part 1. remedies under nirc. compiled

UNDER: ATTY. BOBBY LOCKBY: MEL ANDREW YU REYES

TAXATION 02

PART IREMEDIES UNDER THE NIRC

I. ASSESSMENT OF INTERNAL REVENUE TAXES

A. DEFINITION, NATURE, EFFECT AND BASIS

1) LOA, AUDIT NOTICE, TAX VERIFICATION NOTICERAMO 1-00

CIR v. SONY PHILIPPINES, INC.MAY 17, 2007 – CTA 90

The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a designated revenue officer to examine, verify and scrutinize a taxpayer’s books and records in relation to his internal revenue tax liability for a particular period. The LOA, the examiners were authorize to examine Sony’s book of accounts and other accounting records for the period “1997 and unverified prior years.” However, CIR’s basis for deficiency vat for 1997 was 1998. They acted without authority in arriving at the deficiency vat assessment. It should be considered without force and effect – a nullity.

A LOA should cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit of “unverified prior years” is prohibited.

2) TAX ASSESSMENT

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATIONJUNE 29, 1999 – GR. 128315

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine the remedies thereon, due process requires that it must be served and received by the taxpayer. Accordingly, an affidavit which was executed by the revenue officer stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion cannot be deemed an assessment that can be questioned before the CTA. The fact that the complaint itself was specifically directed and sent to DOJ and not to Pascor shows that the intent of the CIR was to file a criminal complaint for tax evasion and not to issue an assessment.

B. PERIOD TO ASSESS DEFICIENCY TAX

1) PRESCRIPTION

a) RATIONALE, CONSTRUCTION, INTERPRETATION

REPUBLIC OF THE PHILIPPINES v. LUIS ABLAZA

The law prescribing a limitation of actions for collection of income tax is beneficial both to the government and to its citizens.

a) The Government – because tax officers would be obliged to act promptly in making of assessment.

b) The Citizens – because after the lapse of the period of prescription, citizens would have the feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest, peaceful law-abiding citizens. Without such legal defenses, taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bring about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commissioner which recommends the approval of the law.

b) COUNTING OF PERIODS

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CIR v. PRIMETOWN PROPERTY GROUPAUG. 28, 2007 – GR. 162155

The 2-year prescriptive period is reckoned from the filing of the final adjusted return. Art. 13 NCC, provides that when the law speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of whether it is a regular year or a leap year.

c) RULE ON WRONG RETURNS OR AMENDED RETURNS

CIR v. AYALA SECURITIES CO.NOV. 21, 1980 – GR. L-29485

The SC is persuaded by the fundamental principle invoked by CIR that limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.

The SC, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect the assessment in question had prescribed after 5 years, and instead rules that there is no such time limit on the right of the CIR to assess the 25% tax on unreasonably accumulated surplus provided in Sec. 25 of NIRC, since there is no express statutory provision limiting such right or providing for its prescription. The underlying purpose of the additional tax in question on a corporation's improperly accumulated profits or surplus is as set forth in the text of Sec. 25 of NIRC itself to avoid the situation where a corporation unduly retains its surplus instead of declaring and paving dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. The record amply shows that Ayala Securities is a mere holding company of its shareholders through its mother company, a registered co-partnership then set up by the individual shareholders belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code, therefore applied without having been adequately rebutted by the Ayala Securities.

CIR’s plausible alternative contention is that even if the 25% surtax were to be deemed subject to prescription, computed from the filing of the income tax return in 1955, the intent to evade payment of the surtax is an inherent quality of the violation and the return filed must necessarily partake of a false and/or fraudulent character which would make applicable the 10-year prescriptive period provided in Sec. 332(a) of the Tax Code and since the assessment was made in 1961 (the 6th year), the assessment was clearly within the 10-year prescriptive period. The Court sees no necessity, however, for ruling on this point in view of its adherence to the ruling in the earlier raise of United Equipment & Supply Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive period.

BUTUAN SAWMILL INC. v. CTAFEB. 28, 1966 – GR. L-20601

FILING OF WRONG RETURN –

Since no percentage tax return was actually filed by taxpayer to reflect the sales of its logs to Japan, the 10-year prescriptive period for cases where returns are not filed applies. Even if an ITR which happens to be the wrong return had been filed, and even considering that the income from said sales were all reflected therein, still, this would not take the place of the correct return which for purposes of tax in question should actually be the percentage tax return.

The percentage tax on sale has now been replaced by the 10% VAT.

WHEN THERE IS FRAUD –

Mere understatement of gross earnings not of itself proves fraud. The allegation of fraud with intention to evade the franchise tax has not been proved satisfactorily. The 1st quarter of 1960, the gross receipts of Butuan Sawmill as a franchise grantee amounted to P1,369,383.10. Only P16,799.56 represented the alleged unrecorded and under reported receipts of Butuan Sawmill. However, a big portion of the unrecorded receipts of P16,799.56 was not reflected in the book of accounts of the taxpayer because it represented the cost f the electric current used free of charge by its officer and employees. It cannot be charged that Butuan Sawmill intended to defraud the government of the franchise tax. Fraud, being absent, the right of the government to assess the franchise tax had already prescribed.

CIR v. PHOENIX ASSURANCE CO.MAY 20, 1965 – GR. L-19727

Where the amended return is substantially different from the original return, the right of the BIR to assess the tax counted from the filing of the amended return. If the assessment is counted from the filing of the original return, this would permit taxpayers to evade taxes by simply reporting in their original return, heavy losses and amending the same after the lapse of the prescriptive period when the Commissioner has already lost his authority to assess the tax. The objective of the Tax Code is to impose taxes, not to enhance tax avoidance to the prejudice of the government.

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CIR. v. LILIA GONZALES

Where the return was made in the wrong form, the filing thereof did not start the running of the period of limitations, and where the return was very deficient; there was no return at all. If the taxpayer failed to observe the law, Sec. 332 of NIRC – grants CIR a 10 year period within which to bring an action for tax collection, applies. Sec. 94 obligates him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations should be reckoned from the date the fraud was discovered.

2) SUSPENSION OF PRESCRIPTIVE PERIODS/ EXCEPTIONSSEC. 203, 222, 223 OF NIRCRMO 20-90ORDER 05-01

CIR v. CTAMAR. 20, 1991 – GR. 44007

Sec. 203 of NIRC states that internal revenue taxes shall be assessed within 5 years after the taxpayer’s return was filed. It is undisputed that Eastern failed to file any corporate ITR for a period of 20-years from 1952-1971. CIR argued that under Sec. 223(a), Eastern’s failure to file ITR authorizes him to assess income tax due from Eastern with 10 years, after the discovery of falsity, fraud or omission. The omission was discovered only in 1971. CIR has 10 years from 1971 or until 1981 within which to assess. The assessment of deficiency income tax was issued on 1973, which is well within the period prescribed by law. But while it is true that the assessment is within the prescribed period, it does not follow that it is a valid statement in its entirety. RA 808 is an operative act. Eastern is exempted from payment of all taxes, whether local, provincial or national, except franchise and real property taxes. It goes without saying that the assessment cannot be held valid against the income derived from Eastern’s operation authorized by the franchise. It can only stand valid insofar as the assessment is for income derived from services within the Philippines and which is beyond the scope of RA 808.

