:17
DECISION
"Under Section 9 (1) of B.P. Blg. 129, the Court of Appeals has concurrent original
SANDOVAL-GUTIERREZ, J.: jurisdiction with the Supreme Court pursuant to Section 5 (1) of Article VIII of the
Constitution and Section 17 (1) of the Judiciary Act of 1948, and with the Regional
Pursuant to Section 116 of Presidential Decree No. 1158,1 (The National Internal Trial Court pursuant to Section 21 (1) of B.P. Blg. 129 to issue writs of certiorari,
Revenue Code of 1977, as amended [Tax Code for brevity]), which provides: mandamus, prohibition, habeas corpus, and quo warranto. These are original
actions, not modes of appeals.
"SEC. 116. Percentage tax on dealers in securities; lending investors. – Dealers in
securities shall pay a tax equivalent to six (6%) per centum of their gross income. "Since what the petitioner filed in CA-G.R. SP No. 40670 was a special civil action for
Lending investors shall pay a tax equivalent to five (5%) per cent of their gross certiorari under Rule 65, the original jurisdiction of the Court of Appeals thereon is
income." (emphasis added) beyond doubt.
the Commissioner of Internal Revenue, petitioner, issued Revenue Memorandum "This error of the Court of Appeals was due to its misapplication of Section 5 (2) (c)
Order (RMO) No. 15-91 dated March 11, 1991, 2 imposing 5% lending investor’s tax of Article VIII of the Constitution and of that portion of Section 17 of the Judiciary
on pawnshops based on their gross income and requiring all investigating units of Act of 1948 vesting upon the Supreme Court exclusive jurisdiction to review, revise,
the Bureau of Internal Revenue (BIR) to investigate and assess the lending investor’s reverse, modify, or affirm on certiorari as the law or rules of court may provide, final
tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioner’s judgments and decrees of inferior courts in all cases in which the jurisdiction of any
evaluation that the nature of pawnshop business is akin to that of "lending inferior court is in issue. It forgot that this constitutional and statutory provisions
investors," which term is defined in Section 157 (u) of the Tax Code in this wise: pertain to the appellate – not original – jurisdiction of the Supreme Court, as
correctly maintained by the petitioner. An appellate jurisdiction refers to a process
"(u) Lending investors include all persons who make a practice of lending money for
which is but a continuation of the original suit, not a commencement of a new
themselves or others at interests."
action, such as that of a special civil action for certiorari. The general rule is that a
Subsequently, petitioner issued Revenue Memorandum Circular (RMC) No. 43-91 denial of a motion to dismiss or to quash in criminal cases is interlocutory and
dated May 27, 1992,3 subjecting the pawn ticket to the documentary stamp tax as cannot be the subject of an appeal or of a special civil action for certiorari.
prescribed in Title VII of the Tax Code. Nevertheless, this Court has allowed a special civil action for certiorari where a
lower court has acted without or in excess of jurisdiction or with grave abuse of
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner discretion in denying a motion to dismiss or to quash. The petitioner believed that
and operator of Josefina’s Pawnshop in San Mateo, Rizal, asked for a reconsideration the RTC below did so; hence, the special civil action for certiorari before the Court of
of both RMO No. 15-91 and RMC No. 43-91 but the same was denied with finality by Appeals appeared to be the proper remedy." (emphasis added)
petitioner in its BIR Ruling No. 221-91 dated October 30, 1991.4
Such concurrence of original jurisdiction among the Regional Trial Court, the Court
Consequently, on March 18, 1992, respondent filed with the Regional Trial Court of Appeals and this Court, however, does not mean that the party seeking any of the
(RTC), Branch 75, San Mateo, Rizal, a petition for prohibition, docketed as Civil Case extraordinary writs has the absolute freedom to file his petition in the court of his
No. 849-92,5 seeking to prohibit petitioner from implementing the revenue orders. choice. The hierarchy of courts in our judicial system determines the appropriate
forum for these petitions. Thus, petitions for the issuance of the said writs against
Petitioner, through the Office of the Solicitor General, filed a motion to dismiss 6 the the first level (inferior) courts must be filed with the Regional Trial Court and those
petition on the ground that the RTC has no jurisdiction to review the questioned against the latter, with the Court of Appeals. A direct invocation of this Court’s
revenue orders and to enjoin their implementation. Petitioner contends that the original jurisdiction to issue these writs should be allowed only where there are
subject revenue orders were issued pursuant to his power "to make rulings or special and important reasons therefor, specifically and sufficiently set forth in the
opinions in connection with the implementation of the provisions of internal petition. This is the established policy to prevent inordinate demands upon the
revenue laws."7 Thus, the case falls within the exclusive appellate jurisdiction of the Court’s time and attention, which are better devoted to matters within its exclusive
Court of Tax Appeals, citing Section 7 (1) of Republic Act No. 1125. 8 jurisdiction, and to prevent further over-crowding of the Court’s docket.18 Thus, it
was proper for petitioner to institute the special civil action for certiorari with the
The RTC, through then Presiding Judge Andres B. Reyes, Jr., 9 issued an order on April Court of Appeals assailing the RTC order denying his motion to dismiss based on
27, 199210 denying the motion to dismiss, holding that the revenue orders are not lack of jurisdiction.
assessments to implement a Tax Code provision, but are "in effect new taxes (against
pawnshops) which are not provided for under the Code," and which only Congress is While the Court of Appeals correctly took cognizance of the petition for certiorari,
empowered to impose. however, let it be stressed that the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the
Petitioner then filed with the Court of Appeals a petition for certiorari and RTC.
prohibition under Rule 65 of the Revised Rules of Court (now 1997 Rules of Civil
Procedure, as amended), docketed as CA-G.R. SP No. 28824. Petitioner alleged that The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions
in denying the motion to dismiss, the RTC Judge acted without or in excess of his of the Commissioner implementing the Tax Code on the taxability of pawnshops.
jurisdiction, or with grave abuse of discretion. In its Decision dated December 23, This is clear from petitioner’s RMO No. 15-91, pertinent portion of which reads:
1993, the Court of Appeals dismissed the petition "for lack of legal basis" 11 and ruled
that "the (RTC) order denying the motion to dismiss is subject to immediate "A restudy of P.D. 114 (the Pawnshop Regulation Act) shows that the principal
challenge before the Supreme Court (not the Court of Appeals), which is the sole activity of pawnshops is lending money at interest and incidentally accepting a
authority to determine and resolve an issue purely of law pursuant to Section 5, ‘pawn’ of personal property delivered by the pawner to the pawnee as security for
Article VIII of the 1987 Constitution."12 Nonetheless, the Court of Appeals resolved the loan (Sec. 3, ibid.). Clearly, this makes pawnshop business akin to lending
the case on the merits, sustaining the RTC ruling that the questioned revenue orders investor’s business activity which is broad enough to encompass the business of
are "new additional measures which only Congress is empowered to impose." 13 lending money at interest by any person whether natural or juridical. Such being the
case, pawnshops shall be subject to the 5% lending investor’s tax based on their
Hence, the instant petition for review on certiorari under Rule 45 of the Rules of gross income pursuant to Section 116 of the Tax Code, as amended." 19
Court raising the following issues:
Such revenue orders were issued pursuant to petitioner's powers under Section 245
of the Tax Code, which states:

Tax II Fulltext | 2nd set | Remedies | 4


"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. has exclusive appellate jurisdiction to review, on appeal, any decision of the
– The Secretary of Finance, upon recommendation of the Commissioner, shall Collector of Internal Revenue in cases involving disputed assessments and other
promulgate all needful rules and regulations for the effective enforcement of the matters arising under the National Internal Revenue Code or other law or part of
provisions of this Code. law administered by the Bureau of Internal Revenue.’"

"The authority of the Secretary of Finance to determine articles similar or analogous Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is
to those subject to a rate of sales tax under certain category enumerated in Section assailing the revenue orders imposing 5% lending investor’s tax on pawnshops
163 and 165 of this Code shall be without prejudice to the power of the issued by petitioner. Clearly then, she should have filed her petition with the Court of
Commissioner of Internal Revenue to make rulings or opinions in connection with Tax Appeals, not the RTC. Indeed, the Court of Appeals erred in holding that the RTC
the implementation of the provisions of internal revenue laws, including ruling on order should have been challenged before this Court.
the classification of articles of sales and similar purposes." (emphasis added)
WHEREFORE, the petition is GRANTED. Accordingly: (1) the assailed Decision dated
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals [CTA for December 23, 1993 of the Court of Appeals in CA-G.R. SP No. 28824 is SET ASIDE;
brevity]), as amended, such rulings of the Commissioner of Internal Revenue are (2) the Order dated April 27, 1992 and the Writ of Preliminary Injunction dated May
appealable to that court, thus: 21, 1992 both issued by the RTC, Branch 75, San Mateo, Rizal in Civil Case No. 849-
92, are declared NULL and VOID for having been issued without jurisdiction; and (3)
"SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate Civil Case No. 849-92 is ordered DISMISSED.
jurisdiction to review by appeal, as herein provided -
SO ORDERED.
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees EN BANC
or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws or part G.R. No. L-25043 April 26, 1968
of law administered by the Bureau of Internal Revenue;
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective
x x x x x x x x x." (emphasis added) behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
"SEC. 11. Who may appeal; effect of appeal. – Any person, association or COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,
corporation adversely affected by a decision or ruling of the respondents.
Commissioner of Internal Revenue, or the Commissioner of Customs or
any provincial or city Board of Assessment Appeals may file an appeal in Leido, Andrada, Perez and Associates for petitioners.
the Court of Tax Appeals within thirty days after the receipt of such Office of the Solicitor General for respondents.
decision or ruling.
BENGZON, J.P., J.:
x x x x x x x x x." (emphasis added)
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their
"SEC. 18. x x x. – No judicial proceedings against the Government grandchildren by hereditary succession the following properties:
involving matters arising under the National Internal Revenue Code, the
Customs Law or the Assessment Law shall be maintained, except as (1) Agricultural lands with a total area of 19,000 hectares, situated in
herein provided, until and unless an appeal has been previously filed the municipality of Nasugbu, Batangas province;
with the Court of Tax Appeals and disposed of in accordance with the
provisions of this Act. (2) A residential house and lot located at Wright St., Malate, Manila; and

x x x x x x x x x." (emphasis added) (3) Shares of stocks in different corporations.

This Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:


20 To manage the above-mentioned properties, said children, namely, Antonio Roxas,
Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania.
"Plaintiff maintains that this is not an appeal from a ruling of the
Collector of Internal Revenue, but merely an attempt to nullify General AGRICULTURAL LANDS
Circular No. V-148, which does not adjudicate or settle any controversy,
and that, accordingly, this case is not within the jurisdiction of the Court At the conclusion of the Second World War, the tenants who have all been tilling the
of Tax Appeals. lands in Nasugbu for generations expressed their desire to purchase from Roxas y
Cia. the parcels which they actually occupied. For its part, the Government, in
"We find no merit in this pretense. General Circular No. V-148 directs the consonance with the constitutional mandate to acquire big landed estates and
officers charged with the collection of taxes and license fees to adhere apportion them among landless tenants-farmers, persuaded the Roxas brothers to
strictly to the interpretation given by the defendant to the statutory part with their landholdings. Conferences were held with the farmers in the early
provisions abovementioned, as set forth in the Circular. The same part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the
incorporates, therefore, a decision of the Collector of Internal Revenue Government for distribution to actual occupants for a price of P2,079,048.47 plus
(now Commissioner of Internal Revenue) on the manner of enforcement P300,000.00 for survey and subdivision expenses.
of the said statute, the administration of which is entrusted by law to the
Bureau of Internal Revenue. As such, it comes within the purview of It turned out however that the Government did not have funds to cover the purchase
Republic Act No. 1125, Section 7 of which provides that the Court of Tax price, and so a special arrangement was made for the Rehabilitation Finance
Appeals ‘shall exercise exclusive appellate jurisdiction to review by Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan.
appeal x x x decisions of the Collector of Internal Revenue in x x x Collateral for such loan were the lands proposed to be sold to the farmers. Under the
matters arising under the National Internal Revenue Code or other law arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price
or part of the law administered by the Bureau of Internal Revenue.’ x x but by installment, and contracted with the Rehabilitation Finance Corporation to
x." (emphasis added) pay its loan from the proceeds of the yearly amortizations paid by the farmers.

In the same vein, we held in Meralco Securities Corporation vs. Savellano,21 thus: In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of
P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income
"Respondent judge has no jurisdiction to take cognizance of the case because the tax purposes as gain on the sale of capital asset held for more than one year
subject matter thereof clearly falls within the scope of cases now exclusively within pursuant to Section 34 of the Tax Code.
the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125,
enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate RESIDENTIAL HOUSE
jurisdiction to review by appeal, among others, decisions of the Commissioner of
Internal Revenue in cases involving disputed assessments, refunds of internal During their bachelor days the Roxas brothers lived in the residential house at
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other Wright St., Malate, Manila, which they inherited from their grandparents. After
matters arising under the National Internal Revenue Code or other law or part of Antonio and Eduardo got married, they resided somewhere else leaving only Jose in
law administered by the Bureau of Internal Revenue. The law transferred to the the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the
Court of Tax Appeals jurisdiction over all cases involving said assessments house in the sum of P8,000.00 a year.
previously cognizable by Courts of First Instance, and even those already pending in
ASSESSMENTS
said courts. The question of whether of not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y
"disputed assessments" or of "other matters arising under the National Internal Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus
Revenue Code…." In the case of Blaquera, etc. vs. Rodriguez, etc.(103 Phil. 511 P10.00 compromise penalty for late payment, and P150.00 tax for dealers of
[1958]), this Court ruled that ‘the determination of the correctness or incorrectness securities for 1952 plus P10.00 compromise penalty for late payment. The
of a tax assessment to which the taxpayer is not agreeable, falls within the assessment for real estate dealer's tax was based on the fact that Roxas y Cia.
jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec.
under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals 194 of the Tax Code, an owner of a real estate who derives a yearly rental income

Tax II Fulltext | 2nd set | Remedies | 5


therefrom in the amount of P3,000.00 or more is considered a real estate dealer and
JOSE ROXAS:
is liable to pay the corresponding fixed tax.
1955
The Commissioner of Internal Revenue justified his demand for the fixed tax on
dealers of securities against Roxas y Cia., on the fact that said partnership made Contributions to Philippines
profits from the purchase and sale of securities. Herald's fund for Manila's
neediest families 120.00
In the same assessment, the Commissioner assessed deficiency income taxes against
the Roxas Brothers for the years 1953 and 1955, as follows: The Roxas brothers protested the assessment but inasmuch as said protest was
denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961. The
1953 1955 Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the
assessment except the demand for the payment of the fixed tax on dealer of
Antonio Roxas P7,010.00 P5,813.00 securities and the disallowance of the deductions for contributions to the Philippine
Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment
Eduardo Roxas 7,281.00 5,828.00 reads:

Jose Roxas 6,323.00 5,588.00 WHEREFORE, the decision appealed from is hereby affirmed with
respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of who are hereby ordered to pay the respondent Commissioner of
the unreported 50% of the net profits for 1953 and 1955 derived from the sale of Internal Revenue the amounts of P12,808.00, P12,887.00 and
the Nasugbu farm lands to the tenants, and the disallowance of deductions from P11,857.00, respectively, as deficiency income taxes for the years 1953
gross income of various business expenses and contributions claimed by Roxas y and 1955, plus 5% surcharge and 1% monthly interest as provided for
Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu in Sec. 51(a) of the Revenue Code; and modified with respect to the
farm lands and sold them to the farmers on installment, the Commissioner partnership Roxas y Cia. in the sense that it should pay only P150.00, as
considered the partnership as engaged in the business of real estate, hence, 100% of real estate dealer's tax. With costs against petitioners.
the profits derived therefrom was taxed.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The
Commissioner of Internal Revenue did not appeal.
The following deductions were disallowed:
The issues:
ROXAS Y CIA.:
(1) Is the gain derived from the sale of the Nasugbu farm lands an
1953 ordinary gain, hence 100% taxable?

(2) Are the deductions for business expenses and contributions


Tickets for Banquet in honor of
P 40.00 deductible?
S. Osmenñ a
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate
Gifts of San Miguel beer 28.00
dealers?
Contributions to —
The Commissioner of Internal Revenue contends that Roxas y Cia. could be
Philippine Air Force Chapel 100.00 considered a real estate dealer because it engaged in the business of selling real
estate. The business activity alluded to was the act of subdividing the Nasugbu farm
Manila Police Trust Fund 150.00 lands and selling them to the farmers-occupants on installment. To bolster his stand
on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles
Philippines Herald's fund for Manila's neediest of partnership, quoted below:
families 100.00
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que
1955 pueden pertenecer a ella en el futuro, alquilandoles por los plazos y
demas condiciones, estime convenientes y vendiendo aquellas que a
Contributions to Contribution to juicio de sus gerentes no deben conservarse;
Our Lady of Fatima Chapel, FEU 50.00
The above-quoted purpose notwithstanding, the proposition of the Commissioner of
ANTONIO ROXAS: Internal Revenue cannot be favorably accepted by Us in this isolated transaction
with its peculiar circumstances in spite of the fact that there were hundreds of
1953 vendees. Although they paid for their respective holdings in installment for a period
of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate
Contributions to — dealer during the ten-year amortization period.

Pasay City Firemen Christmas Fund 25.00 It should be borne in mind that the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in consonance with, but more
Pasay City Police Dept. X'mas fund 50.00 in obedience to the request and pursuant to the policy of our Government to allocate
lands to the landless. It was the bounden duty of the Government to pay the agreed
1955 compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms and
Contributions to — prices. However, the Government could not comply with its duty for lack of funds.
Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
Baguio City Police Christmas fund 25.00 and sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself. For this magnanimous
Pasay City Firemen Christmas fund 25.00 act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
Pasay City Police Christmas fund 50.00
The power of taxation is sometimes called also the power to destroy. Therefore it
EDUARDO ROXAS: should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
1953
the "hen that lays the golden egg". And, in order to maintain the general public's
trust and confidence in the Government this power must be used justly and not
Contributions to —
treacherously. It does not conform with Our sense of justice in the instant case for
Hijas de Jesus' Retiro de Manresa 450.00 the Government to persuade the taxpayer to lend it a helping hand and later on to
penalize him for duly answering the urgent call.
Philippines Herald's fund for Manila's neediest
families 100.00 In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are
1955 capital assets, and the gain derived from the sale thereof is capital gain, taxable only
to the extent of 50%.
Contributions to Philippines
Herald's fund for Manila's DISALLOWED DEDUCTIONS
neediest families 120.00

Tax II Fulltext | 2nd set | Remedies | 6


Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a
P315,663.26
banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as
gifts to various persons. The deduction were claimed as representation expenses. Less: Exemptions 4,200.00
Representation expenses are deductible from gross income as expenditures incurred
in carrying on a trade or business under Section 30(a) of the Tax Code provided the
taxpayer proves that they are reasonable in amount, ordinary and necessary, and Net taxable income P311,463.26
incurred in connection with his business. In the case at bar, the evidence does not
show such link between the expenses and the business of Roxas y Cia. The findings Tax due 154,169.00
of the Court of Tax Appeals must therefore be sustained.
Tax paid 154,060.00
The petitioners also claim deductions for contributions to the Pasay City Police,
Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust
Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Deficiency P 109.00
Fatima chapel at Far Eastern University. ==========

The contributions to the Christmas funds of the Pasay City Police, Pasay City EDUARDO ROXAS
Firemen and Baguio City Police are not deductible for the reason that the Christmas
funds were not spent for public purposes but as Christmas gifts to the families of the Net income per return P 304,166.92
members of said entities. Under Section 39(h), a contribution to a government entity
is deductible when used exclusively for public purposes. For this reason, the Add: 1/3 share, profits in Roxas y Cia P 153,249.15
disallowance must be sustained. On the other hand, the contribution to the Manila
Police trust fund is an allowable deduction for said trust fund belongs to the Manila Less profits declared 146,052.58
Police, a government entity, intended to be used exclusively for its public functions.

The contributions to the Philippines Herald's fund for Manila's neediest families Amount understated P 7,196.57
were disallowed on the ground that the Philippines Herald is not a corporation or an
association contemplated in Section 30 (h) of the Tax Code. It should be noted Less 1/3 share in contributions
however that the contributions were not made to the Philippines Herald but to a amounting to P21,126.06 disallowed
group of civic spirited citizens organized by the Philippines Herald solely for from partnership but allowed to
charitable purposes. There is no question that the members of this group of citizens partners 7,042.02 155.55
do not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association organized
exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code. Net income per review P304,322.47

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Less: Exemptions 4,800.00
Lady of Fatima chapel at the Far Eastern University on the ground that the said
university gives dividends to its stockholders. Located within the premises of the
university, the chapel in question has not been shown to belong to the Catholic Net taxable income P299,592.47
Church or any religious organization. On the other hand, the lower court found that
it belongs to the Far Eastern University, contributions to which are not deductible Tax Due P147,250.00
under Section 30(h) of the Tax Code for the reason that the net income of said
Tax paid 147,159.00
university injures to the benefit of its stockholders. The disallowance should be
sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon Deficiency P91.00
it, because although it earned a rental income of P8,000.00 per annum in 1952, said ===========
rental income came from Jose Roxas, one of the partners. Section 194 of the Tax
JOSE ROXAS
Code, in considering as real estate dealers owners of real estate receiving rentals of
at least P3,000.00 a year, does not provide any qualification as to the persons paying
Net income per return P222,681.76
the rentals. The law, which states: 1äwphï1.ñët
Add: 1/3 share, profits in Roxas y
. . . "Real estate dealer" includes any person engaged in the business of P153,429.15
Cia.
buying, selling, exchanging, leasing or renting property on his own
account as principal and holding himself out as a full or part-time dealer Less amount reported 146,135.46
in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or more
a year: . . . (Emphasis supplied) . Amount understated 7,113.69
is too clear and explicit to admit construction. The findings of the Court of Tax Less 1/3 share of contributions
Appeals or, this point is sustained.1äwphï1.ñët disallowed from partnership but
allowed as deductions to partners 7,042.02 71.67
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas,
Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax
in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: * Net income per review P222,753.43

ANTONIO ROXAS Less: Exemption 1,800.00

Net income per return P315,476.59


Net income subject to tax P220,953.43
Add: 1/3 share, profits in Roxas y
P 153,249.15
Cia. Tax due P102,763.00

Less amount declared 146,135.46 Tax paid 102,714.00

Amount understated P 7,113.69 Deficiency P 49.00


===========
Contributions disallowed 115.00
WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered
to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio
P 7,228.69 Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of
P109.00, P91.00 and P49.00 as their individual deficiency income tax all
Less 1/3 share of contributions corresponding for the year 1955. No costs. So ordered.
amounting to P21,126.06 disallowed
from partnership but allowed to EN BANC
partners 7,042.02 186.67
G.R. No. L-23988 January 2, 1968
Net income per review

Tax II Fulltext | 2nd set | Remedies | 7


COMMISSIONER OF INTERNAL REVENUE, petitioner, Since in the instant case the taxpayer appealed the assessment of the Commissioner
vs. of Internal Revenue without previously contesting the same, the appeal was
LEONARDO S. VILLA and THE COURT OF APPEALS, respondents. premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal.
For, as stated, the jurisdiction of the Tax Court is to review by appeal decisions of
BENGZON, J.P., J.: Internal Revenue on disputed assessments. The Tax Court is a court of special
jurisdiction. As such, it can take cognizance only of such matters as are clearly within
Jurisdiction over the subject matter is fundamental for a court to act on a given its jurisdiction. 7
controversy. It is conferred by law, 1 not by consent of the parties. 2 It can be
challenged at any stage of the proceedings and for lack of it, a court can dismiss a WHEREFORE, the judgment appealed from is set aside for lack of jurisdiction and
case ex mero motu. 3 the petition for review filed in the Court of Tax Appeals is hereby ordered dismissed.
No costs. So ordered.
To inquire into the existence of jurisdiction over the subject matter is the primary
concern of a court, for thereon would depend the ability of its entire proceedings. In SECOND DIVISION
this case, the parties submitted voluntarily to the jurisdiction of the Court of Tax
Appeals, adduced their evidence thereat. Thereafter, they submitted their cause for G.R. No. 136975 March 31, 2005
decision. At no stage of the proceedings have they raised the issue of jurisdiction.
However, as aforesaid, the consent of the parties does not confer jurisdiction over COMMISSION OF INTERNAL REVENUE, Petitioner,
the subject matter. Hence, We shall proceed to inquire whether or not the Court of vs.
Tax Appeals had jurisdiction to entertain the so-called appeal of the taxpayer in this HANTEX TRADING CO., INC., respondent.
case.
DECISION
Leonardo S. Villa, a doctor of medicine, and his wife filed joint income tax returns for
the years 1951, 1952, 1953, 1954, 1955 and 1956 on April 2, 1952, March 30, 1953, CALLEJO, SR., J.:
February 26, 1954, March 31, 1955, April 2, 1956 and March 23, 1957, respectively.
Subsequently, the Bureau of Internal Revenue determined the income of the Villa Before us is a petition for review of the Decision1 of the Court of Appeals (CA) which
spouses by the use of networth method and accordingly issued on February 23, reversed the Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5126,
1961 assessments for deficiency income tax for the years 1951, 1952, 1953, 1954 upholding the deficiency income and sales tax assessments against respondent
and 1956 and residence tax for 1951 to 1957. Dr. Villa received the assessments on Hantex Trading Co., Inc.
April 7, 1961. Without contesting the said assessments in the Bureau of Internal
Revenue, he filed on May 4, 1961 a petition for review in the Court of Tax Appeals. The Antecedents

The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits The respondent is a corporation duly organized and existing under the laws of the
and rendered the following judgment: Philippines. Being engaged in the sale of plastic products, it imports synthetic resin
and other chemicals for the manufacture of its products. For this purpose, it is
IN VIEW OF THE FOREGOING CONSIDERATIONS, with the exception of required to file an Import Entry and Internal Revenue Declaration (Consumption
that portion regarding the additional residence taxes and surcharges for Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs
the years 1951 to 1957 in the amount of P244.00, for which we hold Code.
petitioner liable, the decision appealed from is hereby reversed. The
petitioner is ordered to pay to the Commissioner of Internal Revenue or Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence
his representative the sum of P244.00, as additional residence tax and Division of the Economic Intelligence and Investigation Bureau (EIIB), received
surcharge without pronouncement as to costs. confidential information that the respondent had imported synthetic resin
amounting to P115,599,018.00 but only declared P45,538,694.57.3 According to the
From said judgment, the Commissioner of Internal Revenue has appealed to Us. informer, based on photocopies of 77 Consumption Entries furnished by another
informer, the 1987 importations of the respondent were understated in its
The law conferring jurisdiction on the Court of Tax Appeals is found in Section 7 of accounting records.4 Amoto submitted a report to the EIIB Commissioner
Republic Act 1125, the pertinent part of which states: recommending that an inventory audit of the respondent be conducted by the
Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5
Sec. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal as herein provided — Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued
Mission Order No. 398-896 dated November 14, 1989 for the audit and investigation
(1) Decisions of the Collector of Internal Revenue in cases involving
4
of the importations of Hantex for 1987. The IIPO issued subpoena duces tecum and
disputed assessments, refunds of internal revenue taxes, fees or other ad testificandum for the president and general manager of the respondent to appear
charges, penalties imposed in relation thereto, or other matters arising in a hearing and bring the following:
under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue; 1. Books of Accounts for the year 1987;

The word "decisions" in paragraph 1, Section 7 of Republic Act 1125, quoted above, 2. Record of Importations of Synthetic Resin and Calcium Carbonate for
has been interpreted to mean the decisions of the Commissioner of Internal Revenue the year 1987;
on the protest of the taxpayer against the assessments. Definitely, said word does not
signify the assessment itself. We quote what this Court said aptly in a previous case: 3. Income tax returns & attachments for 1987; and

In the first place, we believe the respondent court erred in holding that 4. Record of tax payments.7
the assessment in question is the respondent Collector's decision or ruling
appealable to it, and that consequently, the period of thirty days However, the respondent’s president and general manager refused to comply with
prescribed by section 11 of Republic Act No. 1125 within which the subpoena, contending that its books of accounts and records of importation of
petitioner should have appealed to the respondent court must be synthetic resin and calcium bicarbonate had been investigated repeatedly by the
counted from its receipt of said assessment. Where a taxpayer questions Bureau of Internal Revenue (BIR) on prior occasions. 8 The IIPO explained that
an assessment and asks the Collector to reconsider or cancel the same despite such previous investigations, the EIIB was still authorized to conduct an
because he (the taxpayer) believes he is not liable therefor, the investigation pursuant to Section 26-A of Executive Order No. 127. Still, the
assessment becomes a "disputed assessment" that the Collector must respondent refused to comply with the subpoena issued by the IIPO. The latter
decide, and the taxpayer can appeal to the Court of Tax Appeals only forthwith secured certified copies of the Profit and Loss Statements for 1987 filed by
upon receipt of the decision of the Collector on the disputed assessment, the respondent with the Securities and Exchange Commission (SEC). 9 However, the
. . . 5(Emphasis supplied) IIPO failed to secure certified copies of the respondent’s 1987 Consumption Entries
from the Bureau of Customs since, according to the custodian thereof, the original
The same interpretation finds support in Section 11 of Republic Act 1125, which copies had been eaten by termites. 10
states:1äwphï1.ñët
In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection
Sec. 11. Who may appeal; effect of appeal. — Any person, association or Division, Manila International Container Port, and the Acting Chief of the Collection
corporation adversely affected by a decision or ruling of the Collector of Division, Port of Manila, to authenticate the machine copies of the import entries
Internal Revenue, the Collector of Customs or any provincial or city supplied by the informer. However, Chief of the Collection Division Merlita D. Tomas
Board of Assessment Appeals may file an appeal in the Court of Tax could not do so because the Collection Division did not have the original copies of
Appeals within thirty days after the receipt of such decision or ruling. the entries. Instead, she wrote the IIPO that, as gleaned from the records, the
(Emphasis supplied) following entries had been duly processed and released after the payment of duties
and taxes:
Note that the law uses the word "decisions", not "assessments", further indicating
the legislative intention to subject to judicial review the decision of the IMPORTER – HANTEX TRADING CO., INC. – SERIES OF 1987
Commissioner on the protest against an assessment but not the assessment itself. 6
ENTRY NO. DATE RELEASED ENTRY NO. DATE RELEASED
03058-87 1/30/87 50265-87 12/9/87

Tax II Fulltext | 2nd set | Remedies | 8


09120-87 3/20/87 46427-87 11/27/87 Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers
Saturnino D. Torres and Wilson Filamor conducted an investigation on the 1987
18089-87 5/21/87 30764-87 8/21/87 importations of the respondent, in the light of the records elevated by the EIIB to the
19439-87 6/2/87 30833-87 8/20/87 BIR, inclusive of the photocopies of the Consumption Entries. They were to ascertain
the respondent’s liability for deficiency sales and income taxes for 1987, if any. Per
19441-87 6/3/87 34690-87 9/16/87 Torres’ and Filamor’s Report dated March 6, 1991 which was based on the report of
11667-87 4/15/87 34722-87 9/11/87 the EIIB and the documents/records appended thereto, there was a prima facie case
of fraud against the respondent in filing its 1987 Consumption Entry reports with
23294-87 7/7/87 43234-87 11/2/87
the Bureau of Customs. They found that the respondent had unrecorded importation
45478-87 11/16/87 44850-87 11/16/87 in the total amount of P70,661,694.00, and that the amount was not declared in its
income tax return for 1987. The District Revenue Officer and the Regional Director
45691-87 12/2/87 44851-87 11/16/87
of the BIR concurred with the report.15
25464-87 7/16/87 46461-87 11/19/87
Based on the said report, the Acting Chief of the Special Investigation Branch wrote
26483-87 7/23/87 46467-87 11/18/87
the respondent and invited its representative to a conference at 10:00 a.m. of March
29950-87 8/11/87 48091-87 11-27-87
11
14, 1991 to discuss its deficiency internal revenue taxes and to present whatever
Acting Chief of the Collection Division of the Bureau of Customs Augusto S. documentary and other evidence to refute the same.16 Appended to the letter was a
Danganan could not authenticate the machine copies of the import entries as well, computation of the deficiency income and sales tax due from the respondent,
since the original copies of the said entries filed with the Bureau of Customs had inclusive of increments:
apparently been eaten by termites. However, he issued a certification that the
following enumerated entries were filed by the respondent which were processed B. Computations:
and released from the Port of Manila after payment of duties and taxes, to wit: 1. Cost of Sales Ratio A2/A1 85.492923%
2. Undeclared Sales – Imported A3/B1 110,079,491.61
Hantex Trading Co., Inc.
3. Undeclared Gross Profit B2-A3 15,969,316.61
Entry No. Date Released Entry No. Date Released
C. Deficiency Taxes Due:
3903 1/29/87 22869 4/8/87
1. Deficiency Income Tax B3 x 35% 5,589,261.00
4414 1/20/87 19441 3/31/87
50% Surcharge C1 x 50% 2,794,630.50
10683 2/17/87 24189 4/21/87
Interest to 2/28/91 C1 x 57.5% 3,213,825.08
12611 2/24/87 26431 4/20/87 Total 11,597,825.58
12989 2/26/87 45478 7/3/87 2. Deficiency Sales Tax
17050 3/13/87 26796 4/23/87 at 10% 7,290,082.72
17169 3/13/87 28827 4/30/87 at 20% 10,493,312.31
18089 3/16/87 31617 5/14/87 Total Due 17,783,395.03
19439 4/1/87 39068 6/5/87 Less: Advanced Sales Taxes Paid 11,636,352.00
21189 4/3/87 42581 6/21/87 Deficiency Sales Tax 6,147,043.03
43451 6/29/87 42793 6/23/87 50% Surcharge C2 x 50% 3,073,521.52

42795 6/23/87 45477 7/3/87 Interest to 2/28/91 5,532,338.73


Total 14,752,903.2817
35582 not received 85830 11/13/87
The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated
45691 7/3/87 86650 not received March 15, 1991, Mariano O. Chua, the President and General Manager of the
46187 7/8/87 87647 11/18/87 respondent, requested that the report of Torres and Filamor be set aside on the
following claim:
46427 7/3/87 88829 11/23/87
57669 8/12/87 92293 12/3/87 … [W]e had already been investigated by RDO No. 23 under Letters of
Authority Nos. 0322988 RR dated Oct. 1, 1987, 0393561 RR dated Aug.
62471 8/28/87 93292 12/7/87 17, 1988 and 0347838 RR dated March 2, 1988, and re-investigated by
63187 9/2/87 96357 12/16/87 the Special Investigation Team on Aug. 17, 1988 under Letter of
Authority No. 0357464 RR, and the Intelligence and Investigation Office
66859 9/15/87 96822 12/15/87 on Sept. 27, 1988 under Letter of Authority No. 0020188 NA, all for
67890 9/17/87 98823 not received income and business tax liabilities for 1987. The Economic Intelligence
and Investigation Bureau on Nov. 20, 1989, likewise, confronted us on
68115 9/15/87 99428 12/28/87 the same information for the same year.
69974 9/24/87 99429 12/28/87
In all of these investigations, save your request for an informal
72213 10/2/87 99441 12/28/87 conference, we welcomed them and proved the contrary of the
77688 10/16/87 101406 1/5/87 allegation. Now, with your new inquiry, we think that there will be no
end to the problem.
84253 11/10/87 101407 1/8/87
85534 11/11/87 3118 1-19-8712 Madam, we had been subjected to so many investigations and re-
investigations for 1987 and nothing came out except the payment of
Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt.
deficiency taxes as a result of oversight. Tax evasion through
Vicente Amoto and Lt. Rolando Gatmaitan conducted an investigation. They relied
underdeclaration of income had never been proven. 18
on the certified copies of the respondent’s Profit and Loss Statement for 1987 and
1988 on file with the SEC, the machine copies of the Consumption Entries, Series of
Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as
1987, submitted by the informer, as well as excerpts from the entries certified by
amended, Chua requested that the inquiry be set aside.
Tomas and Danganan.
The petitioner, the Commissioner of Internal Revenue, through Assistant
Based on the documents/records on hand, inclusive of the machine copies of the
Commissioner for Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the
Consumption Entries, the EIIB found that for 1987, the respondent had importations
respondent demanding payment of its deficiency income tax of P13,414,226.40 and
totaling P105,716,527.00 (inclusive of advance sales tax). Compared with the
deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.20
declared sales based on the Profit and Loss Statements filed with the SEC, the
Appended thereto were the Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-
respondent had unreported sales in the amount of P63,032,989.17, and its
001654 and FAS-4-87-91-001655.21
corresponding income tax liability was P41,916,937.78, inclusive of penalty charge
and interests. On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the
BIR sent a letter to the respondent demanding payment of its tax liability due for
EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and
1987 within ten (10) days from notice, on pain of the collection tax due via a
recommended the collection of the total tax assessment from the respondent.13
warrant of distraint and levy and/or judicial action.22 The Warrant of Distraint
and/or Levy23 was actually served on the respondent on January 21, 1992. On
On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to
September 7, 1992, it wrote the Commissioner of Internal Revenue protesting the
the BIR Assistant Commissioner for Special Operations Service, directing the latter
assessment on the following grounds:
to prepare a conference letter advising the respondent of its deficiency taxes.14

