Escolar Documentos
Profissional Documentos
Cultura Documentos
FIRST DIVISION
[G.R. No. 147188. September 14, 2004]
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. THE ESTATE OF BENIGNO P.
TODA, JR., Represented by Special Coadministrators Lorna Kapunan and Mario
Luza Bautista, respondents.
DECISION
DAVIDE, JR., C.J.:
This Court is called upon to determine in this
case whether the tax planning scheme adopted
by a corporation constitutes tax evasion that
would justify an assessment of deficiency income
tax.
The petitioner seeks the reversal of the
Decision[1] of the Court of Appeals of 31 January
2001 in CA-G.R. SP No. 57799 affirming the 3
January 2000 Decision[2] of the Court of Tax
Appeals (CTA) in C.T.A. Case No. 5328,[3] which
held that the respondent Estate of Benigno P.
Toda, Jr. is not liable for the deficiency income tax
of Cibeles Insurance Corporation (CIC) in the
amount of P79,099,999.22 for the year 1989, and
ordered the cancellation and setting aside of the
assessment issued by Commissioner of Internal
Revenue Liwayway Vinzons-Chato on 9 January
1995.
The case at bar stemmed from a Notice of
Assessment sent to CIC by the Commissioner of
Internal Revenue for deficiency income tax
arising from an alleged simulated sale of a 16storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala
Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P.
Toda, Jr., President and owner of 99.991% of its
issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on
which the building stands for an amount of not
less than P90 million.[4]
On 30 August 1989, Toda purportedly sold the
property for P100 million to Rafael A. Altonaga,
who, in turn, sold the same property on the same
day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by
Deeds of Absolute Sale notarized on the same
day by the same notary public.[5]
For the sale of the property to RMI, Altonaga paid
capital gains tax in the amount of P10 million.[6]
On 16 April 1990, CIC filed its corporate annual
income tax return[7] for the year 1989, declaring,
among other things, its gain from the sale of real
property in the amount of P75,728.021. After
crediting withholding taxes of P254,497.00, it paid
P26,341,207[8] for its net taxable income of
P75,987,725.
On 12 July 1990, Toda sold his entire shares of
stocks in CIC to Le Hun T. Choa for P12.5 million,
as evidenced by a Deed of Sale of Shares of
Stocks.[9] Three and a half years later, or on 16
January 1994, Toda died.
On 29 March 1994, the Bureau of Internal
2
COLLECTIBLE
79,099,999.22
============
The Estate thereafter filed a letter of protest.[13]
In the letter dated 19 October 1995,[14] the
Commissioner dismissed the protest, stating that
a fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and
controlled by Toda by covering up the additional
gain of P100 million, which resulted in the change
in the income structure of the proceeds of the
sale of the two parcels of land and the building
thereon to an individual capital gains, thus
evading the higher corporate income tax rate of
35%.
On 15 February 1996, the Estate filed a petition
for review[15] with the CTA alleging that the
Commissioner erred in holding the Estate liable
for income tax deficiency; that the inference of
fraud of the sale of the properties is unreasonable
and unsupported; and that the right of the
Commissioner to assess CIC had already
prescribed.
In his Answer[16] and Amended Answer,[17] the
Commissioner argued that the two transactions
actually constituted a single sale of the property
by CIC to RMI, and that Altonaga was neither the
buyer of the property from CIC nor the seller of
the same property to RMI. The additional gain of
P100 million (the difference between the second
simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC
was taxed at the rate of only 5% purportedly as
capital gains tax of Altonaga, instead of at the
rate of 35% as corporate income tax of CIC. The
income tax return filed by CIC for 1989 with intent
to evade payment of the tax was thus false or
fraudulent. Since such falsity or fraud was
discovered by the BIR only on 8 March 1991, the
assessment issued on 9 January 1995 was well
within the prescriptive period prescribed by
Section 223 (a) of the National Internal Revenue
Code of 1986, which provides that tax may be
assessed within ten years from the discovery of
the falsity or fraud. With the sale being tainted
with fraud, the separate corporate personality of
CIC should be disregarded. Toda, being the
registered owner of the 99.991% shares of stock
of CIC and the beneficial owner of the remaining
0.009% shares registered in the name of the
individual directors of CIC, should be held liable
for the deficiency income tax, especially because
the gains realized from the sale were withdrawn
by him as cash advances or paid to him as cash
dividends. Since he is already dead, his estate
shall answer for his liability.
In its decision[18] of 3 January 2000, the CTA held
that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the
taxes due it. It ruled that even assuming that a
pre-conceived scheme was adopted by CIC, the
3
points out that the documents themselves prove
the fact of fraud in that (1) the two sales were
done simultaneously on the same date, 30
August 1989; (2) the Deed of Absolute Sale
between Altonaga and RMI was notarized ahead
of the alleged sale between CIC and Altonaga,
with the former registered in the Notarial Register
of Jocelyn H. Arreza Pabelana as Doc. 91, Page
20, Book I, Series of 1989; and the latter, as Doc.
No. 92, Page 20, Book I, Series of 1989, of the
same Notary Public; (3) as early as 4 May 1989,
CIC received P40 million from RMI, and not from
Altonaga. The said amount was debited by RMI
in its trial balance as of 30 June 1989 as
investment in Cibeles Building. The substantial
portion of P40 million was withdrawn by Toda
through the declaration of cash dividends to all its
stockholders.
For its part, respondent Estate asserts that the
Commissioner failed to present the income tax
return of Altonaga to prove that the latter is
financially incapable of purchasing the Cibeles
property.
To resolve the grounds raised by the
Commissioner, the following questions are
pertinent:
1.
Is this a case of tax evasion or tax
avoidance?
2.
Has the period for assessment of
deficiency income tax for the year 1989
prescribed? and
3.
Can respondent Estate be held liable for
the deficiency income tax of CIC for the year
1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion
or tax avoidance?
Tax avoidance and tax evasion are the
two most common ways used by taxpayers in
escaping from taxation. Tax avoidance is the tax
saving device within the means sanctioned by
law. This method should be used by the taxpayer
in good faith and at arms length. Tax evasion, on
the other hand, is a scheme used outside of
those lawful means and when availed of, it
usually subjects the taxpayer to further or
additional civil or criminal liabilities.[23]
Tax evasion connotes the integration of
three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer
to be legally due, or the non-payment of tax when
it is shown that a tax is due; (2) an accompanying
state of mind which is described as being evil, in
bad faith, willfull,or deliberate and not
accidental; and (3) a course of action or failure of
action which is unlawful.[24]
All these factors are present in the instant
case. It is significant to note that as early as 4
May 1989, prior to the purported sale of the
Cibeles property by CIC to Altonaga on 30 August
1989, CIC received P40 million from RMI,[25] and
not from Altonaga. That P40 million was debited
4
and did not enjoy the normal benefits and
burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless,
the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing
the consequent income tax liability.
In a nutshell, the intermediary transaction,
i.e., the sale of Altonaga, which was prompted
more on the mitigation of tax liabilities than for
legitimate business purposes constitutes one of
tax evasion.[31]
Generally, a sale or exchange of assets
will have an income tax incidence only when it is
consummated.[32] The incidence of taxation
depends upon the substance of a transaction.
