TAX LAW REVIEWERTAX LAW REVIEWER

TAX EXEMPTIONS

How are laws granting tax exemptions construed? Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.

Even for real properties owned by the national government, exemption from real property taxes would not apply if their beneficial use has been granted to a taxable person because it is the beneficial use that determines taxability of real property.

G.R. No. 122605       April 30, 2001SEA-LAND SERVICE, INC., petitioner, vs.COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

PARDO, J.:

FACTS: Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base.

From the income derived aforesaid contract, SEA-LAND paid the income tax due thereon of 1.5% as required in Section 25 (a)(2) of the National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12.

Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner-appellant filed a petition for review with the CTA docketed as CTA Case No. 4149, to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NIRC.

On 21 February 1995, CTA rendered its decision denying SEA-LAND’s claim for refund of the income tax it paid in 1984.

On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to the Court of Appeals.After due proceedings, on October 26, 1995, the Court of Appeals promulgated its decision dismissing the appeal and affirming in toto the decision of the Court of Tax Appeals.Hence, this petition.ISSUE: The issue raised is whether or not the income that petitioner derived from services in transporting the household goods and effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement.

HELD: Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception." The law "does not look with favor on tax exemptions

and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted."

Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Government agreed to exempt from payment of Philippine income tax nationals of the United States, or corporations organized under the laws of the United States, residents in the United States in respect of any profit derived under a contract made in the United States with the Government of the United States in connection with the construction, maintenance, operation and defense of the bases.

It is obvious that the transport or shipment of household goods and effects of U.S. military personnel is not included in the term "construction, maintenance, operation and defense of the bases." Neither could the performance of this service to the U.S. government be interpreted as directly related to the defense and security of the Philippine territories. "When the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application." Any interpretation that would give it an expansive construction to encompass petitioner’s exemption from taxation would be unwarranted.

The avowed purpose of tax exemption "is some public benefit or interest, which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption." The hauling or transport of household goods and personal effects of U. S. military personnel would not directly contribute to the defense and security of the Philippines.

TAX AMNESTY

What is a Tax Amnesty? Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income.

A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.

However, when a law declaring a tax amnesty on unpaid income taxes contained no limitation whatsoever delimiting its applicability to assessments made prior to its effectivity, rather, it merely provided for general statement covering all tax liabilities incurred for certain years, then, it has been designed to be in the nature of a general grant of tax amnesty subject only to cases specifically excepted by it.

G.R. No. 102967      February 10, 2000BIBIANO V. BAÑAS, JR., petitioner, vs.COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND PROCOPIO TALON, respondents.

QUISUMBING, J.:

FACTS: On February 20, 1976, petitioner Bañas sold to AYALA a parcel of land for P2,308,770.00. The Deed of Sale provided that upon the signing of the contract AYALA shall pay P461,754.00. The balance was to be paid in four equal consecutive annual installments, with twelve (12%) percent interest per annum on the outstanding balance. AYALA issued one promissory note covering four equal annual installments.

The same day, petitioner discounted the promissory note with AYALA, for its face value. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn against BPI to the uniform amount of P205,224.00.

In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset. In the succeeding years, until 1979, petitioner reported a uniform income of, P230,877.00 as gain from sale of capital asset.

On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners to examine the books and records of petitioner for the year 1976. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976. The examiners recommended deficiency tax assessment for P2,473,673.00.

After reviewing the examiners' report, the tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer beyond twelve months pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). The deficiency tax assessment was P936,598.50.

On June 27, 1980, respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be settled him immediately.

On September 26, 1980, petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment.

On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section 51 of the Tax Code against petitioner.

On June 17, 1981, a criminal complaint for tax evasion against the petitioner.

On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740. On November 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840. In both, petitioner did not recognize that his sale of land to AYALA was on cash basis.

Petitioner maintains that the proceeds of he promissory notes, not yet due, which he discounted to AYALA should not be included as income realized in 1976.

ISSUES: (1) Does mere filing of tax amnesty return under P.D. 1740 and 1840 ipso facto shield a taxpayer from immunity against tax suits? (2) Should petitioner’s income from the sale of the land be declared as a cash transaction in his tax return because the buyer discounted the promissory note issued to the seller on the same day of the sale?

HELD: (1) NO. The petitioner is not entitled to the benefits of P.D. Nos. 1740 and 1840. He did not meet the twin requirements of said tax amnesty laws, to wit, declaration of his untaxed income and full payment of tax due thereon. His disclosure did not include the income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his income tax return. He did not pay the tax which was considerably increased by the income derived from the discounting.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax

amnesty granted by the government, and to be immune from suit on its delinquencies, the tax payer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income.

It also bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.

(2) YES. As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale price is received during such year, and a statute provides that income shall be taxable in the year in which it is "received," the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received.

In the present case, although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as taxable income on the year it was converted to cash. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976.

TAX ADMINISTRATIVE REGULATIONS

What is the purpose of a Tax Ordinance? A municipal tax ordinance empowers a local government unit (LGU) to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of LGUs for the delivery of basic services essential to the promotion of the general welfare. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. The period for appeal provided in the law is clearly given for compliance as a prerequisite before seeking redress in a competent court, therefore, mandatory.

G.R. No. 132269 April 27, 2000HARRISON MOTORS CORPORATION, petitioner,vs.RACHEL A. NAVARRO, respondent.

BELLOSILLO, J.

FACTS: Sometime in June of 1987 Harrison Motors Corporation through its president, Renato Claros, sold two (2) Isuzu Elf trucks to private respondent Rachel Navarro, owner of RN Freight Lines. Prior to the sale, Renato Claros represented to private respondent that all the BIR taxes and customs duties for the parts used on the two (2) trucks had been paid for.

On 10 September 1987, the BIR and the LTO entered into a Memorandum of Agreement (MOA) which provided that prior to registration in the LTO of any assembled or re-assembled motor vehicle which used imported parts, a Certificate of Payment should first be obtained from the BIR to prove payment of all taxes required under existing laws.

