taxii_compendium2

8/14/2019 TaxII_Compendium2

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1. Chamber of Real Estate and Builders’ Associations, Inc., v. The Hon. Executiveecretar! Alberto Romulo, et al

".R. #o. 1$%&'$. (arch ), *%1%

+acts Petitioner Chamber of Real Estate and Builders’ Associations, Inc. (CREBA), anassociation of real estate developers and builders in the Philippines, uestioned the validit! of

"ection #$(E) of the %a& Code 'hich imposes the minimum corporate income ta& (CI%) oncorporations.

nder the %a& Code, a corporation can become sub*ect to the CI% at the rate of #+ of rossincome, beinnin on the -th ta&able !ear immediatel! follo'in the !ear in 'hich itcommenced its business operations, 'hen such CI% is reater than the normal corporateincome ta&. If the reular income ta& is hiher than the CI%, the corporation does not pa! theCI%.

CREBA arued, amon others, that the use of ross income as CI% base amounts to aconfiscation of capital because ross income, unlie net income, is not reali/ed ain.

CREBA also souht to invalidate the provisions of RR 0o. #123, as amended, other'ise no'nas the Consolidated 4ithholdin %a& Reulations, 'hich prescribe the rules and procedures forthe collection of C4% on sales of real properties classified as ordinar! assets, on the roundsthat these reulations5

se ross sellin price (6"P) or fair maret value (78) as basis for determininthe income ta& on the sale of real estate classified as ordinar! assets, instead of the entit!’s netta&able income as provided for under the %a& Code9

andate the collection of income ta& on a per transaction basis, contrar! to the %a& Codeprovision 'hich imposes income ta& on net income at the end of the ta&able period9

6o aainst the due process clause because the overnment collects income ta& even 'hen the netincome has not !et been determined9 ain is never assured b! mere receipt of the sellin price9and

Contravene the eual protection clause because the C4% is bein chared upon real estateenterprises, but not on other business enterprises, more particularl!, those in the manufacturinsector, 'hich do business similar to that of a real estate enterprise.

Issues (:) Is the imposition of CI% constitutional; (#) Is the imposition of C4% on incomefrom sales of real properties classified as ordinar! assets constitutional;

Held -:) <es. %he imposition of the CI% is constitutional. An income ta& is arbitrar! andconfiscator! if it ta&es capital, because it is income, and not capital, 'hich is sub*ect to incometa&. =o'ever, CI% is imposed on ross income 'hich is computed b! deductin from rosssales the capital spent b! a corporation in the sale of its oods, i.e., the cost of oods and otherdirect e&penses from ross sales. Clearl!, the capital is not bein ta&ed.

8arious safeuards 'ere incorporated into the la' imposin CI%.

7irstl!, reconi/in the birth pans of businesses and the realit! of the need to recoup initialma*or capital e&penditures, the CI% is imposed onl! on the -th ta&able !ear immediatel!follo'in the !ear in 'hich the corporation commenced its operations.



"econdl!, the la' allo's the carr!1for'ard of an! e&cess of the CI% paid over the normalincome ta& 'hich shall be credited aainst the normal income ta& for the three immediatel!succeedin !ears.

%hirdl!, since certain businesses ma! be incurrin enuine repeated losses, the la' authori/esthe "ecretar! of 7inance to suspend the imposition of CI% if a corporation suffers losses due to

proloned labor dispute, force ma*eure and leitimate business reverses.

(#) <es. >espite the imposition of C4% on 6"P or 78, the income ta& base for sales of realpropert! classified as ordinar! assets remains as the entit!’s net ta&able income as provided inthe %a& Code, i.e., ross income less allo'able costs and deductions. %he seller shall file itsincome ta& return and credit the ta&es 'ithheld b! the 'ithholdin aent1bu!er aainst its ta&due. If the ta& due is reater than the ta& 'ithheld, then the ta&pa!er shall pa! the difference. If,on the other hand, the ta& due is less than the ta& 'ithheld, the ta&pa!er 'ill be entitled to arefund or ta& credit.

%he use of the 6"P or 78 as basis to determine the C4% is for purposes of practicalit! andconvenience. %he no'lede of the 'ithholdin aent1bu!er is limited to the particular

transaction in 'hich he is a part!. =ence, his basis can onl! be the 6"P or 78 'hich fiuresare reasonabl! no'n to him.

Also, the collection of income ta& via the C4% on a per transaction basis, i.e., uponconsummation of the sale, is not contrar! to the %a& Code 'hich calls for the pa!ment of the netincome at the end of the ta&able period. %he ta&es 'ithheld are in the nature of advance ta&pa!ments b! a ta&pa!er in order to cancel its possible future ta& obliation. %he! areinstallments on the annual ta& 'hich ma! be due at the end of the ta&able !ear. %he 'ithholdinaent1bu!er’s act of collectin the ta& at the time of the transaction, b! 'ithholdin the ta& duefrom the income pa!able, is the ver! essence of the 'ithholdin ta& method of ta& collection.

?n the alleed violation of the eual protection clause, the ta&in po'er has the authorit! to

mae reasonable classifications for purposes of ta&ation. Ineualities 'hich result from sinlinout a particular class for ta&ation, or e&emption, infrine no constitutional limitation. %he realestate industr! is, b! itself, a class and can be validl! treated differentl! from other businessenterprises.

4hat distinuishes the real estate business from other manufacturin enterprises, for purposesof the imposition of the C4%, is not their production processes but the prices of their oods soldand the number of transactions involved. %he income from the sale of a real propert! is bierand its freuenc! of transaction limited, main it less cumbersome for the parties to compl!

'ith the 'ithholdin ta& scheme. ?n the other hand, each manufacturin enterprise ma! havetens of thousands of transactions 'ith several thousand customers ever! month involvin bothminimal and substantial amounts.

#. C((II#ER + I#TER#A/ RE0E#E, petitioner, vs. CEB 2RT/A#3CE(E#T C(2A#4 and CRT + TA5 A22EA/, respondents.

".R. #o. /6*)%') 3ecember 1', 1)7&+ACT B! virtue of a decision of the C%A, as modified on appeal b! the "upreme Court, theCIR 'as ordered to refund to Cebu Portland Cement Compan! the amount of P @2,-3.23,representin overpa!ments of ad valorem ta&es on cement produced and sold b! it. 4henrespondent moved for a 'rit of e&ecution, petitioner opposed on the round that the private



respondent had an outstandin sales ta& liabilit! to 'hich the *udment debt had alread! beencredited. In fact, it 'as stressed, there 'as still a balance o'in on the sales ta&es in the amountof P -,$32,#$2.3 plus #3+ surchare. %he C%A ranted the CIR’s motion.%he CIR claims that the refund should be chared aainst the ta& deficienc! of the privaterespondent on the sales of cement under "ection :3 of the %a& Code. =is position is thatcement is a manufactured and not a mineral product and therefore not e&empt from sales ta&es.

%he petitioner also denies that the sales ta& assessments have alread! prescribed because theprescriptive period should be counted from the filin of the sales ta& returns, 'hich had not !et

been done b! the private respondent.ean'hile, the private respondent disclaims liabilit! for the sales ta&es, on the round thatcement is not a manufactured product but a mineral product. As such, it 'as e&empted fromsales ta&es. Also, the alleed sales ta& deficienc! could not as !et be enforced aainst it becausethe ta& assessment 'as not !et final, the same bein still under protest and still to be definitel!resolved on the merits. Besides, the assessment had alread! prescribed, not havin been made

'ithin the relementar! five1!ear period from the filin of the ta& returns.IE 4hether or not sales ta& 'as properl! imposed upon private respondent.HE/3 <es, because cement has al'a!s been considered a manufactured product and not amineral product. %his matter 'as e&tensivel! discussed and cateoricall! resolved in

Commissioner of Internal Revenue v. Republic Cement Corporation , decided on Auust :,:23@, statin that cement qua cement 'as never considered as a mineral product 'ithin themeanin of "ection #- of the %a& Code, not'ithstandin that at least 3+ of its componentsare minerals, for the simple reason that cement is the product of a manufacturing process and isno loner the mineral product contemplated in the %a& Code (i.e.9 minerals sub*ected to simpletreatments) for the purpose of imposin the ad valorem ta&.%he arument that the assessment cannot as !et be enforced because it is still bein contestedloses siht of the urenc! of the need to collect ta&es as Dthe lifeblood of the overnment.D If thepa!ment of ta&es could be postponed b! simpl! uestionin their validit!, the machiner! of thestate 'ould rind to a halt and all overnment functions 'ould be paral!/ed.

8. (unici9alit! of (a:ati v. Court of A99eals

"R ; 7)7)76) 1%<%1<)%

+acts An e&propriation proceedin for a piece of land filed b! the unicipalit! of aatiaainst Admiral 7inancial and Credit Corp resulted 'ith the unicipalit! havin to pa! P,#2:,. less initial pa!ments b! the municipalit!. After that, private respondent filed a

'rit for e&ecution for the balance. Reional %rial Court ranted the motion and directed the ban to deliver the said balance. "ubseuent motions for reconsideration and appeal to therespondent Court of Appeals b! the municipalit! in order to stop the arnishment.

Issues 4hether or not the court can validl! sub*ect overnment accountspropert! toarnishment. 4hether or not the the court erred 'ith the decision of assessin the hiheramount as to ho' much the municipalit! is 'illin to pa!.

Held %he court ruled that the unicipalit! of aatiFs accounts or propert! cannot be held forarnishment as overnmentFs fund, held for public use, can not be held for arnishment.=o'ever, the court still held the unicipalit! liable for the assessed value of the land andimprovements because the private respondent should be entitled to *ust compensation.

=. CIR >v> Al?ue, Inc., @ CTA

".R. #o. /6*77)$ +ebruar! 1&, 1)77



+ACT Alue, Inc., a domestic corporation enaed in enineerin, construction and otherallied activities. Philippine "uar Estate >evelopment Compan! had earlier appointed Alue asits aent, authori/in it to sell its land, factories and oil manufacturin process. G%here 'as asale for 'hichH Alue received as aent a commission of P:#,., and it 'as from thiscommission that the P$,. promotional fees 'ere paid to the aforenamed individuals. %he

pa!ees dul! reported their respective shares of the fees in their income ta& returns and paid thecorrespondin ta&es thereon, and there 'as no distribution of dividends 'as involved.

GAlue claimed the $, to be deductible from their ta&, to 'hich the CIR disallo'ed.H

IE 4hether or not the Collector of Internal Revenue correctl! disallo'ed the P$,.deduction claimed b! private respondent Alue as leitimate business e&penses in its income ta&returns.

HE/3 0? CIR is not correct. %he burden is on the ta&pa!er to prove the validit! of theclaimed deduction. In the present case, ho'ever, 'e find that the onus has been discharedsatisfactoril!. %he private respondent has proved that the pa!ment of the fees 'as necessar! and

reasonable in the liht of the efforts e&erted b! the pa!ees in inducin investors and prominent businessmen to venture in an e&perimental enterprise and involve themselves in a ne' businessreuirin millions of pesos. %his 'as no mean feat and should be, as it 'as, sufficientl!recompensed.

%a&es are the lifeblood of the overnment and so should be collected 'ithout unnecessar!hindrance. ?n the other hand, such collection should be made in accordance 'ith la' as an!arbitrariness 'ill neate the ver! reason for overnment itself. It is therefore necessar! toreconcile the apparentl! conflictin interests of the authorities and the ta&pa!ers so that the realpurpose of ta&ation, 'hich is the promotion of the common ood, ma! be achieved.

It is said that ta&es are 'hat 'e pa! for civili/ation societ!. 4ithout ta&es, the overnment

'ould be paral!/ed for lac of the motive po'er to activate and operate it. =ence, despite thenatural reluctance to surrender part of oneFs hard earned income to the ta&in authorities, ever!person 'ho is able to must contribute his share in the runnin of the overnment. %heovernment for its part, is e&pected to respond in the form of tanible and intanible benefitsintended to improve the lives of the people and enhance their moral and material values. %hiss!mbiotic relationship is the rationale of ta&ation and should dispel the erroneous notion that itis an arbitrar! method of e&action b! those in the seat of po'er.

But even as 'e concede the inevitabilit! and indispensabilit! of ta&ation, it is a reuirement inall democratic reimes that it be e&ercised reasonabl! and in accordance 'ith the prescribedprocedure. If it is not, then the ta&pa!er has a riht to complain and the courts 'ill then come tohis succor. 7or all the a'esome po'er of the ta& collector, he ma! still be stopped in his tracs if

the ta&pa!er can demonstrate, as it has here, that the la' has not been observed.

'. B2I +amil! avin?s Ban: v. CA, et al."R #o. 1**=7% A9ril 1*, *%%%

+acts Petitioner BPI 7amil! "avins Ban had an e&cess 'ithholdin ta&es for the !ear :232amountin to P::#,-2:.2. It indicated in its :232 Income %a& Return that it 'ould appl! thesaid amount as a ta& credit for the succeedin ta&able !ear, :22. =o'ever because of business



losses, petitioner informed the Bureau of Internal Revenue (BIR) that it 'ould claim the amountas a ta& refund, instead of appl!in it as a ta& credit. 4hen no action from the BIR 'asforthcomin, petitioner filed its claim 'ith the Court of %a& Appeals.