The tax consequences arising from gains from a
sale of property are not finally to be determined
solely by the means employed to transfer legal
title. Rather, the transaction must be viewed as a
whole, and each step from the commencement of
negotiations to the consummation of the sale is
relevant. A sale by one person cannot be
transformed for tax purposes into a sale by
another by using the latter as a conduit through
which to pass title. To permit the true nature of
the transaction to be disguised by mere
formalisms, which exist solely to alter tax
liabilities, would seriously impair the effective
administration of the tax policies of Congress.[33]
To allow a taxpayer to deny tax liability on
the ground that the sale was made through
another and distinct entity when it is proved that
the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to
Altonaga should be disregarded for income tax
purposes.[34] The two sale transactions should be
treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is
governed by then Section 24 of the NIRC of
1986, as amended (now 27 (A) of the Tax Reform
Act of 1997), which stated as follows:
Sec. 24. Rates of tax on corporations. (a)
Tax on domestic corporations.- A tax is hereby
imposed upon the taxable net income received
during each taxable year from all sources by
every corporation organized in, or existing under
the laws of the Philippines, and partnerships, no
matter how created or organized but not including
general professional partnerships, in accordance
with the following:
Twenty-five percent upon the amount by which
the taxable net income does not exceed one
hundred thousand pesos; and
Thirty-five percent upon the amount by which the
taxable net income exceeds one hundred
thousand pesos.
CIC is therefore liable to pay a 35% corporate tax
for its taxable net income in 1989. The 5%
individual capital gains tax provided for in Section
34 (h) of the NIRC of 1986[35] (now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997)
5
of a corporation may not generally be made to
answer for the liabilities of a corporation and vice
versa. There are, however, certain instances in
which personal liability may arise. It has been
held in a number of cases that personal liability of
a corporate director, trustee, or officer along,
albeit not necessarily, with the corporation may
validly attach when:
1. He assents to the (a) patently unlawful act of
the corporation, (b) bad faith or gross negligence
in directing its affairs, or (c) conflict of interest,
resulting in damages to the corporation, its
stockholders, or other persons;
2. He consents to the issuance of watered down
stocks or, having knowledge thereof, does not
forthwith file with the corporate secretary his
written objection thereto;
3. He agrees to hold himself personally and
solidarily liable with the corporation; or
4. He is made, by specific provision of law, to
personally answer for his corporate action.[38]
It is worth noting that when the late Toda sold his
shares of stock to Le Hun T. Choa, he knowingly
and voluntarily held himself personally liable for
all the tax liabilities of CIC and the buyer for the
years 1987, 1988, and 1989. Paragraph g of the
Deed of Sale of Shares of Stocks specifically
provides:
g. Except for transactions occurring in the
ordinary course of business, Cibeles has no
liabilities or obligations, contingent or otherwise,
for taxes, sums of money or insurance claims
other than those reported in its audited financial
statement as of December 31, 1989, attached
hereto as Annex B and made a part hereof.
The business of Cibeles has at all times been
conducted in full compliance with all applicable
laws, rules and regulations. SELLER
undertakes and agrees to hold the BUYER
and Cibeles free from any and all income tax
liabilities of Cibeles for the fiscal years 1987,
1988 and 1989.[39] [Underscoring Supplied].
When the late Toda undertook and agreed to
hold the BUYER and Cibeles free from any all
income tax liabilities of Cibeles for the fiscal years
1987, 1988, and 1989, he thereby voluntarily
held himself personally liable therefor.
Respondent estate cannot, therefore, deny
liability for CICs deficiency income tax for the
year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from
Todas contractual undertaking, as contained in
the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the
foregoing, the petition is hereby GRANTED. The
decision of the Court of Appeals of 31 January
2001 in CA-G.R. SP No. 57799 is REVERSED
and SET ASIDE, and another one is hereby
rendered ordering respondent Estate of Benigno
P. Toda Jr. to pay P79,099,999.22 as deficiency
income tax of Cibeles Insurance Corporation for
the year 1989, plus legal interest from 1 May
6
injunction and/or temporary restraining order on
June 28, 1993, seeking to I. Annul and set aside the Notices of Levy on real
property dated February 22, 1993 and May 20,
1993, issued by respondent Commissioner of
Internal Revenue;
II. Annul and set aside the Notices of Sale dated
May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant
Director II (Collection Service), from proceeding
with the Auction of the real properties covered by
Notices of Sale.
After the parties had pleaded their case, the
Court of Appeals rendered its Decision[if !
supportFootnotes][2][endif]
on November 29, 1994, ruling
that the deficiency assessments for estate and
income tax made upon the petitioner and the
estate of the deceased President Marcos have
already become final and unappealable, and may
thus be enforced by the summary remedy of
levying upon the properties of the late President,
as was done by the respondent Commissioner of
Internal Revenue.
"WHEREFORE, premises considered judgment
is hereby rendered DISMISSING the petition for
Certiorari with prayer for Restraining Order and
Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing
the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY
ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE
GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE
SPECIAL PROCEEDING FOR THE
ALLOWANCE OF THE LATE PRESIDENT'S
ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED
ALL PROPERTIES WHICH FORM PART OF
THE LATE PRESIDENT'S ESTATE IN
CUSTODIA LEGIS OF THE PROBATE COURT
TO THE EXCLUSION OF ALL OTHER COURTS
AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY
ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF
PETITIONER AND HIS PARENTS HAD
ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO
GO INTO THE MERITS OF THE GROUNDS
CITED IN THE PETITION. INDEPENDENT OF
WHETHER THE TAX ASSESSMENTS HAD
ALREADY BECOME FINAL, HOWEVER,
PETITIONER HAS THE RIGHT TO QUESTION
THE UNLAWFUL MANNER AND METHOD IN
WHICH TAX COLLECTION IS SOUGHT TO BE
ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS,
RESPONDENT COURT SHOULD HAVE
7
Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following:
(1) Deficiency estate tax assessment no. FAC-289-91-002464 (against the estate of the late
president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency
income tax assessment no. FAC-1-85-91-002452
and Deficiency income tax assessment no. FAC1-86-91-002451 (against the Spouses Ferdinand
and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing
deficiency income tax for the years 1985 and
1986); (3) Deficiency income tax assessment
nos. FAC-1-82-91-002460 to FAC-1-85-91002463 (against petitioner Ferdinand 'Bongbong'
Marcos II in the amounts of P258.70 pesos;
P9,386.40 Pesos; P4,388.30 Pesos; and
P6,376.60 Pesos representing his deficiency
income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers
that copies of the deficiency estate and income
tax assessments were all personally and
constructively served on August 26, 1991 and
September 12, 1991 upon Mrs. Imelda Marcos
(through her caretaker Mr. Martinez) at her last
known address at No. 204 Ortega St., San Juan,
M.M. (Annexes 'D' and 'E' of the Petition).
Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand
'Bongbong' Marcos II were also personally and
constructively served upon him (through his
caretaker) on September 12, 1991, at his last
known address at Don Mariano Marcos St. corner
P. Guevarra St., San Juan, M.M. (Annexes 'J' and
'J-1' of the Petition). Thereafter, Formal
Assessment notices were served on October 20,
1992, upon Mrs. Marcos c/o petitioner, at his
office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly
authorized representative or counsel), to a
conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not
protested administratively, by Mrs. Marcos and
the other heirs of the late president, within 30
days from service of said assessments.
