Remedies – Mode of Appeal and Effect of Appeal increasing the same on ground that he had committed error in good
that he had committed error in good faith in making
102 Phil. 822 – CIR v Batangas Transportation Co. and Laguna-Tayabas Bus Co.
Montemayor J
Two bus companies entered into a Joint Emergency Operation (akin to a Joint Venture) after
WWII to economize on expenses. CIR demanded payment of deficient taxes of 422k, but was
amended to 54k. Both respondent bus companies appealed to CTA. Pending appeal to the CTA,
CIR raised the deficiency assessment to 148k. SC ruled that the CIR has the power to amend
assessments pending appeal to CTA.
DOCTRINE
 The CIR may amend assessment even while the appeal on the case is pending on the
CTA.
FACTS
1. The respondent companies are distinct and separate corporations engaged in business of
land transpo by means of motor buses operating under separate and distinct lines.
a. Noted here is that before WW2 each company maintained separate head offices,
books, fleets, management etc.
2. During the War, American officials of the two corporations were interned (jailed) in Santo
Tomas and hence companies ceased operations losing respective properties and
equipment.
3. After the war, the two companies acquired 56 auto buses from the US Army and then
divided them equally among themselves and registering separately.
4. The manager of Laguna Bus (Martin Olson) resigned and was succeeded by Joseph
Benedict who was then managing the Batangas Transportation placing subsequently the
control to Max Blouse the President of both companies by virtue of a board resolution and
ratified by both companies.
a. The purpose of joint management (Called Joint Emergency Operation) was to
economize overhead expenses and able to save salaries to one manager, one
assistant manager, 15 inspectors etc (totaling 200k or 100k per company.
5. Under said joint operation, the CIR wrote the bus companies of due amount of P422,210.89
as deficiency income tax and compromise for years 1946-1949. Respondents filed
surety bond since the CIR would cause properties to be seized.
a. After exchange of communications, the CIR informed that the liability for income tax
was reduced to P54,143.54.
6. The companies appealed to CTA, but pending such appeal, they were once again
reassessed, hence CIR raised deficiency to P148,890.14 due to discovery that the
companies erroneously credited the last assessment with 100% of their income taxes when
it should only be 75% thereof (citing section 24 of the Tax Code).
a. CIR’s theory was that the Joint Emergency Operation was a corporation distinct from
the two respondent companies and so liable to income tax under the NIRC. CTA ruled
in favor of the respondent companies in that they have not created a corporation and
thus not subject to income tax under section 24 of the code, reversing the decision of
CIR.
b. CTA did not pass upon the question of whether or not the appeal taken by
respondent companies, the CIR could change his original assessment or correct
an error made by him.
7. Hence this appeal to SC questioning primarily on whether the two respondents are liable
for payment of income tax as a corporation on the theory that the Joint Emergency
Operation is a corporation and whether the CIR after the appeal from decision
perfected, and after CTA acquired jurisdiction over the same, but before the CIR filed
answer with court, may still modify his assessment subject of the appeal by
said appealed assessment.
ISSUE with HOLDING
Preliminary question on liability for payment – YES liable
 The answer to this issue was already passed upon in the case of Evangelista v CIR,
as applied in this case, the two companies contributed money to a common fund to
pay the sole manager and for the maintenance and operation of the repair shop, to but
parts and equipment, to pay the salaries of the employees, hence the net income was
determined and divided equally between them disregarding the expenses and income
incurred by each companies.
 For the standpoint of Income tax law, the procedure and practice of determining the
net income of each company was arbitrary and unwarranted since it disregarded the
real facts of the case.
 SC ruled that in light of the Evangelista v CIR case the Joint Emergency Operation or
Sole Management or Joint Venture falls under the provisions of section 84(b) of the
NIRC and consequently it is liable to income tax provided in section 24 of the code.
W/N CIR can amend assessment pending appeal to CTA (Main topic) – YES
 SC in this case presented the two arguments.
o In the first view, the CIR should no longer be allowed to change his assessment
after perfection of appeal because the jurisdiction and control was automatically
transferred to the CTA. Such allowance may also induce CIR to not exercise due
care in the assessment since they can change it anytime. This is in view of the
theory that the CIR loses control and jurisdiction over the same, and that the
jurisdiction of the CTA is not revisory but only appellate.
o SC however, ruled in favour of the second view and stated that allowing such
reassessment is not prejudicial to the taxpayer since the CIR is allowed not only
to increase but also decrease the tax liability. Allowing for changes in the
appealed assessment prevents multiplicity of suit, since the CIR no longer
has to file a separate subsequent assessment to collect additional sums.
 It held that the government should not be bound by errors committed in
the assessment by its agents especially if this was due to
misinterpretation or application of tax laws in good faith.
 If not, it would lead to multiplicity of suits which the law does not encourage.
W/N the respondents are liable for 25% of the surcharge due to failure to file an ITR for the Joint
Emergency Operation – NO
 The failure to file an income tax return for the Joint Emergency Operation was due to a
reasonable cause – honest belief of the respondent companies that there was no such
corporation within the meaning of the tax code. The filing of separate ITR was
sufficient compliance with the law.
DISPOSITIVE PORTION
SC ruled that the CIR may amend his assessment while the case is in appeal and included in
said amendment in his answer, and the CTA may redetermine the assessment based on
evidence presented.
DIGESTER: Dino De Guzman