Tax II Fulltext | 2nd set | Remedies | 9


I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, Second. Even granting arguendo that the deficiency taxes and increments for 1987
THE FACT THAT NO INVESTIGATION OF OUR RECORDS WAS EVER against the respondent were correctly computed in accordance with the provisions
MADE BY THE EIIB WHICH RECOMMENDED ITS ISSUANCE. 24 of the Tax Code, the facts indicate that the above-stated assessments were based on
alleged documents which are inadmissible in either administrative or judicial
II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR proceedings. Moreover, the alleged bases of the tax computations were anchored on
PURCHASES FOR 1987 AMOUNTED TO P105,716,527.00 AS CLAIMED mere presumptions and not on actual facts. The alleged undeclared purchases for
BY THE EIIB, THE ASSESSMENT OF A DEFICIENCY INCOME TAX IS 1987 were based on mere photocopies of alleged import entry documents, not the
STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL PURCHASES original ones, and which had never been duly certified by the public officer charged
OF P45,538,694.57.25 with the custody of such records in the Bureau of Customs. According to the
respondent, the alleged undeclared sales were computed based on mere
III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO presumptions as to the alleged gross profit contained in its 1987 financial statement.
BASELESS AND UNFOUNDED CONSIDERING THAT WE HAVE Moreover, even the alleged financial statement of the respondent was a mere
DUTIFULLY PAID THE SALES TAX DUE FROM OUR BUSINESS. 26 machine copy and not an official copy of the 1987 income and business tax returns.
Finally, the respondent was following the accrual method of accounting in 1987, yet,
In view of the impasse, administrative hearings were conducted on the respondent’s the BIR investigator who computed the 1987 income tax deficiency failed to allow as
protest to the assessment. During the hearing of August 20, 1993, the IIPO a deductible item the alleged sales tax deficiency for 1987 as provided for under
representative presented the photocopies of the Consumption and Import Entries Section 30(c) of the NIRC of 1986.33
and the Certifications issued by Tomas and Danganan of the Bureau of Customs. The
IIPO representative testified that the Bureau of Customs failed to furnish the EIIB The Commissioner did not adduce in evidence the original or certified true copies of
with certified copies of the Consumption and Import Entries; hence, the EIIB relied the 1987 Consumption Entries on file with the Commission on Audit. Instead, she
on the machine copies from their informer.27 offered in evidence as proof of the contents thereof, the photocopies of the
Consumption Entries which the respondent objected to for being inadmissible in
The respondent wrote the BIR Commissioner on July 12, 1993 questioning the evidence.34 She also failed to present any witness to prove the correct amount of tax
assessment on the ground that the EIIB representative failed to present the original, due from it. Nevertheless, the CTA provisionally admitted the said documents in
or authenticated, or duly certified copies of the Consumption and Import Entry evidence, subject to its final evaluation of their relevancy and probative weight to
Accounts, or excerpts thereof if the original copies were not readily available; or, if the issues involved.35
the originals were in the official custody of a public officer, certified copies thereof as
provided for in Section 12, Chapter 3, Book VII, Administrative Procedure, On December 11, 1997, the CTA rendered a decision, the dispositive portion of
Administrative Order of 1987. It stated that the only copies of the Consumption which reads:
Entries submitted to the Hearing Officer were mere machine copies furnished by an
informer of the EIIB. It asserted that the letters of Tomas and Danganan were IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered
unreliable because of the following: DENYING the herein petition. Petitioner is hereby ORDERED TO PAY the
respondent Commissioner of Internal Revenue its deficiency income and
In the said letters, the two collection officers merely submitted a listing sales taxes for the year 1987 in the amounts of P11,182,350.26 and
of alleged import entry numbers and dates released of alleged P12,660,382.46, respectively, plus 20% delinquency interest per annum
importations by Hantex Trading Co., Inc. of merchandise in 1987, for on both deficiency taxes from April 15, 1991 until fully paid pursuant to
which they certified that the corresponding duties and taxes were paid Section 283(c)(3) of the 1987 Tax Code, with costs against the
after being processed in their offices. In said letters, no amounts of the petitioner.
landed costs and advance sales tax and duties were stated, and no
particulars of the duties and taxes paid per import entry document was SO ORDERED.36
presented.
The CTA ruled that the respondent was burdened to prove not only that the
The contents of the two letters failed to indicate the particulars of the assessment was erroneous, but also to adduce the correct taxes to be paid by it. The
importations per entry number, and the said letters do not constitute as CTA declared that the respondent failed to prove the correct amount of taxes due to
evidence of the amounts of importations of Hantex Trading Co., Inc. in the BIR. It also ruled that the respondent was burdened to adduce in evidence a
1987.28 certification from the Bureau of Customs that the Consumption Entries in question
did not belong to it.
The respondent cited the following findings of the Hearing Officer:
On appeal, the CA granted the petition and reversed the decision of the CTA. The
… [T]hat the import entry documents do not constitute evidence only dispositive portion of the decision reads:
indicate that the tax assessments in question have no factual basis, and
must, at this point in time, be withdrawn and cancelled. Any new FOREGOING PREMISES CONSIDERED, the Petition for Review is
findings by the IIPO representative who attended the hearing could not GRANTED and the December 11, 1997 decision of the CTA in CTA Case
be used as evidence in this hearing, because all the issues on the tax No. 5162 affirming the 1987 deficiency income and sales tax
assessments in question have already been raised by the herein assessments and the increments thereof, issued by the BIR is hereby
taxpayer.29 REVERSED. No costs.37

The respondent requested anew that the income tax deficiency assessment and the The Ruling of the Court of Appeals
sales tax deficiency assessment be set aside for lack of factual and legal basis.
The CA held that the income and sales tax deficiency assessments issued by the
The BIR Commissioner 30 wrote the respondent on December 10, 1993, denying its petitioner were unlawful and baseless since the copies of the import entries relied
letter-request for the dismissal of the assessments.31 The BIR Commissioner upon in computing the deficiency tax of the respondent were not duly authenticated
admitted, in the said letter, the possibility that the figures appearing in the by the public officer charged with their custody, nor verified under oath by the EIIB
photocopies of the Consumption Entries had been tampered with. She averred, and the BIR investigators.38 The CA also noted that the public officer charged with
however, that she was not proscribed from relying on other admissible evidence, the custody of the import entries was never presented in court to lend credence to
namely, the Letters of Torres and Filamor dated August 7 and 22, 1990 on their the alleged loss of the originals.39 The CA pointed out that an import entry is a public
investigation of the respondent’s tax liability. The Commissioner emphasized that document which falls within the provisions of Section 19, Rule 132 of the Rules of
her decision was final. 32 Court, and to be admissible for any legal purpose, Section 24, Rule 132 of the Rules
of Court should apply.40 Citing the ruling of this Court in Collector of Internal Revenue
The respondent forthwith filed a petition for review in the CTA of the v. Benipayo,41 the CA ruled that the assessments were unlawful because they were
Commissioner’s Final Assessment Letter dated December 10, 1993 on the following based on hearsay evidence. The CA also ruled that the respondent was deprived of
grounds: its right to due process of law.
First. The alleged 1987 deficiency income tax assessment (including increments) The CA added that the CTA should not have just brushed aside the legal requisites
and the alleged 1987 deficiency sales tax assessment (including increments) are provided for under the pertinent provisions of the Rules of Court in the matter of the
void ab initio, since under Sections 16(a) and 49(b) of the Tax Code, the admissibility of public documents, considering that substantive rules of evidence
Commissioner shall examine a return after it is filed and, thereafter, assess the should not be disregarded. It also ruled that the certifications made by the two
correct amount of tax. The following facts obtaining in this case, however, are Customs Collection Chiefs under the guise of supporting the respondent’s alleged tax
indicative of the incorrectness of the tax assessments in question: the deficiency deficiency assessments invoking the best evidence obtainable rule under the Tax
interests imposed in the income and percentage tax deficiency assessment notices Code should not be permitted to supplant the best evidence rule under Section 7,
were computed in violation of the provisions of Section 249(b) of the NIRC of 1977, Rule 130 of the Rules of Court.
as amended; the percentage tax deficiency was computed on an annual basis for the
year 1987 in accordance with the provision of Section 193, which should have been Finally, the CA noted that the tax deficiency assessments were computed without the
computed in accordance with Section 162 of the 1977 NIRC, as amended by Pres. tax returns. The CA opined that the use of the tax returns is indispensable in the
Decree No. 1994 on a quarterly basis; and the BIR official who signed the deficiency computation of a tax deficiency; hence, this essential requirement must be complied
tax assessments was the Assistant Commissioner for Collection, who had no with in the preparation and issuance of valid tax deficiency assessments. 42
authority to sign the same under the NIRC.
The Present Petition

Tax II Fulltext | 2nd set | Remedies | 10


The Commissioner of Internal Revenue, the petitioner herein, filed the present technical rules of evidence, the reason being that the quantum of evidence required
petition for review under Rule 45 of the Rules of Court for the reversal of the in the said court is merely substantial evidence.52
decision of the CA and for the reinstatement of the ruling of the CTA.
Finally, the petitioner avers that the respondent has the burden of proof to show the
As gleaned from the pleadings of the parties, the threshold issues for resolution are correct assessments; otherwise, the presumption in favor of the correctness of the
the following: (a) whether the petition at bench is proper and complies with assessments made by it stands.53 Since the respondent was allowed to explain its
Sections 4 and 5, Rule 7 of the Rules of Court; (b) whether the December 10, 1991 side, there was no violation of due process. 54
final assessment of the petitioner against the respondent for deficiency income tax
and sales tax for the latter’s 1987 importation of resins and calcium bicarbonate is The respondent, for its part, maintains that the resort to the best evidence
based on competent evidence and the law; and (c) the total amount of deficiency obtainable method was illegal. In the first place, the respondent argues, the EIIB
taxes due from the respondent for 1987, if any. agents are not duly authorized to undertake examination of the taxpayer’s
accounting records for internal revenue tax purposes. Hence, the respondent’s
On the first issue, the respondent points out that the petition raises both questions failure to accede to their demands to show its books of accounts and other
of facts and law which cannot be the subject of an appeal by certiorari under Rule 45 accounting records cannot justify resort to the use of the best evidence obtainable
of the Rules of Court. The respondent notes that the petition is defective because the method.55 Secondly, when a taxpayer fails to submit its tax records upon demand by
verification and the certification against forum shopping were not signed by the the BIR officer, the remedy is not to assess him and resort to the best evidence
petitioner herself, but only by the Regional Director of the BIR. The respondent obtainable rule, but to punish the taxpayer according to the provisions of the Tax
submits that the petitioner should have filed a motion for reconsideration with the Code.56
CA before filing the instant petition for review. 43
In any case, the respondent argues that the photocopies of import entries cannot be
We find and so rule that the petition is sufficient in form. A verification and used in making the assessment because they were not properly authenticated,
certification against forum shopping signed by the Regional Director constitutes pursuant to the provisions of Sections 2457 and 2558 of Rule 132 of the Rules of
sufficient compliance with the requirements of Sections 4 and 5, Rule 7 of the Rules Court. It avers that while the CTA is not bound by the technical rules of evidence, it is
of Court. Under Section 10 of the NIRC of 1997,44 the Regional Director has the bound by substantial rules.59 The respondent points out that the petitioner did not
power to administer and enforce internal revenue laws, rules and regulations, even secure a certification of the fact of loss of the original documents from the
including the assessment and collection of all internal revenue taxes, charges and custodian of the import entries. It simply relied on the report of the EIIB agents that
fees. Such power is broad enough to vest the Revenue Regional Director with the the import entry documents were no longer available because they were eaten by
authority to sign the verification and certification against forum shopping in behalf termites. The respondent posits that the two collectors of the Bureau of Customs
of the Commissioner of Internal Revenue. There is no other person in a better never authenticated the xerox copies of the import entries; instead, they only issued
position to know the collection cases filed under his jurisdiction than the Revenue certifications stating therein the import entry numbers which were processed by
Regional Director. their office and the date the same were released.60

Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is The respondent argues that it was not necessary for it to show the correct
authorized to sign all pleadings filed in connection with cases referred to the assessment, considering that it is questioning the assessments not only because they
Revenue Regions by the National Office which, otherwise, require the signature of are erroneous, but because they were issued without factual basis and in patent
the petitioner. violation of the assessment procedures laid down in the NIRC of 1977, as amended. 61
It is also pointed out that the petitioner failed to use the tax returns filed by the
We do not agree with the contention of the respondent that a motion for respondent in computing the deficiency taxes which is contrary to law; 62 as such, the
reconsideration ought to have been filed before the filing of the instant petition. A deficiency assessments constituted deprivation of property without due process of
motion for reconsideration of the decision of the CA is not a condition sine qua non law.63
for the filing of a petition for review under Rule 45. As we held in Almora v. Court of
Appeals:46 Central to the second issue is Section 16 of the NIRC of 1977, as amended, 64 which
provides that the Commissioner of Internal Revenue has the power to make
Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that: assessments and prescribe additional requirements for tax administration and
enforcement. Among such powers are those provided in paragraph (b) thereof,
A party may appeal by certiorari from a judgment of the which we quote:
Court of Appeals, by filing with the Supreme Court a petition
for certiorari within fifteen (15) days from notice of (b) Failure to submit required returns, statements, reports and other
judgment, or of the denial of his motion for reconsideration documents. – When a report required by law as a basis for the
filed in due time. (Emphasis supplied) assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by law or regulation or when there is reason to
The conjunctive "or" clearly indicates that the 15-day reglementary believe that any such report is false, incomplete or erroneous, the
period for the filing of a petition for certiorari under Rule 45 Commissioner shall assess the proper tax on the best evidence obtainable.
commences either from notice of the questioned judgment or from
notice of denial of the appellant’s motion for reconsideration. A prior In case a person fails to file a required return or other document at the
motion for reconsideration is not indispensable for a petition for review time prescribed by law, or willfully or otherwise files a false or fraudulent
on certiorari under Rule 45 to prosper. …47 return or other document, the Commissioner shall make or amend the
return from his own knowledge and from such information as he can
While Rule 45 of the Rules of Court provides that only questions of law may be obtain through testimony or otherwise, which shall be prima facie correct
raised by the petitioner and resolved by the Court, under exceptional circumstances, and sufficient for all legal purposes.65
the Court may take cognizance thereof and resolve questions of fact. In this case, the
findings and conclusion of the CA are inconsistent with those of the CTA, not to This provision applies when the Commissioner of Internal Revenue undertakes to
mention those of the Commissioner of Internal Revenue. The issues raised in this perform her administrative duty of assessing the proper tax against a taxpayer, to
case relate to the propriety and the correctness of the tax assessments made by the make a return in case of a taxpayer’s failure to file one, or to amend a return already
petitioner against the respondent, as well as the propriety of the application of filed in the BIR.
Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree Nos. 1705,
1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the The petitioner may avail herself of the best evidence or other information or
Rules of Evidence. There is also an imperative need for the Court to resolve the testimony by exercising her power or authority under paragraphs (1) to (4) of
threshold factual issues to give justice to the parties, and to determine whether the Section 7 of the NIRC:
CA capriciously ignored, misunderstood or misinterpreted cogent facts and
circumstances which, if considered, would change the outcome of the case. (1) To examine any book, paper, record or other data which may be
relevant or material to such inquiry;
On the second issue, the petitioner asserts that since the respondent refused to
cooperate and show its 1987 books of account and other accounting records, it was (2) To obtain information from any office or officer of the national and
proper for her to resort to the best evidence obtainable – the photocopies of the local governments, government agencies or its instrumentalities,
import entries in the Bureau of Customs and the respondent’s financial statement including the Central Bank of the Philippines and government owned or
filed with the SEC.48 The petitioner maintains that these import entries were controlled corporations;
admissible as secondary evidence under the best evidence obtainable rule, since
they were duly authenticated by the Bureau of Customs officials who processed the (3) To summon the person liable for tax or required to file a return, or
documents and released the cargoes after payment of the duties and taxes due.49 any officer or employee of such person, or any person having
Further, the petitioner points out that under the best evidence obtainable rule, the possession, custody, or care of the books of accounts and other
tax return is not important in computing the tax deficiency. 50 accounting records containing entries relating to the business of the
person liable for tax, or any other person, to appear before the
The petitioner avers that the best evidence obtainable rule under Section 16 of the Commissioner or his duly authorized representative at a time and place
1977 NIRC, as amended, legally cannot be equated to the best evidence rule under specified in the summons and to produce such books, papers, records, or
the Rules of Court; nor can the best evidence rule, being procedural law, be made other data, and to give testimony;
strictly operative in the interpretation of the best evidence obtainable rule which is
substantive in character.51 The petitioner posits that the CTA is not strictly bound by (4) To take such testimony of the person concerned, under oath, as may
be relevant or material to such inquiry; …66

Tax II Fulltext | 2nd set | Remedies | 11


The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes The rule is that in the absence of the accounting records of a taxpayer, his tax
the corporate and accounting records of the taxpayer who is the subject of the liability may be determined by estimation. The petitioner is not required to compute
assessment process, the accounting records of other taxpayers engaged in the same such tax liabilities with mathematical exactness. Approximation in the calculation of
line of business, including their gross profit and net profit sales. 67 Such evidence also the taxes due is justified. To hold otherwise would be tantamount to holding that
includes data, record, paper, document or any evidence gathered by internal revenue skillful concealment is an invincible barrier to proof. 78 However, the rule does not
officers from other taxpayers who had personal transactions or from whom the apply where the estimation is arrived at arbitrarily and capriciously. 79
subject taxpayer received any income; and record, data, document and information
secured from government offices or agencies, such as the SEC, the Central Bank of We agree with the contention of the petitioner that, as a general rule, tax
the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. assessments by tax examiners are presumed correct and made in good faith. All
presumptions are in favor of the correctness of a tax assessment. It is to be
The law allows the BIR access to all relevant or material records and data in the presumed, however, that such assessment was based on sufficient evidence. Upon
person of the taxpayer. It places no limit or condition on the type or form of the the introduction of the assessment in evidence, a prima facie case of liability on the
medium by which the record subject to the order of the BIR is kept. The purpose of part of the taxpayer is made.80 If a taxpayer files a petition for review in the CTA and
the law is to enable the BIR to get at the taxpayer’s records in whatever form they assails the assessment, the prima facie presumption is that the assessment made by
may be kept. Such records include computer tapes of the said records prepared by the BIR is correct, and that in preparing the same, the BIR personnel regularly
the taxpayer in the course of business.68 In this era of developing information- performed their duties. This rule for tax initiated suits is premised on several factors
storage technology, there is no valid reason to immunize companies with computer- other than the normal evidentiary rule imposing proof obligation on the petitioner-
based, record-keeping capabilities from BIR scrutiny. The standard is not the form of taxpayer: the presumption of administrative regularity; the likelihood that the
the record but where it might shed light on the accuracy of the taxpayer’s return. taxpayer will have access to the relevant information; and the desirability of
bolstering the record-keeping requirements of the NIRC.81
In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit)
declared that it is the duty of the Commissioner of Internal Revenue to investigate However, the prima facie correctness of a tax assessment does not apply upon proof
any circumstance which led him to believe that the taxpayer had taxable income that an assessment is utterly without foundation, meaning it is arbitrary and
larger than reported. Necessarily, this inquiry would have to be outside of the books capricious. Where the BIR has come out with a "naked assessment," i.e., without any
because they supported the return as filed. He may take the sworn testimony of the foundation character, the determination of the tax due is without rational basis. 82 In
taxpayer; he may take the testimony of third parties; he may examine and subpoena, such a situation, the U.S. Court of Appeals ruled83 that the determination of the
if necessary, traders’ and brokers’ accounts and books and the taxpayer’s book Commissioner contained in a deficiency notice disappears. Hence, the determination
accounts. The Commissioner is not bound to follow any set of patterns. The by the CTA must rest on all the evidence introduced and its ultimate determination
existence of unreported income may be shown by any practicable proof that is must find support in credible evidence.
available in the circumstances of the particular situation. Citing its ruling in Kenney
v. Commissioner,70 the U.S. appellate court declared that where the records of the The issue that now comes to fore is whether the tax deficiency assessment against
taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to the respondent based on the certified copies of the Profit and Loss Statement
other sources of information to establish income made by the taxpayer during the submitted by the respondent to the SEC in 1987 and 1988, as well as certifications of
years in question.71 Tomas and Danganan, is arbitrary, capricious and illegal. The CTA ruled that the
respondent failed to overcome the prima facie correctness of the tax deficiency
We agree with the contention of the petitioner that the best evidence obtainable may assessment issued by the petitioner, to wit:
consist of hearsay evidence, such as the testimony of third parties or accounts or
other records of other taxpayers similarly circumstanced as the taxpayer subject of The issue should be ruled in the affirmative as petitioner has failed to
the investigation, hence, inadmissible in a regular proceeding in the regular courts. 72 rebut the validity or correctness of the aforementioned tax assessments.
Moreover, the general rule is that administrative agencies such as the BIR are not It is incongruous for petitioner to prove its cause by simply drawing an
bound by the technical rules of evidence. It can accept documents which cannot be inference unfavorable to the respondent by attacking the source
admitted in a judicial proceeding where the Rules of Court are strictly observed. It documents (Consumption Entries) which were the bases of the
can choose to give weight or disregard such evidence, depending on its assessment and which were certified by the Chiefs of the Collection
trustworthiness. Division, Manila International Container Port and the Port of Manila, as
having been processed and released in the name of the petitioner after
However, the best evidence obtainable under Section 16 of the 1977 NIRC, as payment of duties and taxes and the duly certified copies of Financial
amended, does not include mere photocopies of records/documents. The petitioner, Statements secured from the Securities and Exchange Commission. Any
in making a preliminary and final tax deficiency assessment against a taxpayer, such inference cannot operate to relieve petitioner from bearing its
cannot anchor the said assessment on mere machine copies of records/documents. burden of proof and this Court has no warrant of absolution. The Court
Mere photocopies of the Consumption Entries have no probative weight if offered as should have been persuaded to grant the reliefs sought by the petitioner
proof of the contents thereof. The reason for this is that such copies are mere scraps should it have presented any evidence of relevance and competence
of paper and are of no probative value as basis for any deficiency income or business required, like that of a certification from the Bureau of Customs or from
taxes against a taxpayer. Indeed, in United States v. Davey,73 the U.S. Court of Appeals any other agencies, attesting to the fact that those consumption entries
(2nd Circuit) ruled that where the accuracy of a taxpayer’s return is being checked, did not really belong to them.
the government is entitled to use the original records rather than be forced to accept
purported copies which present the risk of error or tampering.74 The burden of proof is on the taxpayer contesting the validity or
correctness of an assessment to prove not only that the Commissioner of
In Collector of Internal Revenue v. Benipayo, the Court ruled that the assessment
75
Internal Revenue is wrong but the taxpayer is right (Tan Guan v. CTA, 19
must be based on actual facts. The rule assumes more importance in this case since SCRA 903), otherwise, the presumption in favor of the correctness of tax
the xerox copies of the Consumption Entries furnished by the informer of the EIIB assessment stands (Sy Po v. CTA, 164 SCRA 524). The burden of proving
were furnished by yet another informer. While the EIIB tried to secure certified the illegality of the assessment lies upon the petitioner alleging it to be
copies of the said entries from the Bureau of Customs, it was unable to do so because so. In the case at bar, petitioner miserably failed to discharge this duty.84
the said entries were allegedly eaten by termites. The Court can only surmise why
the EIIB or the BIR, for that matter, failed to secure certified copies of the said We are not in full accord with the findings and ratiocination of the CTA. Based on the
entries from the Tariff and Customs Commission or from the National Statistics letter of the petitioner to the respondent dated December 10, 1993, the tax
Office which also had copies thereof. It bears stressing that under Section 1306 of deficiency assessment in question was based on (a) the findings of the agents of the
the Tariff and Customs Code, the Consumption Entries shall be the required number EIIB which was based, in turn, on the photocopies of the Consumption Entries; (b)
of copies as prescribed by regulations.76 The Consumption Entry is accomplished in the Profit and Loss Statements of the respondent for 1987 and 1988; and (c) the
sextuplicate copies and quadruplicate copies in other places. In Manila, the six certifications of Tomas and Danganan dated August 7, 1990 and August 22, 1990:
copies are distributed to the Bureau of Customs, the Tariff and Customs Commission,
the Declarant (Importer), the Terminal Operator, and the Bureau of Internal In reply, please be informed that after a thorough evaluation of the
Revenue. Inexplicably, the Commissioner and the BIR personnel ignored the copy of attending facts, as well as the laws and jurisprudence involved, this
the Consumption Entries filed with the BIR and relied on the photocopies supplied Office holds that you are liable to the assessed deficiency taxes. The
by the informer of the EIIB who secured the same from another informer. The BIR, in conclusion was arrived at based on the findings of agents of the
preparing and issuing its preliminary and final assessments against the respondent, Economic Intelligence & Investigation Bureau (EIIB) and of our own
even ignored the records on the investigation made by the District Revenue officers examiners who have painstakingly examined the records furnished by
on the respondent’s importations for 1987. the Bureau of Customs and the Securities & Exchange Commission
(SEC). The examination conducted disclosed that while your actual sales
The original copies of the Consumption Entries were of prime importance to the for 1987 amounted to P110,731,559.00, you declared for taxation
BIR. This is so because such entries are under oath and are presumed to be true and purposes, as shown in the Profit and Loss Statements, the sum of
correct under penalty of falsification or perjury. Admissions in the said entries of the P47,698,569.83 only. The difference, therefore, of P63,032,989.17
importers’ documents are admissions against interest and presumptively correct.77 constitutes as undeclared or unrecorded sales which must be subjected
to the income and sales taxes.
In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving
weight to the machine copies of the Consumption Entries in fixing the tax deficiency You also argued that our assessment has no basis since the alleged
assessments against the respondent. amount of underdeclared importations were lifted from uncertified or
unauthenticated xerox copies of consumption entries which are not
admissible in evidence. On this issue, it must be considered that in

Tax II Fulltext | 2nd set | Remedies | 12


letters dated August 7 and 22, 1990, the Chief and Acting Chief of the Moreover, the uncontroverted fact is that the BIR District Revenue Office had
Collection Division of the Manila International Container Port and Port repeatedly examined the 1987 books of accounts of the respondent showing its
of Manila, respectively, certified that the enumerated consumption importations, and found that the latter had minimal business tax liability. In this
entries were filed, processed and released from the port after payment case, the presumption that the District Revenue officers performed their duties in
of duties and taxes. It is noted that the certification does not touch on accordance with law shall apply. There is no evidence on record that the said officers
the genuineness, authenticity and correctness of the consumption neglected to perform their duties as mandated by law; neither is there evidence
entries which are all xerox copies, wherein the figures therein appearing aliunde that the contents of the 1987 and 1988 Profit and Loss Statements
may have been tampered which may render said documents submitted by the respondent with the SEC are incorrect.
inadmissible in evidence, but for tax purposes, it has been held that the
Commissioner is not required to make his determination (assessment) Admittedly, the respondent did not adduce evidence to prove its correct tax liability.
on the basis of evidence legally admissible in a formal proceeding in However, considering that it has been established that the petitioner’s assessment is
Court (Mertens, Vol. 9, p. 214, citing Cohen v. Commissioner). A statutory barren of factual basis, arbitrary and illegal, such failure on the part of the
notice may be based in whole or in part upon admissible evidence respondent cannot serve as a basis for a finding by the Court that it is liable for the
(Llorente v. Commissioner, 74 TC 260 (1980); Weimerskirch v. amount contained in the said assessment; otherwise, the Court would thereby be
Commissioner, 67 TC 672 (1977); and Rosano v. Commissioner, 46 TC 681 committing a travesty.
(1966). In the case also of Weimerskirch v. Commissioner (1977), the
assessment was given due course in the presence of admissible evidence On the disposition of the case, the Court has two options, namely, to deny the
as to how the Commissioner arrived at his determination, although petition for lack of merit and affirm the decision of the CA, without prejudice to the
there was no admissible evidence with respect to the substantial issue petitioner’s issuance of a new assessment against the respondent based on credible
of whether the taxpayer had unreported or undeclared income from evidence; or, to remand the case to the CTA for further proceedings, to enable the
narcotics sale. …85 petitioner to adduce in evidence certified true copies or duplicate original copies of
the Consumption Entries for the respondent’s 1987 importations, if there be any,
Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents and the correct tax deficiency assessment thereon, without prejudice to the right of
for the actual cost of importation of the respondent are the machine copies of the the respondent to adduce controverting evidence, so that the matter may be
Consumption Entries from the informer which the IIPO claimed to have been resolved once and for all by the CTA. In the higher interest of justice to both the
certified by Tomas and Danganan: parties, the Court has chosen the latter option. After all, as the Tax Court of the
United States emphasized in Harbin v. Commissioner of Internal Revenue,91 taxation is
The source documents for the total actual cost of importations, not only practical; it is vital. The obligation of good faith and fair dealing in carrying
abovementioned, were the different copies of Consumption Entries, out its provision is reciprocal and, as the government should never be over-reaching
Series of 1987, filed by subject with the Bureau of Customs, marked or tyrannical, neither should a taxpayer be permitted to escape payment by the
Annexes "F-1" to "F-68." The total cost of importations is the sum of the concealment of material facts.
Landed Costs and the Advance Sales Tax as shown in the annexed
entries. These entries were duly authenticated as having been processed IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the
and released, after payment of the duties and taxes due thereon, by the Court of Appeals is SET ASIDE. The records are REMANDED to the Court of Tax
Chief, Collection Division, Manila International Container Port, dated Appeals for further proceedings, conformably with the decision of this Court. No
August 7, 1990, "Annex-G," and the Port of Manila, dated August 22, costs.
1990, "Annex-H." So, it was established that subject-importations, mostly
resins, really belong to HANTEX TRADING CO., INC.86 SO ORDERED.

It also appears on the worksheet of the IIPO, as culled from the photocopies of the FIRST DIVISION
Consumption Entries from its informer, that the total cost of the respondent’s
importation for 1987 was P105,761,527.00. Per the report of Torres and Filamor, [G.R. No. L-6741. January 31, 1956.]
they also relied on the photocopies of the said Consumption Entries:
INTERPROVINCIAL AUTOBUS CO., INC., Petitioner, vs. COLLECTOR OF INTERNAL
The importations made by taxpayer verified by us from the records of REVENUE, Respondent.
the Bureau of Customs and xerox copies of which are hereto attached
shows the big volume of importations made and not declared in the DECISION
income tax return filed by taxpayer.
LABRADOR, J.:
Based on the above findings, it clearly shows that a prima facie case of
fraud exists in the herein transaction of the taxpayer, as a consequence This is an appeal by way of certiorari from a decision of the Court of Appeals
of which, said transaction has not been possibly entered into the books reversing the judgment of the Court of First Instance of Misamis Occidental in civil
of accounts of the subject taxpayer.87 case No. 1161, entitled The Interprovincial Autobus Co., Inc., Plaintiff versus Bibiano
L. Meer as Collector of Internal Revenue, Defendant and absolving the Defendant-
In fine, the petitioner based her finding that the 1987 importation of the respondent Appellant therein from the complaint.
was underdeclared in the amount of P105,761,527.00 on the worthless machine
copies of the Consumption Entries. Aside from such copies, the petitioner has no Plaintiff is a common carrier engaged in transporting passengers and freight by
other evidence to prove that the respondent imported goods costing means of TPU buses in Misamis Occidental and Northern Zamboanga. Sometime in
P105,761,527.00. The petitioner cannot find solace on the certifications of Tomas the year 1941 the provincial revenue agent for Misamis Occidental examined the
and Danganan because they did not authenticate the machine copies of the stubs of the freight receipts that had been issued by the Plaintiff. He found that the
Consumption Entries, and merely indicated therein the entry numbers of stubs of the receipts issued during the years 1936 to 1938 were not preserved; chan
Consumption Entries and the dates when the Bureau of Customs released the same. roblesvirtualawlibrarybut those for the years 1939 to 1940 were available. By
The certifications of Tomas and Danganan do not even contain the landed costs and referring, however, to the conductors’ daily reports for 1936 to 1938, he was able to
the advance sales taxes paid by the importer, if any. Comparing the certifications of ascertain the number of receipts for those years and these, together with those for
Tomas and Danganan and the machine copies of the Consumption Entries, only 36 of 1939 to 1940, gave a total during the 5-year period from 1936 to 1940, of 194,406
the entry numbers of such copies are included in the said certifications; the entry freight receipts issued. Both the said daily reports of Plaintiff’s conductors and the
numbers of the rest of the machine copies of the Consumption Entries are not found available stubs did not state the value of the goods transported thereunder.
therein. Pursuant, however, to sections 121 and 127 of the Revised Documentary Stamp Tax
Regulations of the Department of Finance promulgated on September 16, 1924, he
Even if the Court would concede to the petitioner’s contention that the certification assumed that the value of the goods covered by each of the above- mentioned freight
of Tomas and Danganan authenticated the machine copies of the Consumption receipts amounted to more than P5, and assessed a documentary stamp tax of P0.04
Entries referred to in the certification, it appears that the total cost of importations on each of the 194,406 receipts. The tax thus assessed amounted to P7,776.24,
inclusive of advance sales tax is only P64,324,953.00 – far from the amount of which was collected from the deposit of the Plaintiff in the Misamis Occidental
P105,716,527.00 arrived at by the EIIB and the BIR, 88 or even the amount of branch of the Philippine National Bank. Plaintiff demanded the refund of the
P110,079,491.61 arrived at by Deputy Commissioner Deoferio, Jr. 89 As gleaned from amount, and upon refusal of the Defendant, Plaintiff filed the action. The Court of
the certifications of Tomas and Danganan, the goods covered by the Consumption First Instance of Misamis Occidental having rendered judgment in favor of the
Entries were released by the Bureau of Customs, from which it can be presumed that Plaintiff, the Defendant appealed to the Court of Appeals. This court reversed the
the respondent must have paid the taxes due on the said importation. The petitioner decision appealed from and absolved the Defendant from the complaint. Hence, this
did not adduce any documentary evidence to prove otherwise. appeal.

Thus, the computations of the EIIB and the BIR on the quantity and costs of the In this Court Petitioner-Appellant presents the following
importations of the respondent in the amount of P105,761,527.00 for 1987 have no propositions:chanroblesvirtuallawlibrary (1) that the judgment of the Court of
factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the Appeals is null and void, because it had no jurisdiction of the case, which involves
presumption that she and the other employees of the BIR had regularly performed the validity of an assessment; chan roblesvirtualawlibrary(2) that the decision of the
their duties. As the Court held in Collector of Internal Revenue v. Benipayo,90 in order Court of Appeals is erroneous because freight receipts are not bills of lading within
to stand judicial scrutiny, the assessment must be based on facts. The presumption the meaning of Section 1449, sub-paragraph (r), of the Revised Administrative Code
of the correctness of an assessment, being a mere presumption, cannot be made to of 1917, and because the provision of section 121 of the Revised Documentary
rest on another presumption. Stamp Tax Regulations, to the effect that if the bill of lading fails to state the value of
the goods shipped, it must be held that the tax is due, is illegal; chan

Tax II Fulltext | 2nd set | Remedies | 13


roblesvirtualawlibrary(3) that the documentary stamp tax on freight receipts should exemption. We find that the regulation is not only useful, practical and necessary for
be paid by the shipper of the merchandise, not by the carrier; chan the enforcement of the law on the tax on bills of lading and receipts, but also
roblesvirtualawlibraryand (4) that the collection of the tax is illegal because it was reasonable in its provisions.
done beyond the period of limitation fixed by law for its collection.
The regulation above quoted falls within the scope of the administrative power of
The first proposition, that the Court of Appeals had no jurisdiction of the appeal the Secretary of Finance, as authorized in Section 79 (B) of the Revised
from the Court of First Instance, is well founded. Both the Constitution and the Administrative Code, because it is essential to the strict enforcement and proper
Judiciary Act of 1948 grant to the Supreme Court exclusive appellate jurisdiction execution of the law which it seeks to implement. Said regulations have the force and
over all cases involving the legality of any tax, assessment, or toll, or any penalty in effect of law.
relation thereto. The Court of Appeals in turn has no jurisdiction over cases the
exclusive appellate jurisdiction of which is granted the Supreme-Court. As the “In the very nature of things in many cases it becomes impracticable for the
legality or validity of the tax is involved in the present appeal the Supreme Court is legislative department of the Government to provide general regulations for the
the one that had jurisdiction thereof and the Court of Appeals had none. The various and varying details for the management of a particular department of the
decision of the Court of Appeals was, therefore, null and void. Government. It therefore becomes convenient for the legislative department of the
Government, by Law, in a most general way, to provide for the conduct, control and
But the claim that freight tickets of bus companies are not “bills of lading or management of the work of the particular department of the Government; chan
receipts” within the meaning of the Documentary Stamp Tax Law is without merit. roblesvirtualawlibraryto authorize certain persons, in charge of the management,
Bills of lading, in modern jurisprudence, are not those issued by masters of vessels control, and direction of the particular department, to adopt certain rules and
alone; chan roblesvirtualawlibrarythey now comprehend all forms of transportation, regulations providing for the detail of the management and control of such
whether by sea or land, and includes bus receipts for cargo transported. department. Such regulations have uniformly been held to have the force of law,
whenever they are found to be in consonance and in harmony with the general
“The term ‘bill of lading’ is frequently defined, especially by the order authorities, as purposes and objects of the law. Many illustrations might be given. For instance, the
a writing signed by the master of a vessel acknowledging the receipt of goods on Civil Service Board is given authority to examine applicants for various positions
board to be transported to a certain part and there delivered to a designated person within the Government service. The law generally provides the conditions in a most
or on his order. This definition was formulated at a time when goods were general way, authorizing the chief of such Bureau to provide rules and regulations
principally transported by sea and, while adequate in view of the conditions existing for the management of the conduct of examinations, etc. The law provides that the
at that early day, is too narrow to suit present conditions. As comprehending all Collector of Customs shall examine persons who become applicants to act as
methods of transportation, a bill of lading may be defined as a written captains of ships for the coastwise trade, providing at the same time that the
acknowledgment of the receipt of goods and an agreement to transport and to Collector of Customs shall establish rules and regulations for such examinations.
deliver them at a specified place to a person named or on his order. Such Such regulations, once established and found to be in conformity with the general
instruments are sometimes called ‘shipping receipts,’ ‘forwarders’ receipts’ and purposes of the law, are just as binding upon all of the parties, as if the regulations
‘receipts for transportation.’ The designation, however, is not material, and neither is had been written in the original law itself. (United States vs. Grimaud, 22 U. S., 506;
the form of the instrument. If it contains an acknowledgment by the carrier of the chan roblesvirtualawlibraryWilliamson vs. United States, 207 U. S., 425; chan
receipt of goods for transportation, it is, in legal effect, a bill of lading.” (9 Am. Jur. roblesvirtualawlibraryUnited States vs. United Verde Copper Co., 196 U. S., 207.)”
662, Italics supplied.) (United States vs. Tupasi Molina, 29 Phil., 119, 125.)