REPUBLIC OF THE PHILIPPINES v. DAMIAN RETMAR. 31, 1962 – GR. L-13754

The cause of action has already prescribed. Sec. 332 of NIRC does not apply to income taxes if the collection of said taxes will be made by summary proceedings, but if the collection is to be effected by court action, Sec. 332 of NIRC will be the controlling provision. The BIR only made the assessment on 1951 and had up to 1956 to file the necessary action. It was only on 1957 that the action was filed in court for collection of alleged deficiency income tax – far beyond the 5 year period.

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIROCT. 17, 2005 – GR. 139736

PHILIPPINE JOURNALISTS, INC. v. CIRDEC. 16, 2004 – GR. 162852

A waiver of statute of limitations, to a certain extent, s a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA. 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 unequally particular where the language of the document is equivocal. For the purpose of safeguarding taxpayers from an unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. The law of prescription being a remedial measure should be liberally construed in order to afford such protection. The exception to the law on prescription should perforce be strictly construed.

JOSE AZNAR v. CTA, & CIRAUG. 23, 1974 – GR. 20569

In three different cases of (1) false return, (2) fraudulent return with intent to evade tax, and (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may begin without assessment, at anytime within 10 years after discovery of the falsity, fraud or omission.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of NIRC should be applicable to normal circumstances, but where the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false return, fraudulent returns intended to evade payment of tax or failure to file returns, the period of 10 years provided in Sec. 332(a) of NIRC, from time of discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.

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REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD.SEP. 29, 1966 – GR. L-21609

Under Sec. 333 of the Tax Code, 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 and levy or instituting a proceeding in court, and for 60 days thereafter. In the case at bar, the pendency of the taxpayer’s appeal in CTA and in SC had the effect of temporarily staying the hands o the Commissioner. If the taxpayer’s stand that the pendency of the appeal did not stop the running of the period because the CTA did not have jurisdiction over the case is upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the running of the prescriptive period was suspended.

CIR v. SUYOC CONSOLIDATED MINING CO.NOV. 25, 1958 – GR. L-11527

A mere request for re-examination or reinvestigation of assessment may not suspend the running of the period of limitation for in such a case there is a need of a written agreement to extend the period between the collector and the taxpayer. There are cases, however, where a taxpayer may be prevented from setting-up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts, the government has been for good reasons persuaded to postponed collection to make himself feel that the demand was not unreasonable or that no harassment or injustice is meant by the government, and when such situation comes to pass there are authorities that hold, based on weighty reason, that such an attitude or behaviour should not be countenanced if only to protect the interest of the government.

He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are damnified.” The tax could have been collected, but the government withheld action at the specific request of plaintiff. The plaintiff is now stopped and should not b permitted to raise the defense of statute of limitations.

CIR v. PHILIPPINE GLOBAL COMMUNICATION, INC.OCT. 31, 2006 – GR. 167146

The 3 year statute of limitations on the tax collection of an assessed tax provided under Sec. 269(c) of the Tax Code of 1977, a law enacted to protect the interests of taxpayers, must be given effect. In providing for exception, the law strictly limits the suspension of the running of the prescription period to, among other instances, protest wherein the taxpayer requests for a reinvestigation. In this case, the taxpayer merely filed 2 protest letters requesting for reconsideration, and where the BIR could not have conducted a reinvestigation because of new or additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the decision issued by CIR on October 08, 2002 affirming the formal assessment issued on April 14, 1994 can no longer be the subject of any proceeding for its collection. The right of the government to collect the alleged deficiency tax is barred by prescription.

C. REQUISITES OF A VALID ASSESSMENTSEC. 3, RR 12-99

1) DUE PROCESS

CIR v. ALBERTO BENIPAYOJAN. 31, 1962 – GR. L-13656

To sustain the deficiency tax assessed against Benipayo would amount to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling each adult patron 2 children’s tax-free tickets instead of 1 ticket subject to the amusement tax. Fraud is a serious charge and to sustained, must be supported by clear and convincing proof which, in this case, is lacking.

BONIFACIA SY PO v. CTA, & CIR

The law is specific and clear. The rule on “The Best Evidence Obtainable” applies when a tax report required by law for the purpose of assessment is not available or when tax report is incomplete or fraudulent.

The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of an irregularities in the performance of duties, an assessment duly made by the BIR examiner and approved by his superior officers will not b disturbed. All presumptions are in favour of the correctness of tax assessments. The fraudulent acts detailed in the decision under review had not been satisfactorily rebutted by Sy Po. There are indeed clear indications on the part of taxpayer to deprive the government of the tax due.

CIR v. AZUCENA REYESJAN. 27, 2006 – GR. 159694

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The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the assessment itself would be invalid.

A. BROWN CO., INC. v. CIRJUN. 07, 2004 – CTA 6357

The record shows that CIR failed to comply with the procedural due process requirement in order to sustain the validity and legality of an assessment.

First, the report of investigation sent prior to the issuance of PAN indicated that there is a finding of deficiency income tax of only P4,511,035.67. If ever they should properly issue against ABC the same should have reflected the finding made on report. Instead, the PAN completely departed from the result by increasing the alleged tax liability of ABC.

Secondly, the law and rules and regulation is issued pursuant thereto clearly gives the taxpayer the right to reply to the PAN. The period given to taxpayer is 15 days from receipt of PAN. Here, the CIR withheld PAN to ABC. CIR through registered mail sent the PAN to ABC’s former address. Further, merely 4 days after the PAN was received and without waiting for the lapse of the mandatory 15 day period to reply, CIR issued the assessment, even before it could be given a chance to be heard.

The sending of PAN and assessment notice to the wrong address may only be seen as an attempt to mislead or confuse ABC.

In the observance of procedural due process, the SC is always mindful that a taxpayer being made liable with his property be given an opportunity to be heard which is one of its essential elements. With the failure of CIR to strictly comply with the procedure prescribed by law, and failure of ABC to receive a copy of the alleged assessment, the latter was not afforded its right to be heard for it was denied the opportunity to protest or dispute the alleged assessment.

CIR v. METRO SUPERAMA, INC.SEP. 16, 2008 – CTA 306

Assessment is a notice to the effect that the amount stated is due as a tax and a demand for the payment thereof. It fixes and determines the tax liability of a taxpayer. As soon as it served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Sec. 228 of NIRC does not only require that there must be an investigation and determination of taxpayer’s liability. The Commissioner or his duly authorized representative is required to send notice of assessment to the taxpayer in order to give the latter an opportunity to file a protest. An assessment is deemed made only when the same is actually received by the taxpayer.

The document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the CIR releases, mails or sends such notice to the taxpayer. Although, there is no specific requirement that the taxpayer should receive the notice within the prescriptive period, due process requires at the very least that such notice actually be received. If it appears that the person liable for payment did not receive the assessment, the assessment could not become final and executory.

CIR v. DOMINADOR MENGUITOSEP. 17, 2008 – GR. 167560

While the lack of PRN and PAN is a deviation from the requirements under Sec. 1 and 2 of RR 12-85, the same cannot detract from the fact that the FAN were issued to and actually received by Menguito in accordance with Sec. 228 of NIRC. The stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied that the said assessment notice have been served on taxpayer, applies only to FAN but not PRN or PAN. The issuance of valid FAN is a substantive pre-requisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signalling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies thereof. Due process requires that it must be served on and received by taxpayer.

A PRN and PAN do not bear the gravity of a PAN. The PRN and PAN merely hint at the initial findings of the BIR against a taxpayer and invited the latter to an “Informal Conference or Clarificatory Meeting.” Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on taxpayer for as long as the latter is properly served with FAN. In the case of Menguito, a FAN was received by him as acknowledge in his petition for review and joint stipulation, and on the basis thereof, he filed a protest with the BIR and eventually a petition for CA.

2) POWER OF CIR TO ISSUE ASSESSMENTS

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MERALCO SECURITIES CORPORATION v. VICTORINO SAVELLANOOCT. 23, 1982 – GR. L-36748

Since the office of the CIR is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the Commissioner to compel him t impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive function.

Such absence of arbitrariness or grave abuse so as to go beyond the statutory authority is not subject to the contrary judgment or control of others. “Discretion” when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrollable by the judgment or conscience of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment.

ERNESTO MACEDA v. CATALINO MACARAIG

NPC availed of subsidy granted to GOCC that were made subject to tax payments. Sec. 23 of PD 1177, mandates that the Secretary of Finance and Commissioner of Budget had to establish the necessary procedures to accomplish the tax payment/ tax subsidy scheme of the government in effect, NPC did not put out any cash to pay any tax as it got from the general fund the amounts necessary to pay the different revenue collector for the taxes it had to pay.

The tax exemption withdrawn by Sec. 1 of PD 1931 was therefore the same NPC tax exemption privileges withdrawn by Sec. 23 of PD 1177. NPC could no longer obtain a subsidy for the taxes t had to pay. It could however, under PD 1931 ask for a total restoration of its tax exemption privileges, which it did, and the same were granted under FIRB Resolution 10-85 and 1-86 as approved by the Minister of Finance.

The oil companies which supply bunker fuel oil to NPC have to pay taxes imposed upon said bunker fuel oil sold to NPC. By indirect taxation, the economic burden is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. The NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation.

3) WHEN ASSESSMENT MADE

GONZALO NAVA v. CIRJAN. 30, 1965 – GR. L-19470

The presumption that a letter duly directed and mailed was received in the regular course of mail cannot apply where none of the required facts to raise this presumption, i.e., that the letter was properly addressed with postage prepaid and that it was mailed, have been shown.

Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment to a taxpayer, made without the supporting evidence, cannot suffice to prove that such notice was sent and received; otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate protection or defense.

BARCELON, ROXAS SECURITIES, INC. v. CIRAUG. 07, 2006 – GR. 157064

When a mail matter is sent by registered mail, there exists a presumption set forth under Sec. 3(v) Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are:

a) The letter was properly addressed with postage prepaid; andb) That it was mailed.

While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favoured by the presumption to prove that the mailed letter was indeed received by the addressee.

Entries in official records made in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated. Where it has been held that an entrant must have personal knowledge of the facts stated by him or such facts were acquired by him from reports made by persons under a legal duty to submit the same. There are 3 requisites for admissibility:

a) Entry was made by a public officer, or by another person specially enjoined by law to do so;

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b) It was made by public officer in the performance of his duties; andc) The public officer or other person had sufficient knowledge of facts by him.

In this case, the entries made by Versola were not based on her personal knowledge as she did not attest to the fact that she personally prepared and mailed the assessment notice, nor was it stated in the transcript of stenographic notes how and from whom she obtained the pertinent information.

II. PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT

A. HOW TO PROTEST OR DISPUTE AN ASSESSMENT ADMINISTRATIVELYSEC. 228 OF NIRCSEC. 3.1.5, RR 12-99

1) REINVESTIGATION v. RECONSIDERATION


With the issuance of RR 12-85 providing for the distinction between a request for reconsideration and a request for reinvestigation. It bears to emphasize that under Sec. 224 of NIRC the running of the prescriptive period for collection of taxes can only be suspended by a “request for reinvestigation,” and not a request for reconsideration.

a) Request for Reinvestigation – - Entails the reception and evaluation of additional evidences.- Can suspend the running of the statute of limitations on collection of assessed tax.

b) Request for Reconsideration – - Is limited to the evidence already at hand. - Does not suspend the running of the statute of limitations on collection of assessed tax.

The BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations. “The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted in order to effect suspension.”

2) EFFECTS OF FAILURE TO FILE PROTEST/ FAILURE TO SUBMIT RELEVANT DOCUMENTS

FERDINAND MARCOS II v. CA, & CIRJUNE 05, 1997 – GR. 120880

The objections to the assessment should have been raised, considering the ample remedies afforded the taxpayer by the Tax Code, with the BIR and the CTA, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by Marcos II reflects his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguise protest. Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government.

Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of the government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.

RIZAL COMMERCIAL BANKING CORP. (RCBC) v. CIRJUNE 16, 2006 – GR. 168498

As provided in Sec. 228, the failure of the taxpayer to appeal from an assessment on time rendered the assessment final, executory and demandable. RCBC is precluded from disputing the correctness of the assessment. While the right to appeal a decision of the Commissioner of CTA is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a MTD.

REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD.SEP. 29, 1966 – GR. L-21609

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The assessment for deficiency income tax for 1947 has become final and executory, and therefore, Ker, may not anymore raise defenses which go into the merits of assessment, i.e. prescription of the Commissioner’s right to assess the tax. However, Ker raised the defense of prescription in the proceedings below, and the Republic, instead of questioning the right of Ker to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the government should be considered to have waived its right to object to the setting up of such defenses.

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINESSEP. 05, 1984

The commencement of the 5-year period should be counted from Aug. 29, 1958, the date of the letter of demand of the BIR Commissioner to Mambulao. It is this demand or assessment that is appealable to the CTA. The complaint for collection was filed in the CFI on Aug. 25, 1961, very much within the 5-year period prescribed by Sec. 332 (c) of the Tax Code. The right of the Commissioner to collect the forest charges and surcharges in the amount of P15, 443.55 has not prescribed.

It is also not disputed the Mambulao requested for a reinvestigation of its tax liability. In reply, Republic gave Mambulao 20-days from receipt thereto to submit the results of its verification of payments and failure to comply would be an abandonment of the request for reinvestigation. Neither did it appeal to the CTA within 30-days from receipt of the letter, thus making the assessment final and executory.

PRULIFE OF UK INSURANCE CORPORATION v. CIRSEP. 11, 207 – CTA 6774

The effect of Prulife’s lack of supporting documents submitted is that, it lost its chance to further contesting the premium tax assessment. The finality of the assessment simply means that where the taxpayer decides to forgo with the opportunity to present the documents in support of its claim within 60 days from the filing of its protest, it merely lost its chance to further contest the assessment.

Its non-compliance with the submission of the necessary documents would either mean that Prulife no longer wishes to further submit any document for the reason that its protest letter filed was more than enough to support its claim, or that Prulife failed to comply thus it can no longer give justification with regard to its objections as to the correctness of the assessment notices.

The necessity of the submission of the supporting documents lies on Prulife. It cannot be left to the discretion of the CIR for in doing so would leave Prulife’s case at the mercy of the whims of the CIR. It is for Prulife to decide whether or not supporting documents are necessary to support its protest for it is the best position, being the affected party to the assessment to determine which documents are necessary and essential to garner a favourable decision from CIR.

The mere claim of Prulife that its cash collection did not comprise entirely of premiums collected cannot be given credence. Prulife should have presented supporting documents to prove such claim. Since Prulife failed to present a scintilla of evidence to that effect, CTA sustains CIR’s basis of such collections. Assessments should not be based on presumption no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts.

ABN-AMRO SAVINGS BANK CORP. v. CIRSEP. 10, 2008 – CTA 7089

Where a taxpayer failed to submit relevant supporting documents within the 60-day period from filing of the protest, and in case of inaction by CIR and the taxpayer chooses to appeal to the CTA, the same must be made within 30-days from the lapse of the 180-day period, the 180-day period must be reckoned from the date the protest was filed. The 60-day period shall not be added to the computation of the 180-days because in case the taxpayer fails to submit relevant supporting documents, the assessment becomes final. The 180 day period, therefore, commenced to run from the date protest was filed. Failure on the part of ABN-AMRO to file a Petition for Review with the CTA within 30-days from the lapse of 180-day period reckoned from the date the protest was filed, renders the assessment final, executory and demandable.

The case at bar, reveals that ABN-AMRO filed its letter of protest on January 28, 2004, it has 60-days until March 28, 2004 within which to submit the relevant supporting documents. Records of the case, is bereft of proof that ABN-AMRO had submitted the relevant documents on or before March 28, 2004. The 180-day period shall be reckoned from the filing of the protest on January 28, 2004 which ends on July 26, 2004.

CIR v. JOSE CONCEPCIONMAR. 15, 1968 – GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which is Sec. 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time.

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B. COMMISSIONER OF INTERNAL REVENUE RENDERS DECISION ON DISPUTED ASSESSMENT

1) PERIOD TO DECIDESEC. 228 OF NIRC

OCEANIC WIRELESS NETWORK, INC. v. CIR, CTA, & CADEC. 09, 2005 – GR. 148380

The general rule is that the CIR Commissioner may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under Sec. 7 of NIRC.

Sec. 7. Authority of the Commissioner to Delegate Power – The Commissioner may delegate the power vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Provided, however, that the following powers of the Commissioner shall not be delegated:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate;

d) The power to assign or reassign internal revenue officers to establishment where articles subject to excise tax are produce and kept.

The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in the case.

C. REMEDY OF TAXPAYERSEC. 3.5.1, RR 12-99SEC. 228 OF NIRCRA 9282, as amended by RA 9503RR OF CTA, AM 05-11-07-CTA

1) CIR FAILS TO ACT ON PROTEST WITHIN 180 DAYS FROM SUBMISSION OF RELEVANT DOCUMENTS

LASCONA LAND CO., INC. v. CIR, & NORBERTO ODULIOJAN. 04, 2000 – CTA 5777

Lascona argues that its failure to appeal to the CTA within 30 days from the lapse of the 180-day period did not make the assessment final and executory simply because CIR did not act upon the protest within the 180-day period. In such a situation, Lascona contends that it had the option to appeal to the CTA or to continue with the proceedings on its protest in the administrative level. Once a decision is rendered by the Commissioner on the protest, the 30-day period to appeal from receipt of the decision is mandatory.

In case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the CTA within 30 days from the lapse of the 180-day period; or second, he may wait until the Commissioner decides on his protest before he elevates his case. The court believes that the taxpayer was given this option so that in case his protest is not acted upon within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide. But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, executory and demandable.

RIZAL COMMERCIAL BANKING CORPORATION (RCBC) v. CIRJUNE 16, 2006 – GR. 168498

As provided in Sec. 228, the failure of a taxpayer to appeal from an assessment on time rendered the assessment final, executory and demandable. Consequently, RCBC is precluded from disputing the correctness of the assessment. While the right to appeal a decision o the Commissioner to the CTA is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a MTD.

2) APPEAL TO THE CTA EN BANC, SC

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REPUBLIC OF THE PHILIPPINES v. LIM TIAN SONS & CO., INC.MAR. 31, 1966 – GR. L-21731

Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Sec. 305 withholds from all courts, except the CTA the authority to restrain the collection of any national internal-revenue tax, free or charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes.

Before the creation of the CTA the remedy of a taxpayer who desired to contest an assessment issued by the CIR was to pay the tax and bring an action in the ordinary courts for its recovery pursuant to Sec. 306 of the Tax Code. Collection or payment of the tax was not made to wait until after the CIR has resolved all issues raised by the taxpayer against an assessment. RA 1125 creating the CTA allows the taxpayer to dispute the correctness of legality of an assessment both in the purely administrative level and in said court, but it does not stop or prohibit the CIR from collecting the tax through any of the means provided in Sec. 316 of the Tax Code, except when enjoined by CTA.

ADVERTISING ASSOCIATES, INC. v. CA, & CIRDEC. 26, 1984 – GR. L-59758

Acting Commissioner Plana wrote a letter in an answer to the request of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint. He justified the assessments by stating that the rental income of Advertising Associates from the billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes with 10-days from receipt of the demand, otherwise, the Bureau would enforce the warrants of distraint. In his demand letter, he states that:

“This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the CTA within 30 days from receipt of this letter.”

No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of Sec. 7 RA 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitute his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action.

CIR v. ALGUE, INC., & CTAFEB. 17, 1988 – GR. L-28896

The record shows that on January 14, 1965, Algue received a letter from CIR assessing it for delinquency income taxes for 1958 and 1959. Four days thereafter, Algue filed a letter of protest or request for reconsideration which letter was stamp-received on the same day in the office of the CIR. On March 12, 1965, a warrant of distraint and levy was presented to Algue who refused to receive it on the ground of the pending protest. A photocopy was given to the BIR agent, who deferred service of the warrant. On April 7, 1965, Algue was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy. 16 days later, Algue filed a petition for review on the decision of the CIR with the CTA.

The forgoing circumstances show that the petition was filed seasonably. RA 1125 states that the appeal may be made within 30 days after receipt of the decision or ruling challenged.

It is true that as a rule the warrant of distraint and levy is “proof of the finality of the assessment” and renders hopeless a request for reconsideration, being tantamount to an outright denial thereof and makes the said request deemed rejected. But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that 4 days after Algue received the notice of assessment; it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of CIR. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

ELPIDIO YABES & SEVERINO YABES v. HON. NAPOLEON FLOJOJULY 20, 1982 – GR. L-46954

There is no reason for the Court to disagree from or reverse the CTA’s conclusion that under the circumstances of the case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the CFI. The summons of which was served on Yabes on January 20, 1971, and that therefore the appeal with the CTA was filed on time.

The dismissal of the complaint is not sufficient. The ends of justice would best be served by considering the complaint filed in the Civil case not only as a final notice of assessment but also as a counterclaim in the CTA case, in order to avoid multiplicity of suits, as well as to expedite the settlement of the controversy between the parties. The 2 case involves the same parties, the same subject matter and the same issue, which is the liability of the heirs of Yabes for commercial broker’s fixed and percentage taxes due from Yabes. Wherefore, the petition is granted and the writs prayed for

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are issued. The question orders are annulled and set aside and the complaint in the Civil case should be dismissed, the same to be transferred to the CTA to be considered therein as a counterclaim in the CTA case. The TRO is made permanent.

CIR v. UNION SHIPPING CORPORATION, & CTAMAY 21, 1990 – GR. 66160

There appears to be no dispute that CIR did not rule on Union Shipping’s motion for reconsideration but contrary to the ruling of the Court, left Union Shipping in the dark as to which action of the Commissioner is the decision appealable to CTA. Had he categorically stated that he denies Union Shipping’s motion for reconsideration and that his action constitutes his final determination of the disputed assessment, Union Shipping without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided.

Under the circumstances, CIR, 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 Union Shipping received the summons on the civil suit for collection of deficiency income on December 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by CIR when the latter filed a civil suit for collection of deficiency income. So that when Union Shipping filed an appeal with the CTA, it consumed a total of only 13 days, well within the 30 day period to appeal.

CIR v. ISABELA CULTURAL CORPORATIONJULY 11, 2001 – GR. 135210

The Final Notice Before Seizure cannot but be considered as the Commissioner’s decision disposing of the request for reconsideration filed by Isabela, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that Isabela was being given “this Last Opportunity” to pay; otherwise, its properties would be subjected to distraint and levy.

Sec. 228 of NIRC states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. In this case, the period of 180 days had already lapsed when Isabela filed its request for reconsideration on March 1990, without any action on the part of the CIR.

Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.

D. NON-RETROACTIVITY OF RULINGSSEC. 246 OF NIRC

1) REVIEW, APPEAL TO SECRETARY OF FINANCESEC. 4 OF NIRC

CIR v. PHILIPPINE HEALTH CARE PROVIDERS INC.APR. 24, 2007 – GR. 168129

Sec. 246 of the 1997 Tax Code, as amended provides that rulings, circulars, rules and regulations promulgated by the CIR Commissioner have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are:

Where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR;Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based;Where the taxpayer acted in bad faith.

Philhealth’s failure to describe itself as a “health maintenance organization” which is subject to VAT, is not tantamount to bad faith. It is apparent that when VAT Ruling was issued in Philhealth’s favor, the term “health maintenance organization” was yet unknown or had no significance for taxation purposes.

Under Sec. 246, the CIR Commissioner is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, 3 years after a new BIR Circular reversed a previous one, upon which the taxpayer had relied upon; such an assessment was prejudicial to the taxpayer. The rule, otherwise, opined the Court, would be contrary to the tenets of good faith, equity and fair play. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case.

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PHILIPPINE BANK OF COMMUNICATIONS (PBCOM) v. CIR, CTA, & CAJAN. 28, 1999 – GR. 112024

The rule states that the taxpayer may file a claim for refund or credit with the BIR Commissioner, within 2 years after payment of tax, before any suit in CTA is commenced. The 2-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. When the Acting Commissioner issued RMC 7-85, changing the prescriptive period of 2 years to 10 years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of NIRC. The BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by the Congress.

The Revenue Memorandum circulars are considered administrative rulings which are issued from time to time by the BIR Commissioner. The interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.

III. JURISDICTION OF CTARA 9282, as amended by RA 9503RR OF CTA, AM 05-11-07-CTA

1) WHY WAS CTA CREATED?

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIRMAY 08, 1996 – GR. 118794

The contentions of PRC that nobody is in a better position to determine when an obligation becomes a bad debt that the creditor itself, and that its judgment should not be substituted by that of CTA as it is the PRC which has the facilities in ascertaining the collectability or un-collectability of these debts, are presumptuous and uncalled for. The CTA is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether or not the debt is deductible through the evidence presented before it. Because of this recognizable expertise, the finding of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on the SC and in the absence of strong reason for the SC to delve into facts, only questions of law are open for determination.

IV. REMEDIES AVAILABLE TO GOVERNMENT

A. ADMINISTRATIVE REMEDIES, SUMMARY REMEDIES

1) TAX LIENSEC. 219 OF NIRC

REPUBLIC v. RAMON ENRIQUEZOCT. 21, 1988 – GR. L- 78391

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax become due and payable.

CIR v. NLRCNOV. 09, 1994 – GR. 74965

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by CIR, through the Commissioner, long before the writ of execution was issued by the RTC. There is no question then that at the time the writ of execution was issued, the 2 barges were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to the properties unquestionably belonging to the judgment debtor.

Art. 110 of the Labour Code do not purport to create a lien in favour of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not fall at all time within the category of specially preferred claims established under Art. 2241 and Art. 2242 of the CC, except to the extent that such claims for unpaid wages are already covered by Art. 2241(6): “claims for labourers’ wages, on the goods manufactured or the work done;” or by Art. 2242(3): “claims of labourers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works.” To the

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extent that claims for unpaid wages fall outside the scope of Art. 2241(6) and Art. 2242(3), they would come within the ambit of the category of ordinary preferred credits under Art. 2244.

Art. 110 of the Labour Code applies only in case of bankruptcy or judicial liquidation of an employer’s business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets of the employer.

THE HONGKONG & SHANGHAI BANKING CORP. (HSBC) v. JAMES REFFERTYNOV. 15, 1918 – GR. 13188

A lien in its modern acceptation is understood to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation. The tax lien does not establish itself upon property which has been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into the hands of a third party; it is further essential that the latter should have notice, either actual or constructive.

B. JUDICIAL REMEDIESSEC. 205SEC. 220-221, OF NIRC

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINESSEP. 05, 1984 – GR. L-37061

The taxpayer’s defenses are similar to those of the Republic in a case for the enforcement of a judgement by judicial action under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgement relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. The taxpayer may raise only the question whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of that act.

FERNANDEZ HERMANOS, INC. v. CIR, & CTASEP. 30, 1969 – GR. L-21551

A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first instance 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. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the CTA, the said Court is vested with the authority to pronounce judgment as to the taxpayer’s liability to the exclusion of any other court.

The “capital investment” method is not a method of depletion, but the Tax Code provision, prior to its amendment by Sec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital invested no further allowances shall be made; in other words, the capital investment was but the limitation of the amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it were a “straight line” rate of depreciation is not authorized by the Tax Code.

V. STATUTORY OFFENSES AND PENALTIESA. CIVIL PENALTIES, SURCHARGES, INTEREST

SEC. 247-251 OF NIRCRR 12-99

1) RULES ON INTEREST

BANK OF THE PHILIPPINE ISLAND (BPI) v. CIRJUL. 27, 2006 – GR. 137002

In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment, which was the subject of the demand letter of the Commissioner, should have been paid within 30 days from receipt thereof. By reason of PRC's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that PRC appealed the assessment to the CTA and that the same was modified does not relieve PRC of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the

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payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.

In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him. Even though the taxpayer did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the CA imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Sec. 249(c)(3) of NIRC.

2) SURCHARGE: 25% OR 50%SEC. 248 OF NIRC

a) MANDATORY IMPOSITION OF PENALTIES

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIRMAY 08, 1996 – GR. 118794

Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. The intention of the law is to discourage delay in the payment of taxes due the Government and, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government. Unquestionably, PRC chose to turn a deaf ear to these injunctions.

CIR v. AIR INDIA, & CTAJAN. 29, 1998 – GR. 72443

The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand, if the failure to file the required tax return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer.

The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax return thereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there is the barren claim that such failure was fraudulent in character, without any evidence or justification for the same. The willful neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.

In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right or to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both Aznar and the CIR committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.

There being no cogent basis to find willful neglect to file the required tax return on the part of Air India, the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air India to a 25% penalty pursuant to Section 72 of NIRC. P74,203.90 constitutes the tax deficiency of Air India. 25% of this amount is P37,101.95.

MICHEL J. LHUILLIER PAWNSHOP, INC. v. CIRSEP. 11, 2006 – GR. 166786

Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself but on the privilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is governed by the provision of PD 114. All pledges are subject to DST, unless there is a law exempting them in clear and categorical language. This explains why the Legislature did not see the need to explicitly impose a DST on pledges entered into by pawnshops. These pledges are already covered by Sec. 195 and to create a separate provision especially for them would be superfluous.

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It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from contract of loan, which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the loan or the exercise of the privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC, to separately impose stamp tax on all debt instruments, like a simple loan agreement. It is for this reason why the definition of pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge entered into by pawnshops. For purposes of Sec. 195, pawnshop tickets need not be an evidence of indebtedness nor a debt instrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it from the imposition f DST. It was correctly defined as such because the ticket itself is not the security but the pawn or the personal property pledge to the pawnbroker.

b) RULE ON PRIMA FACIE FRAUDSEC. 248(B) OF NIRC

JOSE AZNAR v. CTA, & CIRAUG. 23, 1974 – GR. L-20569

The lower court’s conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a wilful filing of false and fraudulent returns as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception wilfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax.

CIR v. MELCHOR JAVIER JR., & CTAJULY 31, 1991 – GR. 78953

Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of the government agency concerned, the BIR, headed by CIR. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. The CIR’s zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.

B. CRIMES, OFFENSES, PENALTIES, FORFEITURESSEC. 220-221, 224-226 OF NIRCSEC. 253-281 OF NIRCRMC 101-90

1) PRECONDITIONED BEFORE A CRIMINAL CASE MAY BE FILED

REPUBLIC OF THE PHILIPPINES v. SALUD HIZONDEC. 31, 1999 – GR. 130430

Sec. 221 of NIRC provides:

Form and mode of proceeding in actions arising under this Code. — Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the BIR shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIR deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of the Commissioner.

To implement this provision RAO 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the Legal Branches of Revenues Regions:

xxx xxx xxxII. Civil Cases1. Complaints for collection on cases falling within the jurisdiction of the Region . . . .In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed in connection therewith which, otherwise, requires the signature of the Commissioner.

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xxx xxx xxx

RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.

However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:

Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such memoranda and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. . . .

This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and have the force of law. The governing statutory provision in this case is Sec. 4(d) of the NIRC which provides:

Specific provisions to be contained in regulations. — The regulations of the BIR shall, among other things, contain provisions specifying, prescribing, or defining:xxx xxx xxx(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings.

RAO 5-83 and 10-95 are in harmony with this statutory mandate.

As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBESMAY 30, 1980 – GR. L-41919-24

What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be reviewed by CTA, but a criminal prosecution for violations of NIRC which is within the recognizance of CFI. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of Ungab against the assessment of the District Revenue Officer cannot stop his prosecution for violation of NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash filed by Ungab.

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CIR v. CA, FORTUNE TOBACCO CORP., & LUCIO TANJUNE 04, 1996 – GR. 119322

In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortune’s premises, and considering that the Manufacturer’s Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR, and since the manufacturer’s wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates “the price, excluding the VAT, at which the goods are sold at wholesale in the place of production,” otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune made fraudulent returns or wilfully attempted to evade payment of taxes due.

If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence of BIR personnel’s malfeasance. There is the presumption that the BIR personnel performed their duties in the regular course in ensuing that the correct taxes were paid by Fortune.

The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. Before one is prosecuted for wilful attempt to evade or defeat any tax under Sec. 253 and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.

DISTINGUISHED FROM UNGAB v. CUSI –

The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed and deliberately qualified by the Court. “The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax.” For criminal prosecution to proceed before assessment there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade taxes because of the taxpayer’s failure to declare in his ITR his income derived from banana saplings. In the mind of the trial court and CA, Fortune’s situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATIONJUNE 29, 1999 – GR. 128315

Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Sec. 222 of NIRC specifically states that in cases where false or fraudulent return is submitted or in case of failure to file a return such as in this case, proceedings in court may be commenced without an assessment. Sec. 205 clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, Ungab sought the dismissal of the criminal complaints for being premature since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a return. Pascor add that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Pascor failed to show that they are entitled to an exception. 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.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the Commissioner is unsatisfied, an assessment signed by him is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the Commissioner has issued an assessment. It must be stressed that a criminal complaint is institute not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

2) COMPROMISE PENALTYRMO 19-07

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CIR v. LIANGA BAY LOGGING CO., INC., & CTAJAN. 21, 1991 – GR. 35266

Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a “forest concessionaire who is the holder of an ordinary license;”but there are separate provisions “on invoicing and payment of forest charges in the case of owners or operators of sawmills who are forest concessionaire,” like Lianga. For purposes of said regulations, “sawmills are classified into Class A, B, C and D.” The Tax Court’s finding on the basis of the evidence is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in accordance with said regulation, forest officers have been permanently assigned to its concession for the purpose of scaling all logs felled and it has posted a bond to guarantee the payment of the forest charges that may be due from it. It is not therefore required by the regulation to accomplish and submit auxiliary invoices – required only of Class A sawmills, i.e., holders of ordinary timber licenses. What is required in lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as the Daily Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is noteworthy that the CIR does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga “has complied with the requirements regarding the keeping and use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and commercial invoices.” In fact, it appears that the forest officers’ reports and computations were the basis for the payment of forest charges by Lianga, and the basis, as well of the Commissioner’s computation of the alleged 25% surcharge. Sec. 267 imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concession “without invoice” does not specify the nature of the invoice contemplated. The term is not limited to auxiliary invoices. It may refer as well to “official” or “commercial” invoices such as those prepared by Class C sawmills. This is the interpretation placed on the term by said regulation themselves, which declare that the 25% surcharge is imposable on “Forest products transported without official invoice or commercial invoice, as the case requires.” And since sawmill or commercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all.

3) ELEMENTS OF TAX EVASION

CIR v. THE ESTATE OF BENIGNO TODA, JR.SEP. 14, 2006 – GR. 147188

4) PAYMENT OF TAX IN CRIMINAL CASESSEC. 253(d) OF NIRCSEC. 205 (b)

REPUBLIC v. PEDRO PATANAOJULY 21, 1967 – GR. L-22356

Under the Penal Coe, the civil liability is incurred by reason of the offender’s criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot be civilly liable there under. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business and not because of any criminal at committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, while Sec. 73 of NIRC has provided for the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it does not provide the collection of said tax in criminal proceedings.

Since taxpayer’s civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.

MARIA B. CASTRO v. CIRAPR. 26, 1962 – GR. L-12174

With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal case could not operate to discharge Castro from the duty to pay the tax, since that duty is imposed by statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The obligation to pay the tax is not a mere consequence of the felonious acts charged in the information, nor is it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the criminal acts charged did not exist.

As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are not penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the state revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud. This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by distraint or civil suit, and that they are provided in a section of Sec. 5 and Sec. 7, RA 55 that is separate and distinct from that providing for criminal prosecution. The SC concludes that the defense of jeopardy and estoppel by reason of Castro’s acquittal is untenable and without merit. Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge is an issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of its existence by the Tax Court is conclusive upon the SC.

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5) PRESCRIPTION OF VIOLATION OF NIRC

EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINESOCT. 18, 1990 – GR. 48134-37

Relative to Criminal Cases Nos. 1788 and 1789 which involved Lim’s refusal to pay deficiency income taxes due, again both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Lim maintains that the 5-year period of limitation under Sec. 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insist that it should be counted from July 3, 1968 when final notice and demand was served on Lim’s daughter-in-law. The SC holds for the Government.

Sec. 51 (b) of the Tax Code provides: “(b) Assessment and payment of deficiency tax – After the return is filed, the BIR Commissioner shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the BIR Commissioner. Inasmuch as the final notice and demand for payment of the deficiency taxes was served on Lim on July 3, 1968, it was only then that the cause of action on the part o the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the allotted period. The two criminal information, having been filed on June 23, 1970, are well within the 5-year prescriptive period and are not time-barred.

VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT

A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT

1) BASIS OF TAX REFUNDS

CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATIONFEB. 16, 2007 – GR. 147295

Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws governing this principle are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another under the influence of a mistake of fact, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it.

The government comes within the scope of solution indebeti principle, where that: “enshrined in the basic legal principles is the time honoured doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempt from the application of this doctrine.

2) TAXPAYER, WITHHOLDING AGENT

CIR v. PROCTER & GAMBLE PHILIPPINES MANUFACTURING CORPOATION, & CTADEC. 02, 1991 – GR. 66838

The SC believes that the BIR should not be allowed to defeat an otherwise valid claim for refund by raising the question of alleged incapacity. CIR does not pretend that P&G-Phil., should it succeed in the claim for refund instead of transmitting such refund, is likely to run away with the refund instead of transmitting such refund or tax credit to its parent or sole stockholder. It is commonplace that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular No. 1-88 of the SC in exactly the same way that private litigants are held to such compliance, save only in respect of the matter of filing fees from which the Republic is exempt by the Rules of Court.

A “taxpayer” is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding agent who is required to deduct and withhold any tax is made “personally liable for such tax” and is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. A “person liable for tax” has been held to be a “person subject to tax” and “subject to tax” both connote legal obligation or duty to pay a tax. By any reasonable standard, such a person should be regarded as a party-in-interest or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

TAX PAIRING RULE –

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The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation, goes down to 15% if the country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by the foreign stockholder corporation.

In the instant case, the reduced 15% dividend tax rate is applicable if the USA “shall allow” to P&G-USA a tax credit for “taxes deemed paid in the Philippines” applicable against the US taxes of P&G-USA. The NIRC specifies that such tax credit for “taxes deemed paid in the Philippines” must, as a minimum, reach an amount equivalent to 20% points which represents the difference between the regular 35% dividend tax rate and the preferred 15% dividend tax rate. However, Sec. 24(b)(1), does not require that the US must give a “deemed paid” tax credit for the dividend tax (20% points) waived by the Philippines in making applicable the preferred dividend tax rate of 15%. In other words, NIRC does not require that the US tax law deemed the parent-corporation to have paid the 20% points of dividend tax waived by the Philippines. The NIRC only requires that the US “shall allow” P&G-USA a “deemed paid” tax credit in an amount equivalent to the 20% points waived by the Philippines.

3) REQUISITES FOR A VALID CLAIM FOR REFUND

FINLEY J. GIBBS & DIANE P. GIBBS v. CIR, CTANOV. 29, 1965 – GR. L-17406

AJG, signing as attorney-in-fact, acknowledged for the Gibbs receipt of the deficient income tax assessment; formally protested the same in writing, paid the assessment and likewise formally demanded in writing its refund. Besides, in one of his letters to the Commissioner, he stated that if his demand for refund for the Gibbs was not effected, he would collect from CIR certain charges including attorney’s fees.

The forgoing circumstances show that AJG acted not merely an agent or attorney-in-fact of the Gibbs but as their legal counsel. The receipt, therefore by AJG of the Commissioner’s decision denying the claim for refund was receipt of the same by the Gibbs, and the 30-day prescriptive period for filing of a petition for review should be computed from the date of such receipt.

A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the BIR Commissioner, but, to perform or extinguish his tax obligation for the year concerned. He is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the 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 2-year prescriptive period under Sec. 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the Collector is rendering the decision does not extend the peremptory period fixed by the statute.

KOPPEL (PHILIPPINES), INC. v. CIRSEP. 19, 1961 – GR. L-10550

It is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or file his action within the time prescribed by law. Koppel not having filed his claim within the time fixed by law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps on his rights.

Having failed to file his action for refund on time of Koppel may not now invoke estoppels when he himself is guilty of laches. The government is never stopped by error or mistake on the part of its agents.

CIR v. JOSE CONCEPCIONMAR. 15, 1968 – GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is Sec. 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time.

CIR v. VICTORIAS MILLING CO., & CTAJAN. 03, 1968 – GR. L-24108

Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes — those taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the conditions under which payment has been made." And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Sec. 142 of NIRC, is beyond the scope of Sec. 306 and 309 as to thwart the aforesaid intention and spirit underlying said provisions.

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x x x x x x x x x . . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec. 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the 2-year prescriptive period provided for in Sec. 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 CIR, and the subsequent appeal to the CTA must be instituted, within the said 2-year period. x x x x x x x x x 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.

It is not disputed that the oils and fuels involved in this case were used during the period from June 1952 to December 1955; that the claim for refund was filed on December 1957; and that the appeal to the Court CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957 is within 2 years from December 1955 — the last month of the period during which the fuels and oils were used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding must be started in the CTA before the end of the 2-year period without awaiting the decision of the

Collector." In the light of the above quoted ruling, the SC finds that the right of Victorias Milling to claim refund of P2,817.08 has prescribed.

CIR v. CA, & CITYTRUST BANKING CORPORATION, & CTAJULY 21, 1994 – GR. 106611

The CTA erred in denying CIR’s supplemental motion for reconsideration alleging and bringing to said court’s attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of Citytrust Bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Citytrust cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitute a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund.

To grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should be subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of 10-years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and entail additional efforts and expenses on the part of the Government impose a burden on and a drain of government funds, and impedes or delays the collection of much-needed revenue for government operations.

DR. FELISA L. VDA. DE SAN AGUSTIN v. CIR

The estate received a PAN indicating a deficiency estate tax of P538,509.50. Within the 10-day period given in the PAN, CIR received a letter from San Agustin expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and penalties be waived. However, San Agustin received from the CIR notice insisting payment of the tax due on or before the lapse of 30 days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until December 1991.

The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Sec. 248A(3) of NIRC. The basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37. Sec. 249 of NIRC states that any deficiency in the tax due would be subject to interest at the rate of 20% per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The computation of interest by the CTA -

"Deficiency estate taxP538,509.50

x Interest Rate20% per annum

x Terms11/2 mo./12 mos(11/04/91 to 12/19/91)

= P13,462.74

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it is paid.

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The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on San Agustin, a compromise being, by its nature, mutual in essence. The payment made under protest by San Agustin could only signify that there was no agreement that had effectively been reached between the parties.

Regrettably for San Agustin, the need for an authority from the probate court in the payment of the deficiency estate tax, over which CIR has hardly any control, is not one that can negate the application of the Tax Code provisions. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions.

4) REFUNDS OF CORPORATE TAXPAYERS, IRREVOCABILITY RULESEC. 76 OF NIRC

ACCRA INVESTMENTS CORPORATION v. CA, CIR, & CTADEC. 20, 1991 – GR. 96322

There is a 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 BIR. ACCRA filed its final adjustment return for its 1981 taxable year on April 15, 1982. The 2-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, ACCRA had until April 15, 1984 within which to file its claim for refund.

CIR v. TMX SALES INC., & CTAJAN. 15, 1992 – GR. 83736

The filing of quarterly ITRs required in Sec. 68 and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere instalments 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 Sec. 69 which provides for the filing of adjustment returns and final payment of income tax. Consequently, the 2-year prescriptive period provided in Sec. 230 of the Tax Code should be computed from the time of filing of the Adjustment Return or Annual ITR and final payment of income tax.

In the instant case, TMX Sales, filed a suit for a refund on March 14, 1984. Since the 2-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.

SYSTRA PHILIPPINES, INC. v. CIRSEP. 21, 2007 – GR. 176290

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2 options:

To carry over the excess credit;To apply for the issuance of a tax credit certificate or to claim a cash refund.

If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76 of the Tax Code. The phrase “such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:

As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and;As a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.

SITHE PHILIPPINES HOLDINGS, INC. v. CIRAPR. 04, 2003 – CTA 6274

By the clear wording of Sec. 76, every taxpayer-corporation is required to file a final adjustment return reflecting therein all the items of gross income and deductions as well as the total taxable income for the taxable year. By the filing thereof, it enables a taxpayer to ascertain whether it has a tax still due or an excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund the excess amount paid as the case may be.

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Sec. 76, gives the taxpayer the privilege to carry over its excess credit or crediting/ claiming for the refund of the excess amount paid, as the case may be. If Sithe believes that Sec. 76 is inapplicable to its case, then why did they carry over to the succeeding taxable year its 1998 excess credit?

Sec. 204 and Sec. 229 of the 1997 Tax Code, if treated in isolation, vest no right. Sec. 204 merely provides for the authority of the Commissioner to compromise, abate and refund/ credit taxes and the period of time within which a taxpayer may claim a refund o tax credit. The same holds true with regard to Sec. 22, which merely sets a period of limitation within which to recover an erroneously or illegally collected tax. Thus, a taxpayer’s option to carry over the excess credit or to refund/ credit the excess amount paid is actually provided for by Sec. 76. In order to give effect to its provisions, it is important that Sec. 76 should be read together with Sec. 204 and Sec. 229 of the Tax Code.

In the case at bar, when Sithe opted to carry over its excess tax credit to the succeeding taxable year, it has in effect availed of the privilege allowed only by Sec. 76. Thus, it is absurd for Sithe to exercise the option to carry over the excess amount paid and on the same breath, invoke the inapplicability of Sec. 76 to his case.

BPI-FAMILY SAVINGS BANK, INC. v. CA, CTA, & CIRAPR. 12, 2000 – GR. 122480

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on the grounds of strict technicality, the Return submitted before the CTA and even before this Court. The undisputed fact is that BPI suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to BPI.

CIR argues that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of the case, the SC holds that BPI has established its claim. BPI may have filed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that BPI suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of BPI. Technicalities, and legalism, however exalted, should not be misused by the Government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honour, dignity and uprightness.

PHILAM ASSET MANAGEMENT, INC. v. CIRDEC. 14, 2005 – GR. 156637 AND 162004

PAID ON OPTIONS: NO DILIGENCE ON PART OF PHILAM –

Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. These options are:

a) Filing for a tax refund;b) Availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These 2 options are alternative in nature. The choice of one precludes the other. A corporation must signify its intention – whether to request a tax refund or claim a tax credit – by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its 1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in requesting a tax refund has no basis in law and jurisprudence.

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TWO YEAR PRESCRIPTIVE PERIOD, NOT APPLICABLE –

The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be instantly hindered by a failure to signify one’s intention in the FAR is to render nugatory the clear provision that allows for a 2-year prescriptive period. In BPI-Family Savings Bank v. CA, the court ordered the refund of a taxpayer’s excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens.

5) RULE IN CASE OF MERGER, CORPORATE TAXPAYERS CONTEMPLATING DISSOLUTIONSEC. 52(c) OF NIRC


It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.

In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIR’s stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor."

Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of NIRC and under Sec. 244 of RR 2.

As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the 15 th day of April, or almost 10 months after it ceased its operations, before filing its ITR.

Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.

BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution. As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47 of the NIRC.

BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in 1985.

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Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by Sec. 78 of NIRC.

Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

6) WHEN 2 YEAR PERIOD DOES NOT APPLY

CIR v. PHILIPPINE NATIONAL BANK (PNB)OCT. 25, 2005 – GR. 1611887

7) ERRONEOUSLY REFUNDED TAX

GUAGUA ELECTRIC LIGHT CO., INC. v. CIRAPR. 24, 1967 – GR. L-23611

Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A special law (Tax Code) prevails over a general law (NCC).

Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.

VII. ABATEMENT OF TAX, TAX COMPROMISESEC. 7, SEC. 204 OF NIRCRR 13-01RR30-02

A. POWER TO COMPROMISE

1) BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT AND RATES

CIR. v. AZUCENA T. REYESJAN. 27, 2006 – GR. 159694

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part 1. remedies under nirc. compiled

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