In December of 1988 government agents seized and detained the two (2) Elf trucks of respondent after discovering that there were still unpaid BIR taxes and customs duties thereon. The BIR and the BOC ordered private respondent to pay the proper assessments or her trucks would be impounded. Private respondent went to Claros to ask for the receipts evidencing payment of BIR taxes and customs duties; however, Claros refused to comply. Private respondent then demanded from Claros that he pay the assessed taxes and warned him that he would have to reimburse her should she be forced to pay for the assessments herself. Her demands were again ignored.

Private respondent paid the assessed BIR taxes and customs duties. Consequently, she returned to petitioner's office to ask for reimbursement, but petitioner again refused, prompting her to send a demand letter through her lawyer. When petitioner still ignored her letter, she filed a complaint for a sum of money on 24 September 1990 with the Regional Trial Court of Makati.

Petitioner argues that it was no longer obliged to pay for the additional taxes and customs duties imposed on the imported component parts by the Memorandum Orders and the two (2) Memoranda of Agreement since such administrative regulations only took effect after the execution of its contract of sale with private respondent. Holding it liable for payment of the taxes specified in the administrative regulations, which have the force and effect of laws, would not only violate the non-impairment clause of the Constitution but also the principle of non-retroactivity of laws provided in Art. 4 of the Civil Code. Petitioner further claimed that private respondent should be the one to pay the taxes and duties because when the restrictions took effect, he was no longer the owner of the trucks.

ISSUES: (1) Did the administrative regulations impose additional taxes that impair the obligations of contracts and violate the principles of non-retroactivity? (2) Is the importer-assembler/manufacturer liable to pay the BIR taxes and custom duties, which the administrative regulations sought to enforce?

HELD: (1) NO. What Sec. 10, Art. III, of the Constitution prohibits is the passage of a law which enlarges, abridges or in any manner changes the intention of the contracting parties. The Memorandum Orders and the two (2) Memoranda of Agreement do not impose any additional taxes which would unduly impair the contract of sale between petitioner and private respondent. Instead, these administrative regulations were passed to enforce payment of existing BIR taxes and customs duties at the time of importation. While it is true that administrative rulings and regulations are generally prospective in nature, an inspection of the MOA, however, demonstrates that their intent is to enforce payment of taxes on assemblers who import component arts without paying the correct assessments.

(2) YES. although private respondent is the one required by the administrative regulations to secure the Certificate of Payment for the purpose of registration, petitioner as the importer and the assembler/manufacturer of the two (2) Elf trucks is still the one liable for payment of revenue taxes and customs duties. Petitioner's obligation to pay does not arise from the administrative regulations but from the tax laws existing at the time of importation. Hence, even if private respondent already owned the two (2) trucks when the Memorandum Orders and Memoranda of Agreement took effect, the fact remains that petitioner was still the one duty-bound to pay for the BIR taxes and customs duties.

It is also quite obvious that as between petitioner, who is the importer-assembler/manufacturer, and private respondent, who is merely the buyer, it is petitioner which has the obligation to pay taxes to the BIR and the BOC. Petitioner would be unjustly enriched if private respondent should be denied reimbursement. It would inequitably amass profits from selling assembled trucks even if it did not pay the taxes due on its imported spare parts. Imposing the tax burden on private respondent would only encourage the proliferation of smugglers

who scheme to evade taxes by passing on their tax obligations to their unsuspecting buyers.

TAX REFUND

How does a corporation exercise its tax refund? A corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year. When such claimant suffered a net loss in a particular year, as shown in the Returns, then it incurred no tax liability to which the tax credit could be applied. Thus, it could not have applied the amount of excess creditable withholding tax paid for the previous year as a tax credit.

G.R. No. 122480 April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner,vs.COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL REVENUE, respondents.  PANGANIBAN, J.:

FACTS: The petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to P112,491. It indicated in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund, instead of applying it as a tax credit. Petitioner averred that it did not apply the total refundable amount to its 1990 Annual ITR or other tax liabilities due to alleged business losses it incurred for the same year. When no action from the BIR was forthcoming, petitioner filed its claim with the CTA. However, the CTA denied its claim for refund. Said decision was affirmed in toto by the respondent Court of Appeals.

The respondent court ruled that thee is no basis to grant the claim for refund due to petitioner’s failure to show proof that it has not credited to its 1990 ITR the total refundable amount it previously declared to be applied as a tax credit in 1990. Since tax refunds are in the nature of tax exemptions, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. In other words, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund.

The petitioner maintained that it suffered a net loss in 1990 and that it could not have applied the amount claimed as tax credits.

ISSUE: Did the petitioner fail to prove that it has not credited to its 1990 ITR the total refundable amount it previously declared to be applied as tax credit for the same year?

HELD: NO. Petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit. Petitioner also presented quarterly returns for the first two quarters of 1990. More importantly, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration filed before the CTA. A final adjustment return shows whether a corporation incurred a loss or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR could have easily disproved petitioner's claim. To repeat, it did not do so.

True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error.

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

INCOME TAXATION

Securities Becoming Worthless; Capital Loss Not Deductible From Gross Income

Is an equity investment a capital or ordinary asset? An equity investment is capital, not ordinary, asset of the investor the sale or exchange of which results in either a capital gain or a capital loss. When the shares held by such investor become worthless, the loss is deemed to be a loss from the sale or exchange of capital assets.

Capital Loss Not Deductible From Gross Income. Capital losses are allowed to be deducted only to the extent of capital gains and not from any other income of the taxpayer.

G.R. No. 125508. July 19, 2000

CHINA BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

VITUG; J.:

FACTS: Sometime in 1980, petitioner China Banking Corporation made a 53% equity investment in the First CBC Capital (Asia) Ltd., a Hong Kong subsidiary engaged in financing and investment with "deposit-taking" function. The investment amounted to P16,227,851.80, consisting of 106,000 shares with a par Value of P100 per share.

In the course of the regular examination of the financial books and investment portfolios of petitioner conducted by Bangko Sentral in 1986, it was shown that First CBC Capital (Asia), Ltd., has become insolvent. With the approval of Bangko

Sentral, petitioner wrote-off as being worthless its investment in First CBC Capital (Asia), Ltd., in its 1987 Income Tax Return and treated it as a bad debt or as an ordinary loss deductible from its gross income.