Section 227 of the National Internal Revenue Code imposes the tax on receipts for Another reason for sustaining the validity of the regulation may be found in the
goods or effects shipped from one port or place to another port or place in the principle of legislative approval by re-enactment. The regulations were approved on
Philippines. The use of the word place after port and of the word “receipt” shows September 16, 1924. When the National Internal Revenue Code was approved on
that the receipts for goods shipped on land are included. February 18, 1939, the same provisions on stamp tax, bills of lading and receipts
were reenacted. There is a presumption that the Legislature reenacted the law on
The next claim involves the validity of Department of Finance Regulation No. 26 the tax with full knowledge of the contents of the regulations then in force regarding
dated September 16, 1924, which provides:chanroblesvirtuallawlibrary bills of lading and receipts, and that it approved or confirmed them because they
carry out the legislative purpose.
“SEC. 121. Basis of the tax and affixture of stamps. — Bills of lading are exempt from
the documentary stamp tax imposed by paragraphs (q) and (r) of section 1449 of “ cralaw Of course, the rule does not operate to freeze a meaning which is in evident
the Administrative Code when the value of the goods shipped is P5 or less. Unless conflict with the clearly expressed legislative intent. Helvering vs. Hallock, 309 U. S.
the bill of lading states that the goods are worth P5 or less, it must be held that the 106, 119-121, 60 S. Ct. 444, 84 L. Ed. 604 A.L.R. 1368. But where a statute is
tax is due, and internal revenue officers will see to it that the tax is paid in all cases susceptible of the meaning placed upon it by Treasury ruling and Congress
where the bill of lading does not state that the shipment is worth P5 or less.” thereafter reenacts the provision without substantial change, such action is to some
extent confirmatory that the ruling carries out the congressional purpose.” (Mead
“SEC. 127. ‘Chits,’ memorandum slips, and other papers not in the usual commercial Corporation vs. Commissioner of Internal Revenue, 116 F [2d] 187, p. 194)
form of bills of lading, when used by common carriers in the transportation of
merchandise or goods for the collection of fees therefor are considered as bills of “The fact that an identical Treasury Regulation with regard to computation of stamp
lading, and the original thereof issued or used should bear the documentary stamp tax on conveyances had been in effect during several re-enactments of the statute
as provided by paragraphs (q) and (r) of section 1449 of the Administrative Code.” was pursuasive evidence of congressional approval thereof cralaw ..” (Railroad
Federal Sav. and Loan Ass’n. vs. United States, 135 F [2d], p. 290)
The above regulations were promulgated under the authority of section 79 (B) of the
Administrative Code (originally section 2 of Act 2803), which expressly “The law, I believe, is now settled that substantial re-enactment of legislation which
provides:chanroblesvirtuallawlibrary has been construed by Treasury regulations is at least strong evidence of legislative
approval of such construction. It is presumed that Congress knew of the existing
“The Department Head shall have power to promulgate, whenever he may see fit to administrative interpretations of the statute cralaw .” (Cargill vs. United States, 46 F.
do so, all rules, regulations, orders, circulars, memorandums, and other instructions, Supp. 712, 716.)
not contrary to law, necessary to regulate the proper working and harmonious and
efficient administration of each and all of the offices and dependencies of his “Regulations promulgated by the Commissioner of Internal Revenue under authority
Department, and for the strict enforcement and proper execution of the laws relative of the Revenue Act of 1928 acquired the effect of law by substantial re-enactment of
to matters under the jurisdiction of said Department; chan provision of the 1928 Act in the 1932 Revenue Act cralaw .” (S. Slater & Sons, Inc., vs.
roblesvirtualawlibrarybut none of said rules or orders shall prescribe penalties for White, etc., 33 F. Supp. 329, 330.)
the violation thereof, except as expressly authorized by law cralaw .”
It is to be noted that the regulation does not purport to modify or change the law in
Did the Secretary of Finance infringe or violate any right of the taxpayer when he the sense that when the value of the merchandise (for which the receipt is issued)
directed that the tax is to be collected in all cases where the bill of lading or receipt does not appear thereon the tax shall always be imposed. Such a meaning would
does not state that the shipment is worth P5 or less, or, in the language of the have the effect of changing the law; chan roblesvirtualawlibrarythe regulation
Petitioner-Appellant, when he (Secretary) created a presumption of liability to the should not be understood in this illegal or authorized sense. The regulation should
tax if the receipt fails to state such value? It cannot be denied that the regulation is be considered merely as a directive to internal revenue officers to assess the tax and
merely a directive to the tax officers; chan roblesvirtualawlibraryit does not purport collect the same. As already adverted to, it only creates a presumption of the liability
to change or modify the law; chan roblesvirtualawlibraryit does not create a liability of the taxpayer, which presumption, however, is not conclusive upon the taxpayer
to the stamp tax when the value of the goods does not appear on the face of the who can adduce evidence that the tax is not collectible because the value of the
receipt. The practical usefulness of the directive becomes evident when account is merchandise concerned does not exceed the amount of P5. It was in pursuance of
taken of the fact that tax officers are in no position to witness the issuance of this interpretation of the regulation that the trial court permitted evidence to be
receipts and check the value of the goods for which they are issued. If tax officers introduced to show that the Petitioner-Appellant is not subject to the tax on the
were to assess or collect the tax only when they find that the value of the goods receipts.
covered by the receipts is more than five pesos, the assessment and collection of the
tax would be well-nigh impossible, as it is impossible for tax collectors to determine Claim is made that the evidence submitted by the Petitioner- Appellant proved that
from the receipts alone, if they do not contain the value of the goods, whether the the freight receipts covered shipment of merchandise worth not more than P5. It is
goods receipted for exceed P5, or not. The regulation impliedly required the argued in support of this claim that the said freight receipts were issued to people
statement of the value of the goods in the receipts; chan roblesvirtualawlibraryso carrying agricultural produce from one place to another, perhaps from their farms to
that the collection of the tax can be enforced. This the Petitioner-Appellant failed to the towns or to their residences. The Court of Appeals’ decision, upon which the
do and he now claims the unreasonableness of the provision as a basis for his

Tax II Fulltext | 2nd set | Remedies | 14


claim is made, does not state that said receipts were actually issued for shipments FIRST DIVISION
the value of which was not more than P5 each. The decision of the Court of Appeals
in fact is that the Petitioner-Appellant “merely tried to establish through his G.R. No. 120935 May 21, 2009
witnesses” the facts above mentioned, which is not a finding that the receipts
covered merchandise more than P5 in value. Upon consideration of the claim and LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES,
the testimonies with which it is supported, we are unable to agree with said in their capacities as President, Treasurer and Secretary of Adamson
contention. It is a common knowledge that when barrio residents or those living in Management Corporation, Petitioners,
farms go to town and bring along with them their daily needs on their daily produce, vs.
they ordinarily do not secure receipts for these baggages or cargoes but keep these COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as
under their seats. The common practice is for a passenger carrying cargoes of small Commissioner of the Bureau of Internal Revenue, Respondents.
value not to secure receipts therefor; chan roblesvirtualawlibraryfor convenience
and economy he keeps them under his seat in the bus so as to make them easily x - - - - - - - - - - - - - - - - - - - - - - -x
accessible when he goes down, and at the same time save the few centavos that the
G.R. No. 124557 May 21, 2009
issuance of the receipt entails. On the other hand, receipts for valuable cargo are
demanded, to insure against their loss. Our conclusion is that the receipts must have INTERNAL REVENUE, Petitioner,
been issued for shipments or merchandise in excess of P5 in value. The evidence vs.
submitted notwithstanding, the fact that it has not been contradicted fails to prove COMMISSIONER OF COURT OF APPEALS, COURT OF TAX APPEALS, ADAMSON
to our satisfaction that the merchandise for which receipts were issued were MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE JUNE D.
actually worth P5 or less. Furthermore, the rule is that in actions for the recovery of ADAMSON, and SARA S. DE LOS REYES, Respondents.
taxes assessed and collected, the taxpayer has the burden of proving that the
assessment is illegal. DECISION
“All presumptions are in favor of the correctness of tax assessments. The good faith PUNO, C.J.:
of tax assessors and the validity of their actions are presumed. They will be
presumed to have taken into consideration all the facts to which their attention was Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No. 124557.
called. No presumption can be indulged that all of the public officials of the state in
the various counties who have to do with the assessment of property for taxation G.R. No. 120935 involves a petition for review on certiorari filed by petitioners
will knowingly violate the duties imposed upon them by law.” LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES
(private respondents), in their respective capacities as president, treasurer and
“As a logical outgrowth of the presumption in favor of the validity of assessments, secretary of Adamson Management Corporation (AMC) against then Commissioner
when such assessments are assailed, the burden of proof is upon the complaining of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER), under Rule 45 of
party. It is incumbent upon the property owner clearly to show that the assessment the Revised Rules of Court. They seek to review and reverse the Decision
was erroneous, in order to relieve himself from it.” (51 Am. Jur. pp. 620-621.) promulgated on March 21, 1995 and Resolution issued on July 6, 1995 of the Court
of Appeals in CA-G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge
“The burden is on him who seeks the recovery of a tax already paid to establish Erna Falloran-Aliposa, et al.).
those facts which show its invalidity. United States vs. Anderson, 269 U. S. 422, 428,
70 L. ed. 347, 46 Sup. Ct. Rep. 131; chan roblesvirtualawlibraryFidelity Title & T. Co. G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner,
vs. United States, 259 U. S. 304, 306, 66 L. ed., 953, 954, 42 Sup. Ct. Rep. 514 cralaw .” assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP
(Companñ ia General de Tabacos vs. Collector of Int. Rev., 73 L. ed., 704, 706.) No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson
“ cralaw. But the presumption is that taxes paid are rightly collected upon and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld the
assessments correctly made by the commissioner, and in a suit to recover them the Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA)
burden rests upon the taxpayer to prove all the facts necessary to establish the in C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson,
illegality of the collection. United States vs. Anderson, supra. See United States vs. Therese Adamson and Sara de los Reyes v. Commissioner of Internal Revenue).
Rindskopt, 106 U. S. 419, 26 L. ed., cralaw” (Niles Bement Pond Co. vs. United States,
74 L. ed., 901, 904.) The facts, as culled from the findings of the appellate court, follow:

The rule above-mentioned has not been complied with and the action for recovery On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in
must be denied. Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were
valued at ₱7,789,995.00.1 On June 22, 1990, ₱159,363.21 was paid as capital gains
It is also contended that the tax should be collected from the holder of the receipt, tax for the transaction.
and not from the one who collected it, which is the transportation company. There is
no merit in this contention because the law expressly provides that the tax should be On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common
paid by the one “making, signing, issuing, accepting, or transferring the same.” shares of stock in AAI for ₱17,718,360.00. AMC paid the capital gains tax of
(Section 1449, Revised Administrative Code of 1917) . The receipts were made and ₱352,242.96.
issued by the transportation company; chan roblesvirtualawlibraryit is therefore
liable for the payment of the tax thereon. On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
The last contention of the Petitioner-Appellant is that the tax could no longer be deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
collectible because the same was assessed and collected after seven years, the tax notice contained a schedule for preliminary conference.
having been due in 1936-1938 and the assessment having been made in the year
1947. The period within which a tax may be assessed is ten years after the discovery The events preceding G.R. No. 120935 are the following:
of the falsity, fraud or omission (section 332, paragraph (a), National Internal
Revenue Code). Petitioner-Appellant cites, in support of his contention, paragraph (c) On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ)
of the same action. This paragraph refers to the collection of the tax by distraint or her Affidavit of Complaint2 against AMC, Lucas G. Adamson, Therese June D.
by levy or by a proceeding in court, and the period prescribed is within five years Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)3 , and 1104 ,
after the assessment of the tax. in relation to Section 1005 , as penalized under Section 255,6 and for violation of
Section 2537 , in relation to Section 252 (b) and (d) of the National Internal Revenue
Was the levy justified? The discovery, according to the pleadings, took place in the Code (NIRC).8
year 1941 and the warrant of distraint or levy was issued on September 30, 1946
(paragraphs 3 and 4 of the complaint). The pleadings do not show, neither does the AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with
evidence, the specific date of the assessment. It is only alleged in the complaint that the DOJ a motion to suspend proceedings on the ground of prejudicial question,
the examination of the books took place in the year 1941. In order to sustain the pendency of a civil case with the Supreme Court, and pendency of their letter-
claim of the invalidity of the levy, it is necessary for the Plaintiff to allege and prove request for re-investigation with the Commissioner. After the preliminary
that the levy took place after five years from the date of the assessments. But the investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion
date of the assessment has not been proved. This is a material matter that the for Reconsideration against the findings of probable cause was denied by the
Petitioner-Appellant should have proved to assail the levy. Because of his failure to prosecutor.
do so the exemption from levy may not be invoked by him. Besides, the question was
not raised in the pleadings as a ground to void the collection of the amount. The On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
court cannot assume that the levy and distraint took place beyond the period Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
prescribed by law. This conclusion is supported by the presumption of the regularity Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend
of the acts of public officers. In any event the collection was made in 1947, within the Proceedings. They invoked the grounds that there was yet no final assessment of
ten years after the discovery in 1941, and the liability of Petitioner-Appellant is not their tax liability, and there were still pending relevant Supreme Court and CTA
thereby affected. cases. Initially, the trial court denied the motion. A Motion for Reconsideration was
however filed, this time assailing the trial court’s lack of jurisdiction over the nature
For the foregoing considerations, the judgment of the Court of Appeals is declared of the subject cases. On August 8, 1994, the trial court granted the Motion. It ruled
void and that of the Court of First Instance, reversed and the Respondent-Appellee that the complaints for tax evasion filed by the Commissioner should be regarded as
absolved from the complaint. With costs against the Petitioner-Appellant. a decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,

Tax II Fulltext | 2nd set | Remedies | 15


Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It 3. WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF
further held that the said cases cannot proceed independently of the assessment JUSTICE CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and
case pending before the CTA, which has jurisdiction to determine the civil and
criminal tax liability of the respondents therein. 4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON
PRIVATE RESPONDENTS’ PETITION FOR REVIEW FILED WITH THE SAID COURT.
On October 10, 1994, the Commissioner filed a Petition for Review with the Court of
Appeals assailing the trial court’s dismissal of the criminal cases. She averred that it The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:
was not a condition prerequisite that a formal assessment should first be given to
the private respondents before she may file the aforesaid criminal complaints 1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN ASSESSMENT
against them. She argued that the criminal complaints for tax evasion may proceed (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON,
independently from the assessment cases pending before the CTA. THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES;

On March 21, 1995, the Court of Appeals reversed the trial court’s decision and 2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO
reinstated the criminal complaints. The appellate court held that, in a criminal PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND
prosecution for tax evasion, assessment of tax deficiency is not required because the SARA S. DE LOS REYES; and
offense of tax evasion is complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with intent to evade the tax.9 It 3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE
ruled that private respondents filed false and fraudulent returns with intent to evade COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S.
Department of Justice, without an accompanying assessment of the tax deficiency of DE LOS REYES.
private respondents, in order to commence criminal action against the latter for tax
The case of CIR v. Pascor Realty, et al.11 is relevant. In this case, then BIR
evasion.10
Commissioner Jose U. Ong authorized revenue officers to examine the books of
Private respondents filed a Motion for Reconsideration, but the trial court denied accounts and other accounting records of Pascor Realty and Development
the motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
the following issues: for the issuance of an assessment in the amounts of ₱7,498,434.65 and
₱3,015,236.35 for the years 1986 and 1987, respectively.
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED
IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97 On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
SCRA 877) TO THE CASE AT BAR. against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging
evasion of taxes in the total amount of ₱10,513,671.00. Private respondents filed an
2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment
CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC. and tax liability.

3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE The Commissioner denied the urgent request for reconsideration/reinvestigation
COMMISSIONER IN THE CASE AT BAR. because she had not yet issued a formal assessment.

4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN Private respondents then elevated the Decision of the Commissioner to the CTA on a
IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER. petition for review. The Commissioner filed a Motion to Dismiss the petition on the
ground that the CTA has no jurisdiction over the subject matter of the petition, as
5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX there was yet no formal assessment issued against the petitioners. The CTA denied
EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS the said motion to dismiss and ordered the Commissioner to file an answer within
FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A thirty (30) days. The Commissioner did not file an answer nor did she move to
TAX. reconsider the resolution. Instead, the Commissioner filed a petition for review of
the CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA
6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V. order. However, this Court reversed the Court of Appeals decision and the CTA order,
FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION SHIPPING and ordered the dismissal of the petition. We held:
CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO THE
CASE AT BAR. An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE interests begin to accrue against the taxpayer. To enable the taxpayer to determine
DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER. his remedies thereon, due process requires that it must be served on and received by
the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
In parallel circumstances, the following events preceded G.R. No. 124557: stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before the Court of
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. Tax Appeals.
de los Reyes filed a letter request for re-investigation with the Commissioner of the
"Examiner’s Findings" earlier issued by the Bureau of Internal Revenue (BIR), which Neither the NIRC nor the revenue regulations governing the protest of assessments 12
pointed out the tax deficiencies. provide a specific definition or form of an assessment. However, the NIRC defines
the specific functions and effects of an assessment. To consider the affidavit attached
On March 15, 1994 before the Commissioner could act on their letter-request, AMC, to the Complaint as a proper assessment is to subvert the nature of an assessment
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition and to set a bad precedent that will prejudice innocent taxpayers.
for Review with the CTA. They assailed the Commissioner’s finding of tax evasion
against them. The Commissioner moved to dismiss the petition, on the ground that it True, as pointed out by the private respondents, an assessment informs the taxpayer
was premature, as she had not yet issued a formal assessment of the tax liability of that he or she has tax liabilities. But not all documents coming from the BIR
therein petitioners. On September 19, 1994, the CTA denied the Motion to Dismiss. It containing a computation of the tax liability can be deemed assessments.
considered the criminal complaint filed by the Commissioner with the DOJ as an
implied formal assessment, and the filing of the criminal informations with the RTC To start with, an assessment must be sent to and received by a taxpayer, and must
as a denial of petitioners’ protest regarding the tax deficiency. demand payment of the taxes described therein within a specific period. Thus, the
NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer
The Commissioner repaired to the Court of Appeals on the ground that the CTA fails to pay the deficiency tax within the time prescribed for its payment in the
acted with grave abuse of discretion. She contended that, with regard to the protest notice of assessment. Likewise, an interest of 20 percent per annum, or such higher
provided under Section 229 of the NIRC, there must first be a formal assessment rate as may be prescribed by rules and regulations, is to be collected from the date
issued by the Commissioner, and it must be in accord with Section 6 of Revenue prescribed for its payment until the full payment. 13
Regulation No. 12-85. She maintained that she had not yet issued a formal
assessment of tax liability, and the tax deficiency amounts mentioned in her criminal The issuance of an assessment is vital in determining the period of limitation
complaint with the DOJ were given only to show the difference between the tax regarding its proper issuance and the period within which to protest it. Section
returns filed and the audit findings of the revenue examiner. 20314 of the NIRC provides that internal revenue taxes must be assessed within three
years from the last day within which to file the return. Section 222,15 on the other
The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to hand, specifies a period of ten years in case a fraudulent return with intent to evade
Dismiss. Thus, the Commissioner filed the petition for review under G.R. No. 124557, was submitted or in case of failure to file a return. Also, Section 22816 of the same
raising the following issues: law states that said assessment may be protested only within thirty days from
receipt thereof. Necessarily, the taxpayer must be certain that a specific document
1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR constitutes an assessment. Otherwise, confusion would arise regarding the period
FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF A within which to make an assessment or to protest the same, or whether interest and
CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING; penalty may accrue thereon.
2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR
CAN PROCEED WITHOUT AN ASSESSMENT;

Tax II Fulltext | 2nd set | Remedies | 16


It should also be stressed that the said document is a notice duly sent to the 2. There was no demand made on the taxpayers to pay the tax liability,
taxpayer. Indeed, an assessment is deemed made only when the collector of internal nor a period for payment set therein.
revenue releases, mails or sends such notice to the taxpayer.17
3. The letter was never mailed or sent to the taxpayers by the
In the present case, the revenue officers’ Affidavit merely contained a computation Commissioner.
of respondents’ tax liability.lawphil.net It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the taxpayers. In fine, the said recommendation letter served merely as the prima facie basis for
filing criminal informations that the taxpayers had violated Section 45 (a) and (d),
Respondents maintain that an assessment, in relation to taxation, is simply and 110, in relation to Section 100, as penalized under Section 255, and for violation
understood to mean: of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code. 24

"A notice to the effect that the amount therein stated is due as tax and a demand for The next issue is whether the filing of the criminal complaints against the private
payment thereof."18 respondents by the DOJ is premature for lack of a formal assessment.

"Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
the proper presentation of tax rolls."19
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-
Even these definitions fail to advance private respondents’ case. That the BIR (a) In the case of a false or fraudulent return with intent to evade tax or of failure to
examiners’ Joint Affidavit attached to the Criminal Complaint contained some details file a return, the tax may be assessed, or a proceeding in court after the collection of
of the tax liabilities of private respondents does not ipso facto make it an such tax may be begun without assessment, at any time within ten years after the
assessment. The purpose of the Joint Affidavit was merely to support and discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a which has become final and executory, the fact of fraud shall be judicially taken
notice of the tax due and a demand to the private respondents for payment thereof. cognizance of in the civil or criminal action for collection thereof…

The fact that the Complaint itself was specifically directed and sent to the The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
Department of Justice and not to private respondents shows that the intent of the proceeding in court after the collection of such tax may be begun without
commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Here, the private respondents had already filed the capital gains tax
assessment. Although the revenue officers recommended the issuance of an return and the VAT returns, and paid the taxes they have declared due therefrom.
assessment, the commissioner opted instead to file a criminal case for tax evasion. Upon investigation of the examiners of the BIR, there was a preliminary finding of
What private respondents received was a notice from the DOJ that a criminal case gross discrepancy in the computation of the capital gains taxes due from the sale of
for tax evasion had been filed against them, not a notice that the Bureau of Internal two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The
Revenue had made an assessment. examiners also found that the VAT had not been paid for VAT-liable sale of services
for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes
Private respondents maintain that the filing of a criminal complaint must be due and the amounts actually declared by the private respondents constitutes
preceded by an assessment. This is incorrect, because Section 222 of the NIRC badges of fraud.
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be Thus, the applicability of Ungab v. Cusi25 is evident to the cases at bar. In this seminal
commenced without an assessment. Furthermore, Section 205 of the same Code case, this Court ruled that there was no need for precise computation and formal
clearly mandates that the civil and criminal aspects of the case may be pursued assessment in order for criminal complaints to be filed against him. It quoted
simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal of the Merten’s Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
criminal Complaints for being premature, since his protest to the CTA had not yet
been resolved. The Court held that such protests could not stop or suspend the An assessment of a deficiency is not necessary to a criminal prosecution for willful
criminal action which was independent of the resolution of the protest in the CTA. attempt to defeat and evade the income tax. A crime is complete when the violator
This was because the commissioner of internal revenue had, in such tax evasion has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
cases, discretion on whether to issue an assessment or to file a criminal case against the tax. The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer or to do both. the taxpayer that he has made an inaccurate return, and the government’s failure to
discover the error and promptly to assess has no connections with the commission
Private respondents insist that Section 222 should be read in relation to Section 255 of the crime.
of the NIRC,21 which penalizes failure to file a return. They add that a tax assessment
should precede a criminal indictment. We disagree. To reiterate, said Section 222 This hoary principle still underlies Section 269 and related provisions of the present
states that an assessment is not necessary before a criminal charge can be filed. This Tax Code.
is the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima facie We now go to the issue of whether the CTA has no jurisdiction to take cognizance of
showing of failure to file a required return. This fact need not be proven by an both the criminal and civil cases here at bar.1avvphi1
assessment.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
The issuance of an assessment must be distinguished from the filing of a complaint. amended, the rulings of the Commissioner are appealable to the CTA, thus:
Before an assessment is issued, there is, by practice, a pre-assessment notice sent to
the taxpayer. The taxpayer is then given a chance to submit position papers and SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
documents to prove that the assessment is unwarranted. If the commissioner is jurisdiction to review by appeal, as herein provided -
unsatisfied, an assessment signed by him or her is then sent to the taxpayer
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
informing the latter specifically and clearly that an assessment has been made
assessments, refunds of internal revenue taxes, fees or other charges, penalties
against him or her. In contrast, the criminal charge need not go through all these.
imposed in relation thereto, or other matters arising under the National Internal
The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified
Revenue Code or other laws or part of law administered by the Bureau of Internal
that a criminal case had been filed against him, not that the commissioner has issued
Revenue;
an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code. Republic Act No. 8424, titled "An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes," later expanded the jurisdiction of the
In the cases at bar, the Commissioner denied that she issued a formal assessment of
Commissioner and, correspondingly, that of the CTA, thus:
the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de
los Reyes. She admits though that she wrote the recommendation letter22 addressed SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. –
to the Secretary of the DOJ recommending the filing of criminal complaints against The power to interpret the provisions of this Code and other tax laws shall be under
AMC and the aforecited persons for fraudulent returns and tax evasion. the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The first issue is whether the Commissioner’s recommendation letter can be
considered as a formal assessment of private respondents’ tax liability. The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under
In the context in which it is used in the NIRC, an assessment is a written notice and
this Code or other laws or portions thereof administered by the Bureau of Internal
demand made by the BIR on the taxpayer for the settlement of a due tax liability that
Revenue is vested in the Commissioner, subject to the exclusive appellate
is there definitely set and fixed. A written communication containing a computation
jurisdiction of the Court of Tax Appeals.
by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to
contest or disprove the BIR examiner’s findings is not an assessment since it is yet The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282. 26
indefinite.23 It provides:
We rule that the recommendation letter of the Commissioner cannot be considered a SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
formal assessment. Even a cursory perusal of the said letter would reveal three key
points: Sec. 7. Jurisdiction. — The CTA shall exercise:
1. It was not addressed to the taxpayers. (a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

Tax II Fulltext | 2nd set | Remedies | 17


(1) Decisions of the Commissioner of Internal Revenue in cases filing of the civil suit for collection of the taxes due was a final denial of the
involving disputed assessments, refunds of internal revenue taxes, fees taxpayers’ request for reconsideration of the tax assessment.
or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the IN VIEW WHEREOF, premises considered, judgment is rendered:
Bureau of Internal Revenue;
1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21,
(2) Inaction by the Commissioner of Internal Revenue in cases involving 1995, which set aside the Regional Trial Court’s Order dated August 8,
disputed assessments, refunds of internal revenue taxes, fees or other 1994, and REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for
charges, penalties in relation thereto, or other matters arising under the further proceedings before the trial court; and
National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code 2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of
provides a specific period of action, in which case the inaction shall be the Court of Appeals dated March 29, 1996, and ORDERING the
deemed a denial; dismissal of C.T.A. Case No. 5075.

(3) Decisions, orders or resolutions of the Regional Trial Courts in local No costs.
tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction; SO ORDERED.

xxx SECOND DIVISION

(b) Jurisdiction over cases involving criminal offenses as herein provided:

(1) Exclusive original jurisdiction over all criminal offenses arising from G.R. No. 104151 March 10, 1995
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or COMMISSIONER OF INTERNAL REVENUE, petitioner,
the Bureau of Customs: Provided, however, That offenses or felonies vs.
mentioned in this paragraph where the principal amount of taxes and COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
fees, exclusive of charges and penalties, claimed is less than One million CORPORATION and COURT OF TAX APPEALS, respondents.
pesos (P1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular courts and the jurisdiction of the CTA shall G.R No. 105563 March 10, 1995
be appellate. Any provision of law or the Rules of Court to the contrary
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
notwithstanding, the criminal action and the corresponding civil action
vs.
for the recovery of civil liability for taxes and penalties shall at all times
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF
be simultaneously instituted with, and jointly determined in the same
TAX APPEALS, respondents.
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action
will be recognized. REGALADO, J.:
(2) Exclusive appellate jurisdiction in criminal offenses: Before us for joint adjudication are two petitions for review on certiorari separately
filed by the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas
(a) Over appeals from the judgments, resolutions or orders of the Consolidated Mining and Development Corporation in G.R. No. 105563, which
Regional Trial Courts in tax cases originally decided by them, in their respectively seek the aside of the judgments of respondent Court of Appeals in CA-
respected territorial jurisdiction. G.R. SP No. 25945 promulgated on February 12, 1992 1 and in CA-G.R. SP No. 26087
promulgated on May 22, 1992. 2
(b) Over petitions for review of the judgments, resolutions or orders of
the Regional Trial Courts in the exercise of their appellate jurisdiction Atlas Consolidated Mining and Development Corporation (herein also referred to as
over tax cases originally decided by the Metropolitan Trial Courts, ACMDC) is a domestic corporation which owns and operates a mining concession at
Municipal Trial Courts and Municipal Circuit Trial Courts in their Toledo City, Cebu, the products of which are exported to Japan and other foreign
respective jurisdiction. countries. On April 9, 1980, the Commissioner of Internal Revenue (also
Commissioner, for brevity), acting on the basis of the report of the examiners of the
(c) Jurisdiction over tax collection cases as herein provided:
Bureau of Internal Revenue (BIR), caused the service of an assessment notice and
(1) Exclusive original jurisdiction in tax collection cases demand for payment of the amount of P12,391,070.51 representing deficiency ad
involving final and executory assessments for taxes, fees, valorem percentage and fixed taxes, including increments, for the taxable year 1975
charges and penalties: Provided, however, That collection against ACMDC. 3
cases where the principal amount of taxes and fees,
Likewise, on the basis. of the BIR examiner's report in another investigation
exclusive of charges and penalties, claimed is less than One
separately conducted, the Commissioner had another assessment notice, with a
million pesos (₱1,000,000.00) shall be tried by the proper
demand for payment of the amount of P13,531,466.80 representing the 1976
Municipal Trial Court, Metropolitan Trial Court and Regional
deficiency ad valorem and business taxes with P5,000.00 compromise penalty,
Trial Court.
served on ACMDC on September 23, 1980. 4
(2) Exclusive appellate jurisdiction in tax collection cases:
ACMDC protested both assessments but the. same were denied, hence it filed two
separate petitions for review in the Court of Tax Appeals (also, tax court) where they
(a) Over appeals from the judgments,
were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being
resolutions or orders of the Regional Trial
substantially identical in most respects except for the taxable periods and the
Courts in tax collection cases originally decided
amounts involved, were eventually consolidated.
by them, in their respective territorial
jurisdiction.
On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding,
inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and
(b) Over petitions for review of the judgments,
silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and
resolutions or orders of the Regional Trial
P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in
Courts in the exercise of their appellate
computing the ad valorem tax on copper mineral, the refining and smelting charges
jurisdiction over tax collection cases originally
should be deducted, in addition to freight and insurance charges, from the London
decided by the Metropolitan Trial Courts,
Metal Exchange (LME) price of manufactured copper.
Municipal Trial Courts and Municipal Circuit
Trial Courts, in their respective jurisdiction.
However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive
of interest, consisting of 25% surcharge for late payment of the ad valorem tax and
These laws have expanded the jurisdiction of the CTA. However, they did not change
late filing of notice of removal of silver, gold and pyrite extracted during certain
the jurisdiction of the CTA to entertain an appeal only from a final decision or
periods, and for alleged deficiency manufacturer's sales tax and contractor's tax.
assessment of the Commissioner, or in cases where the Commissioner has not acted
within the period prescribed by the NIRC. In the cases at bar, the Commissioner has
The particulars of the reduced amount of said tax obligation is enumerated in detail
not issued an assessment of the tax liability of private respondents.
in the dispositive portion of the questioned judgment of the tax court, thus:
Finally, we hold that contrary to private respondents’ stance, the doctrines laid down
WHEREFORE, petitioner should and is hereby ORDERED to pay the total
in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar.
amount of the following:
In these earlier cases, the Commissioner already rendered an assessment of the tax
liabilities of the delinquent taxpayers, for which reason the Court ruled that the a) P297,900.39 as 25% surcharge on silver extracted during
the period November 1, 1974 to December 31, 1975.

Tax II Fulltext | 2nd set | Remedies | 18


b) P161,027.53 as 25% surcharge on silver extracted for the Sec. 243. Ad valorem taxes on output of mineral lands not covered by
taxable year 1976. lease. — There is hereby imposed on the actual market value of the
annual gross output of the minerals mineral products extracted or
c) P315,027.30 as 25% surcharge on gold extracted during produced from all mineral lands not covered by lease, an ad valorem tax
the period November 1, 1974 to December 31, 1975. in the amount of two per centum of the value of the output except gold
which shall pay one and one-half per centum.
d) P260,180.55 as 25% surcharge on gold during the
taxable year 1976. Before the minerals or mineral products are removed from the mines,
the Commissioner of Internal Revenue or his representatives shall first
e) P53,585.30 as 25% surcharge on pyrite extracted during be notified of such removal on a form prescribed for the purpose. (As
the period November 1, 1974 to December 31, 1975. amended by Rep. Act No. 6110.)
f) P53,283.69 as 25% surcharge on pyrite extracted during Sec. 246. Definitions of the terms "gross output," "minerals" and
the taxable year 1976. "mineral products." — Disposition of royalties and ad valorem taxes. The
term "gross output" shall be interpreted as the actual market value of
g) P316,117.53 as deficiency manufacturer's sales tax and minerals or mineral products, or of bullion from each mine or mineral
surcharge during the taxable year 1975; plus 14% interest lands operated as a separate entity without any deduction from mining,
from January 21, 1976 until fully paid as provided under milling, refining, transporting, handling, marketing, or any other
Section 183 of P.D. No. 69. expenses: Provided, however, That if the minerals or mineral products
are sold or consigned. abroad by the lessee or owner of the mine under
h) P23,631.44 as deficiency contractor's tax and surcharge
C.I.F. terms, the actual cost of ocean freight and insurance shall be
on the lease of personal property during the taxable year
deducted. The output of any group of contiguous mining claim shall not
1975; plus 14% interest from January 21, 1976 until fully
be subdivided. The word "minerals" shall mean all inorganic substances
paid as provided under Section 183 of P.D. 69.
found in nature whether in solid, liquid, gaseous, or any intermediate
i) P91,883.75 as deficiency contractor's tax and surcharge state. The term "mineral products" shall mean things produced by the
on the lease of personal property during the taxable year lessee, concessionaire or owner of mineral lands, at least eighty per cent
1976, plus 14% interest from April 21, 1976 until fully paid of which things must be minerals extracted by such lessee,
as provided under. Section 183 of P.D. No. 69. concessionaire, or owner of mineral lands. Ten per centum of the
royalties and ad valorem taxes herein provided shall accrue to the
With costs against petitioner. 5 municipality and ten per centum to the province where the-mines are
situated, and eighty per centum to the National Treasury. (As amended
As a consequence, both parties elevated their respective contentions to respondent by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510, approved June
Court of Appeals in two separate petitions for review. The petition filed by the 16, 1956)."
Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the portion
of the judgment of the tax court deleting the ad valorem tax on copper and silver, To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed
while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that on the actual market value of the annual gross output of the minerals or mineral
part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency products extracted or produced from all mineral lands not covered by lease. In
assessment. computing the tax, the term "gross output" shall be the actual market value of
minerals or mineral products, or of bullion from each mine or mineral lands
On February 12, 1992, judgment was rendered by respondent Court of Appeals in operated as a separate entity, without any deduction for mining, milling, refining,
CA-G.R. SP No. 25945, dismissing the petition and affirming the tax court's decision transporting, handling, marketing or any other expenses. If the minerals or mineral
on the manner of computing the ad valorem tax. 6 Hence, the Commissioner of products are sold or consigned abroad by the lessee or owner of the mine under
Internal Revenue filed a petition before- us in G.R. No. 104151, raising the sole issue C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted.
of whether or not, in computing the ad valorem tax on copper, charges for smelting
and refining should also be deducted, in addition to freight and insurance costs, from In other words, the assessment shall be based, not upon the cost of production or
the price of copper concentrates. extraction of said minerals or mineral products, but on the price which the same —
before or without undergoing a process of manufacture — would command in the
On May 22, 1992, judgment was likewise rendered by the same respondent court in ordinary course of business. 9
CA-G.R. SP No. 26087, modifying the judgment of the tax court and further reducing
the tax liability of ACMDC by deleting therefrom the following items: In the instant case, the allowance by the tax court of smelting and refining charges as
deductions is not contrary to the above-mentioned provisions of the tax code which
(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on ostensibly prohibit any form of deduction except freight and insurance charges. A
silver extracted during the period November 1, 1974 to December 31, review of the records will show that it was the London Metal Exchange price on wire
1975; bar which was used as tax base by ACMDC for purposes of the 2% ad valorem tax on
copper concentrates since there was no available market price quotation in the
(2) the award under paragraph (c) thereof of P315,027.30 as 25% commodity exchange or markets of the world for copper concentrates nor was there
surcharge on gold extracted during the period November 1, 1974 to any market quotation locally obtainable. 10 Hence, the charges for smelting and
December 31, 1975; and refining were assessed not on the basis of the price of the copper extracted at the
mine site which is prohibited by law, but on the basis of the actual market value of
(3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, the manufactured copper which in this case is the price quoted for copper wire bar
25%) surcharge on pyrite extracted during the period November 1, by the London Metal Exchange.
1974 to December 31, 1975. 7
The issue of whether the ad valorem tax should be based upon the value of the
Still not satisfied with the said judgment which had reduced its tax liability to finished product, or the value upon extraction of the raw materials or minerals used
P906,124.49, as a final recourse ACMDC came to this Court on a petition for review in the manufacture of said finished products, has been passed upon by us in several
on certiorari in G.R. No. 105563, claiming that it is not liable at all for any deficiency. cases wherein we held that the ad valorem tax is to be computed on the basis of the
tax assessments for 1975 and 1976. In our resolution of September 1, 1993, G.R. No. market value of the mineral in its condition at the time of such removal and before it
104151 was ordered consolidated with G.R. No. 105563. 8 undergoes a chemical change through manufacturing process, as distinguished from
a purely physical process which does not necessarily involve the change or
I. G.R No. 104151 transformation of the raw material into a composite distinct product. 11
The Commissioner of Internal Revenue claims that the Court of Appeals and the tax Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal Revenue,
court erred in allowing the deduction of refining and smelting charges from the 12 this Court ruled:
price of copper concentrates. It is the contention of the Commissioner that the actual
market value of the mineral products should be the gross sales realized from copper . . . ad valorem tax is a tax not on the minerals, but upon the privilege of
concentrates, deducting therefrom mining, milling, refining, transporting, handling, severing or extracting the same from the earth, the government's right
marketing or any other expenses. He submits that the phrase "or any other to exact the said impost springing from the Regalian theory of State
expenses" includes smelting and refining charges and that the law allows deductions ownership of its natural resources.
for actual cost of ocean freight and insurance only in instances where the minerals
or mineral products are sold or consigned abroad by the lessees or owner of the . . . While cement is composed of 80% minerals, it is not merely an
mine under C.I.F. terms, hence it is error to allow smelting and refining charges as admixture or blending of raw materials, as lime, silica, shale and others.
deductions. It is the result of a definite the crushing of minerals, grinding, mixing,
calcining, cooling, adding of retarder or raw gypsum. In short, before
We are not persuaded by his postulation and find the arguments adduced in support cement reaches its saleable form, the minerals had already undergone a
thereof untenable. chemical change through manufacturing process, This could not have
been the state of mineral products' that the law contemplates for
The pertinent provisions of the National Internal Revenue Code (tax code, for purposes of imposing the ad valorem tax. . . . this tax is imposed on the
facility) at the time material to this controversy, read as follows: privilege of extracting or severing the minerals from the mines. To our

Tax II Fulltext | 2nd set | Remedies | 19


minds, therefore the inclusion of the term mineral products is intended (1) Drying — The copper concentrates (averaging about 30
to comprehend cases where the mined or quarried elements may not be percent copper) are dried.
usable in its original state without application of simple treatments . . .
which process does not necessarily involve the change or 1. Flash Furnace — The dried concentrate is
transformation of the raw materials into a composite, distinct product. . . smelted autogenously and a matte containing
. While the selling price of cement may reflect the actual market value of 65 percent is produced.
cement, said selling price cannot be taken as the market value also of the
minerals composing the cement. And it was not the cement that was 2. Converter — The matte is converted to blister
mined, only the minerals composing the finished product. copper with a purity of about 99 per cent.

