Tax Digests

CIR VS. PASCOR REALTY GR NO.178697, June 29, 1999

FACTS:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
ISSUE:

(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. HELD: 1. No. Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the National Internal Revenue Code[10 (NIRC), which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment. 2. No. Section 222 of the NIRC 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 commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously.

Said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This 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 showing of failure to file a required return. This fact need not be proven by an assessment.
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC G.R. No. 136975. March 31, 2005 Facts: Hantex Trading Co is a company organized under the Philippines. It is 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 required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of CounterIntelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau relied 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 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR investigators. Issue: Whether or not the 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 based on competent evidence and the law. Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. Among such powers are those provided in paragraph (b), which provides that “Failure to submit required returns, statements, reports and other documents. – When a report required by law as a basis for the 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 believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.” This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’s failure to file one, or to amend a return already filed in the BIR. The “best evidence” envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the 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 the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer. Companies exempt from zero-rate tax

[G.R. No. 117254. January 21, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS, and BANK OF THE PHILIPPINE ISLANDS as LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORPORATION, respondents. DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 19, 1994, of the Court of Appeals affirming the decision of the Court of Tax Appeals which ordered petitioner to refund P65,259.00 as overpaid income tax. The facts are stated in the following portion of the decision of the CTA which the Court of Appeals quoted with approval:

Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly organized and existing under Philippine laws. It acts as the liquidator of Paramount Acceptance Corporation after its dissolution on March 31, 1986. On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax Return, for calendar year ending December 31, 1985, declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax, to wit: Qtr. 1st 2nd 3rd CR/ROR 6817293 5613316 77204711 Date 5-30-85 8-29-85 1-29-85 TOTAL Bank DBP DBP DBP Amount P308,779.00 626,000.00 284,161.00 P1,218,940.00 Exh. C C-1 C-2

After deducting Paramount’s total quarterly income tax payments of P1,218,940.00 from its income tax of P1,153,681.00, the return showed a refundable amount of P65,259.00. The appropriate box in the return was marked with a cross (x) indicating “To be refunded” the amount of P65,259.00. n April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid

income tax for the calendar year 1985. The following day or on April 15, 1988, BPI filed the instant petition with this Court in order to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes.
The question is whether the two-year period of prescription for filing a claim for refund, as provided in §230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return was actually filed or from April 15, 1986 when, according to §70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty. The aforesaid §230 of the NIRC[1] provides that such period must be counted “from the date of payment of the tax.” But, given the facts as stated above, when was the corporate income tax paid in this case? The Court of Tax Appeals rendered a decision considering the two-year period of prescription to have commenced to run from April 15, 1986, the last day for filing the corporate income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was brought on April 15, 1988, it held that prescription had not set in. Accordingly, the CTA ordered as follows:

WHEREFORE, the respondent [petitioner herein] is hereby ordered to REFUND in favor of petitioner, the sum of P65,259.00, representing overpaid income tax of Paramount Acceptance Corporation for the calendar year 1985. No pronouncement as to costs. SO ORDERED. [2]
On appeal, its decision was affirmed by the Court of Appeals. Said the appellate court:[3]

We agree with the respondent court’s ruling that the date of payment of the tax as prescribed under the Tax Code is the date when the corporate income tax return is required to be filed. . . . The Supreme Court has laid down the rule regarding the computation of the prescriptive period that the two-year period should be computed from the time of filing of the Adjustment Returns or Annual Income Tax Return and final payment of income tax; it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures (Commissioner of Internal Revenue vs. TMX Sales Inc., 205 SCRA 184). The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return (Commissioner of Internal Revenue vs. Asia Australia Express Ltd., G.R. No. 85956). The “date of payment” from which to reckon the twoyear period, in the case of a corporation whose taxable year is on a calendar basis, is the 15 day of the fourth month (April 15th) following the close of the fiscal year, and the filing of the final adjustment return on April 15 , following the close of the
th th

preceding taxable year, is such “date of payment” (ACCRA Investments Corp. vs. Court of Appeals, 204 SCRA 957). In this case, BPI filed its final adjustment return on April 2, 1986. No taxes were paid then because the returns showed that the quarterly taxes already paid exceeded the income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the previous year’s income tax becomes due and payable and the taxpayer is still free to make amendments or adjustments on its return, without penalty, until April 15, 1986 (See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed to be on April 15, 1986, when the previous year’s income tax became due and payable and when the quarterly corporate income taxes may be considered paid. Accordingly the administrative claim and court proceeding for tax refund were timely filed.
Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the two-year prescriptive period should be computed from April 2, 1984, when the final adjustment return was actually filed, because that is the time of payment of the tax within the meaning of §230 of the NIRC. We agree. The conclusions reached by the appellate court are contrary to the very rulings cited by it. In Commissioner of Internal Revenue v. TMX Sales, Inc.,[4] this Court, in rejecting the contention that the period of prescription should be counted from the date of payment of the quarterly tax, held:

. . . [T]he filing of a quarterly income tax return required in Section 85 [now Section 68] and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 [now Section 69] which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 [now Section 230 of the Tax Code] should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.
On the other hand, in ACCRA Investments Corporation v. Court of Appeals, [5] where the question was whether the two-year period of prescription should be reckoned from the end of the taxable year (in that case December 31, 1981), we explained why the period should be counted from the filing of the final adjustment return, thus:[6]

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment

return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. .... It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation’s claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The “date of payment”, therefore, in ACCRAIN’s case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.
Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance Co.,[7] we held:

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record shows that the claim for refund was filed on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Private respondent being a corporation, Section 292 [now Section 230] cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As we have earlier stated in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section 321 should be construed in conjunction with it.
Sec. 49(a) of the NIRC provides that 

§49. Payment and assessment of income tax for individuals and corporations. (a) Payment of tax(1) In general.The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. . . .
On the other hand, §70(b) of the same Code provides that 