Respondent Commissioner of Internal Revenue disallowed the deduction and assessed petitioner for income tax deficiency in the amount of P8,533,328.04, inclusive of surcharge, interest and compromise penalty. The disallowance of the deduction was made on the ground that the investment should not be classified as being worthless.

Petitioner contested the ruling of respondent Commissioner before the CTA. The tax court sustained the Commissioner, holding that the securities had not indeed become worthless and ordered petitioner to pay its deficiency income tax for 1987 of P8,533,328.04 plus 20% interest per annum until fully paid. When the decision was appealed to the Court of Appeals, the latter upheld the CTA. In its instant petition for review on certiorari, petitioner bank assails the CA decision.

ISSUE: Is the investment that had become worthless deductible from gross income as a ordinary loss (bad debt)?

HELD: NO. The claim of petitioner that the shares of stock in question have become worthless is based on a Profit and Loss Account for the Year-End 31 December 1987, and the recommendation of Bangko Sentral that the equity investment be written-off due to the insolvency of the subsidiary. While the matter may not be indubitable (considering that certain classes of intangibles, like franchises and goodwill, are not always given corresponding values in financial statements) there may really be no need, however, to go of length into this issue since, even to assume the worthlessness of the shares, the deductibility thereof would still be nil in this particular case. At all events, the Court is not prepared to hold that both the tax court and the appellate court are utterly devoid of substantial basis for their own factual findings.

An equity investment is a capital, not ordinary, asset of the investor the sale or exchange of which results in either a capital gain or a capital loss. The gain or the loss is ordinary when the property sold or exchanged is not a capital asset. When the shares held by such investor become worthless, the loss is deemed to be a loss from the sale or exchange of capital assets. The loss sustained by the holder of the securities, which are capital assets (to him), is to be treated as a capital loss as if incurred from a sale or exchange transaction. A capital gain or a capital loss normally requires the concurrence of two conditions for it to result: (1) There is a sale or exchange; and (2) the thing sold or exchanged is a capital asset. When securities become worthless, there is strictly no sale or exchange but the law deems the loss anyway to be "a loss from the sale or exchange of capital assets.

Capital losses are allowed to be deducted only to the extent of capital gains, i.e., gains derived from the sale or exchange of capital assets, and not from any other income of the taxpayer.

In the case at bar, First CBC Capital (Asia), Ltd., the investee corporation, is a subsidiary corporation of petitioner bank whose shares in said investee corporation are not intended for purchase or sale but as an investment. Unquestionably then, any loss therefrom would be a capital loss, not an ordinary loss, to the investor.

Improperly Accumulated Earnings Tax

Burden of Proof. If the CIR determined that the corporation avoided the tax on shareholders by permitting earnings or profits to accumulate, and the taxpayer contested such a determination, the burden of proof is on the taxpayer. And in order to determine whether profits are accumulated for the reasonable needs of the business to avoid the

surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of accumulation, not intentions declared subsequently, which are mere afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the close of the taxable years.

G.R. No. 108067 January 20, 2000

CYANAMID PHILIPPINES, INC., petitioner, vs.THE COURT OF APPEALS, THE COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondent. QUISUMBING, J.:

FACTS: Petitioner, Cyanamid Philippines, Inc., is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods, and an importer/indentor. On February 7, 1985, the CIR sent an assessment letter to petitioner and demanded the payment of deficiency income tax. Petitioner protested the assessments particularly, (1) the 25% Surtax Assessment; (2) 1981 Deficiency Income Assessment; and 1981 Deficiency Percentage Assessment. Petitioner claimed, among others, that the surtax for the undue accumulation of earnings was not proper because the said profits were retained to increase petitioner's working capital and it would be used for reasonable business needs of the company. On October 20, 1987, the CIR refused to allow the cancellation of the assessment notices.

Petitioner appealed to the Court of Tax Appeals. During the pendency of the case, however, both parties agreed to compromise the 1981 deficiency income tax assessment. However, the surtax on improperly accumulated profits remained unresolved.

ISSUE: Is a manufacturing company liable for the accumulated earnings tax, despite its claim that earnings were accumulated to increase working capital and to be used for its reasonable needs, if it fails to present evidence to prove such allegations?

HELD: YES. The respondent court correctly decided that the petitioner is liable for the improperly accumulated earnings tax for the year 1981 based on the following grounds:

1) The amendatory provision of Section 25 of the 1977 NIRC, which was PD 1739, enumerated the corporations exempt from the imposition of improperly accumulated tax: (a) banks; (b) non-bank financial intermediaries; (c) insurance companies; and (d) corporations organized primarily and authorized by the Central Bank of the Philippines to hold shares of stocks of banks. Petitioner does not fall among those exempt classes. Besides, the rule on enumeration is that the express mention of one person, thing, act, or consequence is construed to exclude all others. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed, a burden which petitioner here has failed to discharge.

2) If the CIR determined that the corporation avoided the tax on shareholders by permitting earnings or profits to accumulate, and the taxpayer contested such a determination, the burden of proving the determination wrong, together with the corresponding burden of first going forward with evidence, is on the taxpayer. This applies even if the corporation is not a mere holding or investment company and does not have an unreasonable accumulation of earnings or profits.

In order to determine whether profits are accumulated for the reasonable needs to avoid the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is manifest at the time of accumulation, not intentions declared subsequently, which are mere afterthoughts. Furthermore, the accumulated profits must be used within a reasonable time after the close of the taxable year. In the instant case, petitioner did not establish, by clear and convincing evidence, that such accumulation of profit was for the immediate needs of the business.

3) In the present case, the Tax Court opted to determine the working capital sufficiency by using the ratio between current assets to current liabilities. The working capital needs of a business depend upon nature of the business, its credit policies, the amount of inventories, the rate of the turnover, the amount of accounts receivable, the collection rate, the availability of credit to the business, and similar factors. Petitioner, by adhering to the "Bardahl" formula, failed to impress the tax court with the required definiteness envisioned by the statute. We agree with the tax court that the burden of proof to establish that the profits accumulated were not beyond the reasonable needs of the company, remained on the taxpayer. Hence, this Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.