On February 22, 1993, the BIR Commissioner
issued twenty-two notices of levy on real property
against certain parcels of land owned by the
Marcoses - to satisfy the alleged estate tax and
deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on
real property were issued for the purpose of
satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of
Levy on real property were again issued. The
foregoing tax remedies were resorted to pursuant
to Sections 205 and 213 of the National Internal
Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent
by Atty. Loreto Ata (counsel of herein petitioner)
8
the decedent. In this regard, petitioner cites the
case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil
502), where it was held that:
"The case of Pineda vs. Court of First Instance of
Tayabas and Collector of Internal Revenue (52
Phil 803), relied upon by the petitioner-appellant
is good authority on the proposition that the court
having control over the administration
proceedings has jurisdiction to entertain the claim
presented by the government for taxes due and
to order the administrator to pay the tax should it
find that the assessment was proper, and that the
tax was legal, due and collectible. And the rule
laid down in that case must be understood in
relation to the case of Collector of Customs vs.
Haygood, supra., as to the procedure to be
followed in a given case by the government to
effectuate the collection of the tax. Categorically
stated, where during the pendency of judicial
administration over the estate of a deceased
person a claim for taxes is presented by the
government, the court has the authority to order
payment by the administrator; but, in the same
way that it has authority to order payment or
satisfaction, it also has the negative authority to
deny the same. While there are cases where
courts are required to perform certain duties
mandatory and ministerial in character, the
function of the court in a case of the present
character is not one of them; and here, the court
cannot be an organism endowed with latitude of
judgment in one direction, and converted into a
mere mechanical contrivance in another
direction."
On the other hand, it is argued by the BIR, that
the state's authority to collect internal revenue
taxes is paramount. Thus, the pendency of
probate proceedings over the estate of the
deceased does not preclude the assessment and
collection, through summary remedies, of estate
taxes over the same. According to the
respondent, claims for payment of estate and
income taxes due and assessed after the death
of the decedent need not be presented in the
form of a claim against the estate. These can
and should be paid immediately. The probate
court is not the government agency to decide
whether an estate is liable for payment of estate
of income taxes. Well-settled is the rule that the
probate court is a court with special and limited
jurisdiction.
Concededly, the authority of the Regional Trial
Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual,
is not a trifling thing. The court's jurisdiction,
once invoked, and made effective, cannot be
treated with indifference nor should it be ignored
with impunity by the very parties invoking its
authority.
In testament to this, it has been held that it is
within the jurisdiction of the probate court to
9
of claims for taxes charged against the estate of
the decedent. Such taxes, we said, were
exempted from the application of the statute of
non-claims, and this is justified by the necessity
of government funding, immortalized in the
maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae taxes are the sinews of the state.
"Taxes assessed against the estate of a
deceased person, after administration is opened,
need not be submitted to the committee on
claims in the ordinary course of administration. In
the exercise of its control over the administrator,
the court may direct the payment of such taxes
upon motion showing that the taxes have been
assessed against the estate."
Such liberal treatment of internal revenue taxes in
the probate proceedings extends so far, even to
allowing the enforcement of tax obligations
against the heirs of the decedent, even after
distribution of the estate's properties.
"Claims for taxes, whether assessed before or
after the death of the deceased, can be collected
from the heirs even after the distribution of the
properties of the decedent. They are exempted
from the application of the statute of non-claims.
The heirs shall be liable therefor, in proportion to
their share in the inheritance."[if !supportFootnotes][13][endif]
"Thus, the Government has two ways of
collecting the taxes in question. One, by going
after all the heirs and collecting from each one of
them the amount of the tax proportionate to the
inheritance received. Another remedy, pursuant
to the lien created by Section 315 of the Tax
Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is
by subjecting said property of the estate which is
in the hands of an heir or transferee to the
payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda,
21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the
approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a
mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax
Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late
President, on the ground that it was required to
seek first the probate court's sanction. There is
nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the
probate or estate settlement court's approval of
the state's claim for estate taxes, before the
same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it
is the probate or settlement court which is bidden
not to authorize the executor or judicial
administrator of the decedent's estate to deliver
any distributive share to any party interested in
the estate, unless it is shown a Certification by
the Commissioner of Internal Revenue that the
10
respondents well beyond the period mandated in
Revenue Memorandum Circular No. 38-68.
These Notices of Levy were issued only on 22
February 1993 and 20 May 1993 when at least
seventeen (17) months had already lapsed from
the last service of tax assessment on 12
September 1991. As no notices of distraint of
personal property were first issued by
respondents, the latter should have complied with
Revenue Memorandum Circular No. 38-68 and
issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months
from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March
1992 (the last day of the sixth month) within
which to issue these Notices of Levy. The
Notices of Levy, having been issued beyond the
period allowed by law, are thus void and of no
effect."[if !supportFootnotes][15][endif]
We hold otherwise. The Notices of Levy upon
real property were issued within the prescriptive
period and in accordance with the provisions of
the present Tax Code. The deficiency tax
assessment, having already become final,
executory, and demandable, the same can now
be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the
NIRC.
The applicable provision in regard to the
prescriptive period for the assessment and
collection of tax deficiency in this instance is
Article 223 of the NIRC, which pertinently
provides:
"Sec. 223. Exceptions as to a period of limitation
of assessment and collection of taxes.- (a) In the
case of a false or fraudulent return with intent to
evade tax or of a failure to file a return, the tax
may be assessed, or a proceeding in court for the
collection of such tax may be begun without
assessment, at any time within ten (10) years
after the discovery of the falsity, fraud, or
omission: Provided, That, in a fraud assessment
which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection
thereof.
xxx
(c) Any internal revenue tax which has been
assessed within the period of limitation above
prescribed, may be collected by distraint or levy
or by a proceeding in court within three years
following the assessment of the tax.
xxx
The omission to file an estate tax return, and the
subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the
petitioner's cause, as under the above-cited
provision, in case of failure to file a return, the tax
may be assessed at any time within ten years
after the omission, and any tax so assessed may
be collected by levy upon real property within
three years following the assessment of the tax.
11
Failure to present proof of error in the
assessment will justify the judicial affirmance of
said assessment.[if !supportFootnotes][18][endif] In this
instance, petitioner has not pointed out one single
provision in the Memorandum of the Special Audit
Team which gave rise to the questioned
assessment, which bears a trace of falsity.
Indeed, the petitioner's attack on the assessment
bears mainly on the alleged improbable and
unconscionable amount of the taxes charged.
But mere rhetoric cannot supply the basis for the
charge of impropriety of the assessments made.
Moreover, these objections to the assessments
should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code,
with the Bureau of Internal Revenue and the
Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari,
under the pretext of grave abuse of discretion.
The course of action taken by the petitioner
reflects his disregard or even repugnance of the
established institutions for governance in the
scheme of a well-ordered society. The subject
tax assessments having become final, executory
and enforceable, the same can no longer be
contested by means of a disguised protest. In
the main, Certiorari may not be used as a
substitute for a lost appeal or remedy.[if !
supportFootnotes][19][endif]
This judicial policy becomes
more pronounced in view of the absence of
sufficient attack against the actuations of
government.
On the matter of sufficiency of service of Notices
of Assessment to the petitioner, we find the
respondent appellate court's pronouncements
sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both
alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well
as evidences, that there was sufficient,
constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand
"Bongbong" Marcos as well as to his mother
Mrs. Imelda Marcos.