%he C%A and the CA, ho'ever, denied the claim for ta& refund. "ince petitioner declared in its:232 Income %a& Return that it 'ould appl! the e&cess 'ithholdin ta& as a ta& credit for the

follo'in !ear, the %a& Court held that petitioner 'as presumed to have done so. %he C%A andthe CA ruled that petitioner failed to overcome this presumption because it did not present its:22 Return, 'hich 'ould have sho'n that the amount in dispute 'as not applied as a ta&credit. =ence, the CA concluded that petitioner 'as not entitled to a ta& refund.

Issue 4hether or not petitioner is entitled to the refund of P::#,-2:.2, representin e&cesscreditable 'ithholdin ta& paid for the ta&able !ear :232.

Held It is undisputed that petitioner had e&cess 'ithholdin ta&es for the !ear :232 and 'asthus entitled to a refund amountin to P::#,-2:. Pursuant to "ection 2 of the :23 %a& Code

'hich states that a corporation entitled to a refund ma! opt either (:) to obtain such refund or(#) to credit said amount for the succeedin ta&able !ear.

Petitioner presented evidence to prove its claim that it did not appl! the amount as a ta& credit.

A cop! of the 7inal Ad*ustment Return for :22 'as attached to petitionerFs otion forReconsideration filed before the C%A. A final ad*ustment return sho's 'hether a corporationincurred a loss or ained a profit durin the ta&able !ear. In this case, that Return clearl!sho'ed that petitioner incurred P#,-3,:$@ as net loss in :22. Clearl!, it could not haveapplied the amount in dispute as a ta& credit.

%he BIR did not controvert the veracit! of the said return. It did not even file an opposition topetitionerFs otion and the :22 7inal Ad*ustment Return attached thereto.

Petitioner also calls the attention of this Court, as it had done before the C%A, to a >ecisionrendered b! the %a& Court in C%A Case 0o. -32$, involvin its claim for refund for the !ear:22. In that case, the %a& Court held that Dpetitioner suffered a net loss for the ta&able !ear:22 . . . .D Respondent, ho'ever, ures this Court not to tae *udicial notice of the said case.

RespondentsF reasonin underscores the 'eaness of their case. 7or if the! had reall! believedthat petitioner is not entitled to a ta& refund, the! could have easil! proved that it did not sufferan! loss in :22. Indeed, it is note'orth! that respondents opted not to assail the fact appearintherein J that petitioner suffered a net loss in :22 J in the same 'a! that it refused tocontrovert the same fact established b! petitionerFs other documentar! e&hibits

%echnicalities and lealisms, ho'ever e&alted, should not be misused b! the overnment to eepmone! not belonin to it and thereb! enrich itself at the e&pense of its la'1abidin citi/ens. Ifthe "tate e&pects its ta&pa!ers to observe fairness and honest! in pa!in their ta&es, so must itappl! the same standard aainst itself in refundin e&cess pa!ments of such ta&es. Indeed, the"tate must lead b! its o'n e&ample of honor, dinit! and uprihtness.

. C((II#ER + I#TER#A/ RE0E#E vs.T4 HI22I#" C. /T3.,represented b! "?RIA?0% "%EA"=IP A6E0CIE" I0C., and C?R% ?7 %AK APPEAL"

#-- "CRA @-#9 a! #, :22



+acts5 %o!o "hippin a forein corporation represented in the Philippines b! "oriamont"teamship Aencies and o'ns and operates 8 6ardenia. 0A"%RA * chartered 86ardenia to load :, metric tons of ra' suar in the Philippines. "oriamont Aenc!, = paidthe reuired income and common carrierFs ta&es P2,#@.$ and P-$,:2., respectivel! (%otalP:$,:-#.$). pon arrivin, ho'ever, at 6uimaras Port of Iloilo, the vessel found no suar forloadin. 0A"%RA and "oriamont mutuall! areed to have the vessel sail for Mapan 'ithout an!

caro. Claimin the pre1pa!ment of income and common carrierFs ta&es as erroneous since noreceipt 'as reali/ed from the charter areement, %o!o instituted a claim for ta& credit or refundof the sum P:$,:-#.$ from CIR. Petitioner failed to act promptl! on the claim , hence %o!ofiled a petition for revie' $ before Court of %a& Appeals. C%A decided for %o!o and denied Rof CIR.Issue5 4?0 %o!o "hippin Co. Ltd., is entitled to a refund or ta& credit 'hether it 'as ableto prove that it derived no receipts from its charter areement, and hence is entitled to a refundof the ta&es it pre1paid to the overnment.Rulin?5 <es. Pursuant to "ection #- (b) (#) of the 0ational Internal Revenue Code 'hich at thattime, a resident forein corporation enaed in the transport of caro is liable for ta&esdependin on the amount of income it derives from sources 'ithin the Philippines. %hus, beforesuch a ta& liabilit! can be enforced the ta&pa!er must be sho'n to have earned income sourced

from the Philippines.Indeed, a claim for refund is in the nature of a claim for e&emption 7 and should be construedin strictissimi juris aainst the ta&pa!er. And %o!o has the burden of proof to establish thefactual basis of its claim for ta& refund.But sufficient evidence has alread! been adduced b! %o!o provin that it derived no receiptfrom its charter areement 'ith 0A"%RA 1 8 D6ardeniaD arrived in Iloilo on Manuar! :,:23: but found no ra' suar to load and returned to Mapan 'ithout an! caro laden on board.

&. C((II#ER + I#TER#A/ RE0E#E 0. (ITBIHI (ETA/CR2RATI# -171 CRA *1=

+acts Atlas Consolidated inin and>evelopment Corporation, a domestic corporation,

entered into a Loan and "ales Contract 'ith itsubishi etal Corporation, a Mapanesecorporation licensed to enae in business in the Philippines. %o be able to e&tend the loan to

Atlas, itsubishi entered into another loan areement 'ith E&port1Import Ban (E&imban), afinancin institution o'ned, controlled, and financed b! the Mapanese overnment. After maininterest pa!ments to itsubishi, 'ith the correspondin :+ ta& thereon remitted to the6overnment of the Philippines, Altas claimed for ta& credit 'ith the Commissioner of InternalRevenue based on "ection #2(b)($) (A) of the 0ational Internal Revenue Code, statin that sinceE&imban, and not itsubishi, is 'here the mone! for the loan oriinated from E&imban, then itshould be e&empt from pa!in ta&es on its loan thereon.

Issue 4?0 the interest income from the loans e&tended to Atlas b! itsubishi is e&cludiblefrom ross income ta&ation.

0?. itsubishi secured the loan from E&imban in its o'n independent capacit! as a private

entit! and not as a conduit of E&imban. %herefore, 'hat the sub*ect of the :+ 'ithholdin ta& is

not the interest income paid b! itsubishi to E&imban, but the interest income earned b!

itsubishi from the loan to Atlas. %hus, it does not come 'ithin the ambit of "ection #2(b)($)(A),

and it is not e&empt from the pa!ment of ta&es.



#otes 7indins of fact of the Court of %a& Appeals are entitled to the hihest respect and canonl! be disturbed on appeal if the! are not supported b! substantial evidence or if there is asho'in of ross error or abuse on the part of the ta& court. La's rantin e&emption from ta& areconstrued strictissimi *uris aainst the ta&pa!er and liberall! in favor of the ta&in po'er.%a&ation is the rule and e&emption is the e&ception.

7. 2hil Ban: of Communications vs. CIR, et. al.

8%* CRA *=1 Danuar! *7, 1)))

+acts Petitioner, Philippine Ban of Communications (PBCom), a commercial banincorporation dul! orani/ed under Philippine la's, filed its uarterl! income ta& returns for thefirst and second uarters of :23, reported profits, and paid the total income ta& ofP,:,2-.. %he ta&es due 'ere settled b! appl!in PBComFs ta& credit memos.

"ubseuentl!, ho'ever, PBCom suffered losses so that 'hen it filed its Annual Income %a&Returns for the !ear1ended >ecember @:, :23, the petitioner lie'ise reported a net loss ofP:-,:#2,#., and thus declared no ta& pa!able for the !ear.

But durin these t'o !ears, PBCom earned rental income from leased properties. %he lessees 'ithheld and remitted to the BIR 'ithholdin creditable ta&es of P#3#,$2. in :23 andP#@-,$$.2 in :23.

"ubseuentl!, Petitioner reuested the Commissioner of Internal Revenue, amon others, for ata& credit of P,:,2-. representin the overpa!ment of ta&es in the first and seconduarters of :23.

%hereafter, on Mul! #, :233, petitioner filed a claim for refund of creditable ta&es 'ithheld b!their lessees from propert! rentals in :23 for P#3#,$2. and in :23 for P#@-,$$.2.

Pendin the investiation of the respondent Commissioner of Internal Revenue, petitionerinstituted a Petition for Revie' on 0ovember :3, :233 before the Court of %a& Appeals (C%A).

%he C%A rendered a decision 'hich, as stated on the outset, denied the reuest of petitioner fora ta& refund or credit in the sum amount of P,#22,$-2.2, on the round that it 'as filed

be!ond the t'o1!ear relementar! period provided for b! la'. %he petitionerFs claim for refundin :23 amountin to P#@-,$$.2 'as lie'ise denied on the assumption that it 'asautomaticall! credited b! PBCom aainst its ta& pa!ment in the succeedin !ear.

IE 4hether the Court of Appeals erred in den!in the plea for ta& refund or ta& credits on

the round of prescription

HE/3 0o. Basic is the principle that Dta&es are the lifeblood of the nation.D %he primar!purpose is to enerate funds for the "tate to finance the needs of the citi/enr! and to advance thecommon 'eal. :@ >ue process of la' under the Constitution does not reuire *udicialproceedins in ta& cases. %his must necessaril! be so because it is upon ta&ation that theovernment chiefl! relies to obtain the means to carr! on its operations and it is of utmostimportance that the modes adopted to enforce the collection of ta&es levied should be summar!and interfered 'ith as little as possible.



7rom the same perspective, claims for refund or ta& credit should be e&ercised 'ithin the timefi&ed b! la' because the BIR bein an administrative bod! enforced to collect ta&es, its functionsshould not be undul! dela!ed or hampered b! incidental matters.

"ec. #@ of the 0ational Internal Revenue Code (0IRC) of :2$$ (no' "ec. ##2, 0IRC of :22$)

provides for the prescriptive period for filin a court proceedin for the recover! of ta&erroneousl! or illeall! collected.

%he rule states that the ta&pa!er ma! file a claim for refund or credit 'ith the Commissioner ofInternal Revenue, 'ithin t'o (#) !ears after pa!ment of ta&, before an! suit in C%A iscommenced. %he t'o1!ear prescriptive period provided, should be computed from the time offilin the Ad*ustment Return and final pa!ment of the ta& for the !ear.

). ison v. Ancheta"R #o. /6')=81 *' Dul! 1)7=

+ A C T Batas Pambansa :@ 'as enacted. "ison, as ta&pa!er, alleed that its provision("ection :) undul! discriminated aainst him b! the imposition of hiher rates upon his incomeas a professional, that it amounts to class leislation, and that it transresses aainst the eualprotection and due process clauses of the Constitution as 'ell as the rule reuirin uniformit! inta&ation.

I E 4hether or not BP :@ violates the due process and eual protection clauses, and therule on uniformit! in ta&ation.

H E / 3 %here is a need for proof of such persuasive character as 'ould lead to a conclusionthat there 'as a violation of the due process and eual protection clauses. Absent such sho'in,the presumption of validit! must prevail. Eualit! and uniformit! in ta&ation means that allta&able articles or inds of propert! of the same class shall be ta&ed at the same rate. %he ta&inpo'er has the authorit! to mae reasonable and natural classifications for purposes of ta&ation.

4here the differentiation conforms to the practical dictates of *ustice and euit!, similar to thestandards of eual protection, it is not discriminator! 'ithin the meanin of the clause and istherefore uniform. %a&pa!ers ma! be classified into different cateories, such as recipients ofcompensation income as aainst professionals. Recipients of compensation income are notentitled to mae deductions for income ta& purposes as there is no practicall! overhead e&pense,

'hile professionals and businessmen have no uniform costs or e&penses necessar! to producetheir income. %here is ample *ustification to adopt the ross s!stem of income ta&ation tocompensation income, 'hile continuin the s!stem of net income ta&ation as reardsprofessional and business income.

1%.Re!es vs. Almanor

1)$ CRA 8** A9ril *$, 1))1

+ACT Petitioners M.B.L. Re!es, Edmundo and ilaros Re!es are o'ners of parcels of landsituated in %ondo and "ta. Cru/ >istricts, Cit! of anila, 'hich are leased and entirel! occupied



as d'ellin sites b! tenants. "aid tenants 'ere pa!in monthl! rentals not e&ceedin threehundred pesos (P@.) in Mul!, :2$:.

?n Mul! :-, :2$:, the 0ational Leislature enacted Republic Act 0o. @2 prohibitin for one !ear from its effectivit!, an increase in monthl! rentals of d'ellin units or of lands on 'hichanotherFs d'ellin is located, 'here such rentals do not e&ceed three hundred pesos (P@.) a

month but allo'in an increase in rent b! not more than :+ thereafter.