Disposition of Capital Asset on Cash Basis vs. On Installment

The general rule is that the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the selling price is received during such year, income shall be taxable in the year in which it is “received”, the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received.

Proceeds in the discounting of promissory notes covering the succeeding installment payments are not considered initial payment. However, the amount received must be included as taxable income the year the promissory notes were discounted or converted to cash. (Bilbiano Banas vs. Court of Appeals, et al. supra)

Accrual Basis Method of Accounting

State the nature of an Accrual Basis Method of Accounting? Under the accrual basis method of accounting, income is reported when all events have occurred that fix the taxpayer’s right to receive the income, and the amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual receipt that determines when to include the amount in the gross income. Gleanable from this notion are the following requisites of accrual method of accounting, to wit: (1) that the right to receive the amount must be valid, unconditional and enforceable; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount it will be paid in due course.

When does the Liability to Withhold Income Tax Arise? The liability to withhold tax at source on income payments to non-resident foreign corporation arises upon accrual thereof, and not upon actual remittance of the amounts due to the foreign creditors. The withholding agent who adopts the accrual method of accounting in reporting its income and expenses is liable to withhold the tax from payments in favor of the creditor even before the latter’s actual receipt thereof.

G.R. Nos. 118498 & 124377 October 12, 1999

FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner,vs.

COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

PURISIMA, J.:

FACTS: Filipinas Synthetic Fiber Corporation, a domestic corporation received on December 27, 1979 a letter of demand from the Commissioner of Internal Revenue assessing it for deficiency withholding tax at source for the period from the fourth quarter of 1974 to the fourth quarter of 1975. The bulk of the deficiency withholding tax assessment, however, consisted of interest and compromise penalties for alleged late payment of withholding taxes due on interest loans, royalties and guarantee fees paid by the petitioner to non-resident corporations. The assessment was seasonably protested by the petitioner. Respondent denied the protest on the following ground: For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof.

ISSUE: Does the liability to withhold tax at source on income payments to non-resident foreign corporation arise upon accrual thereof and not upon remittance of the amounts due to the foreign creditors?HELD: YES. On the other hand, "under the accrual basis method of accounting, income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual receipt, that determines when to include the amount in gross income." Gleanable from this notion are the following requisites of accrual method of accounting, to wit: "(1) that the right to receive the amount must be valid, unconditional and enforceable, i.e., not contingent upon future time; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount will be paid in due course."

In the case at bar, after a careful examination of pertinent records, the Court concurred in the finding by the Court of Appeals in CA GR. SP No. 32922 "that there was a definite liability, a clear and imminent certainty that at the maturity of the loan contracts, the foreign corporation was going to earn income in an ascertained amount, so much so that petitioner already deducted as business expense the said amount as interests due to the foreign corporation. This is allowed under the law, petitioner having adopted the "accrual method" of accounting in reporting its incomes."

All things studiedly considered, the Court is of the opinion, and holds, that the Court of Appeals erred not in ruling that:

. . . Petitioner cannot now claim that there is no duty to withhold and remit income taxes as yet because the loan contract was not yet due and demandable. Having "written-off" the amounts as business expense in its books, it had taken advantage of the benefit provided in the law allowing for deductions from gross income. Moreover, it had represented to the BIR that the amounts so deducted were incurred as a business expense in the form of interest and royalties paid to the foreign corporations. It is estopped from claiming otherwise now.

ESTATE TAXATION What does administration expenses include? Judicial expenses are expenses of administration. Administration Expenses, as an allowable deduction from the gross estate of the decedent to arrive at the value of the net estate, have been construed to include all expenses essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. In other words, the expenses must be essential to the proper settlement of the estate.

G.R. No. 123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the Estate of Pedro P. Pajonar, respondents.

GONZAGA-REYES, J.:

FACTS: Pedro Pajonar, was a part of the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina became his guardian, while his property was placed under the guardianship of PNB. When Pedro died on January 10, 1988, PNB filed an accounting of the decedent’s property under guardianship valued at P3,037,672.09, however, it did not file an estate tax return, instead it advised Pedro’s heirs to execute an extrajudicial settlement and pay the taxes on his estate. The estate of Pedro paid taxes in the amount of P2,557.

Pursuant to a second assessment by the BIR for deficiency estate tax, Josefina Pajonar, filed a protest on January 11, 1989 with the BIR praying that the estate tax payment or at least some portion of it, be returned to the heirs.

However, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying for the refund of erroneously paid estate tax.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate tax for the year 1988. Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753 representing the notarial fee for the Extrajudicial Settlement and attorney's fees in Special Proceedings No. 1254 for guardianship.

On June 15, 1993, the CIR filed a motion for reconsideration asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution ordering the Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's petition.

Hence, the present appeal by the Commissioner of Internal Revenue.

ISSUE: Whether or not the notarial fee paid for the extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate.

HELD: We answer this question in the affirmative.

Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed to include all expenses essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. In other words, the expenses must be essential to the proper settlement of the estate.

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for

acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a deductible administration expense. PNB provided a detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the collection of decedent's assets and the subsequent settlement of the estate.

VALUE ADDED TAX

State the nature of VAT? VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, on the performance of services (and on the importation of goods), even in the absence of profit attributable thereto.

The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, ay any person regardless of whether or not the person engaged therein is a non-stock, non-profit organization or government entity.

G.R. No. 125355 March 30, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents.

PARDO, J.:

FACTS: On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT) for taxable year 1988. COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from rendering the service.

ISSUE: Is COMASERCO engaged in the sale of services, and thus liable to pay VAT thereon?

HELD: YES. Sec. 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E. O.) No. 273 in 1988, provides that:

“Sec. 99. Persons liable. — Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who, imports goods shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code. “

Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on

the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

VAT ZERO-RATING

G.R. No. 134467 November 17, 1999ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent. PANGANIBAN, J.:

FACTS: Petitioner is engaged in the business of mining, production and sale of various mineral products, consisting principally of copper concentrates and gold and duly registered with the BIR as a VAT enterprise. Respondent [BIR] duly approved petitioner's application for VAT zero-rating of the following sales:

a. Gold to the Central Bank (CB) b. Copper concentrates to the PASAR; andc. Pyrite Philphos.