Even if we are to rule out the notices of
assessments personally given to the caretaker of
Mrs. Marcos at the latter's last known address, on
August 26, 1991 and September 12, 1991, as
well as the notices of assessment personally
given to the caretaker of petitioner also at his last
known address on September 12, 1991 - the
subsequent notices given thereafter could no
longer be ignored as they were sent at a time
when petitioner was already here in the
Philippines, and at a place where said notices
would surely be called to petitioner's attention,
and received by responsible persons of sufficient
age and discretion.
Thus, on October 20, 1992, formal assessment
notices were served upon Mrs. Marcos c/o the
petitioner, at his office, House of Representatives,
Batasan Pambansa, Q.C. (Annexes "A", "A-1",
12
the Batasang Pambansa.[if !supportFootnotes][21][endif] We
cannot therefore, countenance petitioner's
insistence that he was denied due process.
Where there was an opportunity to raise
objections to government action, and such
opportunity was disregarded, for no justifiable
reason, the party claiming oppression then
becomes the oppressor of the orderly functions of
government. He who comes to court must come
with clean hands. Otherwise, he not only taints
his name, but ridicules the very structure of
established authority.
IN VIEW WHEREOF, the Court
RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November
29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
THIRD DIVISION
G.R. Nos.
130371
&130855
Present:
YNARESSANTIA
GO, J.,
REPUBLIC OF THE
PHILIPPINES,
Petitio
ner,
- versus -
FERDINAND R. MARCOS II
and IMELDA R. MARCOS,
Respondents.
Chairperson,
CHICONAZARI
O,
VELASCO,
JR.,
NACHURA,
and
PERALTA, JJ.
Promulgated:
August 4,
2009
x-------------------------------------------------x
DECISION
PERALTA, J.:
Before this Court is a Petition for Review
13
Edralin Marcos.
SO ORDERED.[if !supportFootnotes][5]
[endif]
14
Commissioner Liwayway
Vinzons-Chato as having
been settled.
x x x x
(Emphasis and
Underscoring Supplied)
SO ORDERED.[if !supportFootnotes][9]
[endif]
15
SPECIFICALLY
REFERRING SAID
PETITION FOR A
DECISION ON THE
MERITS.
IN VIEW OF THE
FOREGOING, the instant
petition for review is
hereby DISMISSED.
II.
SO ORDERED.[if !supportFootnotes][12][endif]
III.
I.
16
DEPOSITED IN THE
SWISS BANKS.[if !
supportFootnotes][15][endif]
IV.
V.
SO ORDERED.
supportFootnotes][17][endif]
17
that (a)ppeals to the Supreme Court shall be
taken by petition for certiorari which shall be
governed by Rule 45 of the Rules of Court.
(Emphasis and Underscoring Supplied)
The pertinent portions of Section 17[if !
of the Judiciary Act of 1948
supportFootnotes][18][endif]
read:
The Supreme Court shall further have exclusive
jurisdiction to review, revise, reverse, modify or
affirm on certiorari as the law or rules of court
may provide, final judgments and decrees of
inferior courts as herein provided, in
(1) All cases in which the constitutionality or
validity of any treaty, law, ordinance, or executive
order or regulation is in question;
(2) All cases involving the legality of any tax,
impost, assessment or toll, or any penalty
imposed in relation thereto;
(3) All cases in which the jurisdiction of any
inferior court is in issue;
(4) All other cases in which only errors or
questions of law are involved: Provided, however,
That if, in addition to constitutional, tax or
jurisdictional questions, the cases mentioned in
the three next preceding paragraphs also involve
questions of fact or mixed questions of fact and
law, the aggrieved party shall appeal to the Court
of Appeals; and the final judgment or decision of
the latter may be reviewed, revised, reversed,
modified or affirmed by the Supreme Court on
writ of certiorari; and
(5) Final awards, judgments, decision or orders of
the Commission on Elections, Court of Tax
Appeals, Court of Industrial Relations, the Public
Service Commission, and the Workmens
Compensation Commission.
A reading of Supreme Court Circular 2-90,
in relation to Section 17 of the Judiciary Act of
1948, clearly shows that the subject matter of
therein petition, that is, the propriety of granting
letters testamentary to respondents, do not fall
within any ground which can be the subject of a
direct appeal to this Court. The CA was thus
correct in declaring that the issues raised by
petitioner do not fall within the purview of Section
17 of the Judiciary Act of 1948 such that the
Supreme Court should take cognizance of the
instant case.[if !supportFootnotes][19][endif]
Moreover, the Courts
pronouncement in Suarez v. Judge Villarama[if !
supportFootnotes][20][endif]
is instructive:
Section 4 of Circular No. 2-90, in effect at the
time of the antecedents, provides that an
appeal taken to either the Supreme Court or
the Court of Appeals by the wrong mode or
inappropriate mode shall be dismissed. This
rule is now incorporated in Section 5, Rule 56 of
the 1997 Rules of Civil Procedure.
Moreover, the filing of the case directly with
x x x x
18
19
Thus, no error can be attributed to the CA when
the action it deemed appropriate was to dismiss
the petition for having availed of an improper
remedy. More importantly, the action of the CA
was sanctioned under Section 4 of Supreme
Court Circular 2-90 which provides that an
appeal taken to either the Supreme Court or the
Court of Appeals by the wrong mode or
inappropriate mode shall be dismissed.
Moreover, petitioner mistakenly relies in
Oriental Media, Inc. v. Court of Appeals,[if !
supportFootnotes][26][endif]
in which this Court made the
following pronouncements:
In the case at bar, there was no urgency
or need for Oriental to resort to the
extraordinary remedy of certiorari for when it
learned of the case and the judgment against it
on July 25, 1986, due to its receipt of a copy of
the decision by default; no execution had as yet
been ordered by the trial court. As
aforementioned, Oriental had still the time and
the opportunity to file a motion for
reconsideration, as was actually done. Upon the
denial of its motion for reconsideration in the
first case, or at the latest upon the denial of
its petition for relief from judgment, Oriental
should have appealed. Oriental should have
followed the procedure set forth in the Rules of
Court for
Rules of procedure are intended to ensure the
orderly administration of justice and the
protection of substantive rights in judicial and
extrajudicial proceedings. It is a mistake to
purpose that substantive law and adjective law
are contradictory to each other or, as has often
been suggested, that enforcement of procedural
rules should never be permitted if it will result in
prejudice to the substantive rights of the litigants.
This is not exactly true; the concept is much
misunderstood. As a matter of fact, the policy of
the courts is to give effect to both kinds of law, as
complementing each other, in the just and speedy
resolution of the dispute between the parties.
Observance of both substantive rights is equally
guaranteed by due process whatever the source
of such rights, be it the Constitution itself or only
a statute or a rule of court.[if !supportFootnotes][27][endif]
[if !supportLists](a)
disallows a will;
[endif]allows or
20
concomitant of his right to dispose of his property
in the manner he wishes. It is natural that the
testator should desire to appoint one of his
confidence, one who can be trusted to carry out
his wishes in the disposal of the estate. The
curtailment of this right may be considered as a
curtailment of the right to dispose. And as the
rights granted by will take effect from the time of
death (Article 777, Civil Code of the Philippines),
the management of his estate by the
administrator of his choice should be made as
soon as practicable, when no reasonable
objection to his assumption of the trust can be
interposed any longer. It has been held that
when a will has been admitted to probate, it is
the duty of the court to issue letters
testamentary to the person named as
executor upon his application (23 C.J. 1023).
x x x x
The case of
In re Erlanger's Estate,
242 N.Y.S. 249, also
reiterates the same
principle.