?n ?ctober :#, :2$#, Presidential >ecree 0o. # amended R.A. 0o. @2 b! main absolute theprohibition to increase monthl! rentals belo' P@. and b! indefinitel! suspendin theaforementioned provision of the Civil Code, e&ceptin leases 'ith a definite period.Conseuentl!, the Re!eses 'ere precluded from raisin the rentals and from e*ectin the tenantsthereof.

%he Cit! Assessor of anila assessed the value of the Re!eses propert! on the schedule ofmaret values dul! revie'ed b! the "ecretar! of 7inance. %he revision entailed an increase to theta& rates and the petitioners averred that the reassessment imposed upon them reatl! e&ceededthe annual income derived from their properties.

IE 4?0 income approach is the method to be used in the ta& assessment and not thecomparable sales approach.HE/3 %he income approach and not the comparable sales approach must be used.NB! no strenth of the imaination can the maret value of properties covered b! P.>. 0o. # beeuated 'ith the maret value of properties not so covered. %he former has naturall! a muchlesser maret value in vie' of the rental restrictions.In the case at bar, not even the factors determinant of the assessed value of sub*ect propertiesunder the Dcomparable sales approachD 'ere presented b! the public respondents, namel!5 (:)that the sale must represent a bonafide armFs lenth transaction bet'een a 'illin seller and a

'illin bu!er and (#) the propert! must be comparable propert!. 0othin can *ustif! or supporttheir vie' as it is of *udicial notice that for properties covered b! P.>. # especiall! durin the

time in uestion, there 'ere hardl! an! 'illin bu!ers. As a eneral rule, there 'ere no taers sothat there can be no reasonable basis for the conclusion that these properties 'ere comparable

'ith other residential properties not burdened b! P.>. #.O

11. 2A/ v. ec of +inance"R #o. 11'7'* 8% ctober 1))'

+ A C T %he 8alue1Added %a& G8A%H is levied on the sale, barter or e&chane of oods andproperties as 'ell as on the sale or e&chane of services. It is euivalent to :+ of the rosssellin price or ross value in mone! of oods or properties sold, bartered or e&chaned or of theross receipts from the sale or e&chane of services. Republic Act 0o. $$: sees to 'iden the ta&

base of the e&istin 8A% s!stem and enhance its administration b! amendin the 0ational

Internal Revenue Code.

%hese are various suits for certiorari and prohibition challenin the constitutionalit! of RA$$:5

In the case at bar, PAL attacs the formal validit! of Republic Act 0o. $$:. PAL contends that it violates Art. 8I, "ection #G:H 'hich provides that DEver! bill passed b! Conress shall embraceonl! one sub*ect 'hich shall be e&pressed in the title thereof.D It is contended that neither =. 0o.:::2$ nor ". 0o. :@ provided for removal of e&emption of PAL transactions from the pa!ment



of the 8A% and that this 'as made onl! in the Conference Committee bill 'hich becameRepublic Act 0o. $$: 'ithout reflectin this fact in its title.

%he title of Republic Act 0o. $$: is5

A0 AC% RE"%RC%RI06 %=E 8ALE1A>>E> %AK G8A%H "<"%E, 4I>E0I06 I%" %AK

BA"E A0> E0=A0CI06 I%" A>I0I"%RA%I?0, A0> 7?R %=E"E PRP?"E" AE0>I06 A0> REPEALI06 %=E RELE8A0% PR?8I"I?0" ?7 %=E 0A%I?0AL I0%ER0AL RE8E0EC?>E, A" AE0>E>, A0> 7?R ?%=ER PRP?"E".

7urthermore, section :@ of RA $$: states the follo'in5

"ection :@. Exempt Transactions.- %he follo'in shall be e&empt from the value1added ta&5

GH %ransactions 'hich are e&empt under special la's, e&cept those ranted under Presidential>ecree 0os. , #2, 2$#, :-2:, :2.

%he effect of the amendment is to remove the e&emption ranted to PAL, as far as the 8A% isconcerned.

Philippine Airlines GPALH claims that its franchise under P.>. 0o. :2 'hich maes it liable fora franchise ta& of onl! #+ of ross revenues Din lieu of all the other fees and chares of an! ind,nature or description, imposed, levied, established, assessed or collected b! an! municipal, cit!,provincial, or national authorit! or overnment aenc!, no' or in the future,D cannot beamended b! Rep. Act 0o. $$: as to mae it GPALH liable for a :+ value1added ta& on revenues,

because "ec. #- of P.>. 0o. :2 provides that PALFs franchise can onl! be amended, modifiedor repealed b! a special la' specificall! for that purpose.

I E 4hether or not this amendment of "ection :@ of the 0IRC is fairl! embraced in thetitle of Republic Act 0o. $$:, althouh no mention is made therein of P. >. 0o. :2

H E / 3 %he court ruled in in the affirmative. %he title states that the purpose of the statute isto e&pand the 8A% s!stem, and one 'a! of doin this is to 'iden its base b! 'ithdra'in someof the e&emptions ranted before. %o insist that P. >. 0o. :2 be mentioned in the title of thela', in addition to "ection :@ of the 0IRC, in 'hich it is specificall! referred to, 'ould be toinsist that the title of a bill should be a complete inde& of its content.

%he constitutional reuirement that ever! bill passed b! Conress shall embrace onl! onesub*ect 'hich shall be e&pressed in its title is intended to prevent surprise upon the members ofConress and to inform the people of pendin leislation so that, if the! 'ish to, the! can beheard reardin it. If, in the case at bar, petitioner did not no' before that its e&emption had

been 'ithdra'n, it is not because of an! defect in the title but perhaps for the same reason otherstatutes, althouh published, pass unnoticed until some event someho' calls attention to theire&istence.

Republic Act 0o. $$: e&pressl! amends PALFs franchise GP. >. 0o. :2H b! specificall!e&ceptin from the rant of e&emptions from the 8A% PALFs e&emption under P. >. 0o. :2.%his is 'ithin the po'er of Conress to do under Art. KII, "ection :: of the Constitution, 'hichprovides that the rant of a franchise for the operation of a public utilit! is sub*ect toamendment, alteration or repeal b! Conress 'hen the common ood so reuires.



1*. ARTR (. T/E#TI#, petitioner, vs. THE ECRETAR4 + +I#A#CE and THEC((II#ER + I#TER#A/ RE0E#E, respondents. ".R. #o. 11'='' Au?ust*', 1))=+ACT =erein various petitioners see to declare RA $: as unconstitutional as it sees to

'iden the ta& base of the e&istin 8A% s!stem and enhance its administration b! amendin the

0ational Internal Revenue Code. %he value1added ta& (8A%) is levied on the sale, barter ore&chane of oods and properties as 'ell as on the sale or e&chane of services. It is euivalentto :+ of the ross sellin price or ross value in mone! of oods or properties sold, bartered ore&chaned or of the ross receipts from the sale or e&chane of services.CREBA asserts that R.A. 0o. $$: (:) impairs the obliations of contracts, (#) classifiestransactions as covered or e&empt 'ithout reasonable basis and (@) violates the rule that ta&esshould be uniform and euitable and that Conress shall Devolve a proressive s!stem ofta&ation.D

4ith respect to the first contention, it is claimed that the application of the ta& to e&istincontracts of the sale of real propert! b! installment or on deferred pa!ment basis 'ould result insubstantial increases in the monthl! amorti/ations to be paid because of the :+ 8A%. %headditional amount, it is pointed out, is somethin that the bu!er did not anticipate at the time he

entered into the contract.It is ne&t pointed out that 'hile "ection - of R.A. 0o. $$: e&empts such transactions as the saleof aricultural products, food items, petroleum, and medical and veterinar! services, it rants noe&emption on the sale of real propert! 'hich is euall! essential. %he sale of real propert! forsociali/ed and lo'1cost housin is e&empted from the ta&, but CREBA claims that real estatetransactions of Dthe less poor,D i.e., the middle class, 'ho are euall! homeless, should lie'ise

be e&empted.7inall!, it is contended, for the reasons alread! noted, that R.A. 0o. $$: also violates Art. 8I,"ection #3(:) 'hich provides that D%he rule of ta&ation shall be uniform and euitable. %heConress shall evolve a proressive s!stem of ta&ation.DIE 4hether or not RA $: violates the principle of proressive s!stem of ta&ation.HE/3 0o, there is no *ustification for passin upon the claims that the la' also violates the

rule that ta&ation must be proressive and that it denies petitionersF riht to due process andthat eual protection of the la's. %he reason for this different treatment has been coentl!stated b! an eminent authorit! on constitutional la' thus5 D4hen freedom of the mind isimperiled b! la', it is freedom that commands a momentum of respect9 'hen propert! isimperiled it is the la'maersF *udment that commands respect. %his dual standard ma! notprecisel! reverse the presumption of constitutionalit! in civil liberties cases, but obviousl! itdoes set up a hierarch! of values 'ithin the due process clause.DPetitioners contend that as a result of the uniform :+ 8A%, the ta& on consumption oods ofthose 'ho are in the hiher1income bracet, 'hich before 'ere ta&ed at a rate hiher than :+,has been reduced, 'hile basic commodities, 'hich before 'ere ta&ed at rates ranin from @+ to+, are no' ta&ed at a hiher rate.Must as viorousl! as it is asserted that the la' is reressive, the opposite claim is pressed b!respondents that in fact it distributes the ta& burden to as man! oods and services as possibleparticularl! to those 'hich are 'ithin the reach of hiher1income roups, even as the la'e&empts basic oods and services. It is thus euitable. %he oods and properties sub*ect to the

8A% are those used or consumed b! hiher1income roups. %hese include real properties heldprimaril! for sale to customers or held for lease in the ordinar! course of business, the riht orprivilee to use industrial, commercial or scientific euipment, hotels, restaurants and similarplaces, tourist buses, and the lie. ?n the other hand, small business establishments, 'ithannual ross sales of less than P,, are e&empted. %his, accordin to respondents,removes from the coverae of the la' some @, business establishments. ?n the other hand,



an occasional paper of the Center for Research and Communication cities a 0E>A stud! that the 8A% has minimal impact on inflation and income distribution and that 'hile additionale&penditure for the lo'est income class is onl! P@: or :.-2+ a !ear, that for a famil! earninP, a !ear or more is P3,@- or #.#+.Lacin empirical data on 'hich to base an! conclusion reardin these aruments, an!discussion 'hether the 8A% is reressive in the sense that it 'ill hit the DpoorD and middle1

income roup in societ! harder than it 'ill the Drich,D is larel! an academic e&ercise. ?n theother hand, the CPFs contention that ConressF 'ithdra'al of e&emption of producerscooperatives, maretin cooperatives, and service cooperatives, 'hile maintainin that rantedto electric cooperatives, not onl! oes aainst the constitutional polic! to promote cooperativesas instruments of social *ustice (Art. KII, :) but also denies such cooperatives the eualprotection of the la' is actuall! a polic! arument. %he leislature is not reuired to adhere to apolic! of Dall or noneD in choosin the sub*ect of ta&ation. ==

0or is the contention of the Chamber of Real Estate and Builders Association (CREBA),petitioner in 6.R. ::$-, that the 8A% 'ill reduce the mar up of its members b! as much as3+ to 2+ an! more concrete. It is a mere alleation. ?n the other hand, the claim of thePhilippine Press Institute, petitioner in 6.R. 0o. ::--, that the 8A% 'ill drive some of itsmembers out of circulation because their profits from advertisements 'ill not be enouh to pa!

for their ta& liabilit!, 'hile purportin to be based on the financial statements of the ne'spapersin uestion, still falls short of the establishment of facts b! evidence so necessar! forad*udicatin the uestion 'hether the ta& is oppressive and confiscator!.Indeed, reressivit! is not a neative standard for courts to enforce. 4hat Conress is reuired

b! the Constitution to do is to Devolve a proressive s!stem of ta&ation.D %his is a directive toConress, *ust lie the directive to it to ive priorit! to the enactment of la's for theenhancement of human dinit! and the reduction of social, economic and political ineualities(Art. KIII, :), or for the promotion of the riht to Dualit! educationD (Art. KI8, :). %heseprovisions are put in the Constitution as moral incentives to leislation, not as *udiciall!enforceable rihts.

18. ABAA3A v. Ermita -3ele?ation to the 2resident=$) CRA 1 e9tember 1, *%%'

+acts RA 2@@$5 8A% Reform Act enacted on a! #-, #. "ec. - (sales of oods andproperties), "ec. (importation of oods) and "ec. (services and lease of propert!) of RA 2@@$,in collective, ranted the "ecretar! of 7inance the authorit! to ascertain5 (a) 'hether b!:#@:, the 8A% collection as a percentae of the #- 6>P e&ceeds #.3+ or (b)the nationalovernment deficit as a percentae of the #- 6>P e&ceeds :.+. If either condition is met, the"ec of 7inance must inform the President 'ho, in turn, must impose the :#+ 8A% rate (from:+) effective Manuar! :, #.

ABAQA>A maintained that Conress abandoned its e&clusive authorit! to fi& ta&es and that RA

2@@$ contained a uniform proviso authori/in the President upon recommendation b! the >?7"ecretar! to rasie 8A% to :#+.

"en Pimentel maintained that RA 2@@$ constituted undue deleation of leislative po'ers and a violation of due process since the la' 'as ambiuous and arbitrar!. "ame 'ith Rep. Escudero.