This view was subsequently affirmed in the resolution of the Court denying the B. Refining —
motion for reconsideration of its aforesaid decision, 13 reiterated that the pertinent
part of which reiterated that — (1) Casting Wheel — Blister copper is treated in an anode
furnace where. copper requiring further treatment is sent to
. . . the ad valorem tax in question should be based on the actual market the casting wheel to produce cathode copper.
value of the quarried minerals used in producing cement, . . . the law
intended to impose the ad valorem tax upon the market value of the (2) Electrolytic Refining — Anode copper is further refined
component mineral products in their original state before processing by electrolytic refining to produce cathode copper.
into cement. . . . the law does not impose a tax on cement qua cement,
C. Fabricating —
but on mineral products at least 80% of which must be minerals
extracted by the lessee, concessionaire or owner of mineral lands. (1) Rolling — Fire refined or electroly-tic copper-and/or
brass (a mixture Of copper and zinc) is made into tubes,
The Court did not, and could not, rule that cement is a manufactured
sheets, rods and wire.
product subject to sales tax, for the reason that such liability had never
been litigated by the parties. What it did declare is that, while cement is (2) Extruding — Sheet tubes, rods and wire are further
a mineral product, it is no longer in the state or condition contemplated fabricated into the copper articles in everyday use.
by the law; hence the market value of the cement could not be the basis
for computing the ad valorem tax, since the ad valorem tax is a severance The records show that cathodes, with purity of 99.985% are cast or
tax i.e., a charge upon the privilege of severing or extracting minerals fabricated into various shapes, depending on their industrial
from the earth, (Dec. p. 4) and is due and payable upon removal of the destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-
mineral product from its bed or mine (Tax Code s. 245). 16 millimeter thick and 160 kilograms in weight, although this thickness
is not uniform for all the sheets. Cathodes sheets are not suitable for
Therefore, the imposable ad valorem tax should be based on the selling price of the direct fabrication, hence, are further fabricated into the desired shape,
quarried minerals, which is its actual market value, and not on the price of the like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are
manufactured product. If the market value chosen for the reckoning is the value of rectangular pieces, 100 millimeter x 100 millimeter x 1.37 meters long
the manufactured. or finished product, as in the case at bar, then all expenses of and weigh some 125 kilos. They are suited for copper wires and copper
processing or manufacturing should be deducted in order to approximate as closely rods. Billets are fabricated into tubes and heavy electric sections. Cakes
as is humanly possible the actual market value of the raw mineral at the mine site. are in the form of thick sheets and strips. (pp. 13, 18-21, deposition,
Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see pp. 70-72,
It was copper ore that was extracted by ACMDC from its mine site which, through a
CTA records.) 14
simple physical process of removing impurities therefrom, was converted into
copper concentrate In turn, this copper concentrate underwent the process of Significantly, the finding that copper wire bar is a product of a manufacturing
smelting and refining, and the finished product is called copper cathode or copper process finds support in the definition of a "manufacturer" in Section 194 (x) of the
wire bar. aforesaid tax code which provides:
The copper wire bar is the manufactured copper. It is not the mineral extracted from "Manufacturer" includes every person who by physical or chemical
the mine site nor can it be considered a mineral product since it has undergone a process alters the exterior texture or form or inner substance of any raw
manufacturing process, to wit: material or manufactured or partially manufactured product in such a
manner as to prepare it for a special use or uses to which it could not
I. The physical process involved in the production of copper concentrate
have been put in its original condition, or who by any such process
are the following (p. 19, BIR records; Exh. ‘H’, p. 43, Folder I of Exhibits.)
alters the quality of any such raw material or manufactured or partially
A Mining Process — manufactured product so as to reduce it to marketable shape or prepare
it for any of the uses of industry, or who by any such process combines
(1) Blasting — The ore body is broken up by blasting. any such raw material or manufactured or partially manufactured
products with other materials: or products of the same or different
(2) Loading — The ore averaging about 1/2 percent kinds and in such manner that the finished product of such process or
copper is loaded into ore trucks by electric shovels. manufacture can be put to a special use or uses to which such raw
material or manufactured or partially manufactured products, or
(3) Hauling — The trucks of ore are hauled to the mill. combines the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or
B Milling Process — consumption.

(1) Crushing — The ore is crushed to pieces the size of Moreover, it is also worth noting at this point that the decision of the tax court was
peanuts. based on its previous ruling in the case of Atlas Consolidated Mining and
Development Corporation vs. Commissioner of Internal Revenue, 15 dated January 23,
(2) Grinding — The crushed ore is ground to powder form. 1981, which we quote with approval:
(3) Concentrating — The mineral bearing particles in the . . . The controlling law is clear and specific; it should therefore be
powdered ore are concentrated. applied as Since the mineral or mineral product removed from its bed or
mine at Toledo City by petitioner is copper concentrate as admitted by
The ores or rocks, transported by conveyors, are crushed repeatedly by respondent himself, not copper wire bar, the actual market value of such
steel balls into size of peanuts, when they are ground and pulverized. copper concentrate in its condition at the time of such removal without
The powder is fed into concentrators where it is mixed with water and any deduction from mining, milling, refining, transporting, handling,
other reagents. This is known in the industry as a flotation phase. The marketing, or any other expenses should be the basis of the 2% ad
copper-bearing materials float while the non-copper materials in the valorem tax.
rock sink. The material that floats is scooped and dried and piled. This is
known as copper concentrate. The material at the bottom is waste, and The conclusion reached is rendered clearer when it is taken into
is known in the industry as tailings. In Toledo City, tailings are disposed consideration that the ad valorem tax is a severance tax, a charge upon
of through metal pipes from the flotation mills to the open sea. Copper the privilege of severing or extracting minerals from the earth, and is
concentrate of petitioner contains 28-31% copper. The concentrate is due and payable upon removal of the mineral product from its bed or
loaded in ocean vessels and shipped to Mitsubishi Metal Corporation mine, the tax being computed on the basis of the market value of the
mills in Japan, where the smelting, refining and fabricating processes are mineral in its condition at the time of such removal and before its being
done. (Memorandum of petitioner, p. 71, CTA records.) substantially changed by chemical or manufacturing (as distinguished
from purely physical) processing. (Cebu Portland Cement Co. vs.
II. The chemical or manufacturing process in the production of wire bar Commissioner of Internal Revenue, supra.) Copper wire bars, as
is as follows: (Exh. 'H', p. 43, Folder I of exhibits.) discussed above,, have already undergone chemical or manufacturing
processing in Japan, they are not extracted or produced from the earth
A. Smelting —
by petitioner in its mine site at Toledo City. Since the ad valorem tax is

Tax II Fulltext | 2nd set | Remedies | 20


computed on the basis of the actual market value of the mineral in its A. Surcharge on Silver, Gold and Pyrite
condition at the time of its removal from the earth, which in this case is
copper concentrate, there is no basis therefore for an assertion that such ACMDC argues that the Court of Appeals erred in holding it liable to pay 25%
tax should be measured on the basis of the London Metal Exchange surcharge on silver, gold and pyrite extracted by it during tax year 1976.
price quotation of the manufactured wire bars without any deduction of
smelting and refining charges. Sec. 245 of the then tax code states:

In resume: Sec. 245. Time and manner of payment of royalties or ad valorem taxes. —
The royalties or ad valorem taxes as the case may be, shall be due and
1. The mineral or mineral product of petitioner the payable upon the removal of the mineral products from the locality
extraction or severance from the soil. of which the ad where mined. However, the output of the mine may be removed from
valorem tax is directed is copper concentrate. such locality without the pre-payment of such royalties or ad valorem
taxes if the lessee, owner, or operator shall file a bond in the form and
2. The ad valorem tax is computed on the basis of the actual amount and with such sureties as the Commissioner of Internal Revenue
market value of the copper concentrate in its condition at may require,. conditioned upon the payment of such royalties or ad
the time of removal from the earth and before substantially valorem taxes, in which case it shall be the duty of every lessee, owner,
changed by chemical or manufacturing process without any or operator of a mine to make a true and complete return in duplicate
deduction milling, refining, from mining, transporting, under oath setting forth the quantity and the actual market value of the
handling, marketing, or any other expenses. However, since output of his mine removed during each calendar quarter and pay the
the copper concentrate is sold abroad by petitioner under royalties or ad valorem taxes due thereon within twenty days after the
C.I.F. terms, the actual cost of ocean freight and insurance is close of said quarter.
deductible.
In case the royalties or ad valorem taxes are not paid within the period
3. There being no market price quotation of copper prescribed above, there shall be added thereto a surcharge of twenty-
concentrate locally or in the commodity exchanges or five per centum. Where a false or fraudulent return is made, there shall
markets of the world, the London Metal Exchange price be added to the royalties or ad valorem taxes a surcharge of fifty per
quotation of copper wire bar, which is used by petitioner centum of their amount. The surcharge So, added: shall be collected in
and Mitsubishi Metal Corporation as reference to determine the same manner and as part of the royalties or ad valorem taxes, as the
the selling price of copper concentrate, may likewise be case may be.
employed in this case as reference point in ascertaining the
actual market value of copper concentrate for ad valorem Under the aforesaid provision, the payment of the ad valorem tax shall be made
tax purposes. By deducting from the London Metal upon removal of the mineral products from the mine site or if payment cannot be
Exchange price quotation of copper wire bar all charges and made, by filing a bond in the form and amount to be approved by the Commissioner
costs incurred after the copper concentrate has been conditioned upon the payment of the said tax.
shipped from Toledo City to the time the same has been
manufactured into wire bar, namely, smelting, electrolytic In the instant case, the records show that the payment of the ad valorem tax on gold,
refining and fabricating, the remainder represents to a silver and pyrite was belatedly made. ACMDC, however, maintains that it should not
reasonable degree the actual market value of the copper be required to pay the 25% surcharge because the correct quantity of gold and silver
concentrate in its condition at the time of extraction or could be determined only after the copper concentrates had gone through the
removal from its bed in Toledo City for the purposes of the process of smelting and refining in Japan while the amount of pyrite cannot be
ad valorem tax. determined until after the flotation process separating the copper mineral from the
waste material was finished.
The Commissioner of Internal Revenue argues that the ruling in the case above
stated is not binding, considering that the incumbent Commissioner of Internal Prefatorily, it must not be lost sight of that bad faith is ; not essential for the
Revenue is not bound by decisions or rulings of his predecessor when he finds that a imposition of the 25% surcharge for late payment of the ad valorem tax. Hence,
different construction of the law should be adopted, invoking therefor the doctrine
enunciated in Hilado vs. Collector of internal Revenue, et a1, 16 This trenches on MISSING PAGE 19
specious reasoning. What was involved in the Hilado case was a previous ruling of a
Q. Now, what do you do with the result of your analysis?
former Commissioner of Internal Revenue. In the case at bar, the Commissioner
A. These are tabulated and then averaged out to represent
based his findings on a previous decision rendered by the Court of Tax Appeals itself.
one shipment.
The Court of Tax Appeals is not a mere superior administrative agency or tribunal Q. Will you tell this Honorable Court whether in that
but is a part of the judicial system of the Philippines. 17 It was created by Congress laboratory testing you physically separate the gold, you
pursuant to Republic Act No. 1125, effective June 16, 1954, as a centralized court physically separate the silver and you physically separate
specializing in tax cases. It is a regular court vested with exclusive appellate the copper content of that 40 to 50 kilos?
jurisdiction over cases arising under the National Internal Revenue Code, the Tariff A. No, no, we analyze this in one sample. This sample is
and Customs Code, and the Assessment Law. 18 analyzed for gold, silver, and copper, but there is no recovery
made.
Although only the decisions of the Supreme Court establish jurisprudence or Q. You mean there is no physical separation?
doctrines in this jurisdiction, nonetheless the decisions of subordinate courts have a A. No, no physical separation.
persuasive effect and may serve as judicial guides. It is even possible that such a Q. So these three minerals — copper, gold and silver — are
conclusion or pronouncement can be raised to the status of a doctrine if, after it has in that same powder that you have tested?
been subjected to test in the crucible of analysis and revision the Supreme Court A Yes, it is in the same powder.
should find that it has merits and qualities sufficient for its consecration as a rule of Q. Now how do you reflect the results of the testing?
jurisprudence. 19 A. You mean in analysis?
Q. In the analysis, yes.
Furthermore, as a matter of practice and principle, the Supreme Court will not set A. Copper is reported in percent.
aside the conclusion reached by an agency such as the Court of Tax Appeals, which Q. Percentage?
is, by the very nature of its function, dedicated exclusively to the study and A. Yes.
consideration of tax problems and has necessarily developed an expertise on the Q. How about gold?
subject, unless there has been an abuse or improvident exercise of authority on its A. Gold and silver part is represented as grams per dmt or
part. 20 parts per million.
Q. Based on the results of your data gathered in the
II. G.R. No. 105563 laboratory?
A. Yes.
The petition herein raises the following issues for resolution: Q. Now where do you submit the results of the laboratory
testing?
A. Whether or not petitioner is liable for payment, of the 25% surcharge for A When a shipment is made we prepare a certificate of
alleged late filing of notice of removal/late payment of the ad valorem tax on analysis signed by me and then which (sic) is sent to Manila.
silver, gold and pyrite extracted during the taxable year 1976. Q. Now, as far as you know in connection with your duty do
you know what Manila what do you say, Manila, ACMDC?
B. Whether or not petitioner is liable for payment of the manufacturer' s sales A. Makati.
tax and surcharge during the taxable year 1975, plus interest, on grinding Q. Makati. What does Makati ACMDC do with your assay
steel balls borrowed by its competitor; and report?
A. As far as I know it is used as the basis for the payment of
C. 'Whether or not petitioner is liable for payment of the contractor's tax and
ad valorem tax. 24
surcharge on the alleged lease of personal property during the taxable years
The above-quoted testimony accordingly supports these findings of the tax court in
1975 and 1976 plus interest. 21
its decision in this case:

Tax II Fulltext | 2nd set | Remedies | 21


We see it (sic) that even if the silver and gold cannot as yet be physically motive. Since the term "business" is being used without any qualification in our
separated from the copper concentrate until the process of smelting and aforesaid tax code, it should therefore be therefore be construed in its plain and
refining was completed, the estimated commercial quantity of the silver ordinary meaning, restricted to activities for profit or livelihood. 32
and gold could have been determined in much the same way that
petitioner is able to estimate the commercial quantity of copper during In the case at bar, ACMDC claims exemptions from the payment of manufacturer's
the assay. If, as stated by petitioner, it is able to estimate the grade of the tax. It asserts that it is not engaged in the business of selling grinding steel balls, but
copper ore, and it has determined the grade not only of the copper but it only produces grinding steel balls solely for its own use or consumption, However,
also those of the gold and silver during the assay (Petitioner's it admits having lent its grinding steel balls to other entities but only in very isolated
Memorandum, p. 207, Record), ergo, the estimated commercial quantity cases.
of the silver and gold subject to ad valorem tax could have also been
determined and provisionally paid as for copper. 25 After a careful review of the records and on the basis of the legal concept of
"engaging in business" hereinbefore discussed, we are inclined to agree with ACMDC
The other allegation of ACMDC is that there was no removal of pyrite from the mine that it should not and cannot be held liable for the payment of the manufacturer's
site because the pyrite was delivered to its sister company, Atlas Fertilizer tax.
Corporation, whose plant is located inside the mineral concession of ACMDC in
Sangi, Toledo City. ACMDC, however, is already barred by estoppel in pais from First, under the tax code then in force, the 7% manufacturer's sales tax is imposed
putting that matter in issue. on the manufacturer for every original sale, barter, exchange and other similar
transaction intended to transfer ownership of articles. As hereinbefore quoted, and
An ad valorem tax on pyrite for the same tax year was already declared and paid by we repeat the same for facility of reference, the term "manufacturer" is defined in
ACMDC. In fact, that payment was used as the basis for computing the 25% the tax code as including "every person who by physical or chemical process alters
surcharge. It was only when ACMDC was assessed for the 25% surcharge that said the exterior texture or form or inner substance of any raw material or manufactured
issue was raised by it. Also, the evidence shows that deliveries of pyrite were not or partially manufactured product in such manner as to prepare it for a special use
exclusively made to its sister company, Atlas Fertilizer Corporation. There were or uses to which it could not have been put in its original condition, or who by any
shipments of pyrite to other companies located outside of its mine site, in addition such process alters the quality of any such raw material or manufactured or partially
to those delivered to its aforesaid sister company. 26 manufactured product so as to reduce it to marketable shape or prepare it for any of
the uses of industry, or who by any such process combines any such raw material or
B. Manufacturer's Tax and Contractor's Tax manufactured or partially manufactured products with other materials or products
of the same or of different kinds and in such manner that the finished product of
The manufacturer's tax is imposed under Section 186 of the tax code then in force such process or manufacture can be put to a special use or uses to which such raw
which provides: materials or manufactured or partially manufactured products in their original
condition could not have been put, and who in addition alters such raw material or
Sec. 186. Percentage tax on sales of other articles. — There shall be manufactured or partially manufactured products, or combines the same to produce
levied, assessed and collected once only on every original sale, barter, such finished products for the purpose of their sale or distribution to others and not
exchange, or similar transaction either for nominal or valuable for his own use or consumption. 33
consideration, intended to transfer ownership of, or title to, the articles
not enumerated in sections one hundred and eighty-four-A, one Thus, a manufacturer, in order to be subjected to the necessity of paying the
hundred and eighty five, one hundred and eighty-five-A, one hundred percentage tax imposed by Section 186 of the tax code, must be 'engaged' in the sale,
eighty-five-B, and one hundred eighty-six-B, a tax equivalent to seven barter or exchange of; personal property. Under a statute which imposes a tax on
per centum of the gross selling price or gross value in money of the persons engaged in the sale, barter or exchange of merchandise, a person must be
articles so sold, bartered, exchanged, or transferred, such tax to be paid occupied or employed in the sale, barter or exchange of personal property. A person
by the manufacturer or producer: Provided, That where the articles can hardly be considered as occupied or employed in the sale, barter or exchange of
subject to tax under this Section are manufactured out of materials personal property when he has made one purchase and sale only. 34
likewise subject to tax under this section and section one hundred
eighty-nine, the total cost of such materials, as duly established, shall be Second, it cannot be legally asserted, for purposes of this particular assessment only,
deductible from the gross selling price or gross value in money of such that ACMDC was engaged in the business of selling grinding steel balls on the basis
manufactured articles. (As amended by Rep. Act No. 6110 and by Pres. of the isolated transaction entered into by it in 1975. There is no showing that said
Decree No. 69.) transaction was undertaken by ACMDC with a view to gaining profit. therefrom and
with the intent of carrying on a business therein. On the contrary, what is clear for us
On the other hand, the contractor's tax is provided for under Section 191 of the same is that the sale was more of an accommodation to the other mining companies, and
code, paragraph 17 of which declares that lessors of personal property shall be that ACMDC was subsequently replaced by other suppliers shortly thereafter.
subject to a contractor's tax of 3% of the gross receipts.
This finding is strengthened by the investigation report, dated March 11, 1980, of
Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on the B.I.R. Investigation Team itself which found that —
Business and Occupation." These "privilege taxes on business" are taxes imposed
upon the privilege of engaging in business. They are essentially excise taxes. 27 To ACMDC has a foundry shop located at Sangi, Toledo City, and
be held liable for the payment of a privilege tax, the person or entity must be manufactures grinding steel balls for use in its ball mills in pulverizing
engaged in business, as shown by the fact that the drafters of the tax code had the minerals before they go to the concentrators, For the grinding steel
purposely grouped said provisions under the general heading adverted to above. balls manufactured by ACMDC and used in its operation, we found it not
subject to any business tax. But there were times in 1975 when other
"To engage" is to embark on a business or to employ oneself therein. The word mining companies were short of grinding steel balls and ACMDC
"engaged" connotes more than a single act or a single transaction; it involves some supplied them with these materials manufactured in its foundry shop.
continuity of action. "To engage in business" is uniformly construed as signifying an According to the informant, these were merely accommodations and
employment or occupation which occupies one's time, attention, and labor for the they were replaced by the other suppliers. 35
purpose of a livelihood or profit. The expressions "engage in business," "carrying on
business" or "doing business" do not have different meanings, but separately or At most, whatever profit ACMDC may have realized from that single transaction was
connectedly convey the idea of progression, continuity, or sustained activity. just incidental to its primordial purpose of accommodating other mining companies.
"Engaged in business" means occupied or employed in business; carrying on Well-settled is the rule that anything done as a mere incident to, or as a necessary
business" does not mean the performance of a single disconnected act, but means consequence of, the principal business is not ordinarily taxed as an independent
conducting, prosecuting, and continuing business by performing progressively all business in itself. 36 Where a person or corporation is engaged in a distinct business
the acts normally incident thereto; while "doing business" conveys the idea of and, as a feature thereof, in an activity merely incidental which serves no other
business being done, not from time to time, but all the time. 28 person or business, the incidental and restricted activity is not considered as
intended to be separately taxed. 37
The foregoing notwithstanding, it has likewise been ruled that one act may be
sufficient to constitute carrying on a business according to the intent with which the In fine, on this particular aspect, we are consequently of the considered opinion and
act is done. A single sale of liquor by one who intends to continue selling is sufficient so hold that ACMDC was not a manufacturer subject to the percentage tax imposed
to render him liable for "engaging in or carrying on" the business of a liquor dealer. by Section 186 of the tax code.
29
The same conclusion; however, cannot be made with respect to the contractor's tax
There may be a business without any sequence of acts, for if an isolated transaction, being imposed on ACMDC. It cannot validly claim that the leasing out of its personal
which if repeated would be a transaction in a business, is proved to have been properties was merely an isolated transaction. Its book of accounts shows that
undertaken with the intent that it should be the first of several transactions, that is, several distinct payments were made for the use of its personal properties such as
with the intent of carrying on a business, then it is a first transaction in an existing its plane, motor boat and dump truck. 38 The series of transactions engaged in by
business. 30 ACMDC for the lease of its aforesaid properties could also be deduced from the fact
that for the tax years 1975 and 1976 there were profits earned and reported
Thus, where the end sought is to make a profit, the act constitutes "doing- business." therefor. It received a rental income of P630,171.56 for tax year 39 and
This is not without basis. The term "business," as used in the law imposing a license P2,450,218.62 for tax year 1976. 40
tax on business, trades, and so forth, ordinarily means business in the trade or
commercial sense only, carried on with a view to profit or livelihood; 31 It is thus Considering that there was a series of transactions involved, plus the fact that there
restricted to activities or affairs where profit is the purpose, or livelihood is the was an apparent and protracted intention to profit from such activities, it can be

Tax II Fulltext | 2nd set | Remedies | 22


safely concluded that ACMDC was habitually engaged in the leasing out of its plane, For failure anew to serve summons, the Court of First Instance of Manila issued an
motor boat and dump truck, and is perforce subject to the contractor's tax. order dated 4 October 1962 dismissing Civil Case No. 42911 without prejudice. The
order of dismissal became final on 5 November 1962.
The allegation of ACMDC that it did not realize any profit from the leasing out of its
said personal properties, since its income therefrom covered only the costs of On 15 November 1962, the complaint against private respondent for collection of
operation such as salaries and fuel, is not supported by any documentary or the same tax was refiled, but the same was erroneously docketed as Civil Case No.
substantial evidence. We are not, therefore, convinced by such disavowal. 42911, the same case previously dismissed without prejudice. Without correcting
this error, another complaint was filed on 26 November 1963, docketed as Civil Case
Assessments are prima facie presumed correct and made in good faith. Contrary to No. 55817, the subject matter of the present appeal.
the theory of ACMDC, it is the taxpayer and not the Bureau of Internal Revenue who
has the duty of proving otherwise. It is an elementary rule that in the absence of As herein earlier stated, the Court a quo rendered a decision against the private
proof of any irregularities in the performance of official duties, an assessment will respondent. On appeal to the respondent Court of Appeals, the decision was
not be disturbed. All presumptions are in favor of tax assessments. 41 Verily, failure reversed. Petitioner, Republic of the Philippines, filed a motion for reconsideration
to present proof of error in assessments will justify judicial affirmance of said which was likewise denied by said Court in a resolution dated 31 May 1974. Hence,
assessment. 42 this petition, with the following assignment of errors:

Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes I
are to receive a reasonable construction with a view to carrying out their purposes
and intent. 43 They should not be construed as to permit the taxpayer to easily THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF
evade the payment of the tax. 44 On this note, and under the confluence of the ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE
weighty. considerations and authorities earlier discussed, the challenged assessment RESPONDENT IN THE ORDINARY COURSE OF THE MAIL PURSUANT TO SECTION 8,
against ACMDC for contractor's tax must be upheld. RULE 13 OF THE REVISED RULES OF COURT.

WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP II


No. 25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED;
and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT
Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. FAILED TO REBUT THE PRESUMPTION THAT THE LETTER ASSESSMENT DATED
105563 of this Court, from the payment of manufacturer's sales tax, surcharge and JULY 16, 1955, HAVING BEEN DULY DIRECTED AND MAILED WAS RECEIVED IN THE
interest during the taxable year 1975. REGULAR COURSE OF THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY
PERFORMED.
SO ORDERED.
III
SECOND DIVISION
THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955
G.R. No. L-38540 April 30, 1987 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY
THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE RESPONDENT, THE COURT
REPUBLIC OF THE PHILIPPINES, petitioner, OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF THE DEPUTY
vs. COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE DATED
THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents. SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY
RECEIVED BY PRIVATE RESPONDENT.
PADILLA, J.:
Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule
This is a petition for review on certiorari of the decision of the respondent Court of 131 of the Revised Rules of Court, petitioner claims that the demand letter of 16 July
Appeals 1 in CA G.R. No. 37417-R, dated 3 April 1974, reversing the decision of the 1955 showed an imprint indicating that the original thereof was released and
then Court of First Instance of Manila which ordered private respondent Nielson & mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal
Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, Revenue, and that the original letter was not returned to said Bureau; thus, said
occupation fees, additional residence tax and 25% surcharge for late payment, for demand letter must be considered to have been received by the private respondent.
the years 1949 to 1952, and costs of suit, and of the resolution of the respondent 3 According to petitioner, if service is made by ordinary mail, unless the actual date
Court, dated 31 May 1974, denying petitioner's motion for reconsideration of said of receipt is shown, service is deemed complete and effective upon the expiration of
decision of 3 April 1974. five (5) days after mailing. 4 As the letter of demand dated 16 July 1955 was actually
mailed to private respondent, there arises the presumption that the letter was
In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal received by private respondent in the absence of evidence to the contrary. 5 More so,
Revenue assessed private respondent deficiency taxes for the years 1949 to 1952, where private respondent did not offer any evidence, except the self-serving
totalling P14,449.00, computed as follows: testimony of its witness, that it had not received the original copy of the demand
letter dated 16 July 1955. 6
1-1/2% ad valorem tax on
P448,000.00..........................P7,320.00 We do not agree with petitioner's above contentions. As correctly observed by the
respondent court in its appealed decision, while the contention of petitioner is
25% surcharge for late payment......................................1,830.00 correct that a mailed letter is deemed received by the addressee in the ordinary
course of mail, stilt this is merely a disputable presumption, subject to
Occupation fees for the years 1949 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
to 1952 at P1.00 per ha. per received by the addressee. Thus:
year on 1, 230 Appellee contends that per Exhibit A, the notice was released and
hectares.....................................4,920.00 mailed to the appellant by the BIR on Aug. 4, 1955 under the signature
of the Chief, Records Section, Office; that since the original thereof was
Additional residence tax on P79,000.00
not returned to the appellee, the presumption is that the appellant
at P1.00 per every P5,000.00 received the mailed notice. This is correct, but this being merely a mere
disputable presumption, the same is subject to controversion, and a
per year or P75.00 x 4 direct denial of the receipt thereof shifts the burden upon the party
years................................303.20 favored by the presumption to prove that the mailed letter was received
by the addressee. The appellee, however, argues that since notice was
25% surcharge for late payment.........................................75.00 rc-,Ieased and mailed and the fact of its release was admitted by the
appellant the admission is proof that he received the mailed notice of
TOTAL AMOUNT DUE............................ assessment. We do not think so. It is true the Court a quo made such a
P14,449.00 2 finding of fact, but as pointed out by the appehant in its brief, and as
borne out by the records, no such admission was ever made by the
Petitioner reiterated its demand upon private respondent for payment of said appellant in the answer or in any other pleading, or in any declaration,
amount, per letters dated 24 April 1956 (Exhibit D), 19 September 1956 (Exhibit E) oral or documentary before the trial court. We note that the appellee has
and 9 February 1960 (Exhibit F). Private respondent did not contest the assessment not met this challenge, and after a review of the records, we find
in the Court of Tax Appeals. On the theory that the assessment had become final and appeflant's assertion well-taken. 7
executory, petitioner filed a complaint for collection of the said amount against
private respondent with the Court of First Instance of Manila, where it was docketed Since petitioner has not adduced proof that private respondent had in fact received
as Civil Case No. 42911. However, for failure to serve summons upon private the demand letter of 16 July 1955, it can not be assumed that private respondent
respondent, the complaint was dismissed, without prejudice, in the Court's order received said letter. Records, however, show that petitioner wrote private
dated 30 June 1961. On motion, the order of dismissal was set aside, at the same respondent a follow-up letter dated 19 September 1956, reiterating its demand for
time giving petitioner sixty (60) days within which to serve summons upon private the payment of taxes as originally demanded in petitioner's letter dated 16 July
respondent. 1955. This follow-up letter is considered a notice of assessment in itself which was

Tax II Fulltext | 2nd set | Remedies | 23


duly received by private respondent in accordance with its own admission. 8 The other, contested this assessment until this case reached the hands of the
aforesaid letter reads: Secretary of Agriculture and Natural Resources, the undersigned cannot
therefore include in his assessment this amount in question, hence, due
Nielson and Company, Inc. course is given, recommending that this bureau take proper action
regarding this case.
Ayala Boulevard, Manila
Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue
Gentlemen: addressed a letter to petitioner, the pertinent portion of which reads-
In reply to you (sic) letter dated June 1, 1956 relative to your pending Mambulao Lumber Company
internal revenue tax liability involving the amount of P15,649.00 as R-406 Samanillo Building
annual occupation fees, ad valorem and additional residence taxes, Escolta, Manila
surcharges and penalty, originally demanded of you on July 16, 1955, I
have the honor to inform you that investigation conducted by an agent Gentlemen:
of this office show that you and the Hixbar Gold Mining Co., Inc. entered
into an agreement in 1938 whereby you were given full exclusive and xxx xxx xxx
irrevocable control of all the operations, development, processing and
marketing of mineral products from the latter's mines and that au the It was also ascertained that in 1949 you manifested 2,052.48 cubic
assessments, taxes and fees of any nature in connection with the said meters of timber, the forest charges and surcharges of which in the total
operation, development, proceeding and marketing of these products amount of P15,443.55 was demanded of you by the Bureau of Forestry
shall be paid by you. In view thereof, and it appearing that the aforesaid on January 15, 1949. ...
tax liabilities accrued when your contract was in fun force and effect,
you are therefore, the party hable for the payment thereof, In view thereof there is due from you the amount of P33,595.26 as
notwithstanding the alleged contract subsequently entered into by you deficiency sales tax, forest charges and surcharges, committed as
and the Hixbar Gold Mining Co., Inc. on September 9, 1954. follows:

It is therefore, again requested that payment of the aforesaid amount of Sales Tax x x x
P15,649.00 be made to the City Treasurer, Manila within five (5) days
from your receipt hereof so that this case may be closed. Forest Charges

You are further requested to pay the sum of P150.00 as compromise Forest charges and surcharges for the year 1949 appealed to the
suggested in our letter to you dated February 24, 1955, it appearing that Secretary of Agriculture and Natural Resources P15,443.55
the same has not as yet been paid up to the present.
xxx xxx xxx
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court
Total amount due & payable P33,595.26
of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's
failure to appeal in due time, as in the case at bar, makes the assessment in question Demand is hereby made upon you to pay the aforesaid amount of P
final, executory and demandable. Thus, private respondent is now barred from 33,595.26 to the City Treasurer of Manila or this office within ten (10)
disputing the correctness of the assessment or from invoking any defense that days from receipt hereof so that this case may be closed.
would reopen the question of its liability on the merits. 10
xxx xxx xxx
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:
The aforesaid letter was acknowledged to have been received by petitioner on
In a suit for collection of internal revenue taxes, as in this case, where the September 19, 1958. 3 On October 18, 1958, petitioner requested for a
assessment has already become final and executory, the action to collect is akin to an reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959,
action to enforce a judgment. No inquiry can be made therein as to the merits of the respondent Commissioner of Internal Revenue give petitioner a period of twenty
original case or the justness of the judgment relied upon. ... (20) days from receipt thereof to submit the results of its verification of payments
with a warning that failure to comply therewith would be construed as an
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a
abandonment of the request for reinvestigation.
quo is hereby reinstated. No costs.
For failure of petitioner to comply with the above letter-request and/or to pay its tax
SO ORDERED.
liability despite demands for the payment thereof, respondent Commissioner of
Internal Revenue filed. a complaint for collection in the Court of First Instance of
SECOND DIVISION Manila on August 25, 1961. 4
GR. No. L-37061 September 5, 1984 After trial, judgment was rendered by the trial court, the dispositive portion of
which reads —
MAMBULAO LUMBER COMPANY, petitioner,
vs. WHEREFORE, judgment is rendered —
REPUBLIC OF THE PHILIPPINES, respondent.
(a) Ordering both defendants, jointly and severally, to pay plaintiff the
CUEVAS, J.: amount of P1,219.95 plus legal interest thereon from August 25, 1961,
the date of the filing of the original complaint until fully paid, or in case
Petitioner in this appeal by certiorari, seeks the reversal of the decision of the
of failure to Pay the said amount, ordering the forfeiture of GISCOR Bond
defunct Court of Appeals which affirmed the judgment of the then Court of First
No. 35 to the amount of P1,219.95; and
Instance of Manila ordering petitioner to pay respondent the amount of P15,739.80
representing its tax liability not secured by any bond, with legal interest thereon (b) Ordering defendant Mambulao Lumber Company to pay the plaintiff
from August 25, 1961 until fully paid. the amount of P15,739.80 representing its tax liability not secured by
any bond, with legal interest thereon from August 25, 1961, until paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue,
Regional District No. 6, Bicol Region, Naga City, conducted an examination of the With costs against defendants.
books of accounts of herein petitioner Mambulao number Company for the purpose
of determining said taxpayer's forest charges and percentage tax liabilities. From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that
portion of the trial court's decision ordering it to pay the amount of P15,443.55
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among representing forest charges and surcharges due for the year 1949.
others that —
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial
xxx xxx xxx court. Petitioner filed a motion for reconsideration which was denied by the said
court in its Resolution dated June 7, 1973. Hence, the instant appeal, petitioner
xxx xxx xxx
presenting the lone issue of whether or not the right of plaintiff (respondent herein)
xxx xxx xxx to file a judicial action for the collection of the amount of P15,443.55 as forest
charges and surcharges due from the petitioner Mambulao Lumber Company for the
It can be stated in this connection that sometime in the early part of year 1949 has already prescribed.
1949, the personnel of the local office of the Bureau of Forestry in Daet,
Camarines Norte, manifested under the name of the subject taxpayer Relying on the provisions of Section 332 of the National Internal Revenue Code
2,052.48 cubic meters of timber, with the corresponding forest charges which reads-
in the total amount of P15,443.65 including surcharges. The Bureau of
Section 332. Exemptions as to period of limitation of assessment and
Forestry then demanded for the payment of said forest charges on
collection of taxes —
January 15, 1949. However, the subject taxpayer, for one reason or the