The courts
have always respected
the right to which a
testator enjoys to
determine who is most
suitable to settle his
testamentary affairs, and
his solemn selection
should not lightly be
disregarded. After the
admission of a will to
probate, the courts will
not name a better
executor for the
testator nor disqualify,
by a judicial veto, the
widow or friend or
other person selected
in the will, except upon
strict proof of the
statutory grounds of
incompetency. Matter of
Leland's Will, 219 N.Y.
387, 393, 114 N.E. 854.
x x x[if !supportFootnotes][29][endif]
x x x x
21
However,
except for petitioner
Republics allegation of
want of integrity on the
part of Imelda Trinidad
Romualdez-Marcos and
Ferdinand Romualdez
Marco II, named
executors in the last will
and testament, so as to
render them
incompetent to serve as
executors, the Court
sees at this time, no
evidence on record,
oral or documentary, to
substantiate and
support the said
allegation. (Emphasis
Supplied)
executor.
On the other hand, the eight cases filed
against respondent Ferdinand Marcos II involve
four charges for violation of Section 45 (failure to
file income tax returns) and four charges for
violation of Section 50 (non-payment of
deficiency taxes) of the National Internal
Revenue Code of 1977 (NIRC).
It is a matter of record, that in CAG.R. CR No. 18569,[if !supportFootnotes][36][endif] the CA
acquitted respondent Ferdinand Marcos II of all
the four charges for violation of Section 50 and
sustained his conviction for all the four charges
for violation of Section 45. It, however, bears to
stress, that the CA only ordered respondent
Marcos II to pay a fine for his failure to file his
income tax return. Moreover, and as admitted by
petitioner,[if !supportFootnotes][37][endif] said decision is still
pending appeal.
Therefore, since respondent Ferdinand
Marcos II has appealed his conviction relating to
four violations of Section 45 of the NIRC, the
same should not serve as a basis to disqualify
him to be appointed as an executor of the will of
his father. More importantly, even assuming
arguendo that his conviction is later on affirmed,
the same is still insufficient to disqualify him as
the failure to file an income tax return is not a
crime involving moral turpitude.
In Villaber v. Commision on Elections,[if !
this Court held:
supportFootnotes][38][endif]
As to the
meaning of "moral
turpitude," we have
consistently adopted the
definition in Black's Law
Dictionary as "an act of
baseness, vileness, or
depravity in the private
duties which a man
owes his fellow men, or
to society in general,
contrary to the
accepted and
customary rule of right
and duty between man
and woman, or conduct
contrary to justice,
honesty, modesty, or
good morals."
In In re
Vinzon, the term "moral
22
turpitude" is considered
as encompassing
"everything which is done
contrary to justice,
honesty, or good morals."
x x x x
We,
however, clarified in Dela
Torre vs. Commission
on Elections that "not
every criminal act
involves moral
turpitude," and that ''as
to what crime involves
moral turpitude is for
the Supreme Court to
determine."[if !supportFootnotes]
[39][endif]
Moreover, In De Jesus-Paras v.
Vailoces:[if !supportFootnotes][40][endif]
Indeed, it is well-settled that "embezzlement,
forgery, robbery, and swindling are crimes which
denote moral turpitude and, as a general rule,
all crimes of which fraud is an element are
looked on as involving moral turpitude" (58
C.J.S., 1206).
The failure to file an income tax
return is not a crime involving moral turpitude as
the mere omission is already a violation
regardless of the fraudulent intent or willfulness of
the individual. This conclusion is supported by the
provisions of the NIRC as well as previous Court
decisions which show that with regard to the filing
of an income tax return, the NIRC considers three
distinct violations: (1) a false return, (2) a
fraudulent return with intent to evade tax, and (3)
failure to file a return.
The same is illustrated in Section 51(b) of
the NIRC which reads:
To our minds
we can dispense with
these controversial
arguments on facts,
although we do not deny
that the findings of facts
by the Court of Tax
Appeals, supported as
they are by very
substantial evidence,
carry great weight, by
resorting to a proper
interpretation of Section
332 of the NIRC. We
believe that the proper
and reasonable
interpretation of said
provision should be that
in the three different
cases of (1) false return,
(2) fraudulent return
with intent to evade tax,
(3) failure to file a
return, the tax may be
23
assessed, or a
proceeding in court for
the collection of such tax
may be begun without
assessment, at any time
within ten years after the
discovery of the (1)
falsity, (2) fraud, and (3)
omission. Our stand
that the law should be
interpreted to mean a
separation of the three
different situations of
false return, fraudulent
return with intent to
evade tax, and failure
to file a return is
strengthened
immeasurably by the
last portion of the
provision which
segregates the
situations into three
different classes,
namely, "falsity,"
"fraud" and
"omission."[if !
supportFootnotes][42][endif]
(Emphasis Supplied)
24
that one who alleges a fact has the burden of
proving it and a mere allegation is not evidence.[if !
supportFootnotes][46][endif]
Consequently, it was the burden
of petitioner (not respondents) to substantiate the
grounds upon which it claims that respondents
should be disqualified to serve as executors, and
having failed in doing so, its petition must
necessarily fail.
THIRD DIVISION
RAFAEL ARSENIO S.
DIZON, in his capacity as
the Judicial Administrator
of the Estate of the
deceased JOSE P.
FERNANDEZ,
G.R. No.
140944
Present:
YNARESSANTIAGO,
J.,
Chairperson,
AUSTRIAMARTINEZ,
CHICONAZARIO,
NACHURA,
and
REYES, JJ.
Promulgated:
April 30,
2008
x-----------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before this Court is a Petition for Review
on Certiorari[if !supportFootnotes][1][endif] under Rule 45 of
the Rules of Civil Procedure seeking the reversal
[if !supportFootnotes][4][endif]
The Facts
COMPUTATION OF TAX
Conjugal Real Property (Sch. 1)
P10,855,020.00
Conjugal Personal Property (Sch.2)
3,460,591.34
Taxable Transfer (Sch. 3)
Gross Conjugal Estate
14,315,611.34
Less: Deductions (Sch. 4)
187,822,576.06
Net Conjugal
Estate
NIL
Less: Share of Surviving Spouse
NIL
.
Net Share in Conjugal
25
Estate
xxx
Net Taxable Estate
NIL
NIL
no CPA
Certificate
.
collectible
.[if !supportFootnotes][11][endif]
300.00
Total amount due &
P66,973,985.40[if !supportFootnotes][18]
[endif]
to the Commissioner of
Internal
26
settlement of the estate (p.
126,
3.
BIR
Pleading entitled
"Compliance"
records);
"A"
4.
27
of
5.
US $4,828,905.90 as of
January 31,
of P19,756,428.31 as of
March 31,
7.
P65,158,023.54, but
recomputed
6.
28
together with the demand
letter
total amount of
P240,479,693.17
BIR
records);
"F" to "F3"
9.
8.
addressed to Fernandez
Hermanos,
Fernandez, as mortgagors, in
the
29
Company Overseas, Inc.
and/or
Jose P. Fernandez,
Defendants,"
10.
12.
30
182,
records)
BIR
records);
and
"K" to "K-
"L"
5"
14.
13.
Certification of Payment of
31
2.
Portion of Exh.
"1";
-do-
Documents/
3.
Signatures
BIR
Record
dated July 19, 1991, prepared
by
1.
the
BIR;
p. 138
32
Raymund S. Gallardo;
Reviewed by
6.
Signature of Raymund S.
4.
Signature of Alberto S.
7.
Signature of Maximino V.
5.
8.
Summary of revenue
p.
33
portion of Exh.
"3";
-do-
9.
Signature of Alberto
portion of Exh.
"3";
-do-
Signature of Maximino
portion of Exh.
"3";
-do-
10.
portion of Exh.
"3";
-dosigned by the Asst.
Commissioner
Signature of Raymond S.
of Internal Revenue,
demanding
Gallardo at the lower
34
payment of the amount of
presentation of
respondent's witness,
whose testimony was
duly recorded as part of
the records of this case.
Besides, the documents
marked as respondent's
exhibits formed part of
the BIR records of the
case.[if !supportFootnotes][24][endif]
P66,973,985.40;
and
p. 169
14.
Conjugal Personal
Prop.
33,021,999.93
Gross Conjugal
Estate
38,084,015.93
Less:
35
Deductions
26,250,000.00
============
Net Conjugal
Estate
P
11,834,015.93
Estate Tax Due P 29,935,342.97
Less: Share of Surviving
Spouse
5,917,007.96
Add: Capital/Paraphernal
No CPA
certificate
300.00
Properties P44,652,813.66
Less:
Capital/Paraphernal
Deductions
44,652,813.66
=============
Net Taxable
Estate
P
50,569,821.62
36
exclusive of 20% interest from due
date of its payment until
full payment thereof
SO ORDERED.[if !supportFootnotes][26][endif]
Aggrieved, petitioner, on March 2, 1998,
went to the CA via a petition for review.[if !
supportFootnotes][27][endif]
37
4. Whether or not the Court of Tax
Appeals and the
Court of Appeals
erred in validating
erroneous double
imputation of
values on the very
same estate
properties in the
estate tax return it
prepared and filed
which effectively
bloated the estate's
assets.[if !supportFootnotes]
[31][endif]
38
The CTA and the CA rely solely on
the case of Vda. de Oate, which reiterated this
Court's previous rulings in People v. Napat-a[if !
supportFootnotes][35][endif]
and People v. Mate[if !supportFootnotes]
[36][endif]
on the admission and consideration of
exhibits which were not formally offered during
the trial. Although in a long line of cases many of
which were decided after Vda. de Oate, we held
that courts cannot consider evidence which has
not been formally offered,[if !supportFootnotes][37][endif]
nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oate has
already been abandoned. Recently, in Ramos v.
Dizon,[if !supportFootnotes][38][endif] this Court, applying the
said doctrine, ruled that the trial court judge
therein committed no error when he admitted and
considered the respondents' exhibits in the
resolution of the case, notwithstanding the fact
that the same were not formally offered. Likewise,
in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[if !supportFootnotes]
[39][endif]
the Court made reference to said doctrine
in resolving the issues therein. Indubitably, the
doctrine laid down in Vda. De Oate still subsists
in this jurisdiction. In Vda. de Oate, we held that:
39
took the witness stand. Alberto identified these
pieces of evidence in his direct testimony.[if !
supportFootnotes][41][endif]
He was also subjected to crossexamination and re-cross examination by
petitioner.[if !supportFootnotes][42][endif] But Albertos account
and the exchanges between Alberto and
petitioner did not sufficiently describe the
contents of the said pieces of evidence presented
by the BIR. In fact, petitioner sought that the lead
examiner, one Ma. Anabella A. Abuloc, be
summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the
working papers.[if !supportFootnotes][43][endif] The lead
examiner never testified. Moreover, while
Alberto's testimony identifying the BIR's evidence
was duly recorded, the BIR documents
themselves were not incorporated in the records
of the case.
A common fact threads through Vda. de
Oate and Ramos that does not exist at all in the
instant case. In the aforementioned cases, the
exhibits were marked at the pre-trial proceedings
to warrant the pronouncement that the same
were duly incorporated in the records of the case.
Thus, we held in Ramos:
In this case, we find and so rule that these
requirements have been satisfied. The exhibits
in question were presented and marked
during the pre-trial of the case thus, they have
been incorporated into the records. Further,
Elpidio himself explained the contents of these
exhibits when he was interrogated by
respondents' counsel...
xxxx
A formal offer
is necessary because
judges are mandated to
rest their findings of facts
and their judgment only
and strictly upon the
evidence offered by the
parties at the trial. Its
function is to enable the
trial judge to know the
purpose or purposes for
which the proponent is
presenting the evidence.
On the other hand, this
allows opposing parties
to examine the evidence
and object to its
admissibility. Moreover, it
facilitates review as the
appellate court will not be
40
required to review
documents not previously
scrutinized by the trial
court.
Strict
adherence to the said
rule is not a trivial matter.
The Court in Constantino
v. Court of Appeals ruled
that the formal offer of
one's evidence is
deemed waived after
failing to submit it
within a considerable
period of time. It
explained that the court
cannot admit an offer
of evidence made after
a lapse of three (3)
months because to do
so would "condone an
inexcusable laxity if not
non-compliance with a
court order which, in
effect, would
encourage needless
delays and derail the
speedy administration
of justice."
Applying the
aforementioned principle
in this case, we find that
the trial court had
reasonable ground to
consider that petitioners
had waived their right to
make a formal offer of
documentary or object
evidence. Despite
several extensions of
time to make their formal
41
aspect of the same to
which the remission
refers. It is an essential
characteristic of
remission that it be
gratuitous, that there is
no equivalent received
for the benefit given;
once such equivalent
exists, the nature of the
act changes. It may
become dation in
payment when the
creditor receives a thing
different from that
stipulated; or novation,
when the object or
principal conditions of the
obligation should be
changed; or compromise,
when the matter
renounced is in litigation
or dispute and in
exchange of some
concession which the
creditor receives.[if !
supportFootnotes][57][endif]
42
value of the property
transferred should be
ascertained, as nearly as
possible, as of that time.
This analysis supports
broad application of the
date-of-death valuation
rule.[if !supportFootnotes][67][endif]
We express our agreement with the dateof-death valuation rule, made pursuant to the
ruling of the U.S. Supreme Court in Ithaca Trust
Co. v. United States.[if !supportFootnotes][68][endif] First.
There is no law, nor do we discern any legislative
intent in our tax laws, which disregards the dateof-death valuation principle and particularly
provides that post-death developments must be
considered in determining the net value of the
estate. It bears emphasis that tax burdens are not
to be imposed, nor presumed to be imposed,
beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi
juris against the government.[if !supportFootnotes][69][endif]
Any doubt on whether a person, article or activity
is taxable is generally resolved against taxation.[if !
supportFootnotes][70][endif]
Second. Such construction finds
relevance and consistency in our Rules on
Special Proceedings wherein the term "claims"
required to be presented against a decedent's
estate is generally construed to mean debts or
demands of a pecuniary nature which could have
been enforced against the deceased in his
lifetime, or liability contracted by the deceased
before his death.[if !supportFootnotes][71][endif] Therefore, the
claims existing at the time of death are significant
to, and should be made the basis of, the
determination of allowable deductions.
WHEREFORE, the instant Petition is
GRANTED. Accordingly, the assailed Decision
dated April 30, 1999 and the Resolution dated
November 3, 1999 of the Court of Appeals in CAG.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau of Internal Revenue's
deficiency estate tax assessment against the
Estate of Jose P. Fernandez is hereby
NULLIFIED. No costs.