§70 (b) Time of filing the income returnThe corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be.
Thus, it can be deduced from the foregoing that, in the context of §230, which provides for a two-year period of prescription counted “from the date of payment of the tax” for actions for refund of corporate income tax, the two-year period should be computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under §49(a) of the NIRC, payment is made at the time the return is filed. In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription. The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in this case by petitioner. WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for refund filed by private respondent is DISMISSED on the ground that it is barred by prescription. SO ORDERED.
Republic v. dela Rama (Actual v. Constructive receipt)
FACTS: The BIR assessed deficiency income tax against the estate of the late Esteban dela Rama for the cash dividends it allegedly received but failed to include in its income tax return. The cash dividends were declared by the Dela Rama Steamship Co in favor of the decedent and were applied as payment of the latter’s account with the former. ISSUE: Whether crediting of accounts in the books of the company constituted a constructive receipt by the estate or the heirs of Esteban de la Rama of the dividends, and this dividend was an income of the estate and was, therefore, taxable? NO HELD: If the debts to which the dividends were applied really existed and legally demandable and chargeable against the deceased, there was constructive receipt of the dividends. If there were no such debts, then there was no constructive receipt. The existence and validity of the first debt was in dispute and no proof was adduced to show the existence and validity of the debt. As to the second debt, the alleged debtor Hijos dela Rama, Inc. was an entity separate and distinct from the deceased. Hence, its debts could not be charged against the estate. Appellant cites the case of Herbert v. Commissioner of Internal Revenue, 81 F. (2d) 912 as authority that the crediting of dividends against accounts constitutes payment and constructive receipt of the dividends. The citation of authority misses the point in issue. In that case the existence of the indebtedness of Leon S. Herbert to the corporation that declared the dividends and against which indebtedness the dividends were applied, was never put in issue, and was admitted. In the instant case, the existence of the obligations has been disputed and, as the trial court found, has not been

proved. It having been shown in the instant case that there was no basis for the assessment of the income tax, the assessment itself and the sending of notices regarding the assessment would neither have basis, and so that assessment and the notices produced no legal effect that would warrant the collection of the tax.

Atlas Consolidated vs CIR CIR assessed Atlas deficiency income tax for 1957 to 1958 which amounted to more than P700K. CIR asserted that in 1957, Atlas was still not entitled to exemption from the income tax under RA 909 because the same covers only gold mines and Atlas is not engaged in that. Atlas protested before the Sec of Finance and Sec ruled that exemption provided in RA 909 embraces all new mines and old mines, whether gold or other minerals. Hence, Sec recomputed and eliminated P500K+ in 1957 and reduced P215K to P39K in 1958. Atlas appealed to this assessments assailing the disallowance of the following items: transfer agent’s fees, stockholders relation service fee, US stock listing expenses, suit expenses, provision for contingency. CTA disallowed the items except the stockholders relation service fee and suit expenses. Also CTA ruled that the exemption from payment of the corporate income tax of Atlas was good only up to the first quarter of 1958, hence it computed for its net taxable income for the remaining ¾ of the year. Atlas appealed asserting that the annual public relations expense is a deductible expense from gross income because it is an ordinary and necessary business expense. Issue: WON this fee paid for the services rendered by a public relations firm in the US labeled as stockholders relation service fee is an allowable deduction. Held: No. it is a capital expenditure and not an ordinary expense. The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the law allows. As previously adverted to, the law allowing expenses as deduction from gross income for purposes of the income tax is Section 30 (a) (1) of the National Internal Revenue which allows a deduction of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." An item of expenditure, in order to be deductible under this section of the statute, must fall squarely within its language. We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying in a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction. Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable deduction as a business expense must be determined from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished by the expenditure.

The expenditure of P25,523.14 paid to P.K. Macker & Co. as compensation for services carrying on the selling campaign in an effort to sell Atlas' additional capital stock of P3,325,000 is not an ordinary expense in line with the decision of U.S. Board of Tax Appeals in the case of Harrisburg Hospital Inc. vs. Commissioner of Internal Revenue. Accordingly, as found by the Court of Tax Appeals, the said expense is not deductible from Atlas gross income in 1958 because expenses relating to 1) recapitalization and reorganization of the corporation, 2) the cost of obtaining stock subscription 3)promotion expenses and 4) commission or fees paid for the sale of stock reorganization are capital expenditures. The burden of proof that the expenses incurred are ordinary and necessary is on the taxpayer. In the other case (L-26924) where CIR filed a petition for review for the deductions of the other fees as above mentioned, the CIR assigned the following errors: (Ultimately, the issue is WON expenses deducted by Atlas from gross income are really sanctioned by the NIRC.) a) Deduction of the listing expenses Held: We find the Chesapeake decision controlling with the facts and circumstances of the instant case. In Dome Mines, Ltd case the stock listing fee was disallowed as a deduction not only because the expenditure did not meet the statutory test but also because the same was paid only once, and the benefit acquired thereby continued indefinitely, whereas, in the Chesapeake Corporation case, fee paid to the stock exchange was annual and recurring. In the instant case, we deal with the stock listing fee paid annually to a stock exchange for the privilege of having its stock listed. It must be noted that the Court of Tax Appeal rejected the Dome Mines case because it involves a payment made only once, hence, it was held therein that the single payment made to the stock exchange was a capital expenditure, as distinguished from the instant case, where payments were made annually. For this reason, we hold that said listing fee is an ordinary and necessary business expense b) Addition to Gross Income amount of P60K for provision for contingencies Held: On this issue, this Court has consistently ruled in several cases adverted to earlier, that in the absence of grave abuse of discretion or error on the part of the tax court its findings of facts may not be disturbed by the Supreme Court. It is not within the province of this Court to resolve whether or not the P60,000 representing "provision for contingencies" was in fact added to or deducted from the taxable income. As ruled by the Court of Tax Appeals, the said amount was in effect added to Atlas taxable income. The same being factual in nature and supported by substantial evidence, such findings should not be disturbed in this appeal. c) CIR contended that CTA erred in disallowing only the amount of 6K and not 17K (3/4 of the 23K cost of litigation) as suit expenses Held: There is no question that, as held by the Court of Tax Appeals, the litigation expenses under consideration were incurred in defense of Atlas title to its mining properties. In line with the decision of the U.S. Tax Court in the case of Safety Tube Corp. vs. Commissioner of Internal

Revenue, it is well settled that litigation expenses incurred in defense or protection of title are capital in nature and not deductible. Likewise, it was ruled by the U.S. Tax Court that expenditures in defense of title of property constitute a part of the cost of the property, and are not deductible as expense. The court affirmed the decision of the CTA with modification that the amount of 17K should be disallowed as deduction and this amount should be part of the net income subject to income tax.