The BIR's approval of sales to CB and PASAR was dated April 21, 1988 while zero-rating of sales to PHILPHOS was approved effective June 1, 1988.On April 20, 1990, petitioner filed a VAT return with the BIR for the first quarter of 1990 whereby it declared its sales to the CB, PASAR and Philphos, as zero-rated sales and therefore not subject to any output VAT.

On or about July 24, 1990, petitioner filed a claim with respondent for refund/credit of VAT input taxes on its purchase of goods and services for the first quarter of 1990.On or about September 2, 1992, petitioner filed an Amended Application for tax credit/refund in the amount of P 35,522,056.58.

On September 9, 1992, respondent resolved petitioner's claim for VAT refund/credit by allowing only P2,518,122.32 as refundable/creditable while disallowing the rest.

However, after the BIR examiners submitted a supplemental report of investigation the allowable input tax credit was increased from P2,518,122.32 to P12,101,569.11.

The parties further stipulated that the issues to be resolved are: (1) the applicability of 10% VAT rating with regard to the above mentioned sales; and (2) applicability of Rev. Regulation 2-88 in that it requires the purchaser to export more than 70% of its total sales for the supplier to be zero-rated.

The Ca held that the parties were bound by the Joint Stipulation of Facts and that the petitioner is registered with the BIR as a VAT enterprise effective August 15, 1990. It upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that the "zero-percent rating" of BOI-registered enterprises shall be set in proportion to the amount of its actual exports;

and that EPZA and BOI registrations were by themselves not enough for zero-rating to apply.

ISSUES:

1) Was the petitioner VAT-registered for the 1st quarter of 1990 despite clear evidence showing the date of effectivity of petitioner's VAT registration to be January 1, 1988.

2) Should the totality of sales to EPZA-registered enterprises be zero-rated, not merely apportioned to the actual exports enterprise?

3) Is Sec. 21 of Revenue Regulations No. 5-87 invalid insofar as it went beyond the law by disallowing input VAT for purchases not covered by VAT invoices?

HELD:

1) YES. As a rule, a judicial admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not apply when there is a showing that (1) the admission was made through a "palpable mistake," or that (2) "no such admission was made." (Section 4 of Rule 129 of the Rules of Court) In the present case, we are convinced that a "palpable mistake" was committed. True, petitioner was VAT-registered under Registration No. 32-A-6-00224, as indicated in the Stipulation and became effective August 15, 1990. But the actual VAT Registration Certificate, which petitioner mentioned in the stipulation, is numbered 32-A-6-002224 and became effective on January 1, 1988, thereby showing that petitioner had been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy, since the VAT registration number stated in the joint stipulation is NOT the one mentioned in the actual Certificate attached to the BIR Records.The foregoing simply indicates that petitioner made a "palpable mistake" either in referring to the wrong BIR record, which was evident, or in attaching the wrong VAT Registration Certificate. The Court of Appeals should have corrected the unintended clerical oversight. In any event, the indelible fact is: the petitioner was VAT-registered as of January 1, 1988.

However, we believe that petitioner should be taxed only for such amount and under such circumstances as are true, fair and equitable. After all, even the respondent commissioner, as shown in the other provisions of the joint stipulation, has granted it VAT exemption for the period even prior to the first quarter of 1990; that is, as early as January 1, 1988. In view of the foregoing, we stress that a litigation is neither a game of technicalities nor a battle of wits and legalisms. Rather, it is an abiding search for truth, fairness and justice. We believe, and so hold, that substantial justice is on the side of petitioner on this issue.

2) YES. An examination of Section 4.100.2 of Revenue Regulation 7-95 14 in relation to Section 102 (b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The said Regulation does not even hint, much less expressly mention, that only a percentage of the sales would be zero-rated. (Phrased elsewise, the totality of sales to an expert-oriented enterprise whose export sales exceed 70% of its annual production are to be zero rated, not merely the proportion of such sales to actual exports of said enterprise.)

3) NO. It is clear that a VAT invoice can be used only for the sale of goods and services that are subject to VAT. The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Section 21 of Revenue

Regulation 5-87 is not invalid, as it simply prescribes the penalty for failure to comply with the accounting and invoicing requirements laid down in Section 108, a penalty similar to that found in Sections 111 and 263. In short, Section 108 provides the guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of the Tax Code provide penalties for different types of violations of Section 108; and Section 21 of Revenue Regulation 5-87 specifies the penalty for a specific violation of Section 108.

PERCENTAGE TAXES

AMUSEMENT TAXES

The "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. For the purpose of the amusement tax, the term gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement place. The foregoing definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The law being clear, there is no need for an extended interpretation.

G.R. No. 119122       August 8, 2000

PHILIPPINE BASKETBALL ASSOCIATION, petitioner, vs.COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER OF INTERNAL REVENUE, respondents.

PURISIMA, J.:

FACTS: On June 21, 1989, the petitioner received an assessment letter from the Commissioner of Internal Revenue (respondent Commissioner) for the payment of deficiency amusement tax. Petitioner contested the assessment by filing a protest with respondent Commissioner who denied the same on November 6, 1989. Its protest was, however, denied in an order dated November 6, 1989. On January 8, 1990, petitioner filed a petition for review but the same was dismissed for lack of merit. Petitioner presented a motion for reconsideration4 of the said decision but the same was denied by respondent CTA. The Court of Appeals affirmed the decision of the CTA and dismissed petitioner's appeal. Petitioner filed a Motion for Reconsideration of said decision but to no avail. Hence, this petition.

Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and authority to levy and collect amusement taxes from the sale of admission tickets to places of amusement from the national government to the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 providing that the power to levy and collect amusement tax on admission tickets was transferred to the local governments by virtue of the Local Tax Code; and BIR Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross receipts from admission tickets to places of amusement was transferred to local governments under P.D. No. 231, as amended.

ISSUES:

1) Is the amusement tax on admission tickets to PBA games a national or local tax? Otherwise put, who between the national government and local government should petitioner pay amusement taxes?

2) Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to the payment of amusement tax?

HELD:

1) The amusement tax is payable to the national government. The laws on the matter are succinct and clear and need no elaborate disquisition. Section 13 of the Local Tax Code provides:

"SECTION 13. Amusement tax on admission. — The province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement . . ."

The foregoing provision of law in point indicates that the province can only impose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement. The authority to tax professional basketball games is not therein included, as the same is expressly embraced in PD 1959, which amended PD 1456 thus:

"SECTION 44. Section 268 of this Code, as amended, is hereby further amended to read as follows:

'Sec. 268. Amusement taxes. — There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and bowling alleys xxx” (Now Sec. 125, NIRC with certain changes)

2) YES. It is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. The payment of said payment of amusement tax is in lieu of all other percentage taxes of whatever nature and description. For the purpose of the amusement tax, the term gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement place . The foregoing definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The law being clear, there is no need for an extended interpretation.

GROSS RECEIPTS

The term "gross receipts" means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts, subject to tax.

G.R. No. 118176 April 12, 2000

PROTECTOR'S SERVICES, INC., petitioner,vs.COURT OF APPEALS AND COMMISSIONER OF INTERNAL REVENUE, respondents.  QUISUMBING, J.

FACTS: Petitioner PSI was assessed for deficiency percentage taxes including surcharges, penalties and interests thereon for the years 1983, 1984 and 1985. Petitioner sent a protest letter dated January 02, 1988, to the BIR claiming that its gross receipts subject to percentage taxes should exclude the salaries of the security guards as well as the corresponding employer's share of Social Security System (SSS), State Insurance Fund (SIF) and Medicare contributions. On November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to the petitioner which denied with finality the latter's protest against the subject assessments, holding that the salaries paid to the security guards form part of your taxable gross receipts in the determination of the 3% and 4% contractor's tax. On December 5, 1990, petitioner filed a petition for review before the CTA but the same was denied for lack of merit. After its motion for reconsideration was denied, petitioner appealed to the Court of Appeals. The Court of Appeals affirmed the decision of the CTA. Hence, the petitioner filed with the Supreme Court a petition for review on certiorari.

ISSUE: Does the term “gross receipts” of a contractor (which) is subject to percentage tax, include the salaries paid to its employees, (as well as their) SSS, SIR and Medicare contributions?

HELD: YES. Contractor's tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term "gross receipts" means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts, subject to tax, to wit:

“. . . This Office has consistently ruled that salaries of security guards form part of the taxable gross receipts of a security agency for purposes of the 4% [formerly 3%] contractors tax under Section 205 of the Tax Code, as amended. The reason is that the salaries of the security guards are actually the liability of the agency and that the guards are considered their employees; hence, for percentage tax purposes, the salaries of the security guards are includible in its gross receipts. (BIR Ruling No.271-81 citing BIR Ruling No. 69-002).”

These rulings were made by the CIR in the exercise of his power to "make judgments or opinions in connection with the implementation of the provisions of the internal revenue code." The opinions and rulings of officials of the government called upon to execute or implement administrative laws, command respect and weight. We see no compelling reason in this case to rule otherwise.

TAX ADMINISTRATION AND ENFORCEMENT

Forfeiture Proceedings in the Bureau of Customs

Jurisdiction. An action for annulment of the act of the Collector of Customs falls within the jurisdiction of the Commissioner of Customs whose decision is appealable to the Court of Tax Appeals. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions for certiorari, prohibition or mandamus.

G.R. No. 94996       January 26, 2001

ALEMAR'S (SIBAL & SONS), INC., petitioner, vs.THE HONORABLE COURT OF APPEALS, RAMON FAROLAN, ET AL.

PARDO, J.:

FACTS: In September 1983, petitioner Alemars imported various books, office supplies and equipment which, on November 29, 1983, arrived in Manila, addressed to RPB, as consignee. After a year or on November 27, 1984, Alemars applied with the Bureau of Customs for an Import Entry and Permit to Deliver Goods which was denied on the ground that the imported articles subject thereof had been declared abandoned under the Omnibus Notice and Declaration of Abandonment in Abandonment Proceedings No. 84-1643 of the Bureau of Customs. Alemars, on December 12, 1984, filed with the Law Division, Bureau of Customs a letter expressly manifesting that it has no intention of abandoning subject shipment. Nevertheless, the auction sale proceeded with Luis Cua as the highest bidder. To prevent the delivery of the subject goods to Luis Cua and to obviate its subsequent sale and disposition which would render whatever claims it has over said goods ineffective, RPB filed on January 22, 1985, with the Regional Trial Court, Manila, a petition for prohibition with preliminary prohibitory injunction and/or restraining order against respondents to enjoin them from releasing and delivering subject goods to Luis Cua. The petition was subsequently amended to include Alemars as petitioner. The trial court issued a TRO enjoining respondents from releasing and delivering to Luis Cua subject importation, but later on dismissed the petition for want of jurisdiction. The Court of Appeals likewise dismissed the petition.

ISSUE: Does the Regional Trial Court have jurisdiction over the subject matter of the petition filed by Alemars and RPB to enjoin the auction sale of subject goods imported by petitioners declared by customs authorities as abandoned.

HELD: NO. Petitioner primarily seeks the annulment of the act of the Collector of Customs declaring the subject importation abandoned and ordering it sold at public auction, claiming that the abandonment proceeding held by the Collector of Customs was irregular since the latter did not give notice to petitioner of the abandonment before declaring the importation abandoned.

If petitioner was not satisfied with the action of the Collector of Customs, it may avail itself of the administrative remedies provided for in the Tariff and Customs Code.However, petitioner sought recourse in the trial court. Such recourse was fatal to petitioner's cause as the proper remedy was to elevate the case to the Commissioner of Customs whose decision was appealable to the Court of Tax Appeals. "The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

Jurisdiction. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. Regional Trial Courts have no review powers over such proceedings is anchored upon the policy of placing no unnecessary hindrance on the government's drive, not only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective and efficient the collection of import and export duties due the State, which enables the government to carry out the functions it has been instituted to perform.