Pilipinas "hell dealers arued that the 8A% reform 'as arbitrar!, oppressive and confiscator!.



Respondents countered that the la' 'as complete, that it left no discretion to the President, andthat it merel! chared the President 'ith carr!in out the rate increase once an! of the t'oconditions arise.

Issue 4?0 there 'as undue deleation.

Held 0o deleation but mere implementation of the la'. Constitution allo's as undere&empted deleation the deleation of tariffs, customs duties, and other tolls, levies on oodsimported and e&ported. 8A% is ta& levied on sales of oods and services 'hich could not fallunder this e&emption. =ence, its deleation if unualified is unconstitutional.

Leislative po'er is authorit! to mae a complete la'. %hus, to be valid, a la' must be completein itself, settin forth therein the polic! and it must fi& a standard, limits of 'hich aresufficientl! determinate and determinable.

0o undue deleation 'hen conress describes 'hat *ob must be done 'ho must do it and thescope of the authorit! iven. (Edu v Ericta)

"ec of 7inance 'as merel! tased to ascertain the e&istence of facts. All else 'as laid out. ainl!ministerial for the "ecretar! to ascertain the facts and for the president to carr! out theimplementation for the 8A%. %he! 'ere aents of the leislative dept

1=.CIR and Commissioner of Customs vs. Botelho hi99in? Cor9. @ "eneralhi99in? Co., Inc.

".R. #os. /6*1$8868= Dune *), 1)$&

+ACT Reparations Commission of the Philippines sold to Botelho the vessel D" aria

RoselloD for the amount of P,$23,333.33. %he former lie'ise sold to 6eneral "hippin the vessel D" 6eneral LimD at the price of P,2:,.. pon arrival at the port of anila, theBureau of Customs placed the same under custod! and refused to ive due course Gtoapplications for reistrationH, unless the aforementioned sums of P-3@,-@@ and P-2-,3#- bepaid as compensatin ta&. %he bu!ers subseuentl! filed 'ith the C%A their respective petitionsfor revie'. Pendin the case, Republic Act 0o. @$2 amended Republic Act 0o. :$32 J the?riinal Reparations Act, under 'hich the aforementioned contracts 'ith the Bu!ers had beene&ecuted J b! e&emptin bu!ers of reparations oods acuired from the Commission, fromliabilit! for the compensatin ta&.

Invoin Gsection # of the RA @$2H, the Bu!ers applied, for the renovation of their utili/ationscontracts 'ith the Commission, 'hich ranted the application, and, then, filed 'ith the %a&Court, their supplemental petitions for revie'. %he C%A ruled in favor of the bu!ers.

G?n appeal, the CIR and C?C maintain that such proviso should not be applied retroactivel!H,upon the round that a ta& e&emption must be clear and e&plicit9 that there is no e&pressprovision for the retroactivit! of the e&emption, established b! Republic Act 0o. @$2, from thecompensatin ta&9 that the favorable provisions, 'hich are referred to in section # thereof,cannot include the e&emption from compensatin ta&9 and, that Conress could not haveintended an! retroactive e&emption, considerin that the result thereof 'ould be pre*udicial tothe 6overnment.



IE 4hether or not the ta& e&emption can be applied retroactivel!

HE/3 <E". %he inherent 'eaness of the last round becomes manifest 'hen 'e considerthat, if true, there could be no ta& e&emption of an! ind 'hatsoever, even if Conress should

'ish to create one, because ever! such e&emption implies a 'aiver of the riht to collect 'hat

other'ise 'ould be due to the 6overnment, and, in this sense, is pre*udicial thereto. It ma! not be amiss to add that no ta& e&emption J lie an! other leal e&emption or e&ception J is iven 'ithout an! reason therefor. In much the same 'a! as other statutor! commands, its avo'edpurpose is some public benefit or interest, 'hich the la'1main bod! considers sufficient tooffset the monetar! loss entitled in the rant of the e&emption. Indeed, section # of Republic

Act 0o. @$2 e&acts a valuable consideration for the retroactivit! of its favorable provisions,namel!, the voluntar! assumption, b! the end1user 'ho bouht reparations oods prior to Mune:$, :2: of Dall the ne' obliations provided for inD said Act.

7urthermore, "ection :- of the La' on Reparations, as amended, e&empts from thecompensatin ta&, not particular persons, but persons belonin to a particular class. Indeed,appellants do not assail the constitutionalit! of said section :-, insofar as it rants e&emptions to

end1users 'ho, after the approval of Republic Act 0o. @$2, on Mune :$, :2:, purchasedreparations oods procured b! the Commission. 7rom the vie'point of Constitutional La',especiall! the eual protection clause, there is no difference bet'een the rant of e&emption tosaid end1users, and the e&tension of the rant to those 'hose contracts of purchase and salemere made before said date, under Republic Act 0o. :$32.

1'. Tan v. 3el Rosario

".R. #o. 1%)*7). ctober 8, 1))=

+acts Petitioners assail RA $-2, also commonl! no'n as the "implified 0et Income %a&ation"cheme (D"0I%D), amendin certain provisions of the 0ational Internal Revenue Code, as

violative of the constitutional reuirement that ta&ation shall be Dshall be uniform andeuitable.D %he la' 'ould no' attempt to ta& sinle proprietorships and professionalsdifferentl! from the manner it imposes the ta& on corporations and partnerships.

Petitioner ives a fairl! e&tensive discussion on the merits of the la', illustratin, in the process, 'hat he believes to be an imbalance bet'een the ta& liabilities of those covered b! theamendator! la' and those 'ho are not.

Issue 4hether or not RA $-2 is violative of the constitutional reuirement that ta&ation shall be uniform and euitable.

Held5 Petition denied. niformit! of ta&ation means that (:) the standards that are usedtherefore are substantial and not arbitrar!, (#) the cateori/ation is ermane to achieveleislative purpose, (@) the la' applies, all thins bein eual, to both present and futureconditions and (-) the classification applies euall! 'ell to all those belonin to the same class.

4ith the leislature primaril! lies the discretion to determine the nature (ind), ob*ect(purpose), e&tent (rate), coverae (sub*ects) and situs (place) of ta&ation. %his court cannotfreel! delve into those matters 'hich, b! constitutional fiat, rihtl! rest on leislative *udment.?f course, 'here a ta& measure becomes so unconscionable and un*ust as to amount to



confiscation of propert!, courts 'ill not hesitate to strie it do'n, for, despite all its plenitude,the po'er to ta& cannot override constitutional proscriptions. %his stae, ho'ever, has not beendemonstrated to have been reached 'ithin an! appreciable distance in this controvers! beforeus.

1$. (ACE3A vs. (ACARAI", DR

**8 CRA *1& Dune 7, 1))8To9ic Classification of Taxes Accordin? to Burden or Incidence -3irect orIndirect

+acts %his matter of indirect ta& e&emption of the private respondent 0ational Po'erCorporation (0PC) is brouht to this Court a second time. nfa/ed b! the >ecision 4epromulated on a! @:, :22: petitioner Ernesto aceda ass this Court to reconsider said>ecision.

A Chronoloical revie' of the relevant 0PC la's, speciall! 'ith respect to its ta& e&emptionprovisions.

:. ?n 0ovember @, :2@, Common'ealth Act 0o. :#5 creatin the 0ational Po'er Corporation.

%he main source of funds for the 0PC 'as the flotation of bonds in the capital marets = andthese bonds...Nissued under the authorit! of this Act shall be e&empt from the pa!ment of allta&es b! the Common'ealth of the PhilippinesO

#. ?n Mune #-, :2@3, C.A. 0o. @--, the provision on ta& e&emption in relation to the issuance ofthe 0PC bonds 'as neither amended nor deleted.

@. ?n "eptember @, :2@2, C.A. 0o. -2, the provision on ta& e&emption in relation to the issuanceof the 0PC bonds 'as neither amended nor deleted.

-. ?n Mune -, :2-2, Republic Act 0o. @$, an! such loan or loans shall be e&empt from ta&es,duties, fees, imposts, chares, contributions and restrictions of the Republic of the Philippines

. ?n the same date, R.A. 0o. @3, to facilitate pa!ment of its indebtedness, the 0ational Po'erCorporation shall be e&empt from all ta&es.

. ?n Mul! :, :2#, R.A. 0o. 3:@ amended R.A. 0o. @$. %he ta& provision as stated in R.A. 0o.

@$, 'as not amended.$. ?n Mune #, :2-, R.A. 0o. 23$ 'as enacted specificall! to 'ithdra' 0PCFs ta& e&emption for real

estate ta&es.3. ?n "eptember 3, :2, R.A. 0o. :@2$, the ta& e&emption provision related to the pa!ment of this

total indebtedness 'as not amended nor deleted.2. ?n Mune :@, :23, R.A. 0o. #, the ta& provision related to the repa!ment of loans 'as not

amended nor deleted.:. ?n Mune :3, :2, R.A. 0o #-: converted the 0PC from a public corporation into a stoc

corporation. 0o ta& e&emption 'as incorporated in said Act.::. ?n Mune :$, :2:, R.A. 0o. @-@. 0o ta& provision 'as incorporated in said Act.:#. ?n Mune :$, :2$, R.A. 0o -32$. 0o ta& provision 'as incorporated in said Act.:@. ?n "eptember :, :2$:, R.A. 0o. @2 'as enacted revisin the charter of the 0PC. %he bonds

issued shall be e&empt from the pa!ment of all ta&es. As to the forein loans the 0PC 'asauthori/ed to contract, shall also be e&empt from all ta&es,:-. ?n Manuar! ##, :2$-, P.>. 0o. @3shall also be exempt from all direct and indirect taxes,:. ?n 7ebruar! #, :2$, P.>. 0o. @2, no ta& e&emption provision 'as amended, deleted or

added.:. ?n Mul! @:, :2$, P.>. 0o. $3 'as issued directin that P#,,. 'ould be

appropriated annuall! to cover the unpaid subscription of the 6overnment in the 0PCauthori/ed capital stoc, 'hich amount 'ould be taen from ta&es accruin to the 6eneral



7unds of the 6overnment, proceeds from loans, issuance of bonds, treasur! bills or notes to beissued

:$. ?n a! #$, :2$ P.>. 0o. 2@3, declared e&empt from the pa!ment of all forms of ta&es:3. ?n Manuar! @, :2$, P.>. 0o. 33# 'as issued 'ithdra'in the ta& e&emption of 0PC 'ith

reard to imports:2. ?n Mul! @, :2$$, P.>. ::$$, All units of overnment, includin overnment1o'ned or controlled

corporations, shall pa! income ta&es, customs duties and other ta&es and fees are imposedunder revenues la's5 provided, that orani/ations other'ise e&empted b! la' from the pa!mentof such ta&esduties ma! as for a subsid! from the 6eneral 7und

#. ?n Mul! ::, :23-, P.>. 0o. :2@:, all e&emptions from the pa!ment of duties, ta&es, fees, impostsand other chares heretofore ranted in favor of overnment1o'ned or controlled corporationsincludin their subsidiaries, are hereb! 'ithdra'n.

#:. ?n >ecember :$, :23, E.?. 0o. 2@ 'as issued 'ith a vie' to correct presidential restoration orrant of ta& e&emption to other overnment and private entities 'ithout benefit of revie' b! the7iscal Incentives Revie' Board, N4=EREA", in addition to those ta& and dut! e&emptionprivilees 'ere restored b! the 7iscal Incentives Revie' Board (7IRB), a number of affectedentities, overnment and private, had their ta& and dut! e&emption privilees restoredO

Petitioner contends that P.>. 0o. 2@3 repealed the indirect ta& e&emption of 0PC.

Issue 4?0 0PC is e&empted to pa! Indirect Income %a&

Held <es. Classifications or inds of %a&es5 Accordin to Persons 'ho pa! or 'ho bear the burden5

ect %a& J that 'here the person supposed to pa! the ta& reall! pa!s it. WITH!T transferrin the burdento someone else.

Examples" Individual income tax# corporate income tax# transfer taxes $estate tax# donor%s tax&# residencetax# immigration tax

rect %a& J that 'here the ta& is imposed upon oods 'E(RE reachin the consumer 'ho ultimatel! pa!sfor it, not as a ta&, but as a part of the purchase price.

Examples" t)e internal revenue indirect taxes $specific tax# percentage taxes# $*+T& and t)e tariff andcustoms indirect taxes $import duties# special import tax and ot)er dues&

A chronoloical revie' of the 0PC la's 'ill sho' that it has been the la'maerFs intention thatthe 0PC 'as to be completel! ta& e&empt from all forms of ta&es J direct and indirect.

P.>. 0o. @3 added phrase Ddirectl! or indirectl!,D

P.>. 0o. 2@3 amended into Ne&empt from the pa!ment of +,, (R ( ta&esO

President arcos must have considered all the 0PC statutes from C.A. 0o. :# up to P.>. 0o.2@3.

?ne common theme in all these la's is that the 0PC must be enable to pa! itsindebtedness '$ 'hich, as of P.>. 0o. 2@3, 'as P:# Billion in total domestic indebtedness, at an!one time, and S- Billion in total forein loans at an! one time. %he 0PC must be and has to bee&empt from all forms of ta&es if this oal is to be achieved.



%he ta& e&emption stood as is J 'ith the e&press mention of Ddirect and indirectD ta&e&emptions. La'maers 'anted the 0PC to be e&empt from ALL 7?R" of ta&es J direct andindirect.

%herefore, that 0PC had been ranted ta& e&emption privilees for both direct and indirect ta&esunder P.>. 0o. 2@3.

%he Court rules and declares that the oil companies 'hich suppl! buner fuel oil to 0PC have topa! the ta&es imposed upon said buner fuel oil sold to 0PC. B! the ver! nature of indirectta&ation, the economic burden of such ta&ation is e&pected to be passed on throuh the channelsof commerce to the user or consumer of the oods sold. Because, ho'ever, the 0PC has beene&empted from both direct and indirect ta&ation, the 0PC must be held e&empted fromabsorbin the economic burden of indirect ta&ation

1&. E TA#3AR3 EATER#, I#C vs. C((II#ER + I#TER#A/ RE0E#E

".R. #os. /6*7'%76), Dul! &, 1)7)

+ACT In C%A Case 0o. :#:, Esso "tandard Eastern Inc. (Esso) deducted from its rossincome for :22, as part of itsordi nar ! and nece ssa r! bus ines s e&p ens es , thea m o u n t i t h a d s p e n t f o r d r i l l i n a n d e & p l o r a t i o n o f i t sp e t r o l e u m concessions. %his claim 'as disallo'ed b! the Commissioner of Internal Revenue(CIR) on the round that the e&pensesshould be capitali/ed and miht be 'ritten off as a lossonl! 'hen a Ddr! holeD should result. Esso then filed an amendedreturn 'here it ased for therefund of P@#@,#$2. b! reason of its abandonment as dr! holes of several of its oil 'ells.Al soclaimed as ordinar! and necessar! e&penses in the same return 'as the amount ofP@-,3##.-, representin marin fees it had paid to the Central Ban on its profitremittances to its 0e' <or head office.?n Auust , :2-, the CIR ranted a ta& credit ofP##:,@@. onl!, disallo'in the claimed deduction for themarin fees paid on the round thatthe marin fees paid to the Central Ban could not be considered ta&es or allo'ed asdeductible

business e&penses.Esso appealed to the Court of %a& Appeals (C%A) for the refund of the marinfees it had earlier paid contendinthat the marin fees 'ere deductible from rossincome either as a ta& or as an ordinar! and necessar! businesse&pense. =o'ever,Esso’s appeal 'as denied.

IE (:) 4hether or not the marin fees are ta&es.(#) 4hether or not the marin fees arenecessar! and ordinar! business e&penses.

R/I#" (:) 0o. A ta& is levied to provide revenue for overnment operations, 'hile theproceeds of the marin fee areapplied to strenthen our countr!Fs international reserves. %hemarin fee 'as imposed b! the "tate in the e&ercise of itspolice po'er and not the po'er ofta&ation.(#) 0o. ?rdinaril!, an e&pense 'ill be considered Fnecessar!F 'here the e&penditure is

appropriate and helpful inthe development of the ta&pa!erFs business. It is Fordinar!F 'hen itconnotes a pa!ment 'hich is normal in relation to thebusines s of the ta& pa! er and thesurroundin circumstances. "ince the marin fees in uestion 'ere incurred fortheremittance of funds to EssoFs =ead ?ffice in 0e' <or, 'hich is a separate and distinctincome ta&pa!er from the branchin the Philippines, for its disposal abroad, it can never be saidtherefore that the marin fees 'ere appropriate and helpfulin the development of EssoFs

business in the Philippines e&clusivel! or 'ere incurred for purposes proper to the conductof theaffairs of EssoFs branch in the Philippines e&clusivel! or for the purpose of reali/in a profit or ofminimi/in a loss inthe Philippines e&clusivel!.



17. 2RCTER @ "A(B/E 2HI/I22I#E (A#+ACTRI#" CR2RATI# vs. THE (#ICI2A/IT4 + DA"#A, 2R0I#CE + BH/

".R. #o. /6*=*$' 3ecember *7, 1)&)

T2IC #ature and amount of license

+ACT Plaintiff1appellant is a domestic corporation 'ith principal offices in anila. lt is aconsolidated corporation of Procter T 6amble %radin Compan! and Philippine anufacturinCompan!, 'hich later became Procter T 6amble %radin Compan!, Philippines. It is enaed inthe manufacture of soap, edible oil, mararine and other similar products, and for this purposemaintains a DbodeaD in defendant unicipalit! 'here it stores copra purchased in themunicipalit! and therefrom ships the same for its manufacturin and other operations.

?n >ecember :@, :2$, the unicipal Council of Mana enacted unicipal ?rdinance 0o. -,"eries of :2$ or An ?rdinance imposin storae fees of all e&portable copra deposited in the

bodea 'ithin the *urisdlctin of the municipalit! of *ana bohol. 7or a period of si& !ears, from:23 to :2@, plaintiff paid defendant unicipalit!, alleedl! under protest, storae fees in the

total sum of P-#,#.:@.

?n arch @, :2-, plaintiff filed this suit in the Court of 7irst Instance of anila, Branch 8I, 'herein it pra!ed that :) ?rdinance 0o. - be declared inapplicable to it, or in the alter. native,that it be pronounced ultra1vires and void for bein be!ond the po'er of the unicipalit! toenact9 and #) that defendant unicipalit! be ordered to refund to it the amount of P-#,#.:@

'hich it had paid under protest9 and costs.

%he trial Court upheld its *urisdiction as 'ell as defendant unicipalit!Fs po'er to enact the?rdinance in uestion under section ##@3 of the Revised Administrative Code, other'ise no'nas the eneral 'elfare clause.

IE 4hether defendant unicipalit! 'as authori/ed to impose and collect the storae feeprovided for in the challened ?rdinance under the la's then prevailin.

4hether the imposition of P.: per : ilos of copra stored in a bodea 'ithin themunicipalit! ofManasF territor! is be!ond the cost of reulation and surveillance

HE/3 %he validit! of the ?rdinance must be upheld pursuant to the broad authorit! conferredupon municipalities b! Common'ealth Act 0o. -$#, 'hich 'as the prevailin la' 'hen the?rdinance 'as enacted.

A municipalit! is authori/ed to impose three inds of licenses5 (:) a license for reulation ofuseful occupation or enterprises9 (#) license for restriction or reulation of non1usefuloccupations or enterprises9 and (@) license for revenue. - It is thus unnecessar!, as plaintiff

'ould have us do, to determine 'hether the sub*ect storae fee is a ta& for revenue purposes or alicense fee to reimburse defendant unicipalit! for service of supervision because defendantunicipalit! is authori/ed not onl! to impose a license fee but also to ta& for revenue purposes.

%he storae fee imposed under the uestion ?rdinance is actuall! a municipal license ta& or feeon persons, firms and corporations, lie plaintiff, e&ercisin the privilee of storin copra in a

bodea 'ithin the unicipalit!Fs territorial *urisdiction. 7or the term Dlicense ta&D has not



acuired a fi&ed meanin. It is often used indiseriminatel! to desinate impositions e&acted forthe e&ercise of various privilees. In man! instances, it refers to revenue1raisin e&actions onprivilees or activities.

(#) unicipal corporations are allo'ed 'ide discretion in determinin the rates of imposablelicense fees even in cases of purel! police po'er measures. In the absence of proof as to

municipal conditions and the nature of the business bein ta&ed as 'ell as other factors relevantto the issue of arbitrariness or unreasonableness of the uestioned rates, Courts 'ill o slo' in

'ritin off an ?rdinance. In the case at bar, appellant has not sufficientl! sho'n that the rateimposed b! the uestioned ?rdinance is oppressive, e&cessive and prohibitive.

1). "olden Ribbon /umber Co., Inc. v. Cit! of Butuan"R #o. /617'8= *= 3ecember 1)$=

+ A C T 6olden Ribbon Lumber Co., Inc., a dul! orani/ed domestic corporation, operated alumber mill and lumber !ard in Butuan Cit!. Pursuant to ?rdinance 0o. , as amended b!?rdinance 0os. 2, :, -$, and -2 of the said cit!, it paid the ta&es provided therein. Claiminthat said ordinance, as amended, 'as void, it later brouht the present action to have it so

declared9 to recover the amount paid, and to have appellants permanentl! en*oined fromenforcin said ordinance as amended.

I E 4hether or not ?rdinance 0o. falls 'ithin the Charter of the Cit! of Butuan.

H E / 3 0o. %he ta& imposed is and 'as reall! intended to be on lumber sold and not a ta& on,or, license fee for the privilee of operatin a lumber mill andor a lumber !ard. It violates RA##- as municipal corporations are prohibited from imposin chares of ta&es of such nature.

Appellants’ claim that the uestioned ta& is one on business or a privilee ta& for the operationof a lumber mill or a lumber !ard is 'ithout merit. %he character or nature of a ta& isdetermined b! its operation, practical results and incidents. 0either the oriinal ordinance in

uestion nor the amendator! ones provide that pa!ment thereof is a condition precedent to theen*o!ment of such privilee or that its non1pa!ment 'ould result in the cancellation of an!previous license ranted.

Lastl!, the rule is 'ell1settled that municipal corporations are clothed 'ith no po'er of ta&ation9that its charter or a statute must clearl! sho' an intent to confer that po'er or the municipalcorporation cannot assume and e&ercise it, and that an! such po'er ranted must be construedstrictl!, an! doubt or ambiuit! arisin out from the terms of the rant to be resolved aainst themunicipalit!.

*%. 0ICTRIA (I//I#" C. 0 22A

1'8 CRA 81& Au?ust *&, 1)7&+ACT %his is a petition for revie' on certiorari of the Mul! #$, :23- >ecision of the?ffice of the Presidential Assistant 7or Leal Affairs dismissin the appeal from the adverserulin of the Philippine Ports Authorit! on the sole round that the same 'as filed be!ond therelementar! period.?n April #3, :23:, the Iloilo Port anaer of respondent Philippine Ports Authorit! (PPA forshort) 'rote petitioner 8ictorias illin Co., reuirin it to have its tuboats and baresundero harbor formalities and pa! entranceclearance fees as 'ell as berthin fees effective



a! :, :23:. PPA, lie'ise, reuirin petitioner to secure a permit for caro handlin operationsat its >a1an Banua 'harf and remit :+ of its ross income for said operations as theovernmentFs share.

8ictorias illin Co. maintained that it is e&cept from pa!in PPA an! fee or chare because5 :.%he 'harf and its facilities are built and installed on it’s o'n land9 #. Repairs and maintenanceare solel! paid b! it9 @. aintenance and dredin of the channel are done b! the Compan!

personnel9 -. At not time has the overnment paid an! centavo for such activities.IE 4?0 the 8ictorias illin Co. claim of e&ception for PPA fees is meritorious.HE/3 0o, the petitioners claim that there is no basis for the PPA to assess and impose thedues and chare is devoid of merit.

As correctl! stated b! the "olicitor 6eneral, the fees and chares PPA collects are not for the useof the 'harf that petitioner o'ns but for the privilee of naviatin in public 'aters, of enterinand leavin public harbours and berthin on public streams or 'aters.

As to the reuirement to remit :+ of the handlin chares, "ection B1(i&) of the Presidential>ecree 0o. 3$ authori/ed the PPA D%o lev! dues, rates, or chares for the use of the premises,

'ors, appliances, facilities, or for services provided b! or belonin to the Authorit!, or an!orani/ation concerned 'ith port operations.D %his :+ overnment share of earnins ofarrastre and stevedorin operators is in the nature of contractual compensation to 'hich a

person desirin to operate arrastre service must aree as a condition to the rant of the permitto operate.

*1. CIR v. CA, CTA, Ad(

"R #o.11'8=) 17 A9ril 1))&

+ A C T Private respondent, Ateneo de anila niversit!, is a non1stoc, non1profiteducational institution 'ith au&iliar! units and branches all over the countr!. %he Institute ofPhilippine Culture (IPC) is an au&iliar! unit 'ith no leal personalit! separate and distinct fromprivate respondent. %he IPC is a Philippine unit enaed in social science studies of Philippinesociet! and culture. ?ccasionall!, it accepts sponsorships for its research activities frominternational orani/ations, private foundations and overnment aencies.

?n 3 Mul! :23@, private respondent received from CIR a demand letter dated @ Mune :23@,assessin private respondent the sum of P:$-,[email protected]$ for alleed deficienc! contractor’s ta&, andan assessment dated #$ Mune :23@ in the sum of P:,:-:,3@$ for alleed deficienc! income ta&,

both for the fiscal !ear ended @: arch :2$3. >en!in said ta& liabilities, private respondentsent petitioner a letter1protest and subseuentl! filed 'ith the latter a memorandum contestinthe validit! of the assessments.

After some time petitioner issued a final decision dated @ Auust :233 reducin the assessmentfor deficienc! contractor’s ta& from P:2@,-$. to P-,:.-:, e&clusive of surchare andinterest.

%he lo'er courts ruled in favor of respondent. =ence this petition.

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo deanila niversit! Dfalls 'ithin the definitionD of an independent contractor and Dis not one ofthose mentioned as e&ceptedD9 hence, it is properl! a sub*ect of the three percent contractorFs ta&levied b! the foreoin provision of la'. Petitioner states that the Dterm FindependentcontractorF is not specificall! defined so as to delimit the scope thereof, so much so that an!person 'ho . . . renders ph!sical and mental service for a fee, is no' indubitabl! considered anindependent contractor liable to @+ contractorFs ta&.D



I E 4hether or not private respondent falls under the purvie' of independent contractorpursuant to "ection # of the %a& Code and is sub*ect to a @+ contractors ta&.

H E /3 %he petition is unmeritorious.

%he term Finde9endent contractorsF include persons (*uridical or natural) not enumeratedabove (but not includin individuals sub*ect to the occupation ta& under "ection :# of the Local%a& Code) 'hose activit! consists essentiall! of the sale of all inds of services for a feereardless of 'hether or not the performance of the service calls for the e&ercise or use of theph!sical or mental faculties of such contractors or their emplo!ees.Petitioner Commissioner of Internal Revenue erred in appl!in the principles of ta& e&emption

'ithout first appl!in the 'ell1settled doctrine of strict interpretation in the imposition of ta&es.It is obviousl! both illoical and impractical to determine 'ho are e&empted 'ithout firstdeterminin 'ho are covered b! the aforesaid provision. %he Commissioner should havedetermined first if private respondent 'as covered b! "ection #, appl!in the rule of strictinterpretation of la's imposin ta&es and other burdens on the populace, before asin Ateneoto prove its e&emption therefrom.

Inter9retation of Tax /aGs. %he doctrine in the interpretation of ta& la's is that N(a) statute 'ill not be construed as imposin a ta& unless it does so clearl!, e&pressl!, andunambiuousl!. . . . (A) ta& cannot be imposed 'ithout clear and e&press 'ords for that purpose.

Accordinl!, the eneral rule of reuirin adherence to the letter in construin statutes applies 'ith peculiar strictness to ta& la's and the provisions of a ta&in act are not to be e&tended b!implication.O In case of doubt, such statutes are to be construed most stronl! aainst theovernment and in favor of the sub*ects or citi/ens because burdens are not to be imposed norpresumed to be imposed be!ond 'hat statutes e&pressl! and clearl! import.

Ateneo’s Institute of Philippine Culture never sold its services for a fee to an!one or 'as everenaed in a business apart from and independentl! of the academic purposes of the universit!.

7unds received b! the Ateneo de anila niversit! are technicall! not a fee. %he! ma! ho'everfall as ifts or donations 'hich are Nta&1e&emptO as sho'n b! private respondent’s compliance

'ith the reuirement of "ection :#@ of the 0ational Internal Revenue Code providin for thee&emption of such ifts to an educational institution.Transaction of I2C not a contract of sale nor a contract for a 9iece of Gor:. %hetransactions of Ateneo’s Institute of Philippine Culture cannot be deemed either as a contract ofsale or a contract for a piece of 'or. B! the contract of sale, one of the contractin partiesobliates himself to transfer the o'nership of and to deliver a determinate thin, and the otherto pa! therefor a price certain in mone! or its euivalent. In the case of a contract for a piece of

'or, Nthe contractor binds himself to e&ecute a piece of 'or for the emplo!er, in considerationof a certain price or compensation. . . . If the contractor arees to produce the 'or frommaterials furnished b! him, he shall deliver the thin produced to the emplo!er and transfer

dominion over the thin. . . .O In the case at bench, it is clear from the evidence on record thatthere 'as no sale either of ob*ects or services because, as adverted to earlier, there 'as notransfer of o'nership over the research data obtained or the results of research pro*ectsundertaen b! the Institute of Philippine Culture.

**. C((II#ER + I#TER#A/ RE0E#E, 9etitioner, vs. THE H#. CRT + A22EA/, R..H. AT 2R3CT 2HI/I22I#E, I#C. and THE H#. CRT+ TA5 A22EA/, res9ondents. ".R. #o. 1%78'7 Danuar! *%, 1))'



+acts ?n ## Auust :23, E&ecutive ?rder 0o. -: 'as promulated declarin a one1time ta&amnest! on unpaid income ta&es, later amended to include estate and donorFs ta&es and ta&es on

business, for the ta&able !ears :23: to :23. Respondent R.?.=. Auto Products Philippines, Inc.,availin of the amnest!, filed in ?ctober :23 and 0ovember :23, its %a& Amnest! Return and"upplemental %a& Amnest! Return 0o. and paid the correspondin amnest! ta&es due.Prior to this availment, petitioner Commissioner of Internal Revenue, in a communication

received b! private respondent on Auust :@, :23, assessed the latter deficienc! income and business ta&es for its fiscal !ears :23: and :23# in an areate amount of P:,-:,:$.$:.ean'hile, respondent averred that since it had been able to avail itself of the ta& amnest!, thedeficienc! ta& notice should forth'ith be cancelled and 'ithdra'n. %his 'as denied b! the CIRRevenue emorandum ?rder 0o. -13$, implementin E&ecutive ?rder 0o. -:, had construedthe amnest! coverae to include onl! assessments issued b! the Bureau of Internal Revenueafter the promulation of the e&ecutive order on Auust ## :23 and not to assessmentstheretofore made.?n appeal, %he Court of %a& appeal upheld for the respondent, 'hich 'as further upheld b! theCourt of Appeals.IE 4hether or not the the deficienc! assessments 'ere e&tinuished b! reason ofrespondent’s availment of the ta& amnest!.

HE/3 <es, as the scope of the amnest! covers the unpaid income ta&es for the !ears :23: to:23. If, as the Commissioner arues, E&ecutive ?rder 0o. -: had not been intended to include:23:1:23 ta& liabilities alread! assessed (administrativel!) prior to Auust ##, :23, the la'could have simpl! so provided in its e&clusionar! clauses. It did not. %he conclusion isunavoidable, and it is that the e&ecutive order has been desined to be in the nature of a eneralrant of ta& amnest! sub*ect onl! to the cases specificall/ e&cepted b! it.7urther, the la' provides that, upon full compliance 'ith the conditions of the ta& amnest! andthe rules and reulations issued pursuant to this E&ecutive order, the ta&pa!er shall be relievedof an! income ta& liabilit! on an! unta&ed income from Manuar! :, :23: to >ecember @:, :23,includin increments thereto and penalties on account of the non1pa!ment of the said ta&. Civil,criminal or administrative liabilit! arisin from the non1pa!ment of the said ta&, 'hich areactionable under the 0ational Internal Revenue Code, as amended, are lie'ise deemed

e&tinuished.

*8.H43R RERCE 0. CRT + TA5 A22EA/ ET A/.

"R 7%*&$ 3ecember *1, 1))%

+ACT =!dro Resources Contractors Corporation entered into a contract of sale 'ith the0ational Irriation Authorit! (0IA) for the construction of aat River ultipurpose Pro*ect inIsabella in Auust :2$3. %he contract provided that =!dro 'ill import parts, constructioneuipment and tools and ta&es and duties to be paid b! 0IA. %ools and euipment arriveddurin :2$3 and :2$2. 0IA reneed on the contract. %herefore causin the transfer its sale to=!dro in seperate dates in >ecember , :23# and arch #-, :23@. E&ecutive ?rder 3 too

effect durin >ecember #:, :23# provided for @+ ad valorem ta& on importations and itspecificall! provided that it should have no retroactive effect. >urin the contract of salee&ecution, =!dro 'as assessed and paid the said @+ ad valorem ta& 'orth P #3:,2: underprotest. %he =!dro 'hen filin for refund 'ith Customs Commissioner 'ho indorsed theapproval of the refund but 'as denied b! the "ecretar! of 7inance and motion 'as denied b! theCourt of %a& Appeals.

IE 4hether or not should the E&ecutive ?rder 3 should have a retroactive effect.



HE/3 %he Court of %a& Appeals erred in appl!in a retroactive effect for the E&ecutive ?rdertherefore should not have been sub*ect to the additional @+ ad valorem ta&. In eneral ta& la'sare not retroactive in nature. 0ot onl! that E&ecutive ?rder 3 specificall! provides that it isnot retroactive in nature, but also 'hen the conditional contract of sale 'as e&ecuted, its had asuspensive condition contemplated in the Civil Code (Article ::3$) 'here it returned o'nershipto the seller =!dro because 0IA 'as not able to compl! 'ith its part of the contract, it 'as

deemed e&ecuted as if durin the constitution of the obliation 'hich 'as in :2$3 and not in:23#.

*=.Central Aucarera 3on 2edro >v> CIR and CTA

".R. #os. /6*8*8$ and /6*8*'= (a! 81, 1)$&

+ACT Central A/ucarera >on Pedro, a domestic corporation 'ith office at 0asubu,Batanas, had been filin its income ta& returns on the Dfiscal !earD basis endin Auust @:, ofever! !ear.

GIt had been assessed deficienc! ta& plus interest. It paid the deficienc! ta& but protested on theimposition of the interestH, claimin that the imposition of U+ monthl! interest on itsdeficienc! ta& for the fiscal !ear :2- to :23, Pursuant to "ection : (d) of the Revenue Code, asamended b! Republic Act 0o. #@-@, is illeal, because the imposition of interest on efficienc!income ta& earned prior to the effectivit! of the amendator! la' (Rep. Act #@-@) Gon :22H 'ill

be tantamount to ivin it (Rep. Act 0o. #@-@) retroactive application. GIt further contends thatHthe application of the amended provision (no' "ec. :1d of the %a& Code) to the cases at bar

'ould run counter to the constitutional restriction aainst the enactment of e& post facto la's.

IE 4hether or not the imposition of the interest, is unconstitutional

HE/3 0? Gthe interest 'as correctl! imposedH. It is to be noted that the collection ofinterest in these cases is not penal in nature, thus J

t)e imposition of . . . interest is but a just compensation to t)e state for t)e dela/ in pa/ing t)etax# and for t)e concomitant use b/ t)e taxpa/er of funds t)at rig)tfull/ s)ould be in t)egovernment%s )ands $!.. vs. 0oldstein# 123 ( 45d6 7859 Ross vs. !..# 1:2 (ed. upp. ;;<9 !..vs. =offra/# 37 (ed. 45d6 :22&. T)e fact t)at t)e interest c)arged is made proportionate to t)e

period of dela/ constitutes t)e best evidence t)at suc) interest is not penal but compensator/.$Castro vs. Collector of Internal Revenue# 0.R. >o. ,-1517:# Resolution on otion for

Reconsideration# ?ecember 52# 13@5&

and 'e had alread! held that J

T)e doctrine of unconstitutionalit/ raised b/ appellant is based on t)e pro)ibition against ex post facto laAs. 'ut t)is pro)ibition applies onl/ to criminal or penal matters# and not to laAsA)ic) concern civil matters or proceedings generall/# or A)ic) affect or regulate civil or

private rig)ts $Ex parte 0arland# 12 ,aA Ed.# ;@@9 1@ C.=..# 223-231&. $Republic vs. asan*da. de (ernandeB# 33 )il. 3;:# 3;7&.



7inall!, section :@ of the amendator! Republic Act 0o. #@-@ refers onl! to the basic ta& rates, 'hich are made applicable to income received in :22 on'ard, but does not affect the interestdue on deficiencies, 'hich are left to be overned b! section : (d).

*'.2e9si6Cola Bottlin? Com9an! of the 2hili99ines, Inc. v. (unici9alit! of

Tanauan

".R. #o. /6811'$ +ebruar! *&, 1)&$

+acts In 7ebruar! :2@, plaintiff commenced a complaint seein to declare "ection # of R.A.##- (Local Autonom! Act) unconstitutional as an undue deleation of ta&in po'er and todeclare ?rdinance 0os. #@ and #$ issued b! the unicipalit! of %anauan, Le!te as null and void.

unicipal ?rdinance 0o. #@ levies and collects from soft drins producers and manufacturersone1si&teenth (::) of a centavo for ever! bottle of soft drin cored. ?n the other hand,unicipal ?rdinance 0o. #$ levies and collects on soft drins produced or manufactured 'ithinthe territorial *urisdiction of the municipalit! a ta& of one centavo (P.:) on each allon of

volume capacit!. %he ta& imposed in both ?rdinances 0os. #@ and #$ is denominated asDmunicipal production ta&.O

Issues (:) Is "ection # of R.A. ##- an undue deleation of the po'er of ta&ation; (#) >o?rdinance 0os. #@ and #- constitute double ta&ation and impose percentae or specific ta&es;

Held (:) 0?. %he po'er of ta&ation is purel! leislative and cannot be deleated to thee&ecutive or *udicial department of the overnment 'ithout infrinin upon the theor! ofseparation of po'ers. But as an e&ception, the theor! does not appl! to municipal corporations.Leislative po'ers ma! be deleated to local overnments in respect of matters of local concern.(#) 0?. %he unicipalit! of %anauan discovered that manufacturers could increase the volumecontents of each bottle and still pa! the same ta& rate since ta& is imposed on ever! bottlecored. %o combat this scheme, unicipal ?rdinance 0o. #$ 'as enacted. As such, it 'as arepeal of unicipal ?rdinance 0o. #@. In the stipulation of facts, the parties admitted that theunicipal %reasurer 'as enforcin unicipal ?rdinance 0o. #$ onl!. =ence, there 'as no caseof double ta&ation.

*$.C((II#ER + I#TER#A/ RE0E#E vs. .C. DH## A#3 #, I#C., andCRT + A22EA/

8%) CRA 7& Dune *', 1)))

To9ic 3ouble Taxation+acts5 "C. M?=0"?0 A0> "?0, I0C., a domestic corporation orani/ed and operatin underthe Philippine la's, entered into a license areement 'ith "C Mohnson and "on, nited "tates of

America ("A), a non1resident forein corporation 'as ranted the riht to use the trademar,patents and technolo! o'ned b! the latter includin the riht to manufacture, pacae anddistribute the products. License Areement 'as dul! reistered 'ith the %echnolo! %ransferBoard of the Bureau of Patents, %rade ars and %echnolo! %ransfer under Certificate ofReistration 0o. 3-. "C. M?=0"?0 A0> "?0, I0C 'as oblied to pa! "C Mohnson and "on,"A ro!alties based on a percentae of net sales and sub*ected the same to #+ 'ithholdin ta&on ro!alt! pa!ments 'hich GrespondentH paid from Mul! :22# to a! :22@. Respondent filed

'ith the International %a& Affairs >ivision (I%A>) of the BIR a claim for refund of overpaid



'ithholdin ta& on ro!alties aruin that "ince the areement 'as approved b! the %echnolo!%ransfer Board, the preferential ta& rate of :+ should appl! hence ro!alties paid b! theGrespondentH to "C Mohnson and "on, "A is onl! sub*ect to :+ 'ithholdin ta& pursuant tothe most1favored nation clause of the RP1" %a& %reat!.%he Commissioner did not act on said claim for refund. Respondent filed a petition for revie'

before the C%A to claim a refund of the overpaid 'ithholdin ta& on ro!alt! pa!ments. C%A

decided for Respondent and ordered CIR to issue a ta& credit certificate in the amount ofP2@,#. representin overpaid 'ithholdin ta& on ro!alt! pa!ments, beinnin Mul!, :22#to a!, :22@. CIR filed a petition for revie' 'ith CA. CA upheld C%A.CIR contends that under RP1" %a& %reat!, 'hich is no'n as the Dmost favored nationD clause,the lo'est rate of the Philippine ta& at :+ ma! be imposed on ro!alties derived b! a resident ofthe nited "tates from sources 'ithin the Philippines onl! if the circumstances of the resident ofthe nited "tates are similar to those of the resident of 4est 6erman!. "ince the RP1" %a&%reat! contains no Dmatchin creditD provision as that provided in RP14est 6erman! %a&%reat!, the ta& on ro!alties under the RP1" %a& %reat! is not paid under similar circumstancesas those obtainin in the RP14est 6erman! %a& %reat!. Also petitioner arues that since ".C.MohnsonFs invocation of the Dmost favored nationD clause is in the nature of a claim fore&emption from the application of the reular ta& rate of #+ for ro!alties, the provisions of the

treat! must be construed strictl! aainst it.Respondent countered that the Dmost favored nationD clause under the RP1" %a& %reat! refersto ro!alties paid under similar circumstances as those ro!alties sub*ect to ta& in other treaties9that the phrase Dpaid under similar circumstancesD does not refer to pa!ment of the ta& but tothe sub*ect matter of the ta&, that is, ro!alties, because the Dmost favored nationD clause isintended to allo' the ta&pa!er in one state to avail of more liberal provisions contained inanother ta& treat! 'herein the countr! of residence of such ta&pa!er is also a part! thereto,sub*ect to the basic condition that the sub*ect matter of ta&ation in that other ta& treat! is thesame as that in the oriinal ta& treat! under 'hich the ta&pa!er is liable9 thus, the RP1" %a&%reat! speas of Dro!alties of the same ind paid under similar circumstancesD.Issue5 4?0 "C Mohnson can refund.Rulin?5 0?. %he ta& rates on ro!alties and the circumstances of pa!ment thereof are the same

for all the recipients of such ro!alties and there is no disparit! based on nationalit! in thecircumstances of such pa!ment. $ ?n the other hand, a cursor! readin of the various ta& treaties 'ill sho' that there is no similarit! in the provisions on relief from or avoidance of doubleta&ation & as this is a matter of neotiation bet'een the contractin parties. %his dissimilarit! istrue particularl! in the treaties bet'een the Philippines and the nited "tates and bet'een thePhilippines and 4est 6erman!.%he RP1" %a& %reat! is *ust one of a number of bilateral treaties 'hich the Philippines hasentered into for the avoidance of double ta&ation. ) %he purpose of these internationalareements is to reconcile the national fiscal leislations of the contractin parties in order tohelp the ta&pa!er avoid simultaneous ta&ation in t'o different *urisdictions. 1% ore precisel!,the ta& conventions are drafted 'ith a vie' to'ards the elimination of international *uridicaldouble ta&ation, 'hich is defined as the imposition of comparable ta&es in t'o or more states onthe same ta&pa!er in respect of the same sub*ect matter and for identical periods. 11 %heapparent rationale for doin a'a! 'ith double ta&ation is of encourae the free flo' of oodsand services and the movement of capital, technolo! and persons bet'een countries,conditions deemed vital in creatin robust and d!namic economies.>ouble ta&ation usuall! taes place 'hen a person is resident of a contractin state and derivesincome from, or o'ns capital in, the other contractin state and both states impose ta& on thatincome or capital. In order to eliminate double ta&ation, a ta& treat! resorts to several methods.7irst, it sets out the respective rihts to ta& of the state of source or situs and of the state ofresidence 'ith reard to certain classes of income or capital. In some cases, an e&clusive riht to



ta& is conferred on one of the contractin states9 ho'ever, for other items of income or capital, both states are iven the riht to ta&, althouh the amount of ta& that ma! be imposed b! thestate of source is limited.>ouble ta&ation usuall! taes place 'hen a person is resident of a contractin state and derivesincome from, or o'ns capital in, the other contractin state and both states impose ta& on thatincome or capital. In order to eliminate double ta&ation, a ta& treat! resorts to several methods.

7irst, it sets out the respective rihts to ta& of the state of source or situs and of the state ofresidence 'ith reard to certain classes of income or capital. In some cases, an e&clusive riht tota& is conferred on one of the contractin states9 ho'ever, for other items of income or capital,

both states are iven the riht to ta&, althouh the amount of ta& that ma! be imposed b! thestate of source is limited. ?n the other hand, in the credit method, althouh the income orcapital 'hich is ta&ed in the state of source is still ta&able in the state of residence, the ta& paidin the former is credited aainst the ta& levied in the latter. %he basic difference bet'een the t'omethods is that in the e&emption method, the focus is on the income or capital itself, 'hereasthe credit method focuses upon the ta&. 1'

%he phrase Dro!alties paid under similar circumstancesD in the most favored nation clause of the"1RP %a& %reat! necessaril! contemplated Dcircumstances that are ta&1relatedD.In the case at bar, the state of source is the Philippines because the ro!alties are paid for the

riht to use propert! or rihts, i .e. trademars, patents and technolo!, located 'ithin thePhilippines. 1& %he nited "tates is the state of residence since the ta&pa!er, ". C. Mohnson and"on, . ". A., is based there. nder the RP1" %a& %reat!, the state of residence and the state ofsource are both permitted to ta& the ro!alties, 'ith a restraint on the ta& that ma! be collected

b! the state of source.the concessional ta& rate of : percent provided for in the RP16erman! %a& %reat! should appl!onl! if the ta&es imposed upon ro!alties in the RP1" %a& %reat! and in the RP16erman! %a&%reat! are paid under similar circumstances. %his 'ould mean that private respondent mustprove that the RP1" %a& %reat! rants similar ta& reliefs to residents of the nited "tates inrespect of the ta&es imposable upon ro!alties earned from sources 'ithin the Philippines asthose allo'ed to their 6erman counterparts under the RP16erman! %a& %reat!. %he RP1" andthe RP14est 6erman! %a& %reaties do not contain similar provisions on ta& creditin.

If the rates of ta& are lo'ered b! the state of source, in this case, b! the Philippines, there should be a concomitant commitment on the part of the state of residence to rant some form of ta&relief, 'hether this be in the form of a ta& credit or e&emption. *= ?ther'ise, the ta& 'hich couldhave been collected b! the Philippine overnment 'ill simpl! be collected b! another state,defeatin the ob*ect of the ta& treat! since the ta& burden imposed upon the investor 'ouldremain unrelieved. If the state of residence does not rant some form of ta& relief to the investor,no benefit 'ould redound to the Philippines, i .e., increased investment resultin from afavorable ta& reime, should it impose a lo'er ta& rate on the ro!alt! earnins of the investor,and it 'ould be better to impose the reular rate rather than lose much1needed revenues toanother countr!.%he entitlement of the :+ rate b! .". firms despite the absence of a matchin credit (#+ forro!alties) 'ould deroate from the desin behind the most rant eualit! of internationaltreatment since the ta& burden laid upon the income of the investor is not the same in the t'ocountries. %he similarit! in the circumstances of pa!ment of ta&es is a condition for theen*o!ment of most favored nation treatment precisel! to underscore the need for eualit! oftreatment.Respondent cannot be deemed entitled to the : percent rate ranted under the RP14est6erman! %a& %reat! for the reason that there is no pa!ment of ta&es on ro!alties under similarcircumstances in RP1" treat!.

*&.CIR v Rufino



"R #os /688$$'6$7 +ebruar! *&, 1)7&

+acts %his is a petition for revie' on certiorari of the C%A decision 'hich absolved petitionersfrom liabilit! for capital ains ta& on stocs received b! them from Eastern %heatrical, Inc. %heRufinos 'ere ma*orit! stocholders of Eastern %heatrical Co., Inc (hereinafter ?ld E%C) 'hichhad a corporate term of # !ears, 'hich terminated on Manuar! #, :22, president of 'hich 'as

Ernesto Rufino. ?n >ecember 3, :23, the Eastern %heatrical Co, Inc. (hereinafter 0e' E%C, 'ith a corporate term of !ears) 'as orani/ed, and the Rufinos 'ere also the ma*orit!stocholders of the corporation, 'ith 8icente Rufino as the 6eneral1anaer. Both E%Cs 'ereenaed in the same business.

?ld E%C held a stocholder’s meetin to mere 'ith the 0e' E%C on >ecember :$, :23 tocontinue its business after the end of ?ld E%C’s corporate term. %he merer 'as authori/ed b! a

board resolution. It 'as e&pressl! declared that the merer 'as necessar! to continue operatinthe Capitol and L!ric %heaters in anila even after the e&piration of corporate e&istence, topreserve both its booin contracts and to uphold its collective barainin areements. %hrouhthe t'o Rufinos (Ernesto and 8icente), a >eed of Assinment 'as e&ecuted, 'hich conve!ed andtransferred all the business, propert!, assets and ood 'ill of the ?ld E%C to the 0e' E%C in

e&chane for shares of stoc: of the latter to be issued to the shareholders at the rate of onestoc: for each stoc: held in the ?ld E%C. %he >eed 'as to retroact from Manuar! :, :22.0e' E%C’s Board approved the merer and the >eed of Assinment on Manuar! :#, :22 and allchanes dul! reistered 'ith the "EC.

%he BIR, after e&amination, declared that the merer 'as not undertaen for a bona fide business purpose but onl! to avoid liabilit! for the capital gains tax on the e&chane of the oldfor the ne' shares of stoc. =e then imposed deficienc! assessments aainst the privaterespondents, the Rufinos. %he Rufinos reuested for a reconsideration, 'hich 'as denied.%herefore, the! elevated their matter to the C%A, 'ho reversed the *udment of the CIR, sa!inthat the! found that there 'as Nno ta&able ain derived from the e&chane of old stocs simpl!for ne' stocs for the 0e' CorporationO because it 'as pursuant to a valid plan of

reorani/ation. %he CIR raised it to the "C on petition for revie' on certiorari.

Issue 4?0 there 'as a valid merer and that there 'as no ta&able ain derived therefrom.

Held <E", the C%A 'as correct in rulin that there 4A" a merer and that no ta&able ain 'asderived. C%A decision is A77IRE>.

Rationale• 8alidit! of transfer. In support of its arument that the Rufinos 'ere tr!in to avoid the

pa!ment of capital ains ta&, the CIR said that the 0e' E%C did not actuall! issue stocsin e&chane for the properties of the ?ld E%C. %he increase in capitali/ation onl!happened in arch :22, or @$ da!s after the ?ld E%C e&pired. Prior to reistration, the

0e' E%C could not have validl! performed the transfer. %he "C ruled that theretroactivit! of the >eed of Assinment cured the defect and there 'as no impediment.

• 'ona (ide Business Purpose. %he criterion of the la' is that the purpose of the merer must be

for a bona fide business purpose and not for the purpose of escapin ta&es. %he case of

Helvering v. 0regor/ stated that a mere Noperation havin no business or corporate purposeJa

mere devise 'hich put on the form of a corporate reorani/ation as a disuise for concealin its

real character and the sole ob*ect and accomplishment of 'hich 'as the consummation of a



preconceived plan, not to reorani/e a business but to transfer a parcel of corporate shares.O

4hen the corporation created is nothin more than a contrivance, there is no leitimate

business purpose. %he Court states that there is no such furtive intention in this case. In fact, the

0e' E%C continues to operate the Capitol and L!ric movie theaters even up to #$ !ears after the

merer. %here is as !et no dissolution, so the Rufinos haven’t ained an! benefit !et from the

merer, 'hich maes them no more liable than the time the merer too place.

The ?overnment’s remed! 5 %he merer merel! deferred the pa!ment for ta&es until thefuture, 'hich the overnment ma! assert later on 'hen ains are reali/ed and benefits aredistributed amon the stocholders as a result of the merer. %he ta&es are not forfeited butmerel! postponed and ma! be imposed at the proper time later on.

*7. 3E/2HER TRA3E CR2RATI#vs. IAC

".R. #o. /6$)*') Danuar! *$, 1)77

+acts >elfin Pacheco and sister Pelaia 'ere the o'ners of a parcel of land in Polo (no'

8alen/uela). ?n April @, :2$-, the! leased to Construction Components International Inc. thepropert! and providin for a riht of first refusal should it decide to bu! the said propert!.

Construction Components International, Inc. assined its rihts and obliations under thecontract of lease in favor of =!dro Pipes Philippines, Inc. 'ith the sined conformit! andconsent of >elfin and Pelaia. In :2$, a deed of e&chane 'as e&ecuted bet'een lessors >elfinand Pelaia Pacheco and defendant >elpher %rades Corporation 'hereb! the Pachecosconve!ed to the latter the leased propert! toether 'ith another parcel of land also located inalinta Estate, 8alen/uela for #, shares of stoc of defendant corporation 'ith a total valueof P:..

?n the round that it 'as not iven the first option to bu! the leased propert! pursuant to the

proviso in the lease areement, respondent =!dro Pipes Philippines, Inc., filed an amended

complaint for reconve!ance of the lot.

Issue 4?0 the >eed of E&chane of the properties e&ecuted b! the Pachecos and the >elpher%rades Corporation on the other 'as meant to be a contract of sale 'hich, in effect, pre*udicedthe =!dro PhilFs riht of first refusal over the leased propert! included in the Ddeed ofe&chane,D

Held 0o, b! their o'nership of the #, no par shares of stoc, the Pachecos have control ofthe corporation. %heir euit! capital is + as aainst -+ of the other stocholders, 'ho also

belon to the same famil! roup. In effect, the >elpher %rades Corporation is a business conduit

of the Pachecos. 4hat the! reall! did 'as to invest their properties and chane the nature oftheir o'nership from unincorporated to incorporated form b! orani/in >elpher %radesCorporation to tae control of their properties and at the same time save on inheritance ta&es.

%he D>eed of E&chaneD of propert! bet'een the Pachecos and >elpher %rades Corporationcannot be considered a contract of sale. %here 'as no transfer of actual o'nership interests b!the Pachecos to a third part!. %he Pacheco famil! merel! chaned their o'nership from oneform to another. %he o'nership remained in the same hands. =ence, the private respondent hasno basis for its claim of a liht of first refusal



*). CIR v. Toda, Dr. "R #o. 1=&177 1= e9tember *%%=

+ A C T ?n # arch :232, CIC authori/ed Benino P. %oda, Mr., President and o'ner of22.22:+ of its outstandin capital stoc, to sell the Cibeles Buildin. ?n @ Auust :232, %odapurportedl! sold the propert! for P: million to Rafael A. Altonaa, 'ho, in turn, sold the samepropert! on the same da! to Ro!al atch Inc. (RI) for P# million. %hree and a half !earslater %oda died. ?n #2 arch :22-, the BIR sent an assessment notice and demand letter to theCIC for deficienc! income ta& for the !ear :232. ?n #$ Manuar! :22, the Estate of Benino P.%oda, Mr., represented b! special co1administrators Lorna Qapunan and ario Lu/a Bautista,received a 0otice of Assessment from the CIR for deficienc! income ta& for the !ear :232. %heEstate thereafter filed a letter of protest. %he Commissioner dismissed the protest. ?n :7ebruar! :22, the Estate filed a petition for revie' 'ith the C%A. In its decision the C%A heldthat the Commissioner failed to prove that CIC committed fraud to deprive the overnment ofthe ta&es due it. It ruled that even assumin that a pre1conceived scheme 'as adopted b! CIC,the same constituted mere ta& avoidance, and not ta& evasion. =ence, the C%A declared that the

Estate is not liable for deficienc! of income ta&. %he Commissioner filed a petition for revie' 'ith the Court of Appeals. %he Court of Appeals affirmed the decision of the C%A, hence, thisrecourse.

I E 4hether or not this is a case of ta& evasion or ta& avoidance.

H E / 3 %a& evasion connotes the interation of three factors5 (:) the end to be achieved, i.e.the pa!ment of less than that no'n b! the ta&pa!er to be leall! due, or the non1pa!ment of ta&

'hen it is sho'n that a ta& is due9 (#) an accompan!in state of mind 'hich is described as bein Nevil,O in Nbad faith,O N'illfull,O or Ndeliberate and not accidentalO9 and (@) a course ofaction or failure of action 'hich is unla'ful. All these factors are present in the instant case. %hescheme resorted to b! CIC in main it appear that there 'ere t'o sales of the sub*ect

properties, i.e. from CIC to Altonaa, and then from Altonaa to RI cannot be considered aleitimate ta& plannin. "uch scheme is tainted 'ith fraud. Altonaa’s sole purpose of acuirinand transferrin title of the sub*ect properties on the same da! 'as to create a ta& shelter. %hesale to him 'as merel! a ta& plo!, a sham, and 'ithout business purpose and economicsubstance. >oubtless, the e&ecution of the t'o sales 'as calculated to mislead the BIR 'ith theend in vie' of reducin the conseuent income ta& liabilit!.



@. CIR v. E ("et1off)

1&* CRA 8$) A9ril 17, 1)7)

+acts E""? overpaid its :22 income ta& b! P##:, @@.. It 'as accordinl! ranted a ta&credit. =o'ever, E""?’s pa!ment of its income ta& for :2 'as found to be short b!P@$,22-.

"o the Commissioner demanded pa!ment of the deficienc!, 'ith interest. E""? paid underprotest, includin the interest as reconed b! the Commissioner. E""?’s contention5 %heinterest 'as more than that properl! due. It should not have been reuired to pa! interest on the total amount of the deficienc! ta&,P@$,22-., but onl! on theamount of P:-,2:.Jrepresentin the difference bet'een said deficienc! and E""?s earlieroverpa!ment. E""? thus ased for a refund.

CIR’s contention5 It denied the claim for refund. Income ta&es are determined and paid on anannual basis, such determination and pa!ment are separate and independent transactions9 anda ta& credit could not be considered until it has been finall! approved and the ta&pa!er notified."ince in this case, the ta& credit 'as approved onl! on Auust , :2-, it could not be availed of

in reduction of E""?s earlier ta& deficienc! for :29 as of that !ear there 'as no ta& credit tospea of. In support of this, the Commissioner invoes the "ection : of the %a& Code5 (d)Interest on deficienc!. J Interest upon the amount determined as deficienc! shall be assessed atthe same time as the deficienc! and shall be paid upon notice and demand from theCommissioner of Internal Revenue9 and shall be collected as a part of the ta&. E""? appealed tothe Court of %a& Appeals, 'hich in turn ordered pa!ment to E""? of its Drefund1claim. =ence,this appeal b! the Commissioner.

IE 4as it proper to appl! E""?’s ta& credit in reducin the total deficienc! sub*ect tointerest;

HE/3 <es, reardless of CIR’s assertions, the fact is that as earl! as Mul! :, :2, the

6overnment alread! had in its hands the sum representin e&cess pa!ment. =avin been paidand received b! mistae, that sum unuestionabl! beloned to E""?, and the 6overnment hadthe obliation to return it to E""?. %he obliation to return mone! mistaenl! paid arises fromthe moment that pa!ment is made, and not from the time that the pa!ee admits the obliation toreimburse. %he obliation of the pa!ee to reimburse results from the mistae, not from thepa!eeFs confession of the mistae or reconition of the obliation to reimburse. In other 'ords,since the amount of P##:,@@. belonin to E""? 'as alread! in the hands of the6overnment as of Mul!, :2, it 'as neither leall! nor loicall! possible for E""? thereafter to

be considered a debtor of the 6overnment9 and 'hatever other obliation E""? mihtsubseuentl! incur in favor of the 6overnment 'ould have to be reduced b! that sum, in respectof 'hich no interest could be chared.

0othin is better settled than that courts are not to ive 'ords a meanin 'hich 'ould lead toabsurd or unreasonable conseuences.O D"tatutes should receive a sensible construction, such as

'ill ive effect to the leislative intention and so as to avoid an un*ust or absurd conclusion.D

81. 3omin?o v. "arlitos "R #o. /617))8 *) Dune 1)$8



+ A C T In >omino vs. oscoso (: P=IL ::@3), the "upreme Court declared as final ande&ecutor! the order of the Court of 7irst Instance of Le!te for the pa!ment of estate andinheritance ta&es, chares and penalties amountin to P-,3. b! the Estate of the late

4alter "cott Price. %he petition for e&ecution filed b! the fiscal, ho'ever, 'as denied b! thelo'er court. %he Court held that the e&ecution is un*ustified as the 6overnment itself is indebted

to the Estate for ##,#9 and ordered the amount of inheritance ta&es be deducted from the6overnment’s indebtedness to the Estate.

I E 4hether a ta& and a debt ma! be compensated.

H E / 3 %he court havin *urisdiction of the Estate had found that the claim of the Estateaainst the 6overnment has been reconi/ed and an amount of P##,# has alread! beenappropriated b! a correspondin la' (RA #$). nder the circumstances, both the claim of the6overnment for inheritance ta&es and the claim of the intestate for services rendered havealread! become overdue and demandable as 'ell as full! liuidated. Compensation, therefore,taes place b! operation of la', in accordance 'ith Article :#$2 and :#2 of the Civil Code, and

both debts are e&tinuished to the concurrent amount. In other 'ords, the estate and

inheritance ta&es are set off, b! virtue of the overnment’s indebtedness to the estate.

8*. C((II#ER + I#TER#A/ RE0E#E 0. IABE/A C/TRA/ CR2.

-'1' CRA ''$ +ebruar! 1*, *%%&%opic5 %he all1events test9 'hen deductions from income ta&es ma! be claimed

+acts 4hen the Bureau of Internal Revenue disallo'ed Isabela Cultural CorporationVs claimeddeductions for the !ears :23-1:23 in their :23 ta&es for e&pense deductions, to 'it5

(:) E&penses for auditin services for the !ear endin @:>ecember :239

(#) E&penses for leal services for the !ears :23- and :239 and

(@) E&pense for securit! services for the months of April and a! :23.

As such, the former chared the latter for deficienc! income ta&es. Isabela Cultural Corporationcontests the assessment.

Issue #o. 1. 7or a ta&pa!er usin the accrual method, 'hen do the facts present themselves insuch a manner that the ta&pa!er must reconi/e income or e&pense;

Rulin? %he accrual of income and e&pense is permitted 'hen the all1events test has been met.

%his test reuires5 (:) fi&in of a riht to income or liabilit! to pa!9 and (#) the availabilit! of the

reasonable accurate determination of such income or liabilit!. %he test does not demand that the

amount of income or liabilit! be no'n absolutel!, onl! that a ta&pa!er has at his disposal the

information necessar! to compute the amount 'ith reasonable accurac!. %he all1events test is

satisfied 'here computation remains uncertain, if its basis is unchaneable9 the test is satisfied

'here a computation ma! be unno'n, but is not as much as unno'able, 'ithin the ta&able !ear.

Issue #o. *. 4?0 the deductions 'ere properl! claimed b! Isabela Cultural Corporation.



Rulin? %he deductions for e&penses for professional fees consistin of e&penses for leal andauditin services are 0?% allo'able. =o'ever, the deductions for e&penses for securit! services

'ere properl! claimed b! Isabela Cultural Corporation. 7or the leal and auditin services, IsabelaCultural Corporation could have reasonabl! no'n the fees of those firms that it hired, thussatisf!in the Wall1events test.X As such, per Revenue Audit emorandum ?rder 0o. :1#, the!cannot validl! be deducted from its ross income for the said !ear and 'ere therefore properl!

disallo'ed b! the BIR. As for the securit! services, because the! 'ere incurred in :23, the! could be properl! claimed as deductions for the said !ear.

#otes %he reuisites for the deductibilit! of ordinar! and necessar! trade, business, orprofessional e&penses, lie e&penses paid for leal and auditin services, are5

a. %he e&pense must be ordinar! and necessar!9 b. It must have been paid or incurred durin the ta&able !ear9c. It must have been paid or incurred in carr!in on the trade or business of the ta&pa!er9 andd. It must be supported b! receipts, records, or other pertinent papers.

Revenue Audit emorandum ?rder 0o. :1#, provides that under the accrual method of

accountin, e&penses not bein claimed as deductions b! a ta&pa!er in the current !ear 'hen the!are incurred cannot be claimed as deduction from income for the succeedin !ear. %hus, ata&pa!er 'ho is authori/ed to deduct certain e&penses and other allo'able deductions for thecurrent !ear but failed to do so cannot deduct the same for the ne&t !ear.

%he propriet! of an accrual must be *uded b! the facts that a ta&pa!er ne', or could reasonabl! be e&pected to have no'n, at the closin of its boos for the ta&able !ear. Accrual method ofaccountin presents larel! a uestion of fact9 such that the ta&pa!er bears the burden of proof ofestablishin the accrual of an item of income or deduction.

taxii_compendium2

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