Tax II Fulltext | 2nd set | Remedies | 24


xxx xxx xxx Where the taxpayer did not contest the deficiency income tax assessed
against him, the same became final and properly collectible by means of
(c) Where the assessment of any internal revenue tax has been made an ordinary court action. The taxpayer cannot dispute an assessment
within the period of limitation above prescribed such tax may be which is being enforced by judicial action, He should have disputed it
collected by distraint or levy or by a proceeding in court, but only if before it was brought to court. 11
begun (1) within five years after the assessment of the tax, or (2) prior
to the expiration of any period for collection agreed upon in writing by WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition
the Collector of Internal Revenue and the taxpayer before the expiration DISMISSED. No costs.
of such five-year period. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the SO ORDERED.
period previously agreed upon.
EN BANC
petitioner argues that counting from January 15, 1949 when the Bureau of Forestry
in Daet, Camarines Norte made an assessment and demand for payment of the G.R. No. L-13188 November 15, 1918
amount of P15,443.55 as forest charges and surcharges for the year 1949, up to the
filing of the complaint for collection before the lower court on August 25, 196 1, THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellant,
more than five (5) years had already elapsed, hence, the action had clearly vs.
prescribed. JAMES J. RAFFERTY, as Collector of Internal Revenue of the Philippine Islands,
defendant-appellant.
Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court
and the Court of Appeals in the appealed decision, the letter of demand of the Acting MALCOLM, J.:
Commissioner of Internal Revenue dated August 29, 1958 was the basis of
respondent's complaint filed in this case and not the demand letter of the Bureau of The important subject of tax liens is to be discussed on this appeal.
Forestry dated January 15, 1949. This must be so because forest charges are internal
revenue taxes 6 and the sole power and duty to collect the same is lodged with the FACTS
Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The computation
During the years 1912-1915 inclusive, Pujalte & Co., a general mercantile
and/or assessment of forest charges made by the Bureau of Forestry may or may not
partnership, was engaged in the business of lumbering in Mindanao. The company
be adopted by the Commissioner of Internal Revenue and such computation made
removed from the forest and milled at its say mills during this period, a total of
by the Bureau of Forestry is not appealable to the Court of Tax Appeals. 8 Therefore,
6,087.54 cubic meters of timber. The forest charges amounted to P8,328.93. Upon
for the purpose of computing the five-year period within which to file a complaint
the execution of bonds in the aggregate sum of P2,000 to secure the payment of the
for collection, the demand or even the assessment made by the Bureau of Forestry is
forest charges due the government, the Collector of Internal Revenue permitted
immaterial.
Pujalte & Co. to remove this timber from the public forests for shipment by sea on
In the case at bar, the commencement of the five-year period should be counted from saw mill invoices without prior payment of the forest charges. From the timber so
August 29, 1958, the date of the letter of demand of the Acting Commissioner of removed by Pujalte & Co., railroad ties were manufactured in its saw mills at Manila
Internal Revenue 9 to petitioner Mambulao Lumber Company. It is this demand or for the Manila Railroad Co. Six thousand three hundred and five railroad ties so
assessment that is appealable to the Court of Tax Appeals. The complaint for manufactured were rejected by the Manila Railroad Co.
collection was filed in the Court of First Instance of Manila on August 25, 1961, very
In February, 1915, the firm of Pujalte & Co. was indebted to the Hongkong and
much within the five-year period prescribed by Section 332 (c) of the Tax Code.
Shanghai Banking Corporation in a large sum of money. Being unable to pay its debt
Consequently, the right of the Commissioner of Internal Revenue to collect the forest
in specie, the company assigned to the bank, among other things, a large quantity of
charges and surcharges in the amount of P15,443.55 has not prescribed.
the railroad ties manufactured at its mills. The bank sold and disposed of these ties
Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a at various times until in May, 1916, there remained with it some 2,000 railroads ties
reinvestigation of its tax liability. In reply thereto, respondent in a letter dated July 8, of the lot acquired.
1959, gave petitioner a period of twenty (20) days from receipt thereof to submit the
The internal revenue charges on the forest products removed from the public forests
results of its verification of payments and failure to comply therewith would be
of Mindanao by Pujalte & Co. not having been paid, on May 2, 1916, the Collector of
construed as abandonment of the request for reinvestigation. Petitioner failed to
Internal Revenue caused delinquency proceedings to be commenced and had issued
comply with this requirement. Neither did it appeal to the Court of Tax Appeals
a distress warrant. Later, on May 15, 1916, the Collector of Internal Revenue caused
within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed
an additional distress levy to be made upon the 6,305 ties, which it will be
under Section 11 of Republic Act No. 1125, thus making the assessment final and
remembered, had been assigned by Pujalte & Co. to the Hongkong & Shanghai
executory.
Banking Corporation. Proceeding in accordance with this action, the Collector of
Taxpayer's failure to appeal to the Court of Tax Appeals in due time Internal Revenue seized the 2,000 ties in the possession of the bank. Until the date
made the assessment in question final, executory and demandable. And last mentioned, the bank had no notice of the tax.
when the action was instituted on September 2, 1958 to enforce the
Payment under protest, institution of complaint to recover back the sum paid,
deficiency assessment in question, it was already barred from disputing
answer by the Government, trial, and judgment followed in due course. In this
the correctness of the assessment or invoking any defense that would
judgment, handed down by the Honorable James A. Ostrand, it was declared that a
reopen the question of its tax liability. Otherwise, the period of thirty
lien for taxes existed on the 2,000 railroad ties levied upon by the Collector of
days for appeal to the Court of Tax Appeals would make little sense.
Internal Revenue and claimed as its property by the Hongkong & Shanghai Banking
In a proceeding like this the taxpayer's defenses are similar to those of Corporation, not for the full sum of P8,328.93 due as forest charges on the timber
the defendant in a case for the enforcement of a judgment by judicial removed from the forests of Mindanao by Pujalte & Co., but only for the sum of
action under Section 6 of Rule 39 of the Rules of Court. No inquiry can P316.43, which is the tax upon the timber used for the manufacture of the ties. The
be made therein as to the merits of the original case or the justness of court ordered the Collector of Internal Revenue to refund to the Hongkong and
the judgment relied upon, other than by evidence of want of jurisdiction, Shanghai Banking Corporation the sum of P8,012.50, with interest at 6 per cent per
of collusion between the parties, or of fraud in the party offering the annum from February 1, 1917. No costs were allowed. Following timely motions for
record with respect to the proceedings. As held by this Court in Insular a new trial, denial, and exceptions thereto, both parties have appealed.
Government vs. Nico the taxpayer may raise only the questions whether
This brings us to a statement of the
or not the Collector of Internal Revenue had jurisdiction to do the
particular act, and whether any fraud was committed in the doing of the L A W.
act. In that case, Doroteo Nico was fined by the Collector of Internal
Revenue for violation of sub-paragraphs (d), (e) and (g) of Section 28 as Among the sources of taxes, fees; and charges, in the nature of internal revenue
well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the taxes, the Internal Revenue Law enumerates charges for forest products. (Sec. 21 ( f
same Act, the taxpayer was given the right to appeal from the decision of ), Act 2339, now sec. 1438 ( f ), Administrative Code of 1917.) The Internal Revenue
the Collector of Internal Revenue to the Court of First Instance within a Law of 1914 also contains the following provisions relative to the nature and extent
period of ten days from notice of imposition of the fine. Nico did not of tax liens:
appeal, neither did he pay the fine. Pursuant to Section 33 of the Act, the
Collector of Internal Revenue filed an action in the Court of First Every internal-revenue tax on property or on any business or
Instance to enforce his decision and collect the fine. The decision of the occupation and every tax on resources and receipts, and any increment
Collector of Internal Revenue having become final, this Court, on appeal, to any of them incident to delinquency, shall constitute a lien superior to
allowed no further inquiry into the merits of the same. 10 all other charges or liens not only on the property itself upon which
such tax may be imposed but also upon the property used in any
In a suit for collection of internal revenue taxes, as in this case, where the business or occupation upon which the tax is imposed and upon all
assessment has already become final and executory, the action to collect is akin to an property rights therein.
action to enforce a judgment. No inquiry can be made therein as to the merits of the
original case or the justness of the judgment relied upon. Petitioner is thus already The lien of the tax on inheritances, legacies and other acquisitions
precluded from raising the defense of prescription. mortis causa shall have preference over any real right created thereon
subsequent to the death of the predecessor, but this preference will be

Tax II Fulltext | 2nd set | Remedies | 25


extinguished at the end of five years from the date when the tax The authorities relied upon by the Government will be found on examination to
becomes payable upon real property, and three years upon any other concern real estate taxation.
kind of property. (Sec. 149, Act No. 2339, now section 1588,
Administrative Code of 1917.) Internal revenue laws are to be construed fairly for the government and justly for
the citizen. They should receive a liberal construction to carry out the purposes of
The succeeding section of the same law authorizes two civil remedies for the their enactment; they should not receive so loose a construction as to permit
collection of internal revenue taxes: (a) by distraint of personal property and upon evasions on merely fanciful and insubstantial distinctions. "The internal revenue
exhaustion thereof by levy upon real property, and (b) by legal action. (Sec. 150, Act laws cannot be so construed as to extend their meaning beyond the clear import of
No. 2339, now section 1589, Administrative Code of 1917.) Relative to the first the words used." (U. S. vs. Watts [1865], Fed. Cas. No. 16653. See also U. S. vs. Hodson
remedy by distraint of personal property, the same law in section 151 provides: [1870], 10 Wall., 395; U. S. vs. Kallstrom [1887], 30 Fed., 184; Hubbard vs. Brainard
[1869], Conn., 563, and Munñ oz & Co. vs. Hord [1909], 12 Phil., 624.)
The remedy by distraint shall proceed as follows: Upon the failure of the
person owing any delinquent tax or delinquent revenue to pay the same, With such general principles in mind, we should first ascertain the legislative
at the time required, the Collector of Internal Revenue or his deputy may intention. One detail indicative of such intent is noted in the more limited scope of
seize and distrain any personal property belonging to such person or the law pertaining to liens for internal revenue taxes as contrasted with the law
any property subject to the tax lien, in sufficient quantity to satisfy the pertaining to liens for real estate taxes. The municipal law in part provides that liens
tax, or charge, together with any increment thereto incident to for real property taxes "shall be enforceable against the property whether in the
delinquency, and the expenses of the distraint. (Now section 1590, possession of the delinquent or any subsequent owner." (Now section 364,
Administrative Code of 1917.) Administrative Code of 1917.) No mention of the subsequent owner is found in the
Internal Revenue Law. Nor does this law provide that the lien shall not be divested
One fact stands out prominently on examination of these provisions of the Internal by alienation.
Revenue Law — the internal revenue tax constitutes a paramount lien either on the
property upon which the tax is imposed or on any other property used in any Again, we can very well look to the policy of the law in respect to liens. Liens, it has
business or occupation upon which the tax is imposed. The government has here well been said, are of too sacred character to be impaired by vague and uncertain
chosen to levy on the property itself — in the hands of a purchaser for implications. The lien which the law favors is the specific or particular lien and not
value.lawphil.net the general lien. However, the policy of the law is against upholding secret liens and
charges against the property of innocent purchasers or encumbrances for value.
This brings us to a statement of the (See Palmer vs. Howard [1887], 72 Cal., 293; 17 R. C. L., 599.)

I S S U E S. Keeping the foregoing statement of facts, issues, and law before us, the present case
offers no serious difficulty. The plaintiff was not of course personally liable for any
Does the lien follow the property subject to the tax into the hands of a third party part of the internal revenue taxes due the Government from Pujalte & Co. On the
when at the time of transfer, no demand for payment had been made and when the date the railroad ties were transferred from Pujalte & Co. to the Hongkong &
purchaser had no notice of the existence of the lien? Counsel for plaintiff argues that Shanghai Banking Corporation no demand for payment of the tax had been made.
it does not. Or, does the lien follow the property subject to the tax even though The bonds in favor of the Government were still presumably subsisting. No demand
transferred to a third party who had no notice of the existence of the lien so as to in fact was made until over a year later when distraint proceedings were initiated.
make this property respond for the specific unpaid internal revenue taxes due on it? When the Hongkong & Shanghai Banking Corporation purchased and acquired these
The trial court so found. Or, does the lien follow the property subject to the tax even 2,000 ties in February, 1915, there was nothing to show that Pujalte & Co. were
though transferred to a third party who had no notice of the existence of the lien so delinquent tax payers. No public record could be consulted to protect the purchaser
as to make this property respondent for all the unpaid internal revenue taxes due from loss by reason of the existence of a secret lien. A businessman of ordinary
from the vendor? The government so opines. prudence could not be expected to foresee that the personal property which he had
taken in satisfaction of a debt was burdened by a tax. On this date, because no
This brings us to a statement of the following demand had been made and because the plaintiff had no notice of the tax, there was
no valid subsisting lien upon the ties.
O P I N I O N.
2. Minor Issue; Interest upon Judgments to Recover Taxes. — Plaintiff-appellant in
1. Major Issue; Tax Liens. — Taxation is an attribute of sovereignty. The power to tax
assignment of error No. 4 also claims interest upon the amount of the judgment
is the strongest of all the powers of government. If approximate equality in taxation
from the 3d day of June, 1916, in place and instead of allowing interest thereon from
is to be attained, all property subject to a tax must respond, or there is resultant
the first day of February, 1917. The first date is that of the illegal exaction; the
inequality. Under the most favorable circumstances, an enormous amount of
second date is that of the commencement of the action. Interest should be allowed
property escapes taxation altogether. To prevent such a lamentable situation, the law
from the day when the taxpayer lost the income from the funds by payment under
ordains that the claim of the State upon the property of the tax debtor shall be
protest, or not at all. (Viuda e Hijos De Pedro P. Roxas vs. Rafferty [1918], 37 Phil.,
superior to that of any other creditor.
957; H. E. Heacock Co. vs. Collector of Customs [1918], 37 Phil., 970.)
A lien in its modern-acceptation is understood to denote a legal claim or charge on
On the other hand, the second assignment of error of the defendant-appellant is to
property, either real or personal, as security for the payment of some debt or
the effect that no interest at all should have been allowed by the trial court because
obligation. Its meaning is more extensive than the jus retentionis (derecho de
of section 1579 of the present Administrative Code. Plaintiff-appellant in answer
retencion) of the civil law. (2 Giorgi, Teoria de las Obligaciones, 419; Ames vs. Dyer, 41
challenges the validity of this section.
Me., 397.) Unless the statute is otherwise, the rule is that a valid lien created on real
or personal estate is enforceable against property in the hands of any person, other Section 1579 of the Administrative Code of 1917 in part authorizes the taxpayer
than a bona fide purchaser for value without notice, who subsequently acquires the who has paid an internal revenue tax under protest, at any time within two years
estate. (25 Cyc., 680, citing cases.) after the payment of the tax, "to bring an action against the Collector of Internal
Revenue for the recovery without interest of the sum alleged to have been illegally
The general rule of the Civil Law may be different. Possession of movables is not
collected." As this provision was enacted by the Philippine Legislature subsequent to
necessary to the validity of a lien, whether created by contract or by act of law. Such
the institution of the present action in the lower court, and subsequent to the
lien will attach upon movable property, even in the hands of a bona fide purchaser
judgment therein rendered, we do not feel that the law should be given a retroactive
without notice. (Tatham vs. Andree [1863], 1 Moore, P.C. [N. S.], 386; The Bold
effect. Whether section 1579 of the Administrative Code is valid or not is left for
Buccleugh [1850], 7 Moore, P.C., 267.)
decision when a case arises after the Code became effective. In this instance, we
The law of taxation establishes principles which generally, although not exactly, allow interest at the legal rate from the date of payment.
conform to the law of liens. The tax lien does not establish itself upon property
3. Minor Issue; Costs against the Government. — Plaintiff-appellant further claims
which has been transferred to an innocent purchaser prior to demand. In a decision
that the trial court erred in declining to allow the recovery of costs.
relating to the United States Internal Revenue Law, Mr. Justice Miller held that a
demand is necessary to create and bring the lien into operation. (U. S. vs. Pacific The right to recover costs is governed by statute. In the United States, the rule is that
Railroad Co. [1877], Fed. Cas. No. 15,984; U. S. vs. Pacific Railroad Co. [1880], 1 Fed., unless expressly authorized by statute, a judgment for costs, either in a civil or
97.) Where a statute makes taxes on personal property a lien thereon, a purchaser of criminal case, cannot be rendered against the United States or a State. The principle
such property takes the same free from any lien for taxes if the title passes before is that the sovereign power is not amenable to judgments for damages or costs
such a lien attaches by levy, distraint, or otherwise. (Shelby vs. Tiddy [1896], 118 N. without its consent. (U. S. vs. Barker [1817], 2 Wheat., 395; Stanley vs. Schwalby
C., 792.) [1896], 162 U. S., 255; State vs. Williams [1905], 101 Md., 529; 4 A. & E. Ann. Cas.,
970; Deneen vs. Unverzagt [1907], 225 Ill., 378; 8 A. & E. Ann. Cas., 396 and note;
In order that the lien may follow the property into the hands of a third party, it is
Townsend's Succession [1888], 40 La. Ann., 66.)
further essential that the latter should have notice, either actual or constructive. The
reason is the benevolence of our Constitution which prohibits the taking of property The Code of Civil Procedure of the Philippine Islands provides that costs shall
without due process of law. In the case of real estate or special assessment taxation a ordinarily follow the result of the suit. They are to be recovered by "the prevailing
man cannot get rid of his liability to a tax by buying without notice. (City of Seattle party." (Code of Civil Procedure, chapter 21.) In the ordinary case between private
vs. Kelleher [1904], 195 U. S., 351.) The rule, however, is different where the vendee individuals or entities, or where the government is successful, no particular
has no knowledge of the taxes on personality existing at the time, or had no means difficulty is experienced applying the Code provisions. The practice has, however,
of knowing from the public records that such taxes had accrued. been not to allow costs in cases in which the Government of the Philippine Islands or
a nominal representative of the Government is the unsuccessful party. And this is

Tax II Fulltext | 2nd set | Remedies | 26


right — for the Government of the Philippine Islands is sovereign in the sense that a employee under a written or unwritten contract of
State of the American Union or Porto Rico is sovereign, and this paramount power employment for work done or to be done, or for services
has not by statute permitted itself to be taxed with costs. rendered or to be rendered, and includes the fair and
reasonable value, as determined by the Secretary of Labor,
No costs should be allowed plaintiff in either instance. of board, lodging, or other facilities customarily furnished
by the employer to the employee. 'Fair and reasonable value'
This brings us to a statement of the shall not include any profit to the employer or to any person
affiliated with the employer.(emphasis supplied)
J U D G M E N T.
We are unable to subscribe to the view urged by the Solicitor General. We note, in
Judgment is reversed and the plaintiff shall have and recover from defendant the full this connection, that in Philippine Commercial and Industrial Bank (PCIB) us.
amount sued for, P8,328.93, with interest at the legal rate from June 3, 1916, until National Mines and Allied Workers Union, 4 the Solicitor General took a different view
paid, and without costs in either instance. So ordered. and there urged that the term "wages" under Article 110 of the Labor Code may be
regarded as embracing within its scope severance pay or termination or separation
EN BANC pay. In PCIB, this Court agreed with the position advanced by the Solicitor General.5
We see no reason for overturning this particular position. We continue to believe
G.R. No. L-56568 May 20, 1987 that, for the specific purposes of Article 110 and in the context of insolvency
termination or separation pay is reasonably regarded as forming part of the
REPUBLIC OF THE PHILIPPINES, represented by the Bureau of Customs and
remuneration or other money benefits accruing to employees or workers by reason
the Bureau of Internal Revenue, petitioner,
of their having previously rendered services to their employer; as such, they fall
vs.
within the scope of "remuneration or earnings — for services rendered or to be
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF THE COURT OF FIRST
rendered — ." Liability for separation pay might indeed have the effect of a penalty,
INSTANCE OF MANILA, BRANCH XVII, QUALITY TABACCO CORPORATION,
so far as the employer is concerned. So far as concerns the employees, however,
FRANCISCO, FEDERACION OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS
separation pay is additional remuneration to which they become entitled because,
TRABAJADORES DE FILIPINAS (FOITAF) USTC EMPLOYEES ASSOCIATION
having previously rendered services, they are separated from the employer's service.
WORKERS UNION-PTGWO, respondents.
The relationship between separation pay and services rendered is underscored by
FELICIANO, J.: the fact that separation pay is measured by the amount (i.e., length) of the services
rendered. This construction is sustained both by the specific terms of Article 110
The Republic of the Philippines seeks the review on certiorari of the Order dated 17 and by the major purposes and basic policy embodied in the Labor Code. 6 It is also
November 1980 of the Court of First Instance of Manila in its Civil Case No. 108395 the construction that is suggested by Article 4 of the Labor Code which directs that
entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation, doubts — assuming that any substantial rather than merely frivolous doubts
Quality Tobacco Corporation, Petitioner," and of the Order dated 19 January 1981 of remain-in the interpretation of the provisions of the labor Code and its
the same court denying the motion for reconsideration of the earlier Order filed by implementing rules and regulations shall be "resolved in favor of labor."
the Bureau of Internal Revenue and the Bureau of Customs for the Republic.
The resolution of the issue of priority among the several claims filed in the
In the voluntary insolvency proceedings commenced in May 1977 by private insolvency proceedings instituted by the Insolvent cannot, however, rest on a
respondent Quality Tobacco Corporation (the "Insolvent"), the following claims of reading of Article 110 of the labor Code alone.
creditors were filed:
Article 110 of the Labor Code, in determining the reach of its terms, cannot be
(i) P2,806,729.92, by the USTC Association of Employees and workers Union- viewed in isolation. Rather, Article 110 must be read in relation to the provisions of
PTGWO USTC as separation pay for their members. This amount plus an additional the Civil Code concerning the classification, concurrence and preference of credits,
sum of P280,672.99 as attorney's fees had been awarded by the National Labor which provisions find particular application in insolvency proceedings where the
Relations Commission in NLRC Case No. RB-IV-9775-77. 1 claims of all creditors, preferred or non-preferred, may be adjudicated in a binding
manner. 7 It is thus important to begin by outlining the scheme constituted by the
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de provisions of the Civil Code on this subject.
Filipinas ("FOITAF), as separation pay for their members, an amount similarly
awarded by the NLRC in the same NLRC Case. Those provisions may be seen to classify credits against a particular insolvent into
three general categories, namely:
(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees
covering the period 1 October 1967 to 28 February 1973; (a) special preferred credits listed in Articles 2241 and
2242,
(iv) P276,161.00 by the Bureau of Customs for customs duties and taxes payable on
various importations by the Insolvent. These obligations appear to be secured by (b) ordinary preferred credits listed in Article 2244; and
surety bonds. 2 Some of these imported items are apparently still in customs
custody so far as the record before this Court goes. (c) common credits under Article 2245.

In its questioned Order of 17 November 1980, the trial court held that the above- Turning first to special preferred credits under Articles 2241 and 2242, it should be
enumerated claims of USTC and FOITAF (hereafter collectively referred to as the noted at once that these credits constitute liens or encumbrances on the specific
"Unions") for separation pay of their respective members embodied in final awards movable or immovable property to which they relate. Article 2243 makes clear that
of the National Labor Relations Commission were to be preferred over the claims of these credits "shall be considered as mortgages or pledges of real or personal
the Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so property, or liens within the purview of legal provisions governing insolvency." It
ruling, relied primarily upon Article 110 of the Labor Code which reads thus: should be emphasized in this connection that "duties, taxes and fees due [on specific
movable property of the insolvent] to the State or any subdivision thereof" (Article
Article 110. Worker preference in case of bankruptcy — In 2241 [1]) and "taxes due upon the [insolvent's] land or building (2242 [1])"stand
the event of bankruptcy or liquidation of an employer's first in preference in respect of the particular movable or immovable property to
business, his workers shall enjoy first preference as regards which the tax liens have attached. Article 2243 is quite explicit: "[T]axes mentioned
wages due them for services rendered during the period in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied. " The
prior to the bankruptcy or liquidation, any provision of law claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles
to the contrary notwithstanding. Union paid wages shall be 2242, all come after taxes in order of precedence; such claims enjoy their privileged
paid in full before other creditors may establish any claim to character as liens and may be paid only to the extent that taxes have been paid from
a share in the assets of the employer. the proceeds of the specific property involved (or from any other sources) and only
in respect of the remaining balance of such proceeds. What is more, these other
The Solicitor General, in seeking the reversal of the questioned Orders, argues that (non-tax) credits, although constituting liens attaching to particular property, are
Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which not preferred one over another inter se. Provided tax liens shall have been satisfied,
he asserts does not include the separation pay claimed by the Unions. "Separation non-tax liens or special preferred credits which subsist in respect of specific
pay," the Solicitor General contends, movable or immovable property are to be treated on an equal basis and to be
satisfied concurrently and proportionately. 8 Put succintly, Articles 2241 and 2242
is given to a laborer for a separation from employment computed on the basis of the jointly with Articles 2246 to 2249 establish a two-tier order of preference. The first
number of years the laborer was employed by the employer; it is a form of penalty or tier includes only taxes, duties and fees due on specific movable or immovable
damage against the employer in favor of the employee for the latter's dismissal or property. All other special preferred credits stand on the same second tier to be
separation from service. 3 satisfied, pari passu and pro rata, out of any residual value of the specific property to
which such other credits relate.
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Credits which are specially preferred because they constitute liens (tax or non-tax)
Wage' paid to any employee shall mean the remuneration or in turn, take precedence over ordinary preferred credits so far as concerns the
earnings, however designated, capable of being expressed in property to which the liens have attached. The specially preferred credits must be
terms of money, whether fixed or ascertained on a time, discharged first out of the proceeds of the property to which they relate, before
task, piece, or commission basis, or other method of ordinary preferred creditors may lay claim to any part of such proceeds. 9
calculating the same, which is payable by an employer to an

Tax II Fulltext | 2nd set | Remedies | 27


If the value of the specific property involved is greater than the sum total of the tax not in the limited sense [of burdens imposed upon persons
liens and other specially preferred credits, the residual value will form part of the and/or properties, by way of contributions to the support of
"free property" of the insolvent — i.e., property not impressed with liens by the Government, in consideration of general benefits
operation of Articles 2241 and 2242. If, on the other hand, the value of the specific derived from its operation], but, in a broad sense,
movable or immovable is less than the aggregate of the tax liens and other specially encompassing all government revenues collectible by the
preferred credits, the unsatisfied balance of the tax liens and other such credits are Commissioner of Internal Revenue under said Code,
to the treated as ordinary credits under Article 2244 and to be paid in the order of whether involving taxes, in the strict technical sense thereof,
preference there set up. 10 or not. x x x As used in Title IX of said Code, the term 'tax'
includes 'any national internal revenue tax, fee or charge
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on imposed by the Code. 17
determinate property which follow such property. What Article 2244 creates are
simply rights in favor of certain creditors to have the cash and other assets of the It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco
insolvent applied in a certain sequence or order of priority. 11 inspection fees constitutes a claim for unpaid internal revenue taxes 18 which gives
rise to a tax lien upon all the properties and assets, movable and immovable, of the
Only in respect of the insolvent's "free property" is an order of priority established Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249
by Article 2244. In this sequence, certain taxes and assessments also figure but these of the Civil Code, this tax claim must be given preference over any other claim of any
do not have the same kind of overriding preference that Articles 2241 No. 1 and other creditor, in respect of any and all properties of the Insolvent. 19
2242 No. I create for taxes which constituted liens on the taxpayer's property. Under
Article 2244, C. Claims of the Unions for Separation Pay of Their Members —

(a) taxes and assessments due to the national government, Article 110 of the Labor Code does not purport to create a lien in favor of workers or
excluding those which result in tax liens under Articles 2241 employees for unpaid wages either upon all of the properties or upon any particular
No. 1 and 2242 No. 1 but including the balance thereof not property owned by their employer. Claims for unpaid wages do not therefore fall at
satisfied out of the movable or immovable property to all within the category of specially preferred claims established under Articles 2241
which such liens attached, are ninth in priority; and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are
already covered by Article 2241, number 6. "claims for laborers' wages, on the goods
(b) taxes and assessments due any province, excluding those manufactured or the work done;" or by Article 2242, number 3: "claims of laborers
impressed as tax liens under Articles 2241 No. 1 and 2242 and other workers engaged in the construction, reconstruction or repair of
No. 1, but including the balance thereof not satisfied out of buildings, canals and other works, upon said buildings, canals or other works." To
the movable or immovable property to which such liens the extent that claims for unpaid wages fall outside the scope of Article 2241,
attached, are tenth in priority; and number 6 and 2242, number 3, they would come within the ambit of the category of
ordinary preferred credits under Article 2244.
(c) taxes and assessments due any city or municipality,
excluding those impressed as tax liens under Articles 2241 Applying Article 2241, number 6 to the instant case, the claims of the Unions for
No. I and 2242 No. 2 but including the balance thereof not separation pay of their members constitute liens attaching to the processed leaf
satisfied out of the movable or immovable property to tobacco, cigars and cigarettes and other products produced or manufactured by the
which such liens attached, are eleventh in priority. Insolvent, but not to other assets owned by the Insolvent. And even in respect of
such tobacco and tobacco products produced by the Insolvent, the claims of the
It is within the framework of the foregoing rules of the Civil Code that the question Unions may be given effect only after the Bureau of Internal Revenue's claim for
of the relative priority of the claims of the Bureau of Customs and the Bureau of unpaid tobacco inspection fees shall have been satisfied out of the products so
Internal Revenue, on the one hand, and of the claims of the Unions for separation manufactured by the Insolvent.
pay of their members, on the other hand, is to be resolved. A related vital issue is
what impact Article 110 of the labor Code has had on those provisions of the Civil Article 2242, number 3, also creates a lien or encumbrance upon a building or other
Code. real property of the Insolvent in favor of workmen who constructed or repaired such
building or other real property. Article 2242, number 3, does not however appear
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes- relevant in the instant case, since the members of the Unions to whom separation
pay is due rendered services to the Insolvent not (so far as the record of this case
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The
for duties, taxes and fees and other charges attaching on importation constitute a
Unions' claims do not therefore constitute a lien or encumbrance upon any
personal debt due from the importer to the government which can be discharged
immovable property owned by the Insolvent, but rather, as already indicated, upon
only by payment in full of all duties, taxes, fees and other charges legally accruing It
the Insolvent's existing inventory (if any of processed tobacco and tobacco products.
also constitutes a lien upon the articles imported which may be enforced while such
articles are in the custody or subject to the control of the government. (emphasis We come to the question of what impact Article 110 of the Labor Code has had upon
supplied) the complete scheme of classification, concurrence and preference of credits in
insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes
Labor Code did not sweep away the overriding preference accorded under the
enjoys the status of a specially preferred credit under Article 2241, No. 1, of the Civil
scheme of the Civil Code to tax claims of the government or any subdivision thereof
Code. only in respect of the articles importation of which by the Insolvent resulted in
which constitute a lien upon properties of the Insolvent. It is frequently said that
the assessment of the unpaid taxes and duties, and which are still in the custody or
taxes are the very lifeblood of government. The effective collection of taxes is a task
subject to the control of the Bureau of Customs. The goods imported on one occasion
of highest importance for the sovereign. It is critical indeed for its own survival. It
are not subject to a lien for customs duties and taxes assessed upon other
follows that language of a much higher degree of specificity than that exhibited in
importations though also effected by the Insolvent. Customs duties and taxes which
Article 110 of the Labor Code is necessary to set aside the intent and purpose of the
remain unsatisfied after levy upon the imported articles on which such duties and
legislator that shines through the precisely crafted provisions of the Civil Code. It
taxes are due, would have to be paid out of the Insolvent's "free property" in
cannot be assumed simpliciter that the legislative authority, by using in Article 110
accordance with the order of preference embodied in Article 2244 of the Civil Code.
the words "first preference" and "any provision of law to the contrary
Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of
notwithstanding" intended to disrupt the elaborate and symmetrical structure set
the Civil Code and hence would be ninth in priority.
up in the Civil Code. Neither can it be assumed casually that Article 110 intended to
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees — subsume the sovereign itself within the term "other creditors" in stating that
"unpaid wages shall be paid in full before other creditors may establish any claim to
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later a share in the assets of employer." Insistent considerations of public policy prevent
reenacted in Identical terms as Section 301 of the Tax Code of 1977, 14 an unpaid us from giving to "other creditors" a linguistically unlimited scope that would
"internal revenue tax," together with related interest, penalties and costs, constitutes embrace the universe of creditors save only unpaid employees.
a lien in favor of the Government from the time an assessment therefor is made and
until paid, "upon all property and rights to property belonging to the taxpayer." We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given to
Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes taxes, duties and fees by the Civil Code and the fact that the Labor Code does not
imposed under the National Internal Revenue Code, specifically Title VIII, Chapter IX impress any lien on the property of an employer, the use of the phrase "first
of the old Tax Code and little VIII, Chapter VII of the Tax Code of 1977. 15 Tobacco preference" in Article 110 indicates that what Article 110 intended to modify is the
inspection fees are collected both for purposes of regulation and control and for order of preference found in Article 2244, which order relates, as we have seen, to
purposes of revenue generation: half of the said fees accrues to the Tobacco property of the Insolvent that is not burdened with the liens or encumbrances
Inspection Fund created by Section 12 of Act No. 2613, as amended by Act No. 3179, created or recognized by Articles 2241 and 2242. We have noted that Article 2244,
while the other half accrues to the Cultural Center of the Philippines. Tobacco number 2, establishes second priority for claims for wages for services rendered by
inspection fees, in other words, are imposed both as a regulatory measure and as a employees or laborers of the Insolvent "for one year preceding the commencement
revenue-raising measure. In Commissioner of Internal Revenue us. Guerrero, et al 16 of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
this Court held, through Mr. Chief Justice Concepcion, that the term "tax" is used in preference" for services rendered "during the period prior to the bankruptcy or
Section 315 of the old Tax Code: liquidation, " a period not limited to the year immediately prior to the bankruptcy or
liquidation. Thus, very substantial effect may be given to the provisions of Article

Tax II Fulltext | 2nd set | Remedies | 28


110 without grievously distorting the framework established in the Civil Code by Manuel B. Pineda, who received the assessment, contested the same. Subsequently,
holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244 he appealed to the Court of Tax Appeals alleging that he was appealing "only that
of the Civil Code in two respects: (a) firstly, by removing the one year limitation found proportionate part or portion pertaining to him as one of the heirs."
in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid wages
of laborers or workers of the Insolvent from second priority to first priority in the After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
order of preference established I by Article 2244. decision of the Commissioner on the ground that his right to assess and collect the
tax has prescribed. The Commissioner appealed and this Court affirmed the findings
Accordingly, and by way of recapitulating the application of Civil Code and Labor of the Tax Court in respect to the assessment for income tax for the year 1947 but
Code provisions to the facts herein, the trial court should inventory the properties of held that the right to assess and collect the taxes for 1945 and 1946 has not
the Insolvent so as to determine specifically: (a) whether the assets of the Insolvent prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
before the trial court includes stocks of processed or manufactured tobacco assessments for both taxable years were made within five years therefrom or on
products; and (b) whether the Bureau of Customs still has in its custody or control October 19, 1953; and the action to collect the tax was filed within five years from
articles imported by the Insolvent and subject to the lien of the government for the latter date, on August 7, 1957. For taxable year 1947, however, the return was
unpaid customs duties and taxes. filed on March 1, 1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to assess income tax
In respect of (a), if the Insolvent has inventories of processed or manufactured for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for
tobacco products, such inventories must be subjected firstly to the claim of the further appropriate proceedings.1
Bureau of Internal Revenue for unpaid tobacco inspection fees. The remaining value
of such inventories after satisfaction of such fees (or should such inspection fees be In the Tax Court, the parties submitted the case for decision without additional
satisfied out of other properties of the Insolvent) will be subject to a lien in favor of evidence.
the Unions by virtue of Article 2241, number 6. In case, upon the other hand, the
Insolvent no longer has any inventory of processed or manufactured product, then On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel
the claim of the Unions for separation pay would have to be satisfied out of the "free B. Pineda liable for the payment corresponding to his share of the following taxes:
property" of the Insolvent under Article 2244 of the Civil Code. as modified by
Article 110 of the Labor Code. Deficiency income tax

Turning to (b), should the Bureau of Customs no longer have any importations by
1945 P135.83
the Insolvent still within customs custody or control, or should the importations still
held by the Bureau of Customs be or have become insufficient in value for the 1946 436.95
purpose, customs duties and taxes remaining unpaid would have only ninth priority Real estate dealer's fixed tax 4th
by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free quarter of 1946 and whole year of
property, " the claims of the Unions will enjoy first priority under Article 2244 as 1947 P187.50
modified and will be paid ahead of the claims of the Bureau of Customs for any
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
customs duties and taxes still remaining unsatisfied.
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be
It is understood that the claims of the Unions referred to above do not include the due from the estate in the total amount of P760.28 instead of only for the amount of
10% claim for attorney's fees. Attorney's fees incurred by the Unions do not stand taxes corresponding to his share in the estate.1awphîl.nèt
on the same footing as the Unions' claims for separation pay of their members.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable
WHEREFORE, the petition for review is granted and the Orders dated 17 November for unpaid income tax due the estate only up to the extent of and in proportion to
1980 and 19 January 1981 of the trial court are modified accordingly. This case is any share he received. He relies on Government of the Philippine Islands v.
hereby remanded to the trial court for further proceedings in insolvency compatible Pamintuan2 where We held that "after the partition of an estate, heirs and
with the rulings set forth above. No pronouncement as to costs. distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have
SO ORDERED. respectively received from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of
EN BANC
the taxes assessed.
G.R. No. L-22734 September 15, 1967
Pineda is liable for the assessment as an heir and as a holder-transferee of property
COMMISSIONER OF INTERNAL REVENUE, petitioner, belonging to the estate/taxpayer. As an heir he is individually answerable for the
vs. part of the tax proportionate to the share he received from the inheritance. 3 His
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, liability, however, cannot exceed the amount of his share. 4
respondent.
As a holder of property belonging to the estate, Pineda is liable for he tax up to the
BENGZON, J.P., J.: amount of the property in his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as his share in the inheritance,
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and for unpaid income taxes4a for which said estate is liable, pursuant to the last
15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings paragraph of Section 315 of the Tax Code, which we quote hereunder:
were had in the Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. The estate was divided among and If any person, corporation, partnership, joint-account (cuenta en
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. participacion), association, or insurance company liable to pay the
Pineda's share amounted to about P2,500.00. income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines
After the estate proceedings were closed, the Bureau of Internal Revenue from the time when the assessment was made by the Commissioner of
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and Internal Revenue until paid with interest, penalties, and costs that may
1948 and it found that the corresponding income tax returns were not filed. accrue in addition thereto upon all property and rights to property
Thereupon, the representative of the Collector of Internal Revenue filed said returns belonging to the taxpayer: . . .
for the estate on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following: By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the
1. Deficiency income tax sum of P760.28. After such payment, Pineda will have a right of contribution from
his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
1945 P135.83
distributable estate.
1946 436.95
1947 1,206.91 P1,779.69 All told, the Government has two ways of collecting the tax in question. One, by going
Add: 5% surcharge 88.98 after all the heirs and collecting from each one of them the amount of the tax
1% monthly interest from November 30, 1953 proportionate to the inheritance received. This remedy was adopted in Government
to April 15, 1957 720.77 of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action rests on the
Compromise for late filing 80.00
concept that hereditary property consists only of that part which remains after the
Compromise for late payment 40.00 settlement of all lawful claims against the estate, for the settlement of which the
entire estate is first liable.6 The reason why in case suit is filed against all the heirs
Total amount due P2,707.44 the tax due from the estate is levied proportionately against them is to achieve
=========== thereby two results: first, payment of the tax; and second, adjustment of the shares
P14.50 of each heir in the distributed estate as lessened by the tax.
2. Additional residence tax for 1945
===========
3. Real Estate dealer's tax for the fourth quarter of 1946 P207.50 Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
and the whole year of 1947 =========== property and rights to property belonging to the taxpayer for unpaid income tax, is