SO ORDERED.
43
Tax Appeals denied petitioner's motion for
reconsideration.4
Petitioner appealed to the Court of Appeals, but,
in its decision rendered on April 14, 2000, the
appeals court affirmed the decision of the CTA.5
The appeals court subsequently denied
petitioner's motion for reconsideration.6 Hence
this petition.
The sole issue in this case is whether petitioner's
claim is barred by prescription. The resolution of
this question requires determination of when the
two-year period of prescription under 292 of the
Tax Code started to run. This provision states:
Recovery of tax erroneously or illegally collected.
No suit or proceedings shall be maintained in
any court for the recovery of any national internal
revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected
without authority, or of any sum alleged to have
been excessive or in any manner wrongfully
collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be
begun after the expiration of two years from the
date of payment of the tax or penalty regardless
of any supervening cause that may arise after
payment: Provided, however, That the
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the
face of the return upon which payment was
made, such payment appears clearly to have
been erroneously paid.
There is no dispute that FBTC ceased operations
on June 30, 1985 upon its merger with petitioner
BPI. The merger was approved by the Securities
and Exchange Commission on July 1, 1985.
Petitioner contends, however that its claim for
refund has yet prescribed because the two-year
prescriptive period commenced to run only after it
had filed FBTC's Final Adjustment Return on April
15 1986, pursuant to 46(a) of the National
Internal Revenue Code of 1977 (the law
applicable at the time of this transaction) which
provided that
Corporation returns. (a) Requirement. Every
corporation, subject to the tax herein imposed,
except foreign corporations not engaged in trade
or business in the Philippines shall render, in
duplicate, a true and accurate quarterly income
tax return and final or adjustment return in
accordance with the provisions of Chapter X of
this Title. The return shall be filed by the
president, vice-president, or other principal
officer, and shall be sworn to by such officer and
by the treasurer or assistant treasurer.
On the other hand, the Court of Tax Appeals ruled
that the prescriptive period should be counted
from July 31, 1985, 30 days after the approval by
44
Thus, respondent('s) stand that FBTC operates
on a fiscal year basis, based on its income tax
return, holds no ground. Third Court believes that
FBTC is operating on a calendar year period
based on the audited financial statements and
the opinion thereof. The fiscal period ending June
30, 1985 on the upper left corner of the income
tax return can be concluded as an error on the
part of FBTC. It should have been for the six
month period ending June 30, 1985. It should
also be emphasized that "where one corporation
succeeds another both are separate entities and
the income earned by the predecessor
corporation before organization of its successor is
not income to the successor" (Mertens, Law of
Federal Income Taxation, Vol. 7 S 38.36).
Ruling now on the issue of prescription, this Court
finds that the petition for review is filed out of
time. FBTC, after the end of its corporate life on
June 30, 1985, should have filed its income tax
return within thirty days after the cessation of its
business or thirty days after the approval of the
Articles of Merger. This is bolstered by Sec. 78 of
the tax Code and under Sec. 244 of Revenue
Regulation No. 29
As the FBTC did not file its quarterly income tax
returns for the year 1985, there was no need for it
to file a Final adjustment Return because there
was nothing for it to adjust or to audit. After it
ceased operations on June 30, 1985, its taxable
year was shortened to six months, from January
1, 1985 to June 30, 1985 The situation of FBTC
is precisely what was contemplated under 78 of
the Tax Code. It thus became necessary for
FBTC to file its income tax return within 30 days
after approval by the SEC of its plan or resolution
of dissolution. Indeed, it would be absurd for
FBTC to wait until the fifteenth day of April, or
almost 10 months after it ceased its operations,
before filing its income tax return.
Thus, 46(a) of the Tax Code applies only to
instances in which the corporation remains
subsisting and its business operations are
continuing. In instances in which the corporation
is contemplating dissolution, 78 of the Tax Code
applies. It is a rule of statutory construction that
"[w]here there is in the same statute a particular
enactment and also a general one which in its
most comprehensive sense would include what is
embraced in the former, the particular enactment
must be operative, and the general enactment
must be taken to affect only such cases within its
general language as are not within the provisions
of the particular enactment.10
Petitioner argues that to hold, as the Court of Tax
Appeals and the Court of Appeals do, that 78
applies in case a corporation contemplates
dissolution would lead to absurd results. It
contends that it is not feasible for the certified
public accountants to complete their report and
audited financial statements, which are required
to be submitted together with the plan of
45
it is contrary to 244 of Revenue Regulation No. 2,
as amended, which was issued by the Minister of
Finance pursuant to the authority to him by 78 of
the Tax Code. This provision states:
SEC. 244. Return of corporations contemplating
dissolution or retiring from business. All
corporations, partnership joint accounts and
associations, contemplating dissolution or retiring
from business without formal dissolution shall,
within 30 days after the approval of such
resolution authorizing their dissolution, and within
the same period after their retirement from
business, file their income tax returns covering
the profit earned or business done by them from
the beginning of the year up to the date of such
dissolution or retirement and pay the
corresponding income tax due thereon upon
demand by the Commissioner of Internal
Revenue
This regulation prevails over the memorandum
circular of the Acting Commissioner of Internal
Revenue, which petitioner invokes.
Thus, as required by 244 of Revenue
Regulation No. 2, any corporation contemplating
dissolution must submit tax return on the income
earned by it from the beginning of the year up to
the date of its dissolution or retirement and pay
the corresponding tax due upon demand by the
Commissioner of Internal Revenue. Nothing in
78 of the Tax Code limited the return to be filed
by the corporation concerned to a mere
information return.
It is noteworthy that 78 of the Tax Code was
substantially reproduced first in 45 (c), of the
amendments to the same tax Code, and later in
52 (C) of the National Internal Revenue Code of
1997. Through all the re-enactments of the law,
there has been no change in the authority
granted to the Secretary (formerly Minister) of
Finance to require corporations to submit such
other information as he may prescribe. Indeed,
Revenue Regulation No. 2 had been in existence
prior to these amendments. Had Congress
intended only information returns, it would have
expressly provided so.
Third. Considering that 78 of the Tax Code, in
relation to 244 of Revenue Regulation No. 2
applies to FBTC, the two-year prescriptive period
should be counted from July 30, 1985, i.e., 30
days after the approval by the SEC of its plan for
dissolution. In accordance with 292 of the Tax
Code, July 30, 1985 should be considered the
date of payment by FBTC of the taxes withheld
on the earned income. Consequently, the twoyear period of prescription ended on July 30,
1987. As petitioner's claim for tax refund before
the Court of Tax Appeals was filed only on
December 29, 1987, it is clear that the claim is
barred by prescription.
WHEREFORE, the petition is DENIED for lack of
merit.1wphi1.nt
SO ORDERED.
THIRD DIVISION
COMMISSIONER OF
INTERNAL REVENUE,
G.R. No.
178490
Petitioner,
Present:
YNARESSANTIAGO,
J.,
- versus -
BANK OF THE
PHILIPPINE ISLANDS,
Respondent.
Chairperso
n,
CHICONAZARIO,
VELASCO,
JR.,
NACHURA,
and
PERALTA,
JJ.
