Professional Documents
Culture Documents
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* SECOND DIVISION.
692
693
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694
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For 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.
695
LEONEN, J.:
In an action for the refund of taxes allegedly erroneously
paid, the Court of Tax Appeals may determine whether
there are taxes that should have been paid in lieu of the
taxes paid. Determining the proper category of tax that
should have been paid is not an assessment. It is incidental
to determining whether there should be a refund.
A Philippine Economic Zone Authority (PEZA)-
registered corporation that has never commenced
operations may not avail the tax incentives and
preferential rates given to PEZA-registered enterprises.
Such corporation is subject to ordinary tax rates under the
National Internal Revenue Code of 1997.
This is a petition for review1 on certiorari of the
November 3, 2006 Court of Tax Appeals En Banc decision.2
It affirmed the Court of Tax Appeals Second Division’s
decision3 and resolution4 denying petitioner SMI-Ed
Philippines Technology, Inc.’s (SMI-Ed Philippines) claim
for tax refund.5
SMI-Ed Philippines is a PEZA-registered corporation
authorized “to engage in the business of manufacturing
ultra high-density microprocessor unit package.”6
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696
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7 Id.
8 Id., at pp. 8 and 35.
9 Id., at p. 8.
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697
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14 Id., at p. 10.
15 Id., at p. 60.
16 Id., at pp. 61-62.
17 Id., at p. 62.
18 Id.
19 Id., at pp. 63-67.
20 Id., at p. 68.
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698
The Court of Tax Appeals denied SMI-Ed Philippines’
motion for reconsideration in its June 15, 2005 resolution.24
On July 17, 2005, SMI-Ed Philippines filed a petition for
review before the Court of Tax Appeals En Banc.25 It
argued that the Court of Tax Appeals Second Division
erroneously assessed the 6% capital gains tax on the sale of
SMI-Ed Philippines’ equipment, machineries, and
buildings.26 It also argued that the Court of Tax Appeals
Second Division cannot make an assessment at the first
instance.27 Even if the Court of Tax Appeals Second
Division has such power, the period to make an assessment
had already prescribed.28
In the decision promulgated on November 3, 2006, the
Court of Tax Appeals En Banc dismissed SMI-Ed
Philippines’ petition and affirmed the Court of Tax Appeals
Second Division’s decision and resolution.29 The dispositive
portion of the Court of Tax Appeals En Banc’s decision
reads:
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23 Id.
24 Id., at p. 10.
25 Id., at p. 36.
26 Id., at pp. 10-11 and 114.
27 Id., at pp. 11 and 114.
28 Id.
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29 Id., at p. 18.
30 Id.
699
Petitioner argued that the Court of Tax Appeals has no
jurisdiction to make an assessment since its jurisdiction,
with respect to the decisions of respondent, is merely
appellate.34 Moreover, the power to make assessment had
already prescribed under Section 203 of the National
Internal Revenue Code of 1997 since the return for the
erroneous payment was filed on September 13, 2000. This
is more than three (3) years from the last day prescribed by
law for the filing of the return.35
Petitioner also argued that the Court of Tax Appeals En
Banc erroneously subjected petitioner’s machineries to 6%
capital gains tax.36 Section 27(D)(5) of the National
Internal Revenue Code of 1997 is clear that the 6% capital
gains tax on
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31 Id., at p. 29.
32 Id., at p. 50.
33 Id., at p. 37.
34 Id., at p. 38.
35 Id., at pp. 40-41.
36 Id., at p. 41.
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700
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701
The BIR is not mandated to make an assessment
relative to every return filed with it. Tax returns filed with
the BIR enjoy the presumption that these are in accordance
with the law.45 Tax returns are also presumed correct since
these are filed under the penalty of perjury.46 Generally,
however, the BIR assesses taxes when it appears, after a
return had been filed, that the taxes paid were incorrect,47
false,48 or fraudulent.49 The BIR also assesses taxes when
taxes are due but no return is filed.50 Thus:
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702
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The Court of Tax Appeals has no power to make an
assessment at the first instance. On matters such as tax
collection, tax refund, and others related to the national
internal revenue taxes, the Court of Tax Appeals’
jurisdiction is appellate in nature.
Section 7(a)(1) and Section 7(a)(2) of Republic Act No.
1125,51 as amended by Republic Act No. 9282,52 provide
that
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703
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Based on these provisions, the following must be present
for the Court of Tax Appeals to have jurisdiction over a
case involving the BIR’s decisions or inactions:
a) A case involving any of the following:
i. Disputed assessments;
ii. Refunds of internal revenue taxes, fees, or other
charges, penalties in relation thereto; and
iii. Other matters arising under the National Internal
Revenue Code of 1997.
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704
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705
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707
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708
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709
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710
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63 Rollo, p. 8.
64 Id., at p. 35.
65 Id., at p. 62.
711
Thus, “capital assets” refers to taxpayer’s property that
is NOT any of the following:
1. Stock in trade;
2. Property that should be included in the taxpayer’s
inventory at the close of the taxable year;
3. Property held for sale in the ordinary course of the
taxpayer’s business;
4. Depreciable property used in the trade or business;
and
5. Real property used in the trade or business.
The properties involved in this case include petitioner’s
buildings, equipment, and machineries. They are not
among the exclusions enumerated in Section 39(A)(1) of the
National Internal Revenue Code of 1997. None of the
properties were used in petitioner’s trade or ordinary
course of business because petitioner never commenced
operations. They were not part of the inventory. None of
them were stocks in trade. Based on the definition of
capital assets under Section 39 of the National Internal
Revenue Code of 1997, they are capital assets.
Respondent insists that since petitioner’s machineries
and equipment are classified as capital assets, their sales
should be subject to capital gains tax. Respondent is
mistaken.
In Commissioner of Internal Revenue v. Fortune Tobacco
Corporation,66 this court said:
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66 581 Phil. 146; 559 SCRA 160 (2008) [Per J. Tinga, Second Division].
712
Capital gains of individuals and corporations from the
sale of real properties are taxed differently.
Individuals are taxed on capital gains from sale of all
real properties located in the Philippines and classified as
capital assets. Thus:
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713
Therefore, only the presumed gain from the sale of
petitioner’s land and/or building may be subjected to the
6% capital gains tax. The income from the sale of
petitioner’s machin-
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714
Moreover, Rule 131, Section 3(ff) of the Rules of Court
provides for the presumption that the law has been obeyed
unless contradicted or overcome by other evidence, thus:
The BIR did not make a deficiency assessment for this
declaration. Neither did the BIR dispute this statement in
its pleadings filed before this court. There is, therefore, no
reason
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69 Rollo, p. 9.
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715
This court said that the prescriptive period to make an
assessment of internal revenue taxes is provided “primarily
to safeguard the interests of taxpayers from unreasonable
investigation.”71
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716
Rules derogating taxpayers’ right against prolonged and
unscrupulous investigations are strictly construed against
the government.74
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72 Id.
73 Id., at p. 183; p. 707, citing Philippine Journalists, Inc. v.
Commissioner of Internal Revenue, 488 Phil. 218, 229-230; 447 SCRA 214,
225 (2004) [Per J. Ynares-Santiago, First Division].
74 Commissioner of Internal Revenue v. FMF Development
Corporation, id., at p. 185; p. 709.
75 Id., at p. 186; p. 710, citing Republic v. Ablaza, 108 Phil. 1105, 1108
(1960) [Per J. Labrador, En Banc].
717
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The BIR had three years from the filing of petitioner’s
final tax return in 2000 to assess petitioner’s taxes.
Nothing stopped the BIR from making the correct
assessment. The elevation of the refund claim with the
Court of Tax Appeals was not a bar against the BIR’s
exercise of its assessment powers.
The BIR, however, did not initiate any assessment for
deficiency capital gains tax.78 Since more than a decade
have lapsed from the filing of petitioner’s return, the BIR
can no longer assess petitioner for deficiency capital gains
taxes, if petitioner is later found to have capital gains tax
liabilities in excess of the amount claimed for refund.
The Court of Tax Appeals should not be expected to
perform the BIR’s duties of assessing and collecting taxes
when-
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76 363 Phil. 169; 303 SCRA 546 (1999) [Per J. Panganiban, Third
Division].
77 Id., at pp. 178-180; p. 557.
78 Rollo, p. 250.
718
Internal Revenue
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