Tax II Fulltext | 2nd set | Remedies | 29


by subjecting said property of the estate which is in the hands of an heir or 2. In the two transactions subject of your assessment, no documentary stamps were
transferee to the payment of the tax due, the estate. This second remedy is the very affixed because the buyer,
avenue the Government took in this case to collect the tax. The Bureau of Internal Central Bank of the Philippines, was exempt from such tax. And while it is true that
Revenue should be given, in instances like the case at bar, the necessary discretion to under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code
avail itself of the most expeditious way to collect the tax as may be envisioned in the "that whenever one party to a taxable document enjoys exemption from the tax
particular provision of the Tax Code above quoted, because taxes are the lifeblood of herein imposed, the other party thereto who is not exempt shall be the one directly
government and their prompt and certain availability is an imperious need. 7 And as liable for the tax," this proviso (and the other amendments of P.D. 1994) took effect
afore-stated in this case the suit seeks to achieve only one objective: payment of the only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the
tax. The adjustment of the respective shares due to the heirs from the inheritance, as documentary stamp tax could not be shifted to the seller.
lessened by the tax, is left to await the suit for contribution by the heir from whom
the Government recovered said tax. In view of the foregoing, we request that the assessment be revoked and cancelled.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby Very truly yours,
ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as
deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the PADILLA LAW OFFICE
fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered. By:

(signed)
SECOND DIVISION
SABINO PADILLA, JR. 5
G.R. No. 139736 October 17, 2005
Petitioner BPI did not receive any immediate reply to its protest letter. However, on
BANK OF THE PHILIPPINE ISLANDS, Petitioner, 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy 6 against
vs. petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount
COMMISSIONER OF INTERNAL REVENUE, Respondent.
of ₱27,720.00 (excluding the compromise penalty of ₱300.00). It served the Warrant
DECISION on petitioner BPI only on 23 October 1992.7

CHICO-NAZARIO, J.: Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when
its counsel received a letter, dated 13 August 1997, signed by then BIR
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Commissioner Liwayway Vinzons-Chato, denying its "request for reconsideration,"
Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, and addressing the points raised by petitioner BPI in its protest letter, dated 16
dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax November 1989, thus –
Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-
5-85-89-002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the In reply, please be informed that after a thorough and careful study of the facts of the
case as well as the law and jurisprudence pertinent thereto, this Office finds the
amount of ₱28,020.00 as deficiency documentary stamp tax (DST) for the taxable
above argument to be legally untenable. It is admitted that while industry practice or
year 1985, inclusive of the compromise penalty.
market convention has the force of law between the members of a particular
There is hardly any controversy as to the factual antecedents of this Petition. industry, it is not binding with the BIR since it is not a party thereto. The same
should, therefore, not be allowed to prejudice the Bureau of its lawful task of
Petitioner BPI is a commercial banking corporation organized and existing under collecting revenues necessary to defray the expenses of the government. (Art. 11 in
the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 relation to Art. 1306 of the New Civil Code.)
and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the
Philippines (Central Bank), for the total sales amount of US$1,000,000.00. Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173)
of the Tax Code, as amended, the same was already interpreted to hold that the other
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. party who is not exempt from the payment of documentary stamp tax liable from the
tax. This interpretation was further strengthened by the following BIR Rulings which
FAS-5-85-89-002054,3 finding petitioner BPI liable for deficiency D ST
on its in substance state:
afore-mentioned sales of foreign bills of exchange to the 1. BIR Unnumbered Ruling dated May 30, 1977 –
Central Bank, computed as follows –
"x x x Documentary stamp taxes are payable by either person, signing, issuing,
1985 Deficiency Documentary Stamp Tax accepting, or transferring the instrument, document or paper. It is now settled that
where one party to the instrument is exempt from said taxes, the other party who is
Foreign Bills of Exchange………………………….. P 18,480,000.00
not exempt should be liable."
Tax Due Thereon: 27,720.00
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC). 2. BIR Ruling No. 144-84 dated September 3, 1984 –
₱200.00
Add: Suggested compromise penalty………….…… 300.00 "x x x Thus, where one party to the contract is exempt from said tax, the other party,
TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00 who is not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction
Corporation, the other party to the contract and the one assuming the payment of
Petitioner BPI received the Assessment, together with the attached Assessment
the expenses incidental to the registration in the vendee’s name of the property sold,
Notice,4 on 20 October 1989.
is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977,
November 1989, and filed with the BIR on 17 November 1989. The said protest as amended."
letter is reproduced in full below –
Premised on all the foregoing considerations, your request for reconsideration is
November 16, 1989 hereby DENIED.8

The Commissioner of Internal Revenue Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file
a Petition for Review with the CTA on 10 October 1997;9 to which respondent BIR
Quezon City Commissioner, represented by the Office of the Solicitor General, filed an Answer on
08 December 1997.10
Attention of: Mr. Pedro C. Aguillon
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the
Asst. Commissioner for Collection arguments presented in its protest letter, dated 16 November 1989, the defense of
prescription of the right of respondent BIR Commissioner to enforce collection of
Sir: the assessed amount. It alleged that respondent BIR Commissioner only had three
years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven
On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to years and nine months to deny the protest. In her Answer and subsequent
protest your assessment against it for deficiency documentary stamp tax for the year Memorandum, respondent BIR Commissioner merely reiterated her position, as
1985 in the amount of ₱28,020.00, arising from its sale to the Central Bank of U.S. stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s
$500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985. protest; and remained silent as to the expiration of the prescriptive period for
collection of the assessed deficiency DST.
1. Under established market practice, the documentary stamp tax on telegraphic
transfers or sales of foreign exchange is paid by the buyer. Thus, when BPI sells to After due trial, the CTA rendered a Decision on 02 February 1999, in which it
any party, the cost of documentary stamp tax is added to the total price or charge to identified two primary issues in the controversy between petitioner BPI and
the buyer and the seller affixes the corresponding documentary stamp on the respondent BIR Commissioner: (1) whether or not the right of respondent BIR
document. Similarly, when the Central Bank sells foreign exchange to BPI, it charges Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable
BPI for the cost of the documentary stamp on the transaction.

Tax II Fulltext | 2nd set | Remedies | 30


year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on I
06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to
DST. The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-
002054 were already barred by prescription.
The CTA answered the first issue in the negative and held that the statute of
limitations for respondent BIR Commissioner to collect on the Assessment had not Anent the question of prescription, this Court disagrees in the Decisions of the CTA
yet prescribed. In resolving the issue of prescription, the CTA reasoned that – and the Court of Appeals, and herein determines the statute of limitations on
collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, prescribed.
Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid
to rest the first issue. It categorically ruled that a "protest" is to be treated as request The period for the BIR to assess and collect an internal revenue tax is limited to
for reinvestigation or reconsideration and a mere request for reexamination or three years by Section 203 of the Tax Code of 1977, as amended, 15 which provides
reinvestigation tolls the prescriptive period of the Commissioner to collect on an that –
assessment. . .
SEC. 203. Period of limitation upon assessment and collection. – Except as provided in
... the succeeding section, internal revenue taxes shall be assessed within three years
after the last day prescribed by law for the filing of the return, and no proceeding in
In the case at bar, there being no dispute that petitioner filed its protest on the court without assessment for the collection of such taxes shall be begun after the
subject assessment on November 17, 1989, there can be no conclusion other than expiration of such period: Provided, That in a case where a return is filed beyond the
that said protest stopped the running of the prescriptive period of the Commissioner period prescribed by law, the three-year period shall be counted from the day the
to collect. return was filed. For the purposes of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day. 16
Section 320 (now 223) of the Tax Code, clearly states that a request for
reinvestigation which is granted by the Commissioner, shall suspend the prescriptive The three-year period of limitations on the assessment and collection of national
period to collect. The underscored portion above does not mean that the internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can
Commissioner will cancel the subject assessment but should be construed as when be affected, adjusted, or suspended, in accordance with the following provisions of
the same was entertained by the Commissioner by not issuing any warrant of the same Code –
distraint or levy on the properties of the taxpayer or any action prejudicial to the
latter unless and until the request for reinvestigation is finally given due course. SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes.
Taking into consideration this provision of law and the aforementioned ruling of the – (a) In the case of a false or fraudulent return with intent to evade tax or of failure
Supreme Court in Wyeth Suaco which specifically and categorically states that a to file a return, the tax may be assessed, or a proceeding in court for the collection of
protest could be considered as a request for reinvestigation, We rule that such tax may be begun without assessment, at any time within ten years after the
prescription has not set in against the government. 11 discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
The CTA had likewise resolved the second issue in the negative. Referring to its own cognizance of in the civil or criminal action for the collection thereof.
decision in an earlier case, Consolidated Bank & Trust Co. v. The Commissioner of
Internal Revenue,12 the CTA reached the conclusion that the sales of foreign currency (b) If before the expiration of the time prescribed in the preceding section for the
by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST – assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time the tax may be assessed within the period
From the abovementioned decision of this Court, it can be gleaned that the Central agreed upon. The period so agreed upon may be extended by subsequent written
Bank, during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption agreement made before the expiration of the period previously agreed upon.
privilege, including the payment of documentary stamp tax (DST) pursuant to
Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As (c) Any internal revenue tax which has been assessed within the period of limitation
such, the Central Bank, as buyer of the foreign currency, is exempt from paying the above-prescribed may be collected by distraint or levy or by a proceeding in court
documentary stamp tax for the period above-mentioned. This Court further within three years following the assessment of the tax.
expounded that said tax exemption of the Central Bank was modified beginning
January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, (d) Any internal revenue tax which has been assessed within the period agreed upon
the liability for DST on sales of foreign currency to the Central Bank is shifted to the as provided in paragraph (b) hereinabove may be collected by distraint or levy or by
seller. a proceeding in court within the period agreed upon in writing before the expiration
of the three-year period. The period so agreed upon may be extended by subsequent
Applying the above decision to the case at bar, petitioner cannot be held liable for written agreements made before the expiration of the period previously agreed
DST on its 1985 sales of foreign currencies to the Central Bank, as the latter who is upon.
the purchaser of the subject currencies is the one liable thereof. However, since the
Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 (e) Provided, however, That nothing in the immediately preceding section and
of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor paragraph (a) hereof shall be construed to authorize the examination and
the Central Bank is liable for the payment of the documentary stamp tax for the investigation or inquiry into any tax returns filed in accordance with the provisions
former’s 1985 sales of foreign currencies to the latter. This aforecited case of of any tax amnesty law or decree.17
Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court
of Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision SEC. 224. Suspension of running of statute. – The running of the statute of limitation
was in turn affirmed by the Supreme Court in its resolution denying the petition provided in Section[s] 203 and 223 on the making of assessment and the beginning
filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under of distraint or levy or a proceeding in court for collection, in respect of any
Entry of Judgment dated March 1, 1996.13 deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a
In sum, the CTA decided that the statute of limitations for respondent BIR proceeding in court and for sixty days thereafter; when the taxpayer requests for a
Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet reinvestigation which is granted by the Commissioner; when the taxpayer cannot be
prescribed; nonetheless, it still ordered the cancellation of the said Assessment located in the address given by him in the return filed upon which a tax is being
because the sales of foreign currency by petitioner BPI to the Central Bank in taxable assessed or collected: Provided, That, if the taxpayer informs the Commissioner of
year 1985 were tax-exempt. any change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court his authorized representative, or a member of his household with sufficient
of Appeals. In its Decision dated 11 August 1999,14 the Court of Appeals sustained discretion, and no property could be located; and when the taxpayer is out of the
the finding of the CTA on the first issue, that the running of the prescriptive period Philippines.18
for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein
petitioner BPI filed a protest on 17 November 1989 and, therefore, the prescriptive As enunciated in these statutory provisions, the BIR has three years, counted from
period for collection on the Assessment had not yet lapsed. In the same Decision, the date of actual filing of the return or from the last date prescribed by law for the
however, the Court of Appeals reversed the CTA on the second issue and basically filing of such return, whichever comes later, to assess a national internal revenue tax
adopted the position of the respondent BIR Commissioner that the sales of foreign or to begin a court proceeding for the collection thereof without an assessment. In
currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to case of a false or fraudulent return with intent to evade tax or the failure to file any
DST. The Court of Appeals, thus, ordered the reinstatement of Assessment No. FAS-5- return at all, the prescriptive period for assessment of the tax due shall be 10 years
85-89-002054 which required petitioner BPI to pay the amount of ₱28,020.00 as from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly
deficiency DST for taxable year 1985, inclusive of the compromise penalty. issues an assessment, within either the three-year or ten-year period, whichever is
appropriate, then the BIR has another three years 19 after the assessment within
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, which to collect the national internal revenue tax due thereon by distraint, levy,
seeking resolution of the same two legal issues raised and discussed in the courts and/or court proceeding. The assessment of the tax is deemed made and the three-
below, to reiterate: (1) whether or not the right of respondent BIR Commissioner to year period for collection of the assessed tax begins to run on the date the
collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had assessment notice had been released, mailed or sent by the BIR to the taxpayer.20
prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985
and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST. In the present Petition, there is no controversy on the timeliness of the issuance of
the Assessment, only on the prescription of the period to collect the deficiency DST

Tax II Fulltext | 2nd set | Remedies | 31


following its Assessment. While Assessment No. FAS-5-85-89-002054 and its Section 223 of the Tax Code of 1977, as amended, respectively. Petitioner BPI, however,
corresponding Assessment Notice were both dated 10 October 1989 and were did not execute any such waiver in the case at bar.
received by petitioner BPI on 20 October 1989, there was no showing as to when the
said Assessment and Assessment Notice were released, mailed or sent by the BIR. According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
Still, it can be granted that the latest date the BIR could have released, mailed or sent amended, the prescriptive periods for assessment and collection of national internal
the Assessment and Assessment Notice to petitioner BPI was on the same date they revenue taxes, respectively, could be waived by agreement, to wit –
were received by the latter, on 20 October 1989. Counting the three-year
prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then the BIR SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes.
only had until 19 October 1992 within which to collect the assessed deficiency DST. –

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 ...
was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI.
Although the Warrant was issued on 15 October 1992, previous to the expiration of (b) If before the expiration of the time prescribed in the preceding section for the
the period for collection on 19 October 1992, the same was served on petitioner BPI assessment of the tax, both the Commissioner and the taxpayer have agreed in
only on 23 October 1992. writing to its assessment after such time the tax may be assessed within the period
agreed upon. The period so agreed upon may be extended by subsequent written
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the agreement made before the expiration of the period previously agreed upon.
Warrant of Distraint and/or Levy be fully executed so that it can suspend the
running of the statute of limitations on the collection of the tax. It is enough that the ...
proceedings have validly began or commenced and that their execution has not been
(d) Any internal revenue tax which has been assessed within the period agreed upon
suspended by reason of the voluntary desistance of the respondent BIR
as provided in paragraph (b) hereinabove may be collected by distraint or levy or by
Commissioner. Existing jurisprudence establishes that distraint and levy
a proceeding in court within the period agreed upon in writing before the expiration
proceedings are validly begun or commenced by the issuance of the Warrant and
of the three-year period. The period so agreed upon may be extended by subsequent
service thereof on the taxpayer. 22 It is only logical to require that the Warrant of
written agreements made before the expiration of the period previously agreed
Distraint and/or Levy be, at the very least, served upon the taxpayer in order to
upon.27
suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed The agreements so described in the afore-quoted provisions are often referred to as
of the denial by the BIR of any pending protest of the said taxpayer, and the resolute waivers of the statute of limitations. The waiver of the statute of limitations, whether
intention of the BIR to collect the tax assessed. on assessment or collection, should not be construed as a waiver of the right to
invoke the defense of prescription but, rather, an agreement between the taxpayer
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23
and the BIR to extend the period to a date certain, within which the latter could still
October 1992 was already beyond the prescriptive period for collection of the
assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes
deficiency DST, which had expired on 19 October 1992, then what more the letter of
the right to invoke prescription unequivocally. 28
respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of
the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section
and requesting payment of the deficiency DST? Even later and more unequivocally 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by
barred by prescription on collection was the demand made by respondent BIR both the Commissioner and the taxpayer; (3) before the expiration of the ordinary
Commissioner for payment of the deficiency DST in her Answer to the Petition for prescriptive periods for assessment and collection; and (4) for a definite period
Review of petitioner BPI before the CTA, filed on 08 December 1997.23 beyond the ordinary prescriptive periods for assessment and collection. The period
agreed upon can still be extended by subsequent written agreement, provided that it
II
is executed prior to the expiration of the first period agreed upon. The BIR had
There is no valid ground for the suspension of the running of the prescriptive period issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down
for collection of the assessed DST under the Tax Code of 1977, as amended. an even more detailed procedure for the proper execution of such a waiver. RMO No.
20-90 mandates that the procedure for execution of the waiver shall be strictly
In their Decisions, both the CTA and the Court of Appeals found that the filing by followed, and any revenue official who fails to comply therewith resulting in the
petitioner BPI of a protest letter suspended the running of the prescriptive period prescription of the right to assess and collect shall be administratively dealt with.
for collecting the assessed DST. This Court, however, takes the opposing view, and,
based on the succeeding discussion, concludes that there is no valid ground for This Court had consistently ruled in a number of cases that a request for
suspending the running of the prescriptive period for collection of the deficiency reconsideration or reinvestigation by the taxpayer, without a valid waiver of the
DST assessed against petitioner BPI. prescriptive periods for the assessment and collection of tax, as required by the Tax
Code and implementing rules, will not suspend the running thereof. 29
A. The statute of limitations on assessment and collection of taxes is for the protection
of the taxpayer and, thus, shall be construed liberally in his favor. In the Petition at bar, petitioner BPI executed no such waiver of the statute of
limitations on the collection of the deficiency DST per Assessment No. FAS-5-85-89-
Though the statute of limitations on assessment and collection of national internal 002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling &
revenue taxes benefits both the Government and the taxpayer, it principally intends Research Division of the BIR to her counterpart in the Collection Enforcement
to afford protection to the taxpayer against unreasonable investigation. The Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute
indefinite extension of the period for assessment is unreasonable because it a Waiver of the Statute of Limitations extending the period of collection of the said
deprives the said taxpayer of the assurance that he will no longer be subjected to tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a
further investigation for taxes after the expiration of a reasonable period of time.24 valid waiver, the statute of limitations on collection by the BIR of the deficiency DST
As aptly explained in Republic of the Philippines v. Ablaza 25 – could not have been suspended under paragraph (d) of Section 223 of the Tax Code
of 1977, as amended.
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax C. The protest filed by petitioner BPI did not constitute a request for reinvestigation,
officers would be obliged to act promptly in the making of assessment, and to granted by the respondent BIR Commissioner, which could have suspended the running
citizens because after the lapse of the period of prescription citizens would have a of the statute of limitations on collection of the assessed deficiency DST under Section
feeling of security against unscrupulous tax agents who will always find an excuse to 224 of the Tax Code of 1977, as amended.
inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without The Tax Code of 1977, as amended, also recognizes instances when the running of
such a legal defense taxpayers would furthermore be under obligation to always the statute of limitations on the assessment and collection of national internal
keep their books and keep them open for inspection subject to harassment by revenue taxes could be suspended, even in the absence of a waiver, under Section
unscrupulous tax agents. The law on prescription being a remedial measure should 224 thereof, which reads –
be interpreted in a way conducive to bringing about the beneficent purpose of
SEC. 224. Suspension of running of statute. – The running of the statute of limitation
affording protection to the taxpayer within the contemplation of the Commission
provided in Section[s] 203 and 223 on the making of assessment and the beginning
which recommend the approval of the law.
of distraint or levy or a proceeding in court for collection, in respect of any
In order to provide even better protection to the taxpayer against unreasonable deficiency, shall be suspended for the period during which the Commissioner is
investigation, the Tax Code of 1977, as amended, identifies specifically in Sections prohibited from making the assessment or beginning distraint or levy or a
223 and 22426 thereof the circumstances when the prescriptive periods for assessing proceeding in court and for sixty days thereafter; when the taxpayer requests for a
and collecting taxes could be suspended or interrupted. reinvestigation which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is being
To give effect to the legislative intent, these provisions on the statute of limitations assessed or collected: Provided, That, if the taxpayer informs the Commissioner of
on assessment and collection of taxes shall be construed and applied liberally in any change in address, the running of the statute of limitations will not be
favor of the taxpayer and strictly against the Government. suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient
B. The statute of limitations on assessment and collection of national internal revenue discretion, and no property could be located; and when the taxpayer is out of the
taxes may be waived, subject to certain conditions, under paragraphs (b) and (d) of Philippines.31

Tax II Fulltext | 2nd set | Remedies | 32


Of particular importance to the present case is one of the circumstances enumerated warrant. Consequently, the request for reinvestigation did not suspend the
in Section 224 of the Tax Code of 1977, as amended, wherein the running of the running of the period for filing an action for collection.
statute of limitations on assessment and collection of taxes is considered suspended
"when the taxpayer requests for a reinvestigation which is granted by the The burden of proof that the taxpayer’s request for reinvestigation had been actually
Commissioner." granted shall be on respondent BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the actions of the respondent
This Court gives credence to the argument of petitioner BPI that there is a BIR Commissioner or his authorized BIR representatives in response to the request
distinction between a request for reconsideration and a request for reinvestigation. for reinvestigation.
Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary
of Finance, upon the recommendation of the BIR Commissioner, governs the In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters
procedure for protesting an assessment and distinguishes between the two types of of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the
protest, as follows – reinvestigation; as a result of which, the original assessment against taxpayer Querol
was revised by permitting him to deduct reasonable depreciation. In another case,
PROTEST TO ASSESSMENT Republic of the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for
reconsideration and reinvestigation. The first petition was denied by the BIR. The
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a second and third petitions were granted by the BIR and after each reinvestigation,
written request for reconsideration or reinvestigation. . . the assessed amount was reduced. The fourth petition was again denied and,
thereafter, the BIR filed a collection suit against taxpayer Lopez. When the taxpayers
... spouses Sison, in Commissioner of Internal Revenue v. Sison,38 contested the
assessment against them and asked for a reinvestigation, the BIR ordered the
For the purpose of the protest herein – reinvestigation resulting in the issuance of an amended assessment. Lastly, in
Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment
reinvestigation and duly notified him of the date when such reinvestigation would be
on the basis of existing records without need of additional evidence. It may involve
held; only, neither taxpayer Oquias nor his counsel appeared on the given date.
both a question of fact or of law or both.
In all these cases, the request for reinvestigation of the assessment filed by the
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment
taxpayer was evidently granted and actual reinvestigation was conducted by the BIR,
on the basis of newly-discovered or additional evidence that a taxpayer intends to
which eventually resulted in the issuance of an amended assessment. On the basis of
present in the reinvestigation. It may also involve a question of fact or law or both.
these facts, this Court ruled in the same cases that the period between the request
With the issuance of RR No. 12-85 on 27 November 1985 providing the above- for reinvestigation and the revised assessment should be subtracted from the total
quoted distinctions between a request for reconsideration and a request for prescriptive period for the assessment of the tax; and, once the assessment had been
reinvestigation, the two types of protest can no longer be used interchangeably and reconsidered at the taxpayer’s instance, the period for collection should begin to run
their differences so lightly brushed aside. It bears to emphasize that under Section from the date of the reconsidered or modified assessment.40
224 of the Tax Code of 1977, as amended, the running of the prescriptive period for
The rulings of the foregoing cases do not apply to the present Petition because: (1)
collection of taxes can only be suspended by a request for reinvestigation, not a
the protest filed by petitioner BPI was a request for reconsideration, not a
request for reconsideration. Undoubtedly, a reinvestigation, which entails the
reinvestigation, of the assessment against it; and (2) even granting that the protest
reception and evaluation of additional evidence, will take more time than a
of petitioner BPI was a request for reinvestigation, there was no showing that it was
reconsideration of a tax assessment, which will be limited to the evidence already at
granted by respondent BIR Commissioner and that actual reinvestigation had been
hand; this justifies why the former can suspend the running of the statute of
conducted.
limitations on collection of the assessed tax, while the latter can not.
Going back to the administrative records of the present case, it would seem that the
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR
BIR, after receiving a copy of the protest letter of petitioner BPI on 17 November
the next day, on 17 November 1989, did not specifically request for either a
1989, did not attempt to communicate at all with the latter until 10 September 1992,
reconsideration or reinvestigation. A close review of the contents thereof would
less than a month before the prescriptive period for collection on Assessment No.
reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a
FAS-5-85-89-002054 was due to expire. There were internal communications,
question of law, in particular, whether or not petitioner BPI was liable for DST on its
mostly indorsements of the docket of the case from one BIR division to another; but
sales of foreign currency to the Central Bank in taxable year 1985. The same protest
these hardly fall within the same sort of acts in the previously discussed cases that
letter did not raise any question of fact; neither did it offer to present any new
satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation.
evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself
Petitioner BPI, in the meantime, was left in the dark as to the status of its protest in
referred to the protest of petitioner BPI as a request for reconsideration.32 These
the absence of any word from the BIR. Besides, in its letter to petitioner BPI, dated
considerations would lead this Court to deduce that the protest letter of petitioner
10 September 1992, the BIR unwittingly admitted that it had not yet acted on the
BPI was in the nature of a request for reconsideration, rather than a request for
protest of the former –
reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended,
on the suspension of the running of the statute of limitations should not apply. This refers to your protest against and/or request for reconsideration of the
assessment/s of this Office against you involving the amount of ₱28,020.00 under
Even if, for the sake of argument, this Court glosses over the distinction between a
FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary stamp tax
request for reconsideration and a request for reinvestigation, and considers the
inclusive of compromise penalty for the year 1985.
protest of petitioner BPI as a request for reinvestigation, the filing thereof could not
have suspended at once the running of the statute of limitations. Article 224 of the In this connection, it is requested that the enclosed waiver of the statute of
Tax Code of 1977, as amended, very plainly requires that the request for limitations extending the period of collection of the said tax/es to December 31,
reinvestigation had been granted by the BIR Commissioner to suspend the running 1993 be executed by you as a condition precedent of our giving due course to your
of the prescriptive periods for assessment and collection. protest…41
That the BIR Commissioner must first grant the request for reinvestigation as a When the BIR stated in its letter, dated 10 September 1992, that the waiver of the
requirement for suspension of the statute of limitations is even supported by statute of limitations on collection was a condition precedent to its giving due course
existing jurisprudence. to the request for reconsideration of petitioner BPI, then it was understood that the
grant of such request for reconsideration was being held off until compliance with
In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested
the given condition. When petitioner BPI failed to comply with the condition
for a thorough reinvestigation of the assessment against him and placed at the
precedent, which was the execution of the waiver, the logical inference would be that
disposal of the Collector of Internal Revenue all the evidences he had for such
the request was not granted and was not given due course at all.
purpose; yet, the Collector ignored the request, and the records and documents were
not at all examined. Considering the given facts, this Court pronounced that – III
. . .The act of requesting a reinvestigation alone does not suspend the period. The suspension of the statute of limitations on collection of the assessed deficiency DST
The request should first be granted, in order to effect suspension. (Collector vs. from petitioner BPI does not find support in jurisprudence.
Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector
gave appellee until April 1, 1949, within which to submit his evidence, which the It is the position of respondent BIR Commissioner, affirmed by the CTA and the
latter did one day before. There were no impediments on the part of the Collector to Court of Appeals, that the three-year prescriptive period for collecting on
file the collection case from April 1, 1949. . . .34 Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said
prescriptive period was suspended, invoking the case of Commissioner of Internal
In Republic of the Philippines v. Acebedo,35 this Court similarly found that – Revenue v. Wyeth Suaco Laboratories, Inc. 42 It was in this case in which this Court
ruled that the prescriptive period provided by law to make a collection is
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949,
interrupted once a taxpayer requests for reinvestigation or reconsideration of the
asked for a reinvestigation thereof on October 11, 1949 (Exh. A). There is no
assessment.
evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco
for the full amount of the assessment (Exh. D), but there was no follow-up of this case contending that it had unjustifiably expanded the grounds for suspending the
prescriptive period for collection of national internal revenue taxes.

Tax II Fulltext | 2nd set | Remedies | 33


This Court finds that although there is no compelling reason to abandon its decision letters, dated 17 January 1975 and 08 February 1975, protesting the assessments
in the Wyeth Suaco case, the said case cannot be applied to the particular facts of the and requesting their cancellation or withdrawal on the ground that said assessments
Petition at bar. lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised
taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered
A. The only exception to the statute of limitations on collection of taxes, other than under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its
those already provided in the Tax Code, was recognized in the Suyoc case. conformity to paying a compromise amount, but subject to certain conditions;
though, apparently, the said compromise amount was never paid. On 10 December
As had been previously discussed herein, the statute of limitations on assessment 1979, the BIR Commissioner rendered a decision reducing the assessment for
and collection of national internal revenue taxes may be suspended if the taxpayer deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the
executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco
of the Tax Code of 1977, as amended; and in specific instances enumerated in brought its case before the CTA to enjoin the BIR from enforcing the assessments by
Section 224 of the same Code, which include a request for reinvestigation granted by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco,
the BIR Commissioner. Outside of these statutory provisions, however, this Court it was reversed by this Court when the case was brought before it on appeal.
also recognized one other exception to the statute of limitations on collection of According to the decision of this Court –
taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. 43
Settled is the rule that the prescriptive period provided by law to make a collection
In the said case, the Collector of Internal Revenue issued an assessment against by distraint or levy or by a proceeding in court is interrupted once a taxpayer
taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income requests for reinvestigation or reconsideration of the assessment. . .
tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within
which to pay the amount assessed, but at the same time, reserving its right to ...
question the correctness of the assessment before actual payment. The Collector
granted taxpayer Suyoc an extension of only three months to pay the assessed tax. Although the protest letters prepared by SGV & Co. in behalf of private respondent
When taxpayer Suyoc failed to pay the assessed tax within the extended period, the did not categorically state or use the words "reinvestigation" and "reconsideration,"
Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the the same are to be treated as letters of reinvestigation and reconsideration…
demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the
assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its These letters of Wyeth Suaco interrupted the running of the five-year prescriptive
request for reconsideration on 25 April 1952, which was denied again by the period to collect the deficiency taxes. The Bureau of Internal Revenue, after
Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the having reviewed the records of Wyeth Suaco, in accordance with its request for
Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to reinvestigation, rendered a final assessment… It was only upon receipt by Wyeth
16 July 1955, and the negotiations resulted in the reduction of the assessment on 26 Suaco of this final assessment that the five-year prescriptive period started to run
July 1955. It was the collection of the reduced assessment that was questioned again.47
before this Court for being enforced beyond the prescriptive period.44
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at
In resolving the issue on prescription, this Court ratiocinated thus – the statement made therein that, "settled is the rule that the prescriptive period
provided by law to make a collection by distraint or levy or by a proceeding in court
It is obvious from the foregoing that petitioner refrained from collecting the tax by is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
distraint or levy or by proceeding in court within the 5-year period from the filing of assessment."48 It would seem that both petitioner BPI and respondent BIR
the second amended final return due to the several requests of respondent for Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean
extension to which petitioner yielded to give it every opportunity to prove its claim that the filing alone of the request for reconsideration or reinvestigation can already
regarding the correctness of the assessment. Because of such requests, several interrupt or suspend the running of the prescriptive period on collection. This Court
reinvestigations were made and a hearing was even held by the Conference Staff therefore takes this opportunity to clarify and qualify this statement made in the
organized in the collection office to consider claims of such nature which, as the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a
record shows, lasted for several months. After inducing petitioner to delay collection generalization of the exceptions to the statute of limitations on collection, it is best
as he in fact did, it is most unfair for respondent to now take advantage of such interpreted in consideration of the particular facts of the Wyeth Suaco case and
desistance to elude his deficiency income tax liability to the prejudice of the previous jurisprudence.
Government invoking the technical ground of prescription.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are
While we may agree with the Court of Tax Appeals that a mere request for substantial differences in the factual backgrounds of the two cases. The Suyoc case
reexamination or reinvestigation may not have the effect of suspending the running refers to a situation where there were repeated requests or positive acts performed
of the period of limitation for in such case there is need of a written agreement to by the taxpayer that convinced the BIR to delay collection of the assessed tax. This
extend the period between the Collector and the taxpayer, there are cases however Court pronounced therein that the repeated requests or positive acts of the taxpayer
where a taxpayer may be prevented from setting up the defense of prescription even prevented or estopped it from setting up the defense of prescription against the
if he has not previously waived it in writing as when by his repeated requests or Government when the latter attempted to collect the assessed tax. In the Wyeth
positive acts the Government has been, for good reasons, persuaded to postpone Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was
collection to make him feel that the demand was not unreasonable or that no apparently granted by the BIR and, consequently, the prescriptive period was indeed
harassment or injustice is meant by the Government. And when such situation suspended as provided under Section 224 of the Tax Code of 1977, as amended. 49
comes to pass there are authorities that hold, based on weighty reasons, that such an
attitude or behavior should not be countenanced if only to protect the interest of the To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific
Government.45 circumstances when the statute of limitations on assessment and collection may be
interrupted or suspended, among which is a request for reinvestigation that is
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of granted by the BIR Commissioner. The act of filing a request for reinvestigation
prescription against the efforts of the Government to collect the tax assessed against alone does not suspend the period; such request must be granted.50 The grant need
it. This Court adopted the following principle from American jurisprudence: "He not be express, but may be implied from the acts of the BIR Commissioner or
who prevents a thing from being done may not avail himself of the nonperformance authorized BIR officials in response to the request for reinvestigation. 51
which he has himself occasioned, for the law says to him in effect ‘this is your own
act, and therefore you are not damnified.’" 46 This Court found in the Wyeth Suaco case that the BIR actually conducted a
reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which
In the Suyoc case, this Court expressly conceded that a mere request for resulted in the reduction of the assessment originally issued against it. Taxpayer
reconsideration or reinvestigation of an assessment may not suspend the running of Wyeth Suaco was also aware that its request for reinvestigation was granted, as
the statute of limitations. It affirmed the need for a waiver of the prescriptive period written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief
in order to effect suspension thereof. However, even without such waiver, the of the Tax Accounts Division, wherein he admitted that, "[a]s we understand, the
taxpayer may be estopped from raising the defense of prescription because by his matter is now undergoing review and consideration by your Manufacturing Audit
repeated requests or positive acts, he had induced Government authorities to delay Division…" The statute of limitations on collection, then, started to run only upon the
collection of the assessed tax. issuance and release of the reduced assessment.