Promulgated:
July 7, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review assailing
the Decision[if !supportFootnotes][1][endif] dated 29 April
2005 and the Resolution dated 20 April 2007 of
the Court of Appeals in CA-G.R. SP No. 77655,
which annulled and set aside the Decision dated
12 March 2003 of the Court of Tax Appeals (CTA)
in CTA Case No. 6276, wherein the CTA held that
respondent Bank of the Philippine Islands (BPI)
already exercised the irrevocable option to carry
over its excess tax credits for the year 1998 to
the succeeding years 1999 and 2000 and was,
therefore, no longer entitled to claim the refund or
issuance of a tax credit certificate for the amount
thereof.
On 15 April 1999, BPI filed with the
Bureau of Internal Revenue (BIR) its final
adjusted Corporate Annual Income Tax Return
(ITR) for the taxable year ending on 31
December 1998, showing a taxable income of
P1,773,236,745.00 and a total tax due of
P602,900,493.00.
46
47
(Exhibit J). Still unable to
apply its prior years
excess credits in 1999 as
it ended up in a net loss
position, petitioner again
carried over the said
excess credits in the year
2000 (Exhibit K).
The court
already categorically
ruled in a number of
cases that once the
option to carry-over and
apply the excess
quarterly income tax
against the income tax
due for the taxable
quarters of the
succeeding taxable years
has been made, such
option shall be
considered irrevocable
and no application for
cash refund or issuance
of a tax credit certificate
shall be allowed
therefore (Pilipinas
Transport Industries vs.
Commissioner of Internal
Revenue, CTA Case No.
6073, dated March 1,
2002; Pilipinas Hino, Inc.
vs. Commissioner of
Internal Revenue, CTA
Case No. 6074, dated
April 19, 2002; Philam
Asset Management, Inc.
vs. Commissioner of
Internal Revenue, CTA
Case No. 6210, dated
May 2, 2002; The
Philippine Banking
Corporation (now known
as Global Business
Bank, Inc.) vs.
Commissioner of Internal
Revenue, CTA
Resolution, CTA Case
No. 6280, August 16,
2001. Since [BPI]
already exercised the
irrevocable option to
carry over its excess tax
credits for the year 1998
to the succeeding years
1999 and 2000, it is,
therefore, no longer
IN VIEW OF
ALL THE FOREGOING,
the instant petition for
review is hereby DENIED
for lack of merit.[if !
supportFootnotes][5][endif]
48
enriched should the appellate court hold that the
irrevocability rule barred the claim for refund of a
taxpayer, who previously opted to carry-over its
excess tax credit, but was not able to use the
same because it suffered a net loss in the
succeeding year.
Finally, the appellate court cited BPIFamily Savings Bank, Inc. v. Court of Appeals[if !
supportFootnotes][6][endif]
wherein this Court held that if a
taxpayer suffered a net loss in a year, thus,
incurring no tax liability to which the tax credit
from the previous year could be applied, there
was no reason for the BIR to withhold the tax
refund which rightfully belonged to the taxpayer.[if !
ENTITLED TO THE
CLAIMED TAX REFUND.
supportFootnotes][7][endif]
II
In BPI-Family, therein petitioner BPIFamily declared in its Corporate Annual ITR for
1989 excess tax credits of P185,001.00 from
1988 and P112,491.00 from 1989, totaling
P297,492.00. BPI-Family clearly indicated in the
same ITR that it was carrying over said excess
tax credits to the following year. But on 11
October 1990, BPI-Family filed a claim for refund
of its P112,491.00 tax credit from 1989. When
no action from the BIR was forthcoming, BPIFamily filed its claim with the CTA. The CTA
denied the claim for refund of BPI-Family on the
ground that, since the bank declared in its 1989
ITR that it would carry over its tax credits to the
following year, it should be presumed to have
done so. In its Motion for Reconsideration filed
with the CTA, BPI-Family submitted its final
adjusted ITR for 1989 showing that it incurred
P52,480,173.00 net loss in 1990. Still, the CTA
denied the Motion for Reconsideration of BPIFamily. The Court of Appeals likewise denied the
appeal of BPI-Family and merely affirmed the
judgment of the CTA. The Court, however,
reversed the CTA and the Court of Appeals.
This Court decided to grant the claim
for refund of BPI-Family after finding that the
bank had presented sufficient evidence to prove
that it incurred a net loss in 1990 and, thus, had
no tax liability to which its tax credit from 1989
could be applied. The Court stressed in BPI
Family that the undisputed fact is that [BPIFamily] 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 [BPIFamily]. It was on the basis of this fact that the
Court granted the appeal of BPI-Family, brushing
aside all procedural and technical objections to
the same through the following pronouncements:
Finally,
respondents argue that
tax refunds are in the
nature of tax exemptions
49
and are to be construed
strictissimi juris against
the claimant. Under the
facts of this case, we
hold that [BPI-Family]
has established its
claim. [BPI-Family] may
have failed to strictly
comply with the rules of
procedure; it may have
even been negligent.
These circumstances,
however, should not
compel the Court to
disregard this cold,
undisputed fact: that
petitioner suffered a net
loss in 1990, and that it
could not have applied
the amount claimed as
tax credits.
(a)
Pay
the excess tax still due; or
Substantial
justice, equity and fair
play are on the side of
[BPI-Family].
Technicalities and
legalisms, however
exalted, should not be
misused by the
government to keep
money not belonging to it
and thereby enrich itself
at the expense of its lawabiding citizens. If the
State expects its
taxpayers to observe
fairness and honesty in
paying their taxes, so
must it apply the same
standard against itself in
refunding excess
payments of such taxes.
Indeed, the State must
lead by its own example
of honor, dignity and
uprightness.[if !supportFootnotes]
[9][endif]
(b)
Be
refunded the excess
amount paid, as the case
may be.
In case the
corporation is entitled to a
refund of the excess
estimated quarterly
income taxes-paid, the
refundable amount shown
on its final adjustment
return may be credited
against the estimated
quarterly income tax
liabilities for the taxable
quarters of the succeeding
taxable year. (Emphases
ours.)
50
By virtue of the afore-quoted
provision, the taxpayer with excess income tax
was given the option to either (1) refund the
amount; or (2) credit the same to its tax liability
for succeeding taxable periods.
Section 79 of the NIRC of 1985 was
reproduced as Section 76 of the NIRC of 1997,[if !
supportFootnotes][11][endif]
with the addition of one
important sentence, which laid down the
irrevocability rule:
Section 76.
Final Adjustment Return.
- Every corporation liable
to tax under Section 24
shall file a final
adjustment return
covering the total net
income for the preceding
calendar or fiscal year. If
the sum of the quarterly
tax payments made
during the said taxable
year is not equal to the
total tax due on the entire
taxable net income of
that year the corporation
shall either:
(b) Be
refunded the excess
amount paid, as the case
may be.
In case the
corporation is entitled to
a refund of the excess
estimated quarterly
income taxes paid, the
refundable amount
shown on its final
adjustment return may be
credited against the
estimated quarterly
income tax liabilities for
the taxable quarters of
the succeeding taxable
years. Once the option
to carry-over and apply
the excess quarterly
income tax against
income tax due for the
taxable quarters of the
succeeding taxable
years has been made,
such option shall be
considered irrevocable
for that taxable period
and no application for
tax refund or issuance
of a tax credit
certificate shall be
allowed therefor.
(Emphases ours.)
51
The second
option works by applying
the refundable amount, as
shown on the [Final
Adjustment Return (FAR)]
of a given taxable year,
against the estimated
quarterly income tax
liabilities of the succeeding
taxable year.
52
over, may be repeatedly carried over to
succeeding taxable years