G.R. No. 138081 March 30, 2000

THE BUREAU OF CUSTOMS (BOC) and THE ECONOMIC INTELLIGENCE AND INVESTIGATION BUREAU (EIIB), petitioners, vs.NELSON OGARIO and MARK MONTELIBANO, respondents. 

MENDOZA, J.:

FACTS: On December 9, 1998, Felipe A. Bartolome, District Collector of Customs of Cebu, issued a Warrant of Seizure and Detention 1 of 25,000 bags of rice illegally imported. The report stated that the rice was landed in Palawan by a foreign vessel and then placed in sacks marked "SNOWMAN," Milled in Palawan." It was then shipped to Cebu City on board the vessel M/V "Alberto." Forfeiture proceedings were started in the customs office in Cebu, docketed as Cebu Seizure Identification Case No. 17-98. On December 10, 1998, respondent Mark Montelibano, the consignee of the sacks of rice, and his buyer, respondent Elson Ogario, filed a complaint for injunction (Civil Case No. CEB-23077) in the Regional Trial Court of Cebu City. The petitioners sought the dismissal of the complaint on the ground that the RTC had no jurisdiction, but their motions were denied.

ISSUE: Does RTC have jurisdiction to enjoin the forfeiture proceedings in the Bureau of Customs?

HELD: NO. There is no question that Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings.

The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

It is likewise well-settled that the provisions of the Tariff and Customs Code and that of Republic Act No. 1125, as amended, otherwise known as "An Act Creating the Court of Tax Appeals," specify the proper fora and procedure for the ventilation of any legal objections or issues raised concerning these proceedings. Thus, actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals and from there to the Court of Appeals.

Back Taxes

Liability for Payment of Back Taxes. It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same for taxation purposes. Under the Real Property Tax Code, the duty to declare the true value of real property for taxation purposes is imposed upon the owner, or administrator, or their duly authorized representatives. They are thus the taxpayers. When these persons fail or refuse to make a declaration of the true value of their real property within the prescribed period, the provincial or city assessor shall declare then property in the name of the defaulting owner and assess the property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or defaulting administrator, or defaulting authorized representative, liable to pay back taxes.

G.R. No. 114231       May 18, 2001

MANILA ELECTRIC COMPANY, petitioner, vs.NELIA A. BARLIS, in her capacity as Officer-in-Charge/Acting Municipal Treasurer of Muntinlupa, substituting EDUARDO A. ALON, former Municipal Treasurer of Muntinlupa, Metro Manila, respondent.

DE LEON, JR., J.:

FACTS: From 1975 to 1978 MERALCO paid the real property taxes on the its properties on the basis of their assessed value as stated in the tax declarations. On

29 December 1978 MERALCO sold all the power-generating plants including the landsite to the National Power Corporation (NAPOCOR), a corporation fully owned and controlled by the Philippine government.

In 1985, the Municipal Treasurer of Muntinlupa discovered, among others, that MERALCO, for the period beginning 1 January 1976 to 29 December 1978, misdeclared and/or failed to declare for taxation purposes a number of real properties, consisting of several equipment and machineries, found in the said power plants. A review of the Deed of Sale which MERALCO executed in favor of NAPOCOR when it sold the power plants to the latter convinced the municipal government of Muntinlupa of the misdeclaration/non-declaration of the true value of the said machineries and equipment.

The Municipal Assessor of Muntinlupa then declared and assessed the subject real properties for taxation purposes and issued several collection notices to MERALCO, ordering it to pay the deficiency in the real property taxes covering the machineries and equipment found in the said power plants. Still MERALCO did not pay the tax assessed.

The Municipality of Muntinlupa sought the assistance of the Bureau of Local Government Finance-Department of Finance (BLGF-DOF). The BLGF-DOF issued a Letter-Endorsement declaring MERALCO liable to pay the deficiency or delinquent real property taxes.

The Municipal Treasurer then issued warrants of garnishment, copies of which were served on MERALCO on 10 October 1990, ordering the attachment of the bank deposits of MERALCO to the extent of its unpaid real property taxes.

Immediately, MERALCO filed before the Regional Trial Court (RTC) of Makati, Metro Manila a Petition for Prohibition with Prayer for Writ of Preliminary Mandatory Injunction and/or Temporary Restraining order (TRO) to enjoin the Municipal Treasurer of Muntinlupa from enforcing the warrants of garnishment.

For its part, the Municipal Treasurer filed a Motion to Dismiss on the grounds of: (1) lack of jurisdiction since, under Sec. 64 of the Real Property Tax Code, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall gave paid, under protest, the tax assessed against him; and (2) lack of cause of action by reason of MERALCO's failure to question the notice of assessment issued to it by the Municipality of Muntinlupa before the Local Board of Assessment Appeals. In its 17 June 1991 Order the trial court denied the said motion.On a Petition for Certiorari filed before the Supreme Court, later endorsed to the Court of Appeals, the Municipal Treasurer of Muntinlupa assailed the order of 17 June 1991 of the RTC. On 11 August 1993 the Court of Appeals in its Decision granted the petition declaring the assailed order "void and without life in law, having been issued without jurisdiction, on a petition that further does not state a sufficient cause of action, filed by a party who had not exhausted available administrative remedies," MERALCO moved for a reconsideration of the Decision, but was denied for lack of merit in a Resolution dated 28 February 1994.

ISSUES:

1) Do trials courts have jurisdiction to entertain petition for prohibition absent payment under protest of tax assessed?

2) Is the former owner of property subsequently sold liable for payment of back taxes incurred prior to the sale?

3) Since the real property tax constitutes a lien on the property subject to tax, is the local government constrained only in proceeding against the real property itself or any personal property located therein?

HELD:

1) NO. The trial court has no jurisdiction to entertain a Petition for Prohibition absent petitioner's payment, under protest, of the tax assessed as required by Sec. 64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely disabled.

2) YES. Petitioner is begging the question when it asserts that it is not the taxpayer contemplated under Sec. 64 of the RPTC. It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same for taxation purposes. Under the Real Property Tax Code, the duty to declare the true value of real property for taxation purposes is imposed upon the owner, or administrator, or their duly authorized representatives. They are thus the taxpayers. When these persons fail or refuse to make a declaration of the true value of their real property within the prescribed period, the provincial or city assessor shall declare then property in the name of the defaulting owner and assess the property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or defaulting administrator, or defaulting authorized representative, liable to pay back taxes.

Respondent Municipal Treasurer claims that petitioner MERALCO misdeclared and/or failed to declare the true value of the Sucat power plant machineries and equipment during the taxable years 1976-1978 when it was still the owner thereof, and that it is the deficiency in the realty tax on the real property's reassessed value which it seeks to collect. Based on the foregoing, the notice of assessment and collection was directed to petitioner, not because it is still the present owner of the subject real property including the machineries and equipment thereon, but because it is the defaulting owner thereof who has failed to make proper tax declaration and the proper tax payment thereon. Thus, petitioner is the taxpayer contemplated under Sec. 64 of the RPTC, and payment under protest of the tax assessed is necessary for the trial court to acquire jurisdiction over its petition.

3) NO. the Real Property Tax Code, as amended, affords local government units three (3) concurrent and simultaneous remedies to enforce the Code's provisions, namely; (a) distraint of personal property, (b) sale of delinquent real property, and (c) collection of real property tax through ordinary court action. From the foregoing, respondent argues that it is not limited to the enforcement of tax lien but is also authorized to proceed against the personal properties of the defaulting taxpayer unless it could be shown that the personal properties being subject to distraint are exempt from attachment, which the bank deposits are not.

The remedy of levy can be pursued by putting up for sale the real property subject of tax, i.e., the delinquent property upon which the tax lien attaches, regardless of the present owner or possessor thereof. The remedy of distraint and levy of personal property meanwhile allows the taxing authority to subject any personal property of the taxpayer to execution, save certain exceptions as enumerated under Sec. 69 of the RPTC, bank deposits are not among those exceptions.

TAX REMEDIES

Sale of Real Estate Property Due to Tax Delinquency

Notice to Non-registered Owner. For purposes of real property taxation, the registered owner of a property is deemed the taxpayer and, hence, the only one entitled to a notice of tax delinquency and the resultant proceedings relative to an auction sale.

G.R. No. 133698      April 4, 2001

ANTONIO TALUSAN and CELIA TALUSAN, petitioners, vs.HERMINIGILDO* TAYAG and JUAN HERNANDEZ, respondents.

PANGANIBAN, J.:

FACTS: Petitioners bought the subject property covered by Condominium Certificate of Title No. 651, from its former owner, Elias Imperial, as evidenced by a Deed of Absolute Sale. Elias Imperial and his entire family emigrated to Australia in 1974. On October 15, 1985, respondent Juan D. Hernandez in his capacity as City Treasurer of Baguio City, wrote a letter to the former owner Elias at his old address in Cubao, Quezon City. Imperial informing him that the above described property would be sold at public auction on December 9, 1985, to satisfy the delinquent real estate taxes, penalties and cost of sale, and demanded payment of the sum of P4,039.80, representing total taxes due and penalties thereon. Thereafter, respondent Hernandez sold the above-described property to Tayag for P4,400.00 ‘without any notice to the former owner thereof, [or] to [petitioners], and without compliance with the provisions of PD No. 464, as evidenced by the Certificate of Sale. Petitioners a complaint against the Treasurer of Baguio and Tayag to nullify the sale and Tayag’s title on the ground of irregularities, inadequate price, and non-compliance with statutory requirements, particularly those relative to notice, publication and posting. The trial court dismissed the complaint, which was affirmed by the Court of Appeals.

ISSUE: Is a non-registered owner of a real property entitled to notice of tax delinquency?

HELD: NO. For purposes of the real property tax, the registered owner of the property is deemed the taxpayer. Hence, only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale. Not being registered owners of the property, petitioners cannot claim to have been deprived of such notice. In fact, they were not entitled to it.

In the present case, the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila. In that notice, the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property. Under the circumstances, we hold that the notice sent by registered mail adequately protected the rights of the taxpayer, who was the registered owner of the condominium unit.

Protest Payment

The trial court has no jurisdiction to entertain a Petition for Prohibition absent petitioner's payment, under protest, of the tax assessed as required by Sec. 64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely disabled.

Prescription

By its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has not committed any violation for nonpayment of the deficiency tax. The offense was committed only after the finality of the assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted period. Thus, the five (5) year prescriptive period shall start to run when the assessment became final and unappealable.

G.R. No. 127777 October 1, 1999

PETRONILA C. TUPAZ, petitioner,vs.HONORABLE BENEDICTO B. ULEP Presiding Judge of RTC Quezon City, Branch 105, and PEOPLE OF THE PHILIPPINES, respondents.

PARDO, J.:

FACTS: Petitioner was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner contends that applying the 3-year period provided under BP 700 which amended the 1977 NIRC, the said assessment was made out of time. The Solicitor General on the other had, asserts that the provision of BP 700 applies to assessments and collections beginning taxable year 1984.

Petitioner also contends that the offense charged has already prescribed. Petitioner invokes Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides that violations of any provision of the Code prescribe in five (5) years. Petitioner asserts that in this case, it began to run in 1979, when she failed to pay the correct corporate tax due during that taxable year. Hence, when the BIR instituted criminal proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code with the Department of Justice for preliminary investigation it was beyond the prescriptive period of five (5) years. At most, the BIR had until 1984 to institute criminal proceedings.

ISSUE: (1) Is the 3-year period of assessment provided under BP700 applicable to this case? (2) Does the 5-year prescriptive period (for filing complaints for failure to pay deficiency taxes) commence to run from filing of the income tax return?

HELD:

1) NO. he shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700, effective April 5, 1984, specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the five-year period if the taxes assessed cover taxable years prior to January 1,

1984. The deficiency income tax under consideration is for taxable year 1979. Thus, the period of assessment is still five (5) years, under the old law. The income tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the return is filed, whichever comes later.

2) NO. by its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has not committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest or question the assessment. Otherwise, the assessment would become final and unappealable. As he did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the Department of Justice on June 8, 1989, the criminal action was instituted within the five (5) year prescriptive period.