Based on the foregoing, petitioner BPI contends that the declaration made in the The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period
later case of Wyeth Suaco, that the statute of limitations on collection is suspended for collection is interrupted or suspended when the taxpayer files a request for
once the taxpayer files a request for reconsideration or reinvestigation, runs counter reinvestigation, provided that, as clarified and qualified herein, such request is
to the ruling made by this Court in the Suyoc case. granted by the BIR Commissioner.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco Thus, this Court finds no compelling reason to abandon its decision in the Wyeth
case, it finds that Wyeth Suaco is not applicable to the Petition at bar because of the Suaco case. It also now rules that the said case is not applicable to the Petition at bar
distinct facts involved herein. because of the distinct facts involved herein. As already heretofore determined by
this Court, the protest filed by petitioner BPI was a request for reconsideration,
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit which merely required a review of existing evidence and the legal basis for the
withholding taxes on royalties and dividend declarations, as well as, for deficiency assessment. Respondent BIR Commissioner did not require, neither did petitioner
sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 BPI offer, additional evidence on the matter. After petitioner BPI filed its request for
December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. reconsideration, there was no other communication between it and respondent BIR
Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two Commissioner or any of the authorized representatives of the latter. There was no

Tax II Fulltext | 2nd set | Remedies | 34


showing that petitioner BPI was informed or aware that its request for P431,884.00 and a net worth on December 8, 1941 in the sum of
reconsideration was granted or acted upon by the BIR. P409,581.57. Although there is indicated an increase in net worth in the
amount of P22,302.43, she is totally exempted from paying any war
IV profits tax therefor as the deduction of six per centum (6%) per annum
of the net worth on December 8, 1941 therefrom would show only a
Conclusion taxable increase in net worth in the amount of P5,574.61 which is not
taxable under the said law.
To summarize all the foregoing discussion, this Court lays down the following rules
on the exceptions to the statute of limitations on collection. On November 22, 1947, however, Criminal Case No. 4976 was filed
against her in the Court of First Instance of Manila for violation of
The statute of limitations on collection may only be interrupted or suspended by a Section 4, in connection with Section 8, of the War Profits Tax Law, for
valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax allegedly defrauding the Republic of the Philippines in the total amount
Code of 1977, as amended, and the existence of the circumstances enumerated in of P1,048,687.76. The criminal action, was filed at the instance of
Section 224 of the same Code, which include a request for reinvestigation granted by respondent and simultaneous with the filing of said action, the
the BIR Commissioner. petitioner received for the first time the notice of assessment dated
November 19, 1947 by registered mail from the Collector of Internal
Even when the request for reconsideration or reinvestigation is not accompanied by
Revenue. The said letter of demand was based on the report of
a valid waiver or there is no request for reinvestigation that had been granted by the
Supervising Examiner Felipe Aquino of the Bureau of Internal Revenue,
BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from
who recommended that the petitioner be assessed and made to pay the
setting up the defense of prescription of the statute of limitations on collection
sum of P1,048,687.76 as war profits tax and surcharge, computed as
when, by his own repeated requests or positive acts, the Government had been, for
follows: .
good reasons, persuaded to postpone collection to make the taxpayer feel that the
demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case. P 885,694.63
Increase in net worth
Applying the given rules to the present Petition, this Court finds that –
Cumulative tax on P500,000 P 352,000.00
(a) The statute of limitations for collection of the deficiency DST in Assessment No.
FAS-5-85-89-002054, issued against petitioner BPI, had already expired; and 90% tax on P385,694.63 347,125.17

(b) None of the conditions and requirements for exception from the statute of
limitations on collection exists herein: Petitioner BPI did not execute any waiver of Total Tax P 699,125.17
the prescriptive period on collection as mandated by paragraph (d) of Section 223 of
the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request Add 50% surcharge 349,562.59
for reconsideration, not a request for reinvestigation that was granted by
respondent BIR Commissioner which could have suspended the prescriptive period
for collection under Section 224 of the Tax Code of 1977, as amended; and, Total amount due and collectible P1,048,687.76
petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-
5-85-89-002054, did not make repeated requests or performed positive acts that Petitioner through counsel filed a motion to quash the criminal action
could have persuaded the respondent BIR Commissioner to delay collection, and against her and during the pendency of the same, she amended on
that would have prevented or estopped petitioner BPI from setting up the defense of December 20, 1947, her original war profits tax returns making it to
prescription against collection of the tax assessed, as required in the Suyoc case. appear that her true net worth on February 26, 1945 was P315,438.32
while her net worth on December 8, 1941 was left unchanged at
This is a simple case wherein respondent BIR Commissioner and other BIR officials P409,581.57. According to the amended return, there was therefore a
failed to act promptly in resolving and denying the request for reconsideration filed decrease in net worth in the amount of P94,143.25 instead of an
by petitioner BPI and in enforcing collection on the assessment. They presented no increase of P22,302.43 as originally reported.
reason or explanation as to why it took them almost eight years to address the
protest of petitioner BPI. The statute on limitations imposed by the Tax Code On February 9, 1948, the motion of petitioner to quash the information
precisely intends to protect the taxpayer from such prolonged and unreasonable was denied by the Court of First Instance of Manila. At the sheduled
assessment and investigation by the BIR. hearing of the case on the merits on March 7, 1949, the City Fiscal of
Manila manifested in open court that after a re-investigation of the case
Considering that the right of the respondent BIR Commissioner to collect from "the amount of the tax due and for which the accused stands charged for
petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had evading payment is only about P700,000.00, instead of P1,048,687.76 as
already prescribed, then, there is no more need for this Court to make a stated in the information." However, at the continuation of the hearing of
determination on the validity and correctness of the said Assessment for the latter the case on February 22, 1950, Supervising Examiner Felipe Aquino of
would only be unenforceable. the Bureau of Internal Revenue, who testified for the prosecution,
declared in answer to questions propounded by the City Fiscal "that as a
Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of
result of a detailed reinvestigation conducted by his office, it was found
the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which
out that no war profits tax was due from the accused in connection with
reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the
the present case." Whereupon, City Fiscal Angeles moved for the
amount of ₱28,020.00 as deficiency documentary stamp tax for the taxable year dismissal of the case. Finding the petition for dismissal to be well taken,
1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. the Court of First Instance of Manila, in an Order dated February 22,
Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED. 1950, dismissed Criminal Case No. 4976 against petitioner.
SO ORDERED. After the dismissal of the Criminal Case, another report was submitted
by the same Supervising Examiner Felipe Aquino to his superiors
EN BANC wherein he changed his previous stand taken before the Court of First
Instance of Manila, on the basis of which report another letter of
G.R. No. L-12174 April 26, 1962
demand for P2,008,293.53 as war profits tax was issued against
petitioner on January 24, 1950. Barely one month thereafter, another
MARIA B. CASTRO, petitioner,
report was again submitted by the same Supervising Examiner Felipe
vs.
Aquino to his superiors, on the basis of which another letter of demand
THE COLLECTOR OF INTERNAL REVENUE, respondent.
for war profits tax was issued by respondent against petitioner for the
REYES, J.B.L., J.: sum of P2,229,976.94 or an increase of P221,683.31 over that
assessment of January 24, 1950. The case was again referred to the City
Appeal from a decision of the Court of Tax Appeals (in its C.T.A. Case 141) holding Fiscal's Office for another prosecution based on the earlier demand but
petitioner Maria B. Castro liable under the War Profits Tax Law, Republic Act No. 55, the same was again dropped.
and ordering her to pay a deficiency war profits tax (including surcharges and
interest) in the amount of P1,360,514.66, and costs. Following insistent requests of petitioner for reinvestigation of her case,
the then Secretary of Finance Pio Pedrosa created a committee on April
The background of this case is set forth in great detail in the decision appealed from. 11, 1950 to review or re-examine the assessment for war profits tax
We quote: issued against the petitioner. This committee, otherwise known as the
Pedrosa Committee, was chairmanned by Atty. Artemio M. Lobrin of the
Petitioner Maria B. Castro, who is authorized to manage her own Bureau of Internal Revenue, with Messrs. Melecio R. Domingo and
property, is a duly licensed merchant. Pursuant to the provisions of Roman M. Umali of the same office, Vivencio L. de Peralta of the General
Section 4 (b) and (c) of Republic Act No. 55, she filed with the Bureau of Auditing Office and Jose P. Alejandro of the Office of the Solicitor
Internal Revenue on February 28, 1947, her war profits tax returns General, as members. After a thorough investigation of the case, the
which showed a net worth on February 26, 1945 in the amount of Pedrosa Committee on September 12, 1950, submitted its report,

Tax II Fulltext | 2nd set | Remedies | 35


recommending the collection of the amount of P3,593,950.78 as war
1% monthly interest from April 1, 1947
profits tax due from petitioner inclusive of surcharge and interests, 961,439.06
to September 30, 1950 (42%)
broken down as follows: .
Total war profits tax and 50% surcharge (carried P2,289,140.63
Taxable increase in net worth P1,762,203.95 forward)

Total amount collectible on September 30, 1950 P3,593.950.78


War profits tax due thereon P1,526,093.75
In order to enforce collection of this last mentioned assessment of P3,593,950.78,
50% surcharge 763,406.88 the respondent caused to be advertised on October 18, 1950, the sale at public
auction on November 22, and 27, 1950, of various real properties of petitioner to
Total war profits tax and surcharge P2,289,140.63 satisfy the war profits tax assessed against her. The petitioner, in order to stop the
scheduled sale at public auction, filed on October 18, 1950, before the Court of First
15% surcharge 343,371.09 Instance of Manila a petition for preliminary injunction (Civil Case No. 12356)
against the Collector of Internal Revenue, praying, among others, that an order be
1% monthly interest thereon from April issued enjoining said official from proceeding with the collection by summary
1947 961,439.06 methods of the war profits tax demanded. Over the objection of respondent that the
to September 30, 1950 (42%) Court of First Instance had no jurisdiction to entertain the complaint nor to issue a
writ of injunction, the said Court entered an order dated November 8, 1950
Total amount collectible on declaring that it had authority proceed with the case but denied the petition for
September 30, 1950 P3,593,950.78 preliminary injunction. Inasmuch as no preliminary injunction was issued by the
Court, respondent proceeded with the distraint and levy and sale at public auction of
The findings and recommendations of the Pedrosa Committee were forwarded to
the properties of petitioner. These properties, which are situated in the Cities of
the President of the Philippines for approval and on September 22, 1950, the
Manila, Pasay and Tagaytay and in the Municipalities of Caloocan and Makati, Rizal,
President approved the same in toto.
and Moncada, Tarlac, and described more particularly in Exhibits C, C-1, C-2, C-3, C-4
Accordingly, on September 23, 1950 the respondent demanded from the petitioner and C-5 of the petition for injunction filed with this Court, were offered for sale on
Maria B. Castro the payment of the total amount of P3,593,950.78 as war profits tax November 22, and 27, 1950 as scheduled, to answer for the war profits tax liability
computed in detail as follows: . of petitioner to the Republic of the Philippines in the assessed sum of P3,593,950.78,
inclusive of surcharges and interest from April 1, 1947 to September 30, 1950.

Net worth on February 26, 1945


as per amended war profits tax For lack of bidders on the scheduled dates of sale, the
returns P 315,438.32. following properties (except those in Tagaytay) with
Add: (a) Undeclared cash on their corresponding assessed value, were forfeited to
February 25, 1945: As per P1,871,542.13
this report the Government under Section 328 of the National
Amount declared 64,097.52 1,807,444.61
Internal Revenue Code: .
Property Assessed Value
(b) Overdeclared accounts
payable: As per amended Manila P233,460.00
return P 106,000.00
Balintawak 521,390.00
Amount per this report 30,000.00 76,000.00
Pasay 18,320.00

Net worth on February 26, 1945 P2,198,882.93 Makati 4,830.00

Less: Net worth on December 8, 1941: Tarlac 12,530.00

Net worth as per amended return P 409,581.57 Tagaytay 62,930.00


In another sale at public auction on April 23, 1954, the property of petitioner
Less: Accounts payable 43,547.22 P 366,034.35 situated in Caloocan, Rizal, with an assessed value of P4,990.00 was also offered for
sale to answer for her war profits tax liability. There being no bidders in this sale as
in the previous sale, this last mentioned real property of petitioner was also
Increase in net worth as per this report P1,832,848.58 forfeited to the Government.
Less: 6% per annum on P366,034.35 from December 8, The petitioner has not exercised her right of legal redemption with respect to all
70,644.63
1941 to February 26, 1945 these real properties with a total assessed value of P858,440.00 which were sold at
public auction by the respondent and forfeited in favor of the Government for lack of
bidders.
Taxable increase in net worth P1,762,203.95
Parenthetically, it may be stated that the hearing of Civil Case No. 12356 before the
Court of First Instance of Manila for Preliminary Injunction was not continued to its
War profits tax due thereon:. final determination by said court as the Supreme Court in a decision promulgated on
October 31, 1951 declared the lower court without jurisdiction to proceed with the
On P 50,000.00 (P6,000
50% P 22,000.00 trial. (Saturnino David v. The Honorable Simeon Ramos and Maria B. Castro, G.R. No.
exempt)
L-4300)..
On 30,000.00 60% 30,000.00
In the course of the summary methods employed by the respondent to enforce the
collection of the war profits tax liability of petitioner, the respondent also distrained
On 200,000.00 70% 140,000.00
and advertised for sale the properties of the Marvel Building Corporation in which
On 200,000.00 80% 160,000.00 the petitioner had a substantial interest. To counter-act the move, the said
corporation through counsel filed on November 31, 1950, Civil Case No. 12555 in
On 500,000.00 90% 450,000.00 the Court of First Instance of Manila wherein it sought to enjoin the respondent
Collector of Internal Revenue from selling at public auction its various properties
On 762,203.95 95% 724,093.75 described in the complaint. While the corporation was able to secure the injunction
from the lower court, the same was dissolved by the Supreme Court in its decision in
G.R. No. L-5081, Marvel Building Corporation v. Saturnino David, promulgated on
P 1,762,203.95 P1,526,093.75 February 24, 1954. Petitioner Maria B. Castro was declared therein as the sole and
exclusive owner of all shares of stock of the Marvel Building Corporation and all the
50% surcharge 763,046.88 other partners are her dummies.

In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316 with
15% surcharge 343,371.09 the Court of First Instance of Manila against the respondent Collector of Internal
Revenue for the recovery of the properties advertised for saleon November 22 and

Tax II Fulltext | 2nd set | Remedies | 36


27, 1950 which for lack of bidders were forfeited to theGovernment. However,
"Net worth on Feb. 26, 1945
before the case could be tried on the merits before said Court, the Court of Tax
as per amended war profits tax return P 315,438.32
Appeals was created by Republic Act No. 1125 and pursuant to Section 22 thereof,
the record of the case was remanded for finaldisposition to this Court. This last
mentioned case is now pending hearing before this Court.

At this juncture, it should be stated that again on December 22, 1951, an additional
war profits tax was assessed against the petitioner in the sum of P20,425.00 based
allegedly on certain amounts receivable which petitioner received from Magdalena
Estate, Inc. Consequently, the total war profits taxliability of petitioner, exclusive of
surcharge and interest, as found by the Pedrosa Committee was increased to
P1,546,518.75, itemized as follows: .1äwphï1.ñët

Tax due as per Pedrosa Committee P1,526,093.75

Additional war profits tax on account of undeclared


amount receivable from the Magdalena Estates, Inc. 20,425.00

Total war profits tax exclusive of surcharge and


P1,546,518.75
interest.

To satisfy, fully the amount of the war profits tax assessed against petitioner, the
respondent on September 29, 1954, caused to be advertised for sale at public
auction for November 2, 1954, other real properties of petitioner situated in Manila.
These properties are described in detail in Appendix B of the petition for review
filed with this Court. According to the "Amended Notice of Sale" (Appendix B,
Petition for Review), the properties were seized, distrained and levied upon from
petitioner "in satisfaction of internal revenue taxes and penalties amounting to
P4,539,556.26, computed as of April 30, 1954" due from her in favor of the Republic
of the Philippines. For lack of bidders at the time of the scheduled sale on November
2, 1954, the properties in question were forfeited to the Government under Section
328 of the National Internal Revenue Code for the total amount of P3,547,892.41
which was allegedly the balance of petitioner's tax liability as of that date.

Before the expiration of the one-year period provided for in Section 328 of the
National Internal Revenue Code within which petitioner may redeem the real
properties forfeited in favor of the Government in the sale at public auction held on
November 2, 1954, the petitioner filed with this Court on September 30, 1955, a
petition for the annulment of said sale and forfeiture on the ground that her
properties were advertised for sale on tax claim of the Government far in excess of
the alleged war profits tax, surcharges and penalties fixed by respondent.
Respondent filed his opposition to the petition and after due hearing where
evidence was adduced in support of the petition as well as opposition thereto, this
Court, in a resolution dated October 31, 1955, declared the auction sale of November
2, 1954 as well as the resulting forfeiture, null and void and of no legal force and
effect because of the admitted discrepancy in the amount of tax stated in the notice
of sale for which the properties were auctioned and the actual amount of tax
assessed and demanded.

The said resolution being without prejudice to such action and proceedings a
respondent may take in accordance with law, respondent demanded from petitioner
the amount of P3,594,881.51 not later than November 10, 1955 or he would again
proceed with the resale of her properties on December 12, 1955. To stop the sale,
petitioner filed a petition for injunction with this Court on November 22, 1955
requesting that respondent be enjoined from proceeding with the resale of her
properties scheduled on December 12, 1955; that the said properties be released to
her; and that she be declared not liable for the war profits tax assessed and
demanded of her. After due hearing of this petition and the opposition thereto, this
Court, in a resolution dated December 10, 1955, denied the injunction and held in
abeyance the determination of other questions until after the case shall have been
heard on the merits. The properties were therefore advertised for sale on December
12, 1955 to answer for a war profits tax liability of petitioner to the Republic of the
Philippines for the alleged amount of P3,594,307.51 computed as of that date. For
lack of bidders, the same were forfeited to the Government. Those properties and
the amounts for which they were forfeited are as follows:.

Aguinaldo Building P2,026,517.10

Wise & Co. Building 670,291.47

Zobel Mansion 408,501.24

Shellborne Hotel 489,491.70

Total P3,594,801.51

Add: Prior forfeitures 888,440.00

P4,453,241.51

After due hearing and reception of evidence, the Tax Court annulled the last tax sale
of December, 1955, covering the found Manila buildings, on account of irregularities
in the notices of sale; but for the rest, it found against petitioner and assessed her
tax liability as follows: .

Tax II Fulltext | 2nd set | Remedies | 37


Add: (a) Underdeclared cash on Total due as of December 12, 1955 P1,360,514.66
February 26, 1945:
From this decision, Maria Castro appealed to this Court..
As per Pedrosa Committee
report P1,871,542.13 The nineteen alleged errors committed by the Court of Tax Appeals and discussed by
appellant in her printed brief actually revolve around four main defenses: (a) that
Amount declared 64,097.52 1,807.444.61 the War Profits Tax Law (R.A. No. 55) is unconstitutional and void; (b) that said law
was improperly applied to the case of the appellant; (c) that even if appellant were
(b) Accounts Payable: As per
P 106,000.00 subject to the tax liability declared by the court below, such liability was totally
amended return
extinguished by the levy and forfeiture of certain properties of hers; and (d) that
Amount per Pedrosa Committee appellant's acquittal in the criminal case instituted against her for violation of the
Report-P30,000.00 War Profits Tax Law is a bar to the collection of the taxes assessed, and specially of
Accounts payable to Lao Kang the 50% surcharge. (a) Petitioner's attack on the constitutionality of Republic Act
Suy 106.000.00 No. 55, commonly known as the War Profits Tax Law, on account of its retrospective
recognized by Court-P76,000.00 operation (Errors XVIII), is now foreclosed by our decision in Republic vs.Oasan Vda.
de Fernandez, G.R. No. L-9141, September 25, 1956, wherein thisCourt upheld the
Net worth on Feb. 26, 1945 P2,122,883.93 validity of the statute; and no reasons are alleged that would justify a departure
from the ruling made in that case..
Less: Net worth on December 8,
1941: (b) Petitioner Castro complains (Errors I and VI) that the Tax Court had declared
subject to the war profits tax her cash transactions from June, 1945to December 31,
Net worth as per amended 1946, when Republic Act No. 55 levies that tax only on the value of the taxpayer's
P 409,581.57 assets (including real and personal property and/orcash in banks) as of February
return
26, 1945, minus his liabilities..
Less Accounts payable
366,034.35 This argument misconceives the process whereby the Tax Court (and the Pedrosa
P43,547.22
Committee) arrived at the petitioner's net worth as of February 26,1945. Because of
Increase in net worth P1,756,848.58 the difficulty in determining the taxpayer's cash on hand on said date (since her
books and records did not show her invested capital in 1945), said tax authorities
Less 6% per annum on adopted the method of starting from her reported cash on hand on December 31,
P366,034.35 from Dec. 8, 1941 1946, and working backwards to February,1945, by adding to the reported cash the
to Feb. 26, 1945 70,644.63 disbursements made by Castro during1945 and 1946, and then deducting her
receipts from the same period. We see nothing fundamentally erroneous in this
method for, as pointed out in the appealed decision, "if cash on hand at the
Taxable increase in net worth P1,686,203.95 beginning of the period, plus receipts during the period minus disbursements
during the period, equals cash on hand at the end of the period, the converse must
Add: Undeclared accounts necessarily be true.".
receivable from
Magdalena Estate, Inc. as of Feb. Such method is in effect but an application (in reverse) of the inventory or networth
26, 1945 that system that, contrary to appellants contention (Error XIII), has been approved by
was discovered in June, 1951 this Court in Perez vs. Collector of Internal Revenue, G.R. No. L-10507, May 30, 1958;
only 21,500.00 Collector vs. A. P. Reyes, L-11534, November 25, 1958; and Commissioner of Internal
Revenue vs. Avelino, L-14847, September 19, 1961.

Total taxable increase in net worth P1,707,703.95 The analysis of petitioner's transactions for 1945 and 1946 merely laid the basis for
determining the undisclosed cash funds in her possession as of February 26, 1945
War Profits tax due thereon: (amounting to P1,807,444.61), and it is this cash thatwas found subject to the war
profits tax.
On P50,000.00 (P6,000.00
P 22,000.00
Exempt) @ 50% It is urged, however, that even if this finding were correct, still, under Republic Act
No. 55, only "cash in banks" is expressly mentioned as taxable, and appellant infers
50,000.00 @ 60% 30,000.00 that cash on hand not so deposited was not intended to be subject to war profits tax.
This thesis appears unmeritorious: cash heldby the taxpayer on February 26, 1945
200,000.00 @ 70% 140,000.00 clearly falls under the description of "assets, including real and personal property"
that section 2 of the Act expressly order included in determining the taxable net
200,000.00 @ 80% 160,000.00 worth. If "cash in banks" is expressly mentioned by the Act, it is not because cash on
hand was intended to be excluded, but because "cash in banks" is not, strictly,
500,000.00 @ 90% 450,000.00 speaking, part of the assets of the taxpayer, but assets of the banks where the cash is
deposited. It is well established that a so-called "bank deposit" is in reality a loan to
707,703.95 @ 95% 672,318.75 the bank, the latter acquiring title to the amount "deposited", subject to its
withdrawal (or recall of the loan) on the dates specified. Taxpayer's "assets",
therefore, would not per se include cash deposited in banks by the taxpayer; and its
Total . . . . . . . . . . . . . P1,474,318.75
inclusion had to be expressly prescribed by the statute in order to remove all doubt
as to its taxability.
50% surcharge on P1,474,318.75 P 737,159.37
Petitioner endeavored to show (Errors VII to XI) that part of the amount of cash thus
15% surcharge on P1,474,318.75 221,147.81
arrived at actually originated in receipts from transactions made by her after
February 26, 1945 but which were not disclosed in the books and accounts. Aside
1% monthly on P1,474,318.75 from 4/l/47 to 11/22/50 644,768.73
from the fact that this claim in her behalf contradicted her admission to the Pedrosa
Committee that all her 1946 receipts were recorded in her books (v. Respondent's
Total amount collectible on 11/22/50 . . . . . . . . P3,077,394.66 Exhibit 6-A), it lay within the exclusive discretion of the Tax Court to believe or not
to believe her evidence and statements, and those of her witnesses regarding the
source of the cash in question; and the rule is well settled that in cases of this kind,
Less: Values of properties sold: only errors of law, and not rulings on the weight of evidence, are reviewable by this
Court. The same principle precludes us from interfering with the Tax Court's refusal
On Nov. 22, 1950 P1,556,000 to credit the other deductions claimed by petitioner as amounts obtained from loans
from various individuals. The Court of Tax Appeals found those items unproved,
On Nov. 27, 1950 150,900 except the P76,000.00 payable to Lao Kang Suy, which is accepted, although it had
been rejected by the Pedrosa Committee.
April 20, 1954 9,980 1,716,880.00
Similarly, the finding that the petitioner had disbursed in 1946 P1,025,000.00 on
account of her subscription to the stock of the Marvel Building Corporation (Error
XII) may not be disturbed by us.

(c) The third main ground of appeal is predicated on the acquittal of petitioner in
case No. 4976 of the Court of First Instance of Manila, wherein she was criminally
prosecuted for failure to render a true and accurate return of the war profits tax due
from her, with intent to evade payment of the tax. She contends (Assignments of

Tax II Fulltext | 2nd set | Remedies | 38


Error II to IV) that the acquittal should operate as a bar to the imposition of the tax (Error XVII) the alleged inefficient and erratic manner in which her books of account
and specially the 50% surcharge provided by section 6 of the War Profits law (R.A. and supporting papers had been prepared, contrary to the requirements of the
No. 55), invoking the ruling in Coffey v. U.S., 29 L. Ed. 436. revenue laws; and that it is incredible that a trader like the appellant should be able
to do business running into millions of pesos without knowing exactly her financial
With regard to the tax proper, the state correctly points out in its brief that the condition.
acquittal in the criminal case could not operate to discharge petitioner from the duty
to pay the tax, since that duty is imposed by statute prior to and independently of Appellant's alleged Error XIX, being merely pro forma, requires no discussion.
any attempts on the part of the taxpayer to evade payment. The obligation to pay the
tax is not a mere consequence of the felonious acts charged in the information, nor is Finding no reversible error in the decision appealed from, we hereby affirm the
it a mere civil liability derived from crime that would be wiped out by the judicial same, with costs against appellant.
declaration that the criminal acts charged did not exist.
EN BANC
As to the 50% surcharge, the very United States Supreme Court that rendered the
Coffey decision has subsequently pointed out that additions of this kind to the main G.R. No. L-12174 December 28, 1962
tax are not penalties but civil administrative sanctions, provided primarily as a
safeguard for the protection of the state revenue and to reimburse the government MARIA B. CASTRO, petitioner,
for the heavy expense of investigation and the loss resulting from the taxpayer's vs.
fraud (Helvering vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S. 317 U.S. 492). COLLECTOR OF INTERNAL REVENUE, respondent.
This is made plain by the fact that such surcharges are enforceable, like the primary
tax itself, by distraint or civil suit, and that they are provided in a section of R.A. No. RESOLUTION
55 (section 5) that is separate and distinct from that providing for criminal
prosecution (section 7). We conclude that the defense of jeopardy and estoppel by REYES, J.B.L., J.:
reason of the petitioner's acquittal is untenable and without merit. Whether or not
Petitioner-appellant Maria B. Castro asks for partial reconsideration of the decision
there was fraud committed by the taxpayer justifying the imposition of the
of this Court dated April 26, 1962, contending that the one per cent (1%) monthly
surcharge is an issue of fact to be inferred from the evidence and surrounding
interest on the war profits tax due from her should be limited to a total of thirty-six
circumstances; and the finding of its existence by the Tax Court is conclusive upon
per centum (36%).
us. (Gutierrez v. Collector, G.R. No. L-9771, May 31, 1951 ; Perez vs. Collector, supra).
This contention is made to rest on the provisions of the Internal Revenue Code on
(d) The fourth main ground adduced on behalf of the petitioner (Errors II and XlV) is
Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved on June
that the sale and forfeiture to the government (due to lack of bidders) of the
29, 1959), to the effect that:
properties of petitioner in Manila, Balintawak, Pasay, Makati, Tarlac, Tagaytay and
Caloocan which had been levied upon by the respondent Collector of Internal SEC. 51 (e). Additions to the tax in case of nonpayment. — (1) Tax shown
Revenue and advertised for sale in 1950 and 1954, constitutes a full discharge of on the return. — Where the amount determined by the taxpayer as the
petitioner's tax liabilities. In so arguing, she relies on the provisions of paragraph 1 tax imposed by this Title or any installment thereof, or any part of such
of Section 328 of the Internal Revenue Code, reading as follows: . amount or installment, is not paid on or before the date prescribed for
its payment, there shall be collected as a part of the tax, interest upon
SEC. 328. Forfeiture to Government for Want of Bidder. - In case there is
such unpaid amount at the rate of one per centum a month from the date
no bidder for real property exposed for sale as herein above provided or
prescribed for its payment until it is paid: Provided, That the maximum
if the highest bid is for an amount insufficient to pay the taxes, penalties,
amount that may be collected as interest on deficiency shall in no case
and costs, the provincial or city treasurer shall declare the property
exceed the amount corresponding to a period of three years, the present
forfeited to the Government in satisfaction of the claim in question and
provisions regarding prescription to the contrary notwithstanding.
within two days thereafter shall make a return of his proceedings and
the forfeiture, which shall be spread upon the records of his office, Assuming without deciding, that this particular section is applicable to war profits
taxes, we agree with the Solicitor General that there is no legal ground for applying
and appellant contends that in the provision to the effect that in the absence of
retroactively to the delinquencies of the petitioner under the War Profits Tax Law
bidders, the property is to be "forfeited to the Government in satisfaction of the
(and which accrued since September 23, 1950, when the corresponding tax
claim in question", the term "satisfaction" signifies nothing but full discharge of the
assessment was issued) the terms of a law (R.A. 2343) enacted almost nine (9) years
taxes, penalties, and costs claimed by the state. Carried to its logical conclusion, this
later. It is elementary that laws are presumed to operate only prospectively, and have
theory would permit a clever taxpayer, who is able to conceal most or the more
no retroactive effect in the absence of clear provision to the purpose. As it stood in
valuable part of his property from the revenue officers, to escape payment of his tax
1950, Section 51(e) of the Revenue Code provided for monthly interest without
liability by sacrificing an insignificant portion of his holdings; and we can not agree
limitation of the number of months:lawphil.net
that in providing that the forfeiture of the taxpayer's distrained or levied property,
for lack of adequate bids, should operate in satisfaction of the total tax claims even SEC. 51 (e). Surcharge and interest in case of delinquency. — To any sum
beyond the value of the property forfeited. That the satisfaction prescribed in or sums due and unpaid after the dates prescribed in subsections (b),
section 328 of the Revenue Code was intended to mean only a discharge pro tanto is (c) and (d) for the payment of the same, there shall be added the sum of
confirmed by the provisions of section 330 of the Revenue Code to the effect that five per centum on the amount of tax unpaid and interest at the rate of
"remedy by distraint of personal property and levy on realty may be repeated if one per centum a month upon said tax from the time the same became
necessary until the full amount due including all expenses, is collected". This section due, except from the estates of insane, deceased, or insolvent persons.
makes no distinction between forfeitures to the Government and sales to third
persons, and we are satisfied that no distinction was intended and that none is Petitioner contends that the imposition of interest amounts to a penalty, and that
warranted. laws imposing lighter penalties are given retrospective effect. We disagree with the
basic assumption, and hold that the imposition of 1% monthly interest is but a just
Nor do we see that the petitioner has any ground for complaining that the properties compensation to the state for the delay in paying the tax, and for the concomitant
forfeited were undervalued (Error XV). The relation between assessed value and use by the taxpayer of funds that rightfully should be in the government's hands
market price being variable, it is not a matter of notice. However, the Court of Tax (U.S. vs. Goldstein, 189 F [2d] 752; Ross vs. U.S., 148 Fed. Supp. 330; U.S. vs. Joffray,
Appeals appraised the forfeited properties at double their assessed evaluation, and 97 Fed. [2d] 488). The fact that the interest charged is made proportionate to the
thereby credited her with a part payment on account of her tax liability in the period of delay constitutes the best evidence that such interest is not penal but
amount of P1,716,880.00. There is no adequate evidence that they were worth more, compensatory.
petitioner's own estimates of value being obviously unreliable, due to her direct
interest in the matter under investigation. Since the burden of proof lay evidently on WHEREFORE, the petition for reconsideration must be, and hereby is, denied.
the taxpayer, she is not in a position to complain in this regard.
EN BANC
It may be noted in this connection that the validity of the levy and sale of her
properties in November of 1950 and April 1954 is assailed by appellant in her fifth G.R. No. 502 January 29, 1946
assignment of error; but as this point was not raised in the Court below, the same
can not be entertained for the first time on appeal. BASILIA CABRERA, plaintiff-appellee,
vs.
(e) As pointed out by the counsel for the Government, appellant's stand that the THE PROVINCIAL TREASURER OF TAYABAS and PEDRO J. CATIGBAC,
undeclared cash should be averaged or spread out for the years 1945, 1946 and defendants-appellants.
1947 (Error XVI) assumes that what was being subjected to tax was her undeclared
income during said years, which is not correct, as previously declared in this PARAS, J.:
opinion. If her expenditures during 1945 and 1946 were scrutinized and analyzed, it
was merely to determine the actual value of her taxable net worth as of February 26, On October 30, 1940, the provincial treasurer of Tayabas issued a notice for the sale
1945, that was subject to the war profits tax, as representing accumulated profits at public auction of numerous, real properties forfeited for tax delinquency,
earned during the occupation years. including a certain parcel of land located in the barrio of Buenavista, municipality of
Candelaria, Province of Tayabas, and assessed in the name of Nemesio Cabrera, said
Finally, no argument is needed to show that unless taxes are to be left at the sale to be held "on December 15, 1940 at 8 a.m. and every day thereafter at the same
discretion of the taxpayer, she can not be allowed to seek refuge or relief by pleading place and hour until all the properties shall have been sold to the highest bidder."

Tax II Fulltext | 2nd set | Remedies | 39


Copy of the notice was sent by registered mail to Nemesio Cabrera, but the envelope This is an appeal under section 18, Republic Act No. 125, by the Mithi Ng Bayan
containing the same was returned with the remark "Unclaimed," undoubtedly Cooperative Marketing Association Inc., from that part of a judgment dated 14
because Nemesio Cabrera had already died in 1935. The land was actually sold on August 1958 rendered by the Court of Tax Appeals upholding the decision of the
May 12, 1941, for the sum of P74.34 to the appellant Pedro J. Catigbac, in whose Collector of Internal Revenue that denied the petitioner's claim for refund of the sum
favor the final bill of sale was executed on September 23, 1942. Thereafter the of P3,590.53 paid by it as privilege or fixed tax upon business and percentage tax,
appellee, Basilia Cabrera, filed a complaint in the Court of First Instance of Tayabas and surcharge. due (Annex A) and the resolution dated 8 October 1958, denying its
against the provincial treasurer and the appellant, attacking the validity of the tax motion r reconsideration.
sale on the grounds that she was not notified therefore and that although the land
had remained in the assessment book in the name of Nemesio Cabrera, a former
owner, she has become its registered owner, since 1934 when a Torrens title (No.
On 3 July 1953, Pedro Guevarra, an agent of the Bureau
8167) was issued to her by the register of deeds of Tayabas. From a judgment of Internal Revenue, assigned in San Pablo City, reported
favorable to the appellee, the present appeal was taken by Pedro J. Catigbac.
to the provincial revenue agent that the petitioner, an,
Under the law (Commonwealth Act No. 470, section 35), the provincial treasurer is association of persons organized and incorporated as a
enjoined to set forth in the notice, among other particulars, the date of the tax sale.
We are of the opinion that this mandatory requirement was not satisfied in the cooperative marketing association under the provisions
present case, because the announcement that the sale would take place on
December 15, 1940 and every day thereafter, is as general and indefinite as a notice of the Cooperative Marketing Law Act No. 3425, as
for the sale "within this or next year" or "some time within the month of December." amended and the Corporation Law, Act No. 1459, as
In order to enable a taxpayer to protect his rights, he should at least appraised of the
exact date of the proceeding by which he is to lose his property. When we consider amended, has been operating a ricemill in barrio Calios,
the fact that the sale in favor of the appellant was executed on May 12, 1941, or
nearly five months after December 15, 1940, the violation of the mandatory Santa Cruz, Laguna, where palay owned by members
requirement becomes more obvious. Indeed, in his motion for reconsideration (see and non members are milled, that a fee is charged and
Record on Appeal, pp. 33-41), the appellant had admitted, unknowingly perhaps,
that when he went to the office of the municipal treasurer after reading the notice of collected by the petitioner from the owners for milling
sale in December, 1940, to inquire about the advertised land, he was told to return
on May 12, 1941. The implication that follows is that the tax officials had really
their palay; and that the petitioner paid the fixed tax of
adopted the view that they could sell any of the numerous forfeited lots on any date P10 due for the year 1952 and the percentage tax of 2%
subsequent to December 15, 1940, without new notice, thereby making the resulting
sale more private than public, likewise in violation of the law. It may be observed due on the total value of rice milled during the first and
that as regards tax sales, unlike ordinary execution sales, the statute does not
expressly authorize adjournment from day to day. The reminder may, however, be
second quarters of 1952 but did not pay the fixed tax
given that the tax officials will greatly be inconvenienced by following the law due for the year 1953 and the percentage tax of 2% due
strictly, especially when numerous properties are, as in the present case (132
parcels), to be disposed of for tax delinquency. We will not venture to disagree, but it on the total value of rice milled during the third quarter
is believed that the officials who are ever solicitous in protecting private proprietary
rights, shall have helped, to the same extent, in maintaining the solid foundation of
of 1952 to the first quarter of 1953. The agent
the Government which they seek to serve and of which they themselves are a part. recommended that a letter be sent payment of the total
What has been said is sufficient to decide this appeal, although it will not altogether Sum of to the petitioner demanding computed as
be amiss to refer to details that further support the judgment of the lower court. The follows: P3,610.53. computed as follows:.
appellee was admittedly not notified of the auction sale, and this also vitiates the
proceeding. She is the registered owner of the land and, since 1934, has become
liable for the taxes thereon. For all purposes, she is the delinquent taxpayer "against Fix tax C-19 for 1953 .................................................................. P 10.00
whom the taxes were assessed," referred to in section 34 of Commonwealth Act No. 2% of P143,220.92 (value of rice removed from 3rd qrtr.
470. It cannot be Nemesio Cabrera for the latter's obligation to pay taxes ended 1952 to 1st qrtr. of 1953 .......................................................... 2,864.42
where the appellee's liability began. Neither the alleged receipt by the appellee of a
copy of certificate of sale dated May 12, 1941, nor her failure to redeem thereafter, 25% Surcharge thereon .......................................................... 716.11
had the effect of validating the prior tax proceeding. The sale in favor of the Compromise ............................................................................. 20.00
appellant cannot bind the appellee, since the land purportedly conveyed was owned
by Nemesio Cabrera, not by the appellee; and, at the time of the sale, Nemesio TOTAL TAX LIABILITY ................................................... P3,610.53
Cabrera had no interest whatsoever in the land in question that could have passed to (Exhibit 1, pp. 2-3, BIR rec.). Acting upon the recommendation of the agent, on 19
the appellant. December 1953 the respondent Collector of Internal Revenue demanded from the
petitioner payment of the sum of P3,590.53 (less P20 for compromise), within 30
The appellee may be criticized for her failure to have the land transferred to her days from receipt of the letter of demand and informed it that if it be not agreeable
name in the assessment record. The circumstance, nevertheless, cannot supplant the to the assessment, it could take up the matter with the Conference Staff of the
absence of notice. Of course, it is the duty of any person acquiring at the time real Bureau of Internal Revenue by filing within the same period of time a written notice
property to prepare and submit a tax declaration within sixty days (Commonwealth of its in attention to appear before the Staff either in person or by an attorney-at-law
Act No. 470, section 12), but it is no less true that when the owner refuses or fails to or a certified public accountant as counsel and that if it be agreeable to
make the required declaration, the provincial assessor should himself declare the extrajudicially settle the penal liabilities arising from violations of the National
property in the name of the defaulting owner (Commonwealth Act No. 470, section Internal Revenue Code, as amended, it could pay the sum of P100 as penalty in
14). In this case there is absolutely no showing that the appellee had deliberately addition to the sum of P3,590.53, or a total of P3,690.53 (Exhibit E). On 13 January
failed to make the declaration to defraud the tax officials; and it may be remarked 1954 the petitioner wrote to the respondent Collector informing him that it was not
that there can be no reason why her Torrens title, which binds the whole world, agreeable to his proposal and filed its notice of intention to appear before the
cannot at least charge the Government which had issued it, with notice thereof. A Conference Staff (Exhibit F). After hearing, on 9 December 1954 the Conference Staff
little synchronization between the offices of the register of deeds and of the recommended to the respondent Collector the enforcement of the assessment dated
provincial assessor, with perhaps very negligible additional clerical work on the part 19 December 1953 for taxes and surcharge in the sum of P3,590.53 and suggested
of both, will surely result in a more efficient enforcement of the tax laws. the imposition upon the petitioner of a compromise penalty in the sum of P100
(Exhibit 9). The respondent Collector approved the recommendation of the
Not having appealed, the appellee cannot now pretend that the judgement of the Conference staff and on 4 January 1955 demanded payment of the tal sum of 690.53
lower court is erroneous in so far as it failed to award damages in her favor for the within ten day from receipt of the letter, otherwise it would enforce collection
sum of P500. While an appellee can on appeal make a counter-assignment of error, it through the summary remedies provided for by law (Exhibit G).
must be with a view merely to sustaining the judgement, not to obtaining other
affirmative relief. On 14 February 1955 the petitioner appealed under the revisions of section 11,
Republic Act No. 1125, to the Court of Tax Appeals to have the decision of the
The appealed judgment is affirmed, with costs of both instances against the Collector of Internal Revenue reviewed. On 16 March 1955 the respondent Collector
appellant. So ordered. filed under the provisions of Rule 7 of he Rules of the Court of Tax Appeals his
answer to the petition for review of the decision of the respondent Collector.
EN BANC
On 6 December 1955 the respondent issued a warrant of distraint and levy ordering
G.R. No. L-14575 July 31, 1961 the deputy provincial treasurer, through the provincial treasurer, "to distraint the
goods chatters or effects and other personal property of whatever character, and
MITHI NG BAYAN COOPERATIVE MARKETING ASSOCIATION, INC., petitioner,
levy upon the real property and interest in/or rights to real property of the
vs.
delinquent taxpayer, and sell so much of such personal or real property as may be
J. ANTONIO ARANETA, Collector of Internal Revenue, respondent.
necessary to satisfied in full the sum or sums due as set forth above (P3,690.53), and
PADILLA, J.: to cover such expenses as may be incurred in making this distraint and levy."
(Exhibit H). On 14 March 1956 the petitioner filed in the Court of Tax appeals an

Tax II Fulltext | 2nd set | Remedies | 40


"urgent motion to suspend execution of warrant of distraint and levy and collection petitioner, a reply to the respondent's objection. On 8 October 1958 the Court denied
of tax," on the ground that the enforcement of the said warrant of distraint and levy the petitioner's motion for reconsideration on Hence this appeal. The petitioner's
and collection of tax would jeopardize the interest of the petitioner because it is appeal is only with respect to that part of the judgment upholding the legality of the
exempt from the payment of the taxes sought to be collected. It offered to file a bond imposition of the sum of P3,590.53 as taxes and surcharge due and denying its claim
for that purpose. On 21 March 1956 the respondent filed a objection to the for refund of the said amount.
petitioner's motion. After hearing, the Court denied the petitioner's motion.
Is the petitioner an association organized under the provisions of the Cooperative
On 20 June 1956 the petitioner paid to the deputy provincial treasurer in the Marketing Law, Act No. 3425, as amended, exempt from the payment of privilege tax
municipality of Santa Cruz, province of Laguna, the sum of P2,000 as partial or fixed tax upon business and percentage tax, imposed by sections 178, 182, 183
payment and on 11 July 1956 the sum of P1,690.53 as full payment of the taxes and and 189, of the National Internal Revenue Code, as amended, is the question to be
surcharge sought to be collected by the respondent (Exhibits I, I-1 and. 1-2). On 27 resolved in this appeal.
March 1957 the petitioner wrote to the respondent requesting that the sum of
P3,690.53 paid by it for taxes and Surcharge assessed and sought to be collected by Section 48, Act No. 3425, as amended by Republic Act No. 702, exempting
the latter be refunded to the former (Exhibit J) — The respondent did not act upon cooperative associations organized under the said Law from payment of merchant's
the petitioner's request. sales tax, income tax and other percentage taxes, provides:

On 4 April 1957 the petitioner filed an amended petition to review the decision of Any association organized under this Act shall not be subject to the
the respondent, alleging the fact of payment of the sum P3,69,0.53 and request for it payment of the merchant's sales tax, the income tax, and all others
refund. On 16 May 1957 the respondent filed an amended answer to the amended percentage taxes of whatever nature and description.
petition.
Any exemptions under any and all existing laws applying to agricultural
On 11 December 1957 the parties entered into a stipulation the Court. The said products in the possession or under the control of the individual
Stipulation of facts and submitted it to the Court. The said stipulation provides: producer, shall apply similarly and completely to agricultural products
delivered by the farmer members to the association, or which are in the
COME NOW the herein parties thru their respective under signed possession or under the control of the association.
counsel, and to this Honorable Court respectfully submit the following
Statement of Facts, to wit: Sections 1, 3, 6 and 7 of Act No. 3425, as amended, provide:

1. That attached hereto are the lists of names of persons who brought Section 1. This Act shall be known and may be cited as "The Cooperative
and milled palay in the petitioner's ricemill between March 2 to 31, Marketing Law". Every association incorporated under this Law shall be
1953, copied from Exhs. D and D-1, together with their respective operated primarily for the mutual benefit of the members thereof, as
identification or relation to the members of the petitioner-organization; producers, and should aim to promote, foster, and encourage the
intelligent and orderly marketing of agricultural products through
2. That said lists of names were copied from Exhs. D and D-1, which cooperation; to make the distribution of agricultural products between
formed part of the Bureau of Internal Revenue records embodied in the producer and consumer as direct as can be efficiently done; and to
records of this case; stabilize the marketing of agricultural products.

3. That the column opposite or following the lists of names identify said Sec. 3. Fifteen or more persons, a majority of whom are residents of the
persons, whether they are members, brothers, sisters, sons, daughters Philippine Islands, engaged in the production of agricultural products,
or close relatives, or helpers of members of the petitioner-organization; may form a Cooperative marketing association, with or without capital
stock, under the provisions of this Act, by the adoption of and filing with
4. That said persons will, respectively testify that they were known the Bureau of Commerce and Industry articles of incorporation and by-
and/or called in the community by the names or nicknames appearing laws in the same manner as is required of other corporations organized
in the attached lists; that they brought their palay to be milled under the Corporation Law, Act Numbered One thousand four hundred
themselves being members of the petitioner-organization, or that they fifty-nine as amended, except as herein Provided.
were respectively requested by members, who are their fathers,
mothers, brothers, sisters, or close relatives or their landlords or Sec. 6 . . . (a) . . . No association, organized under this Act, shall handle
employers to bring his or her palay to the ricemill of the petitioner- the agricultural products of any non-member except for storage.
organization to be milled between March 2 to 31, 1953 and that they
were given receipts which were placed in the names with which they Sec. 7. Under the terms and conditions prescribed in the by-laws
were commonly known or called in the community; adopted by it, an association shall admit as members, or issue common
stock only to persons engaged in the production of the agricultural
5. That they know Fermin Domingo who is the Checker and the one in- products to be handled by or through the association, including the
charge of the petitioner-organization's ricemill and that they were in lessees and tenants of land used for the production of such products and
turn known to him; that they were issued receipts which they kept, any lessors and landlords who received as rent all or part of the crop
being members, or which they surrendered and delivered to their raised on the leased premises.
fathers, mothers, brothers, sisters, or close relatives, or employers, who
are members of the said petitioner-organization and who requested It is plain from the foregoing provisions of the Cooperative Marketing Law that a
them to mill their palay in the ricemill of said petitioner; cooperative marketing association should be organized by and composed of persons
engaged in the production of agricultural products for the benefit of producers-
6. That the testimonies of the said persons appearing in the attached members and the association should aim to Promote, foster, and encourage the
lists will merely be the same and/or corroborative to those that have intelligent and orderly marketing of agricultural products through cooperation; to
already testified; make the distribution of agricultural products between producer and consumer as
direct as can be efficiently done; and to stabilize the marketing of agricultural
7. That in order to abbreviate this proceedings and to avoid a lengthy products." If the association fails to comply with these requirements, it cannot be
and costly litigation, said persons appearing in the attached lists will no Considered as an association on organized under the Cooperative Marketing Law. It
longer be presented to testify in this case. cannot be gain said that once the association admits as member persons who are not
engaged in the production of agricultural products, the reason for its existence
WHEREFORE, it is respectfully prayed that this Stipulation of Facts be under the law ceases to operate and the privilege of exemption, from the payment of
approved by this Honorable Court. taxes provided for in section 48 of the Law is withdrawn from it. A person not
engaged in the production of agricultural products has no direct relation to and
After hearing and after the parties had filed their respective memoranda and the common cause with one who is so engaged to bring about an intelligent and orderly
petitioner a reply to the respondent's memorandum, on 14 August 1958 the Court marketing, a direct and efficient distribution between producers an consumer and
rendered judgment declaring that the "petitioner can not be considered as having he stabilization of the marketing of agricultural products through cooperation with
been organized in accordance with Act No. 3425, and its claim for exemption under his fellow producers.
Section 18 of said Act can not be sustained." The dispositive part of the judgment
provides: Section 1, Article IV, of the unamended by-laws of the petitioner association
provides:
FOR THE FOREGOING CONSIDERATIONS, we are of he opinion that the
sum of P3,590.53, representing the fixed and percentage taxes, plus Any person, residing in the municipality in which the association is
surcharge, was validly collected from petitioner as operator of a rice organized (Santa Cruz, Laguna), who pays a membership fee of P1.00
mill, and its claim for refund hereof must be, as the same is hereby, and buys at least a share of stock in his name, may become a member of
denied. With respect to he sum of P100.00 as compromise penalty, the the Association PROVIDED, HOWEVER, That before becoming a member
collection thereof being unauthorized and illegal, respondent is ordered he shall file an application for membership addressed to the Board of
to refund he said amount, plus interest at the legal rate. No Directors of the Association, which shall decide whether or not he is to
pronouncement as to costs. (Annex A) be ac accepted as member. (Exhibit A-1, pp. 80-85, BIR rec.)
On 3 September 1958 the petitioner filed a motion for reconsideration, on 29 It goes without saying that any resident municipality of Santa Cruz, Laguna, who pay
September 1958 the respondent, an objection thereto, and on 2 October 1958 the to of the petitioner association a membership fee of P1 and buys in his name at lease

Tax II Fulltext | 2nd set | Remedies | 41


a share of stock of the association, even if he is not engaged in the production of
or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.15 cu. m.
agricultural products may become a member of the petitioner association. For that
reason, the requirement of the law that members of a cooperative marketing Regular forest charges on 184.15 cu. m. at P3.50 . . . . . .
association should be engaged in the production of agricultural products is not ....... P 644.53
complied with.
300% surcharge for cutting without license . . . . . . . . . . .
Although the witnesses for the petitioner association, namely, Jose del Mundo, ........ 1,933.59
Esteban Dayo, Pedro Calinagan, Jose Reyes, Miguel Carlos, Daniel Panganiban and
Fermin Domingo, testified that they were members of, the petitioner association and 50% (x) surcharge for transporting without invoice . . .
were either owners of riceland or farmers who milled their palay in the ricemill of .......... 322.26
the petitioner association, yet such testimony alone does not establish the fact that
all of the members of the petitioner association are engaged in the production of 50% surcharge for discharging without
agricultural products. In the stipulation of facts submitted to the courts the parties permit . . . . . . . . . . . . . . . . . 322.26
merely agreed that the persons who brought and milled their palay in the
petitioner's ricemill from 2 to 31 March 1953 listed in Exhibits D, D-1 and 10 and 50% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . .
their respective relation to the members of he petitioner-organization stated ....... 322.26
therein, would testify that they were known or called in the community by the
names or nick names appearing therein; that they themselves brought their palay or Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . P3,544.90
had it brought through their respective relatives landlords or employers to the
ricemill for milling; and that to abbreviate the proceeding and avoid a lengthy and Regular forest charges on 13.94 cu. m. at
costly litigation, the said persons appearing in the list (Exhibits D, D-1 and 10), P3.50 . . . . . . . . . . . . . . . 48.79
would no longer be present to testify at the hearing of the case. The evidence at hand
does not sufficiently establish the fact that all members of the petitioner association 300% surcharge for cutting without license . . . . . . . . . . .
are engaged in the production of agricultural products. Hence, it cannot be said to ......... 146.37
have been organized as a cooperative marketing association and entitled to
exemption from the payment of taxes provided for in section 48 of the Cooperative 25% surcharge for transporting without
Marketing Law, Act No. 3425, as amended. invoice . . . . . . . . . . . . . . . . 12.20

The judgment under review is affirmed, with costs against the petitioner. 25% surcharge for discharging without
permit . . . . . . . . . . . . . . . . . 12.20
EN BANC
25% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . .
G.R. No. L-19074 January 31, 1967 ....... 12.20

COMMISSIONER OF INTERNAL REVENUE, petitioner, Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . . P231.76


vs.
ANTONIO G. GUERRERO, and the COURT OF TAX APPEALS, respondents.
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . P4,969.17
----------------------------- In addition to the above amount, the sums of P20.00 and P100.00 as compromise
penalties in extrajudicial settlement of his penal liabilities under sections 208 and
G.R. No. L-19089 January 31, 1967
209 of the N.I.R.C. should be reiterated. That another sum of P50.00 as compromise
penalty for his violation of the Bookkeeping Regulations should be imposed against
ANTONIO G. GUERRERO, petitioner,
the taxpayer, he having admitted during the hearing of this case that he did not keep
vs.
books of accounts for his timber business.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
This recommendation was approved by the Collector of Internal Revenue, who,
CONCEPCION, C.J.:
accordingly, made the corresponding reassessment upon receipt of notice of which
These are two (2) appeals from the same decision of the Court of Tax Appeals. One Guerrero requested, on February 10, 1956, a rehearing before the Conference Staff.
(L-19074) was taken by the Commissioner of Internal Revenue, and the other Instead of acting on this request, on April 20, 1956, the corresponding Internal
(L-19089) by Antonio G. Guerrero. The dispositive part of said decision reads: Revenue Regional Director issued a warrant of distraint and levy against the
properties of Guerrero, in order to effect the collection of his tax liabilities under
In line with the foregoing opinion, the decision appealed from is hereby said reassessment. Hence, on June 8, 1956, Guerrero filed with the Court of Tax
modified. Petitioner (Antonio G. Guerrero) is ordered to pay the sum of Appeals the corresponding petition for review. Subsequently, said court rendered
P3,775.66 within thirty days from the date this decision becomes final. the decision appealed from. Hence, these appeals.
No pronouncement as to costs. (Emphasis ours.)
There is no dispute as to the volume of sales of logs made by Guerrero during the
Said Antonio G. Guerrero was, during the years 1949 and 1950, a dealer in logs, years 1949 and 1950, upon which the disputed reassessment is based. The only
which he used to sell to the Aparri Lumber Company, hereinafter referred to as the issues in these appeals are whether or not he is liable for the payment of: (1)
company. P3,775.66, by way of forest charges and surcharges on the logs sold to the company,
which the Court of Tax Appeals answered in the affirmative; (2) P1,192.51, by way of
On April 2, 1954, the then Collector of Internal Revenue made an assessment and fixed and percentage taxes and surcharges as producer of said logs, which said court
demand requiring Guerrero to pay the sum of P4,014.91, representing fixed and decided in the negative; (3) P668.36, as additional forest charges and sales taxes, as
percentage taxes and forest charges, as well as surcharges and penalties, in well as surcharges, which was decided by the trial court in favor of the taxpayer; and
connection with his aforementioned business transactions with the company. Upon (4) P120.00 and P50.00 as compromise penalties for violation of Sections 208 and
Guerrero's request, the matter was submitted to the Conference Staff of the Bureau 209 of the Revised Internal Revenue Code and of the bookkeeping regulations,
of Internal Revenue, which, in due course, thereafter, or on January 11, 1956, respectively, likewise, decided by the Court of Tax Appeals against the Government.
recommended that the assessment be increased to P5,139.17, computed as follows:
With respect to the first item, Guerrero maintains that, he is not liable therefor
because he bought the logs in question for the company, as agent thereof and with
C-14 producer's fixed tax for 1949 and 1950 . . . . . . . . . .
money belonging thereto. However, before the Conference Staff of the then Bureau of
......... P 20.00
Internal Revenue, Guerero had: claimed that he financed his business with his own
money and sold the logs to the company on a commission basis. Moreover, he
5% sales tax on P18,760.20
admitted having sold some lumber to other enterprises in Manila, although he had
(P14,377.92 & P4,382.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
previously asserted that he dealt exclusively with the company.
....... 938.01
Upon the other hand, the auxiliary invoices presented before the Bureau of Internal
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue were either spurious, or referred to logs other than those involved in the
..... 234.50
disputed reassessment. Thus, for instance, in exhibit 8-AA (O.R. No. 6578049, p. 82,
Total for fixed and sales taxes and surcharges . . . . . . . . P1,192.51 BIR record), the word "June" was superimposed over the word "May" and, at the
back of Exhibit 8-AA-1 (p. 81, BIR record), which is the corresponding invoice, two
Vol. of timber, July 4, 1949 to May 21, 1950 (41,880 & similar alterations were made. In the auxiliary invoices Exhibits 00-3 and 00-4 (PP.
13,892) . . . 55,772 Bd. ft 28-29, BIR record), submitted by Guerrero to the Conference Staff, as Exhibits C-3
and C-4, his name is written (script), in ink, on the space opposite the word
Add: 40% for consignee". However, in the copies of said auxiliary invoices (Exhibits 8-R-2 and 8-S
squaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,309 " " pp. 117 and 119, BIR record), taken from the company, the corresponding space is
blank. Again, the taxpayer's name on said Exhibits 00-3 and 00-4 is handwritten
Total volume to be assessed . . . . . . . . . . . . . . . . . . . . . . . 78,081 " " with a penmanship that is markedly different from that of Segundo Agustin, the
signatory of said invoices, who had supposedly accomplished the same, thus

Tax II Fulltext | 2nd set | Remedies | 42


indicating that said name could not have been written by Segundo Agustin, and and (b) by judicial action. Either of these remedies or both
rendering the authenticity of the documents highly doubtful. Furthermore, said simultaneously may be pursued in the discretion of the authorities
invoices, as well as the other invoices submitted by Guerrero to the Conference Staff charged with the collection of such taxes.
(Exhibits C-1 to C-14, also, marked as Exhibits 00-1 to 00-14, pp. 18-31, BIR record),
referred to logs other than those involved in the questioned reassessment. No exemption shall be allowed against the internal revenue taxes in any
case. (Emphasis supplied.)
The foregoing circumstances clearly indicate that the logs involved in said
reassessment were obtained from illegal sources, and that the forest charges due In other words, the National Internal Revenue Code makes a distinction between
thereon had not been paid. Since these charges "are liens on the products and taxes, on the one hand, and fees or charges, on the other; but as used in Title IX of said
collectible from whomsoever is in possession" thereof, "unless he can show that he Code, the term "tax" includes "any national internal revenue tax, fee or charge
has the required auxiliary and official invoice and discharge permit" (Collector of imposed by" the Code. And it is in this sense only that we sustained the view taken
Internal Revenue vs. Pio Barretto and Sons, L-11805, May 31, 1960) — which in the aforementioned concurring dissenting opinion in Collector of Internal
Guerrero has not shown — it follows that he is bound to pay the aforementioned Revenue vs. Lacson (supra). Hence, in the Barretto case, it was held that the
forest charges and surcharges, in the sum of P3,775.66. Government does not sell forest products, but merely collects charges on the
privilege granted by it "for the exploitation of forest concessions, i.e., charges for the
As regards the second item of P1,192.51, representing fixed and percentage taxes right to exercise the privilege granted by the Government to the licensee of cutting
and surcharges, as producer of the logs involved in the reassessment, the Court of timber from a public forest or forest reserve". In line with this view, we stressed in
Tax Appeals held that Guerrero is not liable therefor, upon the theory that said logs Cordero vs. Gonda, L-22369 (October 15, 1966), the declaration made in Cebu
were sold by the Government to the one who had cut, and removed the products from Portland Cement Co. vs. Commissioner of Internal Revenue,
the forest; that the original sale of said logs was, therefore, made by the Government, L-18649 (February 27, 1965), that a mining ad valorem tax "is a tax not on the
not by the concessionaire or cutter of the forest products; and that, accordingly, minerals, but upon the privilege of severing or extracting the same from the earth,"
Guerrero is not liable for the payment of the corresponding fixed and percentage although strictly a fee for something received is not a tax. As a consequence, the
taxes thereon. This theory is based upon the premise that, whereas in Collector of original sale, as contemplated in Section 186 of the Internal Revenue Code, is made
Internal Revenue vs. M.R. Lacson, L-12945 (April 29, 1960), we held that forest by the concessionaire or whoever cuts or removes forest products from public forests
charges are internal revenue taxes, this ruling was reversed in Collector of Internal or forest reserves — in the case at bar, Guerrero, who is accordingly, bound to pay
Revenue vs. Pio Barretto Sons, L-11805 (May 31, 1960). said sum of P1,192.51.

It is true that the dispositive portion of our decision in the first case expressly
sustained the concurring and dissenting opinion of a member of the Court of Tax
While this case was being heard in the Court of Tax
Appeals in the appealed decision thereof and that the writer of the opinion Appeals, certain documents were discovered, tending to
maintained that forest charges are internal revenue taxes. A careful perusal of the
text of the decision of the Supreme Court therein shows, however, that said show that Guerrero had evaded the payment of forest
dissenting opinion is not the ratio decidendi of the aforementioned decision. It charges on certain logs (other than those heretofore
should be noted that the Collector of Internal Revenue contested the jurisdiction of
the Court of Tax Appeals to entertain the appeal taken by Lacson from the mentioned), which had been shipped and sold by him to
assessment made by said officer involving forest charges, and that the Supreme
Court upheld the authority of the tax court to hear and decide said appeal, because the company. Said documents, which were found in the
the issue therein was the validity of said assessment. From the viewpoint of the possession of the latter, covered logs shipped and sold
Supreme Court, this issue was decisive on the question of jurisdiction of the Court of
Tax Appeals, regardless of whether forest charges were taxes or not. thereto as follows:
At this juncture, it may not be amiss to advert to a problem of semantics arising from
Exhibit Date Volume Invoice Page
the operation of Section 1588 of the Revised Administrative Code, the counterpart of
which is now Section 315 of the National Internal Revenue Code, pursuant to which:
8-I-2 May 9, 1949 4.966 Cu. m. 12272263 156 (BIR Rec.)
Every internal revenue tax on property or on any business or
8-I-3 May 9, 1949 2.151 Cu. m. 12272263 155 " "
occupation, and every tax on resources and receipts, and any increment
to any of them incident to delinquency, shall constitute a lien superior to
8-BB-1 May 20, 1949 5.20 Cu. m. 6578041 77 " "
all other charges or liens not only on the property itself upon which
such tax may be imposed but also upon the property used in any 8-AA-1 May 21, 1949 4.63 Cu. m. A-6578048 81 " "
business or occupation upon which the tax is imposed and upon all
property rights therein. The aforementioned documents consist of auxiliary invoices — purporting to have
been issued by Concessionaire Segundo Agustin to Guerrero as consignee of the logs
xxx xxx xxx therein mentioned — which are not included in Agustin's certificate (Exhibit 00, p.
32 BIR record) of the invoices covering logs sold by him to Guerrero, thus showing
The enforcement of this lien by the Commissioner (formerly Collector) of Internal that the said invoices (Exhibits 8-I-2, 8-I-3, 8-BB-1 and 8-AA-1) are spurious; that
Revenue, has often induced the parties adversely affected thereby to raise the the logs therein described must have been obtained by Guerrero from illegal
question whether a given charge is a tax or not, on the theory that there would be no sources; and that the forest charges and the sale and percentage taxes thereon have
lien if said question were decided in the negative. In connection therewith, said not been paid. Although these charges and taxes are not included in the original and
parties had tended to distinguish between taxes, on the one hand — as burdens revised assessments made in this case, petitioner herein maintains that Guerrero
imposed upon persons and/or properties, by way of contributions to the support of may nevertheless be held liable therefor, inasmuch as:
the Government, in consideration of general benefits derived from its operation —
and license fees — charged in the exercise of the regulatory authority of the state, Where plaintiffs themselves show facts upon which they should not
under its police power — and other charges — for specific things or special or recover, whether defendant pleaded such fact as a defense or not, their
particular benefits received from the Government — on the other hand. claim should be dismissed. Evidence introduced without objection
becomes property of the case and all the parties are amenable to any
It is high time to stress that the term "tax," as it appears in said Section 1588 of the favorable or unfavorable effects resulting from the evidence. (Emphasis
Revised Administrative Code and Section 315 of the National Internal Revenue Code, ours; Beam vs. Yatco, 82 Phil. 30.)
is used in these provisions, not in the limited sense adverted to above, but, in a
broad sense encompassing all Government revenues collectible by the Commissioner of Petitioner's contention is untenable. The foregoing doctrine deals with plaintiff's
Internal Revenue under said Code, whether involving taxes, in the strict technical right to recover, when his own evidence proves the contrary. In short, it refers to a
sense thereof, or not. Thus, under the heading "injunction not available to restrain point in issue. In the case at bar, the additional logs under consideration were not
collection of tax", Section 305 of said Code — which is the first provision of Title IX included in the contested assessments. Since the jurisdiction of the Court of Tax
(entitled "General Administrative Provisions"), Chapter I (entitled "Remedies in Appeals is purely appellate, said Court correctly declined to make an award thereon,
General) thereof — provides: for lack of jurisdiction over the same.

No court shall have authority to grant an injunction to restrain the With reference to the last two (2) items of P120.00 and P50.00, the Court of Tax
collection of any national internal-revenue tax, fee, or charge imposed Appeals did not sentence Guerrero to pay the same upon the ground that he had not
by this Code. entered into a compromise agreement with the Government. The record shows,
however, that Guerrero had expressed his willingness to pay "any compromise
Similarly, under the heading "Civil remedies for the collection of delinquent taxes," penalty which may be imposed by the Honorable Court."
Section 316 of the same Code ordains;
In short we find that the Court of Tax Appeals has erred in not sentencing Antonio G.
The civil remedies for the collection of internal revenue taxes, fees, or Guerrero to pay, besides the sum of P3,775.66 awarded in the decision appealed
charges, and any increment thereto resulting from delinquency shall be from, the aforementioned additional sums of P1,192.51, P120.00 and P50.00. Thus
(a) by distraint of goods, chattels, or effects, and other personal property modified, with the addition of these sums in the award in favor of the Government
of whatever character, including stocks and other securities, debts, and against Antonio G. Guerrero, the decision appealed from is hereby affirmed,
credits, bank accounts, and interest in and rights to personal property, therefore, in all other respect, with costs against the latter. It is so ordered.
and by levy upon real property and interest in or rights to real property;

Tax II Fulltext | 2nd set | Remedies | 43


FIRST DIVISION Based on the foregoing, the respondent Commissioner of Internal Revenue on
October 6, 1961, assessed against the petitioner "the payment of P25,080.91 as
G.R. Nos. L-22805 & L-27858 June 30, 1975 deficiency percentage taxes and 25% surcharge for 1957 to 1960 and suggested the
payment of P5,020.00 as total compromise penalty in extrajudicial settlement of the
WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. various violations of the Tax Code and Bookkeeping Regulation (pp. 28-29 B.I.R.
LUCIO QUIJANO, President & General Manager, petitioner, rec.).1äwphï1.ñët "
vs.
THE HON. COURT OF TAX APPEALS and THE BUREAU OF INTERNAL REVENUE Regarding the compromise penalty suggested by respondent Bureau of Internal
BEING REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE, Revenue in both G.R. L-22805 and L-27858, it does not appear that petitioner
respondents. accepted the imposition of the compromise amounts. Hence We find no compelling
reasons to alter the decision of respondent Court of Tax Appeals in L-27858 that —
ESGUERRA, J.:
With respect to the compromise penalty in the total amount
Two petitions for review of the decisions of the respondent Court of Tax Appeals in of P5,020.00 suggested by respondent to be paid by
G.R. Nos. L-22805 and L-27858. The first decision (L-22805) dismissed the appeal of petitioner, it is now a well settled doctrine that compromise
petitioner Wonder Mechanical Engineering Corporation in C.T.A. Case No. 1036, "for penalty cannot be imposed or collected without the
lack of jurisdiction, the same having been filed beyond the 30 day period prescribed agreement or conformity of the tax payer (Collector of
in Section 11 of Republic Act No. 1125", and confirmed the decision of respondent Internal Revenue vs. University of Santo Tomas, et al., G.R.
Commissioner of Internal Revenue which "assessed against petitioner the total Nos. L-11274 & L-11280, November 28, 1958; the Collector
amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the of Internal Revenue v. Bautista, et al., G.R. Nos. L-12250 &
25% surcharge for the years 1953-54". The second decision (L-27858) ordered the 12259, May 27, 1959; the Philippines International Fair, Inc.
same petitioner to pay, respondent Commissioner of Internal Revenue the amount of v. Collector of Internal Revenue, G.R. Nos. L-12928 & L-
"P25,080.91 as deficiency sales and percentage taxes from 1957 to June 30, 1960, 12932, March 31, 1962). (Emphasis for emphasis)
inclusive of the 25% surcharge, plus costs", based on the common principal issue of
"whether or not the manufacture and sale of steel chairs, jeepney parts and other Inasmuch as the figures appearing in the Bureau of Internal Revenue's tax
articles which are not machines for making other products, and job orders done by delinquency assessments in both cases (L-22805 and L-27858) are not in dispute,
petitioner come within the purview of the tax exemption granted it under Republic and the respondent Court of Tax Appeals ruled in its decision in G.R. No. L-27858 on
Act Nos. 35 and 901." the lone issue presented in both cases that the tax assessment of "P25,080.91 as
deficiency sales and percentage taxes from 1957 to June 30, 1960" must be paid by
Petitioner is a corporation which was granted tax exemption privilege under petitioner as the sale of other manufactured items did not come within the purview, of
Republic Act 35 in respect to the "manufacture of machines for making cigarette the tax exemption granted petitioner. We find it no longer necessary to make a
paper, pails, lead washers, rivets, nails, candies. chairs, etc.". The tax exemption definite stand on the question raised in L-22805 as to the alleged error committed
expired on May 30, 1951. On September 14, 1953, petitioner applied with the by respondent Court of Tax Appeals in dismissing the appeal in C.T.A. 1036 (subject
Secretary of Finance for reinstatement of the exemption privilege under the matter of L-22805) for lack of jurisdiction, the same having been filed beyond the
provisions of R.A. 901 approved July 7, 1954, the reinstatement to commence on 30-day period prescribed in Section 11 of Republic Act 1126. Suffice it to say on that
June 20, 1953, the date Republic Act 901 took effect. issue that appellants must perfect their appeal from the decision of the
Commissioner of Internal Revenue to the Court of Tax Appeals within the statutory
In G.R. No. L-22805, respondent Commissioner of Internal Revenue, sometime in period of 30 days, otherwise said Court acquires no jurisdiction.
1955, caused the investigation of petitioner for the purpose of ascertaining whether
or not it had any tax liability. The findings of Revenue Examiner Alfonso B. Camillo We turn Our attention on the vital issue of tax exemption claimed by petitioner as
on September 30, 1955, stated "that during the years 1953 and 1954 the petitioner basis for questioning the tax assessments made by respondent Bureau of Internal
was engaged in the business of manufacturing various articles, namely, auto spare Revenue in both cases (G.R. L-22805 and 27858). There is no doubt that petitioner
parts, flourescent lamp shades, rice threshers, post clips, radio screws, washers, was given a Certificate of Tax Exemption By the Secretary of Finance on July 7,1954,
electric irons, kerosene stoves and other articles; that it also engaged in business of as follows:
electroplating and in repair of machines; that although it was engaged in said
business, it did not provide itself with the proper privilege tax receipts as required Be it known that upon application filed by Wonder
by Section 182 of the Tax Code and did not pay the sales tax on its gross sales of Mechanical Engineering Corporation, 1310 M. Hizon, Sta.
articles manufactured by it and the percentage tax due on the gross receipts of its Cruz, Manila, in respect to the manufacture of machines for
electroplating and repair business pursuant to Sections 183, 185, 186 and 191 of the making cigarette paper, pails, lead washers, nails, rivets,
same Code". candies, etc., the said industry/industries have been
determined to be new and necessary under the provisions
Based on the foregoing, respondent Commissioner of Internal Revenue assessed of Republic Act No. 901 (or of Republic Act No. 35), in view
against petitioner on November 29, 1955, the total amount of P69,699.56 as fixed of which this Certificate of Tax Exemption has been issued
taxes and sales and percentage taxes, inclusive of the 25% surcharge, as follows: entitling the abovenamed firm/person to tax exemption
from the payment of taxes directly payable by it/him in
Sales and percentage taxes for respect to the said industry/industries until December 31,
1953 and 1954 P55,719.65 1958, and thereafter to a diminishing exemption until June
20, 1959, as provided in section 1 of Republic Act No. 901,
25% surcharge 13,929.91
except the exemption from the income tax which will wholly
C-14 fixed tax (1953-1954) 20.00 terminate on June 20, 1955 (B.I.R. rec., page 13). (Emphasis
for emphasis)
C-4 (27) fixed tax (1954) 10.00
Republic Act 35, approved on September 30, 1946, grants to persons "who or which
C-4 (37) fixed tax (1953-1954) 20.00 shall engage in a new and necessary industry", for a period of four years from the
date of the organization of such industry, exemption "from the payment of all
TOTAL P69.699.56 internal revenue taxes directly payable by such person". Republic Act 901, approved
on June 20, 1953, which amended Republic Act 35 by extending the period of tax
Respondent also suggested the payment of the amount of P3,300.00 as penalties in exemption, elaborated on the meaning of "new and necessary industry" as follows:
extrajudicial settlement of petitioner's violations of Sections 182, 183, 185, 186 and
191 of the Tax Code and of the Bookkeeping Regulations (p. 25, B.I.R. rec.). Sec. 2. For the purposes of this Act, a "new industry is one not existing or
operating on a commercial scale prior to January first, nineteen hundred
In G.R. No. L-27858, respondent Commissioner of Internal Revenue caused the and forty-five. Where several applications for exemption are filed in
investigation of petitioner for the purpose of ascertaining its tax liability on August connection with the same kind of industry, the Secretary of Finance shall
10, 1960, as a result of which on December 7, 1960, Revenue Examiner Pedro approve them in the order in which they have been filed until the total
Cabigao reported that "petitioner had manufactured and sold steel chairs without output or production of those already granted exemption for that
paying the 30% sales tax imposed by Section 185(c) of the Tax Code; accepted job particular kind of industry is sufficient to meet local demand or
orders without paying the 3% tax in gross receipts imposed by Section 191 of the consumption: Provided, That the limitation shall not apply to products
same Code; manufactured and sold other articles subject to 7% sales tax under intended for export. (Emphasis for emphasis)
Section 186 of the same Code but not covered by the tax exemption privilege; failed
to register with the Bureau of Internal Revenue books of accounts and sales invoices Sec. 3. For the purposes of this Act, a "necessary" industry is one
as required by the Bookkeeping Regulations; failed to indicate in the sales invoices complying with the following requirements:
the Residence Certificate number of customers who purchased articles worth
P50.00 or over, in violation of the Bookkeeping Regulation; and failed to produce its (1) Where the establishment of the industry will contribute to
books of accounts and business records for inspection and examination when the attainment of a stable and balanced national economy.
required to do so by the revenue examiner in violation of the Bookkeeping
Regulations (pp. 17-18 B.I.R. rec.)". (2) Where the industry will operate on a commercial scale in
conformity with up-to-date practices and will make its
products available to the general public in quantities and at

Tax II Fulltext | 2nd set | Remedies | 44


prices which justify its operation with a reasonable degree of
permanency.

(3) Where the imported raw materials represent a value not


exceeding sixty percentum of the manufacturing cost plus
reasonable selling price and administrative expenses:
Provided, That a grantee of tax exemption shall use
materials of domestic origin, growth, or manufacture
wherever the same are available or could be made available
in reasonable quantity and quality and at reasonable
prices. ... (Emphasis for emphasis) .

From the above-quoted provisions of the law, it is clear that an industry to be


entitled to tax exemption must be "new and necessary" and that the tax exemption
was granted to new and necessary industries as an incentive to greater and
adequate production of products made scarce by the second world war which
wrought havoc on our national economy, a production "sufficient to meet local
demand or consumption"; that will contribute "to the attainment of a stable and
balanced national economy"; an industry that "will make its products available to
the general public in quantities and at prices which will justify its operation."

Viewed in the light of the foregoing reasons for the State grant of tax exemption, We
are firmly convinced that petitioner was granted tax exemption in the manufacture
and sale "of machines for making cigarette paper, pails, lead washers, nails, rivets,
candies, etc.", as explicitly stated in the Certificate of Exemption (Annex A of the
petition in G.R. No. L-22805), but certainly not for the manufacture and sale of the
articles produced by those machines.

That such was the intention of the State when it granted tax exemption to the
petitioner in the manufacture of machines for making certain products could be
deduced from the following:

Before the approval of the original grant of tax exemption to Petitioner


for engaging in a new and necessary industry under Republic Act No. 35,
the then Secretary of Finance submitted a memorandum to the Cabinet,
dated March 3, 1949, the pertinent portions of which read as follows:

"... If (petitioner) turns out machines whenever orders


therefore are received. Among its products are a medicine
tablet wrapping machine for Dr. Agustin Liboro, photographs
of which are attached, a loud speaker for the Manila Supply,
and a "Lompia wrapping" machine for a certain Chinese. ...

The manufacture of the above-mentioned machines can be


considered a new and necessary industry for the purpose of
Republic Act No. 35. It is recommended that the benefits of
said Act be extended to this corporation in respect to said
industry.

The letter of the Executive Secretary to the petitioner dated


May 30, 1949, reads as follows:

"Sirs:

I have the honor to advise you that His Excellency, the


President, has today, upon recommendation of the
Honorable, the Secretary of Finance, approved your
application for exemption from the payment of internal
revenue taxes on your business of manufacturing machines
for making a number of products, such as cigarette paper,
pails, lead washers, rivets, nails, candies, chairs, etc., under
the provisions of Section 2 of Republic Act No. 35.

Aside from the clarity of the State's intention in granting tax exemption to petitioner
in so far as it manufactures machines for making certain products, as manifested in
the acts of its duly authorized representatives in the Executive branch of the
government, it is quite difficult for Us to believe that the manufacture of steel chairs,
jeep parts, and other articles not constituting machines for making certain products
would fall under the classification of "new and necessary" industries envisioned in
Republic Acts 35 and 901 as to entitle the petitioner to tax exemption.

There is no way to dispute the "cardinal rule in taxation that exemptions therefrom
are highly disfavored in law and he who claims tax exemption must be able to justify
his claim or right thereto by the dearest grant of organic or statute law" as succinctly
stated in the decision of the respondent Court of Tax Appeals in C.T.A. No. 1265 (L-
27858).1äwphï1.ñët

Tax exemption must be clearly expressed and cannot be established by implication.


Exemption from a common burden cannot be permitted to exist upon vague
implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; House vs. Posadas, 53
Phil. 338; Collector of Internal Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755,
March 23, 1956, 98 Phil. 676).

WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases
are affirmed. Costs against the petitioner in both cases.

Tax II Fulltext | 2nd set | Remedies | 45

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