CIR v. Estate of Benigno Toda (Tax evasion)
Facts:CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. 30 August 1989, Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million. On 16 April 1990, CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725. On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Issue: WON this is a case of tax evasion or tax avoidance. Held/Ratio: Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. It should be used by the taxpayer in good faith and at arms length. Tax evasion is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. That Altonaga was a mere conduit finds support in the admission of respondent .Estate that the sale to him was part of the tax planning scheme of CIC. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. It is tainted with fraud. Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid. The transfer from him to RMI would result to 5% individual capital gains tax, instead of 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of the properties on the same day was to create a tax shelter. Altonaga never

controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes tax evasion.

Philippine Journalists Inc. v CIR G.R No. 162852 December 15, 2004 Facts: The Revenue District Office of the BIR issued a letter of authority for the examination of petitioner Philippine Journalists books of accounts. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty. Then, petitioner, through its Comptroller, Lorenza Tolentino, executed a waiver of statute of limitations pursuant to Sec.223 and Sec.224 and consented to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation. Petitioner had a deficiency of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. A Final Notice Before Seizure was sent to the petitioner but the latter merely questioned the amount of the deficiency and how the same was arrived. A Warrant of Distraint/Levy was received by petitioner for the deficiency. Petitioner filed a Petition for Review with the CTA, contending that no assessment was received by him; that the warrant of distraint/levy was issued prematurely; and that the assessment was made beyond the 3-year period. Regarding the assessment, the CTA ruled that the assessment was sufficiently proven by the receipts of the Post Master. As to the premature distraint/levy and the assessment made beyond the 3-year period, the CTA ruled in favor of the petitioner. The waiver of statute of limitations by the petitioner was invalid which resulted in the lapse of the 3 year period for assessment. Consequently, the petition was granted, declaring the order for payment of deficiency tax null and void. The CIR filed a motion for reconsideration but the same was denied. Undaunted, the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA, stating that the waiver of limitations was valid and that the assessment notices was final and executory. Hence, this appeal.

Issue: Whether or not the waiver of limitations was invalid, making the assessment beyond the 3 year period? Held: Yes, the court ruled that the waiver of limitation was invalid, making the assessment beyond the allowable period of 3 years. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC.
CIR v CA

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January 15, 1982 and November 20, 1981: Carnation filed its Corporation Annual Income Tax Return and its Manufacturers/Producers Percentage Tax Return respectively for the quarter ending September 30, 1981. In 1987, Carnation, through its Senior Vice President, signed three separate "WAIVERS of the Statute of Limitations Under the National Internal Revenue Code" wherein it waived the running of the prescriptive period provided for in provisions of the NIRC and consents to the assessment and collection of the taxes which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the period of limitations fixed the provisions of the NIRC, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer does not waive any prescription already accrued in its favor. The waivers were not signed by the BIR Commissioner or any of his agents. Carnation received BIR's letter of demand asking the said corporation to pay deficiency income tax, deficiency sales tax and deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by 3 assessment Notices. Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof. CIR contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner because: o (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; o (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and o (c) that a waiver is not a contract but a unilateral act of renouncing one’s right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver CTA held that assessment Notices are NULL AND VOID for having been issued beyond the five-year prescriptive period provided by law. I: W/n the 3 waivers signed Carnation are valid and binding as to toll the running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments? R: NO, the waivers are NOT valid. The prescriptive period is NOT suspended. Sec. 203 of the National Internal Revenue Code, the law then applicable provides that “Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a

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return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.”

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• However, Carnation’s income and sales taxes were assessed only on July 29, 1987, beyond the five-year prescriptive period. • ALSO, Section 319 of the Tax code is clear and explicit that the waiver of the five-year prescriptive period must be in writing and
signed by both the BIR Commissioner and the taxpayer. • Here, the three waivers signed by Carnation do NOT bear the written consent of the BIR Commissioner as required by law. the CIR.

Carnation’s income 1981 with income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively. In other words the assessments by the CIR should be passed from: • January 15, 1982 up to January 12 1987 only • November 20, 1981 up to November 19, 1986 only

• These "waivers" to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by • Neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one
which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement.

•

Republic of the Philippines vs Luis Ablaza 108 Phil 1705

•

On October 3, 1951 Collector assessed Income Taxes on the returns of Ablaza. October 16, 1951, Ablaza’s accountants requested for reinvestigation which was granted by letter dated October 17, 1951. October 30, 1951 said accountants against sent another letter to the Collector submitting copy of their own computation. October 23, 1952 Accountants submitted supplemental memorandum. March 10, 1954 again sent a letter stating that it be furnished with the detailed computation of the liabilities as soon as the reinvestigation is completed. On Feb. 11, 1957 Collector issued final assessment. Upon receipt by the accountants of ablaze sent a letter dated May 8, 1957 protesting the assessments on the ground that the assessed tax are no longer collectible for the reason that they already prescribed. Prescribed?

•

Held : No. If the letter dated March 10, 1954 be interpreted as request for further investigation then the then the period continued to be suspended. But the letter did not ask for another investigation as that contained in the first letter but only asked that it be furnished a copy of the computation.. As the reinvestigation was allowed on October 1, 1951 and October 16, 1951, the taxpayer supposed or expected that at that time March 1954, the reinvestigation was about to be finished and he wanted a copy of the re-assessment in order to be prepared to contest it. Thus the said letter may not be interpreted to authorize or justify the continuance of suspension of the period of limitation. The right of the government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax were it failed to make necessary investigation and assessment within 5 years after the filing of return and where it failed to collect within 5 years from the date of assessment thereof

Phil National Oil Co v CA • Tirso Savellano submitted a sworn statement to the BIR informing them that PNB failed to withold 15% final tax on interest earnings and/or yields from the money placements of PNOC with the said bank, in violation of PD1931, w/c withdrew all tax exemptions of government-owned and controlled corporations. • BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold. • PNOC proposed to BIR compromise its tax liability, by setting-off its tax liability against a claim for tax refund/credit of the NAPOCOR. then pending with the BIR (P335k+). The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR.

•

On Oct 8, 1986, BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings and/or yields from PNOC's money placements with the bank. On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB. • After several negotiations between BIR and PNOC, they agreed to a compromise regarding the tax liability of PNOC. • Savellano was paid by the BIR a tax equal to15% of the amount in the compromise agreement. • I: W/n the right of BIR to assess and collect the income tax had already prescribed • R: No, BIR's right had NOT yet prescribed. • Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another: o Section 268 requires that assessment be made within three years from the last day prescribed by law for the filing of the return. o Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed period provided in Section 268, the BIR has three years, counted from the date of the assessment, to collect the tax assessed either by distraint, levy or court action.

• •

Therefore, when an assessment is timely issued in accordance with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax assessed, reckoned from the date of the assessment. In the case of PNB, an assessment was issued against it by the BIR on October 8, 1986, so that the BIR had until October 7, 1989 to enforce it and to collect the tax assessed. The filing, however, by Savellano of his Amended Petition for Review before the CTA on July 2, 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for.

•

The present case is unique, however, because the Petition for Review was filed by Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. Savellano, in his Amended Petition for Review w/ the CTA prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax – making the said CTA Case 1 a collection case.

•

It is immaterial that the Amended Petition for Review was filed by the informer Savellano and NOT the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also made by the informer, not the BIR. This should not affect the nature of the case as a judicial action for collection. What is controlling here is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in the said case. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. • In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said tax was terminated.

•

Supposing that the said CTA Case is not a collection case which stops the running of the prescriptive period for the collection of the tax, the said CTA case, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.

•

The pendency of the present case before the CTA, the Court of Appeals and the SC legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. • Whether the filing of the Amended Petition for Review by Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB and for the Central Bank of the Philippines to debit the account of PNB pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However, since the SC found that the compromise agreement is without force and effect, it ordered the enforcement of the assessment against PNB. Any issue or controversy arising from the premature garnishment of PNB's account and collection of the tax by the BIR became moot and academic.

CIR v Phil Global Comm Philippine Global Communication was assessed for deficiency taxes in April 1994. On May 1994, they filed 2 letters of protest requesting for the cancellation of the tax assessment for lack of factual and legal basis. In 2002, respondents received a decision from

1

CTA Case No. 4249

the CIR denying the protest. Respondents appealed the CTA and ruled that the right to collect on the 1994 tax assessment has prescribed.

ISSUE: W/N the action to collect has prescribed. (YES)

RATIO: Section 269(c) provides that any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. The earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003.

Reason for Prescriptive Period: Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents.

Suspension of Prescriptive Period: Section 224 provides that the prescriptive period is suspended when the taxpayer requests for a reinvestigation. This exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence.

Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newlydiscovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. (RR 12-85)

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIR’s allegation that there was a request

for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on the defense of prescription." But partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant."

NOTE: Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and granted by the BIR.

COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP COMPANY, INC. - Tax Assessment Protest
FACTS:
CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA.

ISSUE:
Has Respondent’s right to dispute the assessment in the CTA prescribed?

HELD:
NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date.

4. COMMISSIONER OF INTERNAL REVENUE V. ISABELA CULTURAL CORP. (515 SCRA 556)
Topic: The all-events test; when deductions from income taxes may be claimed Facts: When the Bureau of Internal Revenue disallowed Isabela Cultural Corporation’s claimed deductions for the years 1984-1986 in their 1986 taxes for expense deductions, to wit:

(1) Expenses for auditing services for the year ending 31 December 1985; (2) Expenses for legal services for the years 1984 and 1985; and (3) Expense for security services for the months of April and May 1986. As such, the former charged the latter for deficiency income taxes. Isabela Cultural Corporation contests the assessment. Issues and Ruling: 1. For a taxpayer using the accrual method, when do the facts present themselves in such a manner that the taxpayer must recognize income or expense?

The accrual of income and expense is permitted when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income or liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable, within the taxable year. 2. W/N the deductions were properly claimed by Isabela Cultural Corporation.

The deductions for expenses for professional fees consisting of expenses for legal and auditing services are NOT allowable. However, the deductions for expenses for security services were properly claimed by Isabela Cultural Corporation. For the legal and auditing services, Isabela Cultural Corporation could have reasonably known the fees of those firms that it hired, thus satisfying the “all-events test.” As such, per Revenue Audit Memorandum Order No. 1-2000, they cannot validly be deducted from its gross income for the said year and were therefore properly disallowed by the BIR. As for the security services, because they were incurred in 1986, they could be properly claimed as deductions for the said year. Notes: The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services, are: a. b. c. d. The expense must be ordinary and necessary; It must have been paid or incurred during the taxable year; It must have been paid or incurred in carrying on the trade or business of the taxpayer; and It must be supported by receipts, records, or other pertinent papers.

Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year. The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected to have known, at the closing of its books for the taxable year. Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction.
CIR v Ayala Securities Corp • • • Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955. Attached to its ITR was the audited financial statements showing a surplus of P2M+. Income tax due on the return was duly paid w/in the period prescribed by law.

• CIR then advised Ayala for the assessment of P758k unpaid tax on its accumulated surplus. • Ayala protested ate assessment and sought reconsideration given that the accumulation was 1) for a bona fide business purpose and not to avoid imposition of tax, and 2) assessment was issued beyond 5 yrs. • CTA and SC both held that the assessment was made beyond the 5-year period and thus had no binding force and effect. • I: W/n the assessment was done beyond the prescriptive period • R: YES. • In this case, the applicable provision is NOT Sec 332a but Sec 331. • Sec 332 should apply when there is fraud / falsity on the return with intent to evade payment of tax. • There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to avoid payment. • Fraud is a question of fact, circumstances must be proven and alleged.

•

In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961, was made BEYOND the 5 year period prescribed under Sec331 (Ayala could file its income tax on or before Jan 1956 thus, assessment must be made NOT later than Jan 1961). Thus, it was no longer binding on Ayala Securities.

CIR v. UNION SHIPPING

Facts: In a letter dated 27 December 1974, the Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on 4 January 1975, and in a letter dated 10 January 1975, received by the Commissioner on 13 January 1975, the Company protested the assessment. The Commissioenr, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on the Company’s counsel, Clemente Celso, on 25 November 1976. In a letter dated 27 November 1976, received by the Commissioner on 29 November 1976, the Company reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. The Commissioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila (Civil Case 120459) against the Company. Summons in the said collection case was issued to the Company on 28 December 1978. On 10 January 1979, the Company filed with the Court of Tax Appeals its Petition for Review of the Commissioner’s assessment of its deficiency income taxes in a letter dated 27 December 1974 (CTA Case 2989), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd. The Tax Court, in a decision dated 9 December 1983, ruled in favor of the Company, reversing the decision of the Commissioner which assessed against and demanded from the Company the payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively. The Commissioner filed a Petition for Certiorari with the Supreme Court. The Supreme Court dismissed the petition and affirmed the assailed decision of the Court of Tax Appeals. 1. Final determination of disputed assessment must be indicated in clear and unequivocal language; Purpose The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and

unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment - and, consequently, the collection of the amount demanded as taxes - by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. 2. Present case: Taxpayer left in the dark as to which is the appealable decision Herein, the Commissioner did not rule on the Company’s motion for reconsideration but, left the Company in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies the Company’s motion for reconsideration and that his action constitutes his final determination on the disputed assessment, the Company without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. 3. Reviewable decision contained in letter of Commissioner, not in warrants of distraint The reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984]). The procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative action. 4. Reckoning period of prescriptive period of appeal Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when the Company received the summons on the civil suit for collection of deficiency income on 28 December 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by the Commissioner when the latter filed a civil suit for collection of deficiency income. So that on 10 January 1979 when the Company filed the appeal with the Court of Tax Appeals, it consumed a total of only 13 days well within the thirty day period to appeal pursuant

to Section 11 of RA 1125. 5. Union Shipping is the husbanding agent of vessel Yee Fong Hong Ltd. Union Shipping is actually and legally the husbanding agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd.; (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd.; (3) it had not collected any freight income or receipts for the said Yee Fong Hong Ltd.; (4) it never had possession or control, actual or constructive, over the funds representing payment by Philippine shippers for cargo loaded on said vessels; it never remitted to Yee Fong Hong, Ltd. any sum of money representing freight incomes of Yee Fong Hong, Ltd.; and (5) that the freight payments made for cargo loaded in the Philippines for foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports. 6. Husbanding agent not liable for income tax due from foreign shipowners and withholding tax The corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines. Neither can the Company be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to a non-resident taxpayer. If an individual or corporation, like Union Shipping herein, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by the nonresident taxpayer, herein Yee Fong Hong, Ltd. 7. Factual findings of the CTA binding upon the Supreme Court The factual findings of the Court of Tax Appeals are binding on the Supreme Court. It is well-settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, the Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial evidence.

Oceanic Wireless Network vs. CIR Facts: On March 17, 1988 BIR sent a deficiency tax assessment for the year 1984 for the amount of P8.645 Million. Petitioner filed a protest and requested reconsideration or cancellation of the same. In reply the BIR Accounts Receivable and Billing Division, acting in behalf of the BIR Comm., requested Oceanic to pay the amount within ten days from the receipt thereof otherwise the case would be referred to the Collection Enforcement Division. Upon failure to pay, the Assistant Comm. Issued a warrant of distrant and/or levy and garnishment served to petitioner on Oct. 1999.

Nov. 1991 Oceanic filed a petition for Review with the CTA to contest the issuance of the warrant. The CTA dismissed the case for lack of jurisdiction in the Sept. 1994 decision, declaring that the said petition was filed beyond the 30 day period from the time the letter from the BIR Accounts Receivables and Billing Division was received by the petitioner. Further the issuance of the warrants was not barred by prescription. Due to the filing of the protest which was given due course by the BIR the running of prescription was suspended. Oceanic filed a motion for reconsideration arguing that the demand letter cannot be considered as final because it was signed by a subordinate officer. The motion was denied and the case as elevated to the CA. Issue: Whether or not the a demand letter for tax delinquency assessment issued and signed by a subordinate officer acting in behalf of the CIR is deemed final and executory. Held: A demand letter for payment of the delinquent tax may be considered a decision on a disputed assessment. The demand letter is deemed final basing on the tenor of the letter to the taxpayer. The reiteration of the BIR’s former position which is to pay the tax liability after the request from the tax payer indicates that latter’s request was denied. The powers of the CIR may be delegated subject to a few exemptions, which are: • • • • Power to recommend the promulgation of rules and regulation by the Sec of Finance Power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of the BIR Power to compromise or abate Power to assign or re-assign internal revenue officers to establishment where articles subject to excise tax are produced or kept.

The act of the subordinate officer does not fall under the exemption. Thus the assessment had become final and executory.
G.R. No. L-38540 April 30, 1987 REPUBLIC OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents. The Solicitor General for petitioner. Quasha, Aspillera, Zafra, Tayag and Ancheta for respondents.

PADILLA, J.: This is a petition for review on certiorari of the decision of the respondent Court of Appeals 1 in CA G.R. No. 37417-R, dated 3 April 1974, reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax,

occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952, and costs of suit, and of the resolution of the respondent Court, dated 31 May 1974, denying petitioner's motion for reconsideration of said decision of 3 April 1974. In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed private respondent deficiency taxes for the years 1949 to 1952, totalling P14,449.00, computed as follows: 1-1/2% ad valorem tax on P448,000.00..........................P7,320.00 25% surcharge for late payment......................................1,830.00 Occupation fees for the years 1949 to 1952 at P1.00 per ha. per year on 1, 230 hectares.....................................4,920.00 Additional residence tax on P79,000.00 at P1.00 per every P5,000.00 per year or P75.00 x 4 years................................303.20 25% surcharge for late payment.........................................75.00

TOTAL AMOUNT DUE............................ P14,449.00 2
Petitioner reiterated its demand upon private respondent for payment of said amount, per letters dated 24 April 1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment had become final and 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 as Civil Case No. 42911. However, for failure to serve summons upon private respondent, the complaint was dismissed, without prejudice, in the Court's order dated 30 June 1961. On motion, the order of dismissal was set aside, at the same time giving petitioner sixty (60) days within which to serve summons upon private respondent. For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4 October 1962 dismissing Civil Case No. 42911 without prejudice. The order of dismissal became final on 5 November 1962. On 15 November 1962, the complaint against private respondent for collection of the same tax was refiled, but the same was erroneously docketed as Civil Case No. 42911, the same case previously dismissed without prejudice. Without correcting this error, another complaint was filed on 26 November 1963, docketed as Civil Case No. 55817, the subject matter of the present appeal. As herein earlier stated, the Court a quo rendered a decision against the private respondent. On appeal to the respondent Court of Appeals, the decision was reversed. Petitioner, Republic of the Philippines, filed a motion for reconsideration which was likewise denied by said Court in a resolution dated 31 May 1974. Hence, this petition, with the following assignment of errors: I THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE OF THE MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED RULES OF COURT.

II THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE OF THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY PERFORMED. III THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE RESPONDENT. Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule 131 of the Revised Rules of Court, petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. 3 According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of 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 received by private respondent in the absence of evidence to the contrary. 5 More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955. 6 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 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 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 received by the addressee. Thus:

Appellee contends that per Exhibit A, the notice was released and 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 not returned to the appellee, the presumption is that the appellant received the mailed notice. This is correct, but this being merely a mere disputable presumption, the same is subject to 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 received by the addressee. The appellee, however, argues that since notice was 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 assessment. We do not think so. It is true the Court a quo made such a 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 appellant in the answer or in any other pleading, or in any declaration, oral or documentary before the trial court. We note that the appellee has not met this challenge, and after a review of the records, we find appeflant's assertion well-taken. 7
Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter. Records, however, show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. 8 The aforesaid letter reads:

Septem ber 19, 1956 Nielson and Company, Inc. Ayala Boulevard, Manila Gentlemen: In reply to you (sic) letter dated June 1, 1956 relative to your pending internal revenue tax liability involving the amount of P15,649.00 as annual occupation fees, ad valorem and additional residence taxes, surcharges and penalty, originally demanded of you on July 16, 1955, I have the honor to inform you that investigation conducted by an agent 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 irrevocable control of all the operations, development, processing and marketing of mineral products from the latter's mines and that au the assessments, taxes and fees of any nature in connection with the said operation, development, proceeding and marketing of these products shall be paid by you. In view thereof, and it appearing that the aforesaid tax liabilities accrued when your contract was in fun force and effect, you are therefore, the party hable for the payment thereof, notwithstanding the alleged contract subsequently entered into by you and the Hixbar Gold Mining Co., Inc. on September 9, 1954. It is therefore, again requested that payment of the aforesaid amount of 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. You are further requested to pay the sum of P150.00 as compromise suggested in our letter to you dated February 24, 1955, it appearing that the same has not as yet been paid up to the present. Very respectfully yours, JOSE ARANA S

Deputy Collector of Internal Revenue 9
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court 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 final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits. 10 In Mamburao Lumber Co. vs. Republic, 11 this Court further said: In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an 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. ... ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a quo is hereby reinstated. No costs.

SO ORDERED.

RCBC v CIR G.R 168498 April 24, 2007 Facts: Petitioner Rizal Commercial Banking Corporation received a Formal Letter of Demand dated May 25, 2001 from the respondent Commissioner of Internal Revenue for its tax liabilities particularly for Gross Onshore Tax in the amount of P53,998,428.29 and Documentary Stamp Tax. The petitioner filed a protest but the respondent failed to act upon the same. So, the petitioner filed a Petition for Review with the CTA for the cancellation of the above-mentioned assessments. The respondent filed a motion to resolve first the issue of CTA’s jurisdiction, which was granted by the CTA. The petition for review was dismissed because it was filed beyond the 30-day period following the lapse of 180 days from petitioner’s submission of documents in support of its protest, as pursuant to Section 228 of the NIRC and R.A. No. 1125. The same became final and executory due to the negligence of the petitioner’s counsel. Hence, this petition Issue: Whether or not the petitioner was denied the opportunity to be heard? Whether or not the petitioner can still file the appeal despite the lapse of the 30-day period? Held: No, the Court held that he "essence of due process is a hearing before conviction and before an impartial and disinterested tribunal" but due process as a constitutional precept does not, always and in all situations, require a trial-type proceeding. The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one’s defense. In this case, the petitioner’s counsel was present on the scheduled hearing and in fact orally argued its petition and that is sufficiently complies with the right to be heard. In exceptional cases, when the mistake of counsel is so palpable that it amounts to gross negligence, this Court affords a party a second opportunity to vindicate his right. But this opportunity is unavailing in the case at bar, especially since petitioner had squandered the various opportunities available to it at the different stages of this case. Regarding the 30-day period, the petitioner can no longer file an appeal. Assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. In this case, the failure to comply with the 30-

day statutory period bars the appeal and deprives the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessment.
[Note: In Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5777, January 4, 2000, also cited in the CTA’s decision, the CTA had ruled that “(I)t bears stressing that the wordings of Section 228 of the Tax Code clearly provide that it is only the decision not appealed by the taxpayer that becomes final, executory and demandable.”]

CIR vs. Rosemarie Acosta G.R. No. 154068 August 3, 2007 Quisombing, J.: FACTS: Acosta is an employee of Intel and was assigned in a foreign country. During that period Intel withheld the taxes due and remitted them to BIR. Respondent claimed overpayment of taxes and filed petition for review with CTA. CTA dismissed the petition for failure to file a written claim for refund with the CIR a condition precedent to the filing of a petition for review with the CTA. CA reversed the decision reasoning that Acosta’s filing of an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim. ISSUE: Whether or not CTA has jurisdiction to take cognizance of respondent’s petition for review. RULING: A party seeking an administrative rimedy must not merely initiate the prescribed administrative procedure to obtain relie but also to pursue it to its appropriate conclusion before seeking judicial intervention in order to give administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action. At the time respondent filed her amended return, the 1997, NIRC was not yet in effect, hence respondent had no reason to think that the filing of an amended return would constitute the written claim required by law. CTA likewise stressed that even the date of filing of the Final Adjustment return was omitted, inadvertently or otherwise, by respondent in her petition for review. This is fatal to respondent’s claim, for it deprived the CTA of its jurisdiction over the subject matter of the case. Finally, revenue statutes are substantive laws and in no sense must with that of remedial laws. Revenue laws are not intended to be liberally constructed.

Commissioner of Internal Revenue vs. Philippine American Life Insurance Co. (GR 105208, 29 May 1995) Third Division, Romero (J): 2 concur, 1 took no part. Facts: On 30 May 1983, the Philippine American Life Insurance Co. (Philamlife) paid to the Bureau of Internal Revenue (BIR) its first quarterly corporate income tax for Calendar Year (CY) 1983 amounting to P3,246,141.00. On 29 August 1983, it paid P396,874.00 for the Second Quarter of 1983. For the Third Quarter of 1983, it declared a net taxable income of P2,515,671.00 and a tax due of P708,464.00. After

crediting the amount of P3,899,525.00 it declared a refundable amount of P3,158,061.00. For its Fourth and Final quarter ending 31 December, Philamlife suffered a loss and thereby had no income tax liability. In return for that Quarter, it declared a refund of P3,991,841.00 as withholding taxes on rental income for 1983 and P133,084.00 representing 1982 income tax refund applied as 1983 tax credit. In 1984, Philamlife again suffered a loss and declared no income tax liability. However, it applied as tax credit for 1984, the amount of P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and the amount of P250,867.00 as withholding tax on rental income for 1984. On 26 September 1984, Philamlife filed a claim for its 1982 income tax refund of P133,084.00. On 22 November 1984, it filed a petition for review with the Court of Tax Appeals (CTA Case 3868) with respect to its 1982 claim for refund of P133,084.00. On 16 December 1985, it filed another claim for refund with the Commissioner’s appellate division in the aggregate amount of P4,109,624.00 for the period of 1982 to 1984 less the amount claimed in CTA Case 3868. On 2 January 1986 Philamlife filed a petition for review with the CTA (CTA Case 4018 regarding its 1983 and 1984 claims for refund) Later, it amended its petition by limiting its claim for refund to only P3,858,757.00. On 16 September 1991, the CTA rendered a decision, granting Philamlife’s claim for refund for P3,246,141.00 and P396,874.00 representing excess corporated income tax payments for the first and second quarters of 1983, respectively, or a total of P3,643,015.00. The Commissioner appealed. The Court of Appeals affirmed the decision of the Court of Tax Appeals on 26 March 1992 (CA-GR 26598). The Commissioner filed a petition for review on certiorari. The Supreme Court dismissed the petition and affirmed the decision of the Court of Appeals in toto; without costs. 1. Section 230 NIRC; Recovery of tax erroneously or illegally collected Section 230 of the National Internal Revenue Code (formerly Section 292) provides that “No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.” 2. Section 230 NIRC; Forfeiture of refund Section 230 of the National Internal Revenue Code (formerly Section 292) further provides that “. — A refund check or warrant issued in accordance with the pertinent provisions of this Code which shall remain unclaimed or uncashed within five (5) years from the date said warrant or check was mailed or delivered shall be forfeited in favor of the government and the amount thereof shall revert to the General Fund.”

3. Pacific Procon Ltd. vs. Court of Tax Appeals overturned by CIR vs. TMX Sales Although it is true that in the Pacific Procon case, the Court held that the right to bring and action for refund had prescribed, the tax having been found to have paid at the end of the first quarter when the withholding tax corresponding thereto was remitted to the Bureau of Internal Revenue, not at the time of filing of the Final Adjustment return in April of the following year; said case was overturned by the Court in
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Commissioner of Internal Revenue v. TMX Sales Incorporated and the Court of Tax Appeals, where the Court held that “it is necessary to consider not only Section 292 (now Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts; and that all these provisions of the Tax Code should be harmonized with each other.” 4. Section 292 (now Section 230) NIRC qualified by Sections 68 and 69 of present Tax Code Section 292 (now Section 230) stipulates that the two-year prescriptive period to claim refunds should be counted from date of payment of the tax sought to be refunded. When applied to tax payers filing income tax returns on a quarterly basis, the date of payment mentioned in Section 292 (now Section 230) must be deemed to be qualified by Sections 68 and 69 of the present Tax Code. 5. Section 68 NIRC; Declaration of Quarterly Income Tax Section 68 of the Tax Code provides that “Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code shall be levied, collected and paid. The Tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year. 6. Section 69 NIRC; Final Adjustment Return Section 69 of the Tax Code provides that “Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.” 7. Refund due is amount shown in final adjustment return and not on its quarterly returns The last paragraph of Section 69 of the Tax Code provides that the refundable amount, in case a

refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns. This is in light of the fact that although quarterly taxes due on are required to be paid within sixty days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to the corporation. 8. Reckoning date determined after a final adjustment return is accomplished The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is 16 April 1984, and two years from this date would be 16 April 1986. The record shows that the claim for refund was filed on 10 December 1985 and the petition for review as brought before the CTA on 2 January 1986. Both dates are within the two-year reglementary period. Philamlife being a corporation, Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As earlier said in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it. 9. Two-year period not jurisdictional Even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended
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for reasons of equity and other special circumstances.

ACCRA Investments Corporation vs. Court of Appeals (GR 96322, 20 December 1991) Third Division, Gutierrez Jr. (J): 4 concur Facts: ACCRA Investment Corporation is a domestic corporation engaged in the business of real estate investment and management consultancy. On 15 April 1982, the corporation filed with the Bureau of Internal Revenue (BIR) its annual corporate income tax return for the calendar year ending 31 December 1981 reporting a net loss of P2,957,142.00. In the said return, the corporation declared as creditable all taxes withheld at source by various withholding agents (the Malayan Insurance Co., the Angara Concepcion Regala & Cruz Law Offices, MJ Development Corp. andPhilippine Global Communications Inc., totaling P82,751.91. The withholding agents paid and remitted amounts representing taxes on rental, commission and consultancy income of the corporation to the BIR from February to December 1981. In a letter dated 29 December 1983 addressed to the Commissioner of Internal Revenue, the corporation filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld. Pending action of the Commissioner on its claim for refund, the corporation, on 13 April 1984, filed a petition

for review with the Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes. On 27 January 1988, the CTA dismissed the petition for review after a finding that the twoyear period within which the corporation’s claim for refund should have been filed had already prescribed pursuant to Section 292 of the National Internal Revenue Code (NIRC) of 1977, as amended. Acting on the corporation’s motion for reconsideration, the CTA in its resolution dated 27 September 1988 denied the same for having been filed out of time. On 14 January 1989, the corporation filed with the Supreme Court its petition for review, which the Court referred to the appellate court in the Court’s resolution dated 15 February 1990 for proper determination and disposition. On 28 May 1990, the appellate court affirmed the decision of the CTA opining that the twoyear prescriptive period in question commences “from the date of payment of the tax” as provided under Section 292 of the Tax Code of 1977 (now Sec. 230 of the NIRC of 1986), i.e., “from the end of the tax year when a taxpayer is deemed to have paid all taxes withheld at source”, and not “from the date of the filing of the income tax return” as posited by the corporation. Its motion for reconsideration with the appellate court having been denied in a resolution dated 20 November 1990, the corporation elevated this case to the Supreme Court. The Supreme Court granted the petition, reversed and set aside the 28 May 1990 decision and 20 November 1990 resolution of the Court of Appeals, and directed the Commissioner of Internal Revenue to refund to the corporation the amount of P82,751.91. 1. Section 230 NIRC; Recovery of tax erroneously or illegally collected Section 230 of the Tax Code provides that “ No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress. In any case, no such suit or proceeding shall begin after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, that the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears to have been erroneously paid.” (Emphasis Supplied).
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2. Ruling in Gibbs v. Commissioner of Internal Revenue (155 SCRA 318 [1965]) Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the

delivery of money but also the performance, in any other manner, of an obligation (Id., Art 1231). A taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under Section 306 (now part of Section 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system. 3. Present case: Alternative reckoning dates and Nature of refund claim The Gibbs ruling presents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax liability falls due. Herein, the corporation’s withholding agents had paid the corresponding taxes withheld at source to the BIR from February to December 1981. In having applied the first alternative date — “the end of the tax year” in order to determine whether the corporation’s claim for refund had been seasonably filed, the appellate court failed to appreciate properly the attending circumstances of the case. The corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation’s filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund. 4. Section 49 of 1986 NIRC; Payment and assessment of income tax for individuals and corporations Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is explicitly provided that “(a) Payment of tax — (1) In general. — The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed . . .” 5. Section 70 (b) of 1986 NIRC; Time of filing the income return Section 70, subparagraph (b) of the Tax Code states when the income tax return with respect to taxpayers like the petitioner corporation must be filed. It provides that “The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be.” 6. Present case: Corporation complied with filing of final adjustment return The corporation’s taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The corporation duly

complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on 15 April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed pursuant to subparagraph (c) of Section 70 of the NIRC. 7. Section 70 (c) of 1986 NIRC; Time payment of the income tax Section 70, subparagraph (c) of the Tax Code provides that “The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Section 68 and 69 shall be paid at the time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue.” 8. Section 8 of BIR Revenue Regulation 13-78; Claims for tax credit or refund
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Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that “Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form No. 1 743-A) showing the amount paid and the amount of tax withheld therefrom.” 9. Section 69 of 1986 NIRC; Final Adjustment Return The term “return,” in the case of domestic corporation like ACCRAIN, refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads “Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be.” 10. Need to file a return before a claim for refund There is the need to file a return first before a claim for refund can prosper inasmuch as the Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. 11. Reckoning date for two-year prescriptive period; CIR vs. Asia Australia Express Ltd. In the Supreme Court Resolution dated 10 April 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), the Supreme Court ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the corporation had until April 15, 1984 within which to file its claim for refund. 12. Rationale in computing the 2-year prescriptive period The rationale in computing the two-year prescriptive period with respect to the corporation’s claim for refund from the time it filed its final adjustment return is the fact that it was only then that the corporation

could ascertain whether it made profits or incurred losses in its business operations. The “date of payment”, therefore, was when its tax liability, if any, fell due upon its filing of its final adjustment return. Commissioner of Internal Revenue vs. Victorias Milling Co. (GR L-24108, 3 January 1968) En Banc, Bengzon JP (J): 10 concur Facts: On 23 December 1957 Victorias Milling Co., Inc. filed a claim for the refund of the sum of P12,464.53 representing 50% of the specific tax paid on the manufactured oils and fuels used in its agricultural operation for the period from 18 June 1952 to 18 June 1957. The Commissioner of Internal Revenue granted refund in the sum of P3,415.18 representing the tax paid for the period from 1 January 1956 to 18 June 1957 but denied the claim in the amount of P2,817.08 which corresponds to the tax paid during the period from 18 June 1952 to 31 December 1955 for the reason that the same was filed after the 2-year period provided for in Section 306 of the Tax Code had elapsed. Victorias Milling Co., Inc. appealed to the Court of Tax Appeals contending that Section 306 does not apply to its claim. The Court of Tax Appeals took the taxpayer’s view and ordered the CIR to refund Victorias Milling the amount of P2,817.08 representing the 50% of the specific tax paid on the oils used by it in agriculture during the period from 18 June 1952 to 31 December 1955. From said judgment, the Commissioner of Internal Revenue has appealed. The Supreme Court reversed the decision appealed from, and dismissed the petition for refund on the ground of prescription; without costs. 1. Section 306 of the Tax Code Section 306 (Recovery of tax erroneously or illegally collected) provides that “No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty.” 2. Applicability of Section 306 for refund; CIR vs. Insular Lumber Co. Sections 306 and 309 of the National Internal Revenue Code were intended to govern all kinds of refunds of internal revenue taxes — those taxes imposed and collected pursuant to the National Internal Revenue Code. Thus, the Supreme Court stated that “this provision” referring to Section 306, “which is mandatory, is not subject to qualification, and, hence, it applies regardless of the conditions under which payment has been made.” A claim for refund of a specific tax, an internal revenue tax imposed in Section 142 of the National Internal Revenue Code, is beyond the scope of Sections 306 and 309 is to thwart the aforesaid intention and spirit underlying said provisions.

3. Prescription of claim of refund, Reckoning period; CIR vs. Insular Lumber Co. The intention is clear that refunds of internal revenue taxes are generally governed by Sections 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the two-year prescriptive period provided for in Section 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the Commissioner of Internal Revenue, and the subsequent appeal to the Court of Tax Appeals must be instituted, within the said two- year period.
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4. Ruling in Muller & Phipps modified; CIR vs. Insular Lumber Co. In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. The ruling in Muller & Phipps is accordingly modified. 5. Right of Victorias Milling to claim refund has prescribed The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. In the light of the ruling in CIR vs. Insular Lumber Co., the right of Victorias Milling Co,, Inc. to claim refund of P2,817.08 has prescribed.
FACTS:For the calendar year 1986, BLC paid the CIR a total of P1,139,041.49 representing 4% "contractor’s percentage tax" imposed by Section 205 of the NIRC based on its gross rentals from equipment leasing for said year. On November 10, 1986, CIR issued Revenue Regulation 1986. Section 6.2 thereof provided that finance and leasing companies registered under RA 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for "contractor’s percentage tax" under Section 205 but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the "contractor’s percentage tax for its 1986 lease rentals BLC filed a claim for a refund with the CIR on April 1988 for the amount representing the difference between what it had paid as "contractor’s percentage tax" and what it should have paid for "gross receipts tax." ISSUES: 1. WON Revenue Regulation 19-86 is legislative12 rather than interpretative in character. 2. WON it should retroact to the date of effectivity of the law it

seeks to interpret. RATIO: 1. NO. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. 2.NO. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express provision stating that it "shall take effect on January 1, 1987," and that it "shall be applicable to all leases written ON OR AFTER the said date." Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.
12 Administrative

issuances may be distinguished according to their nature and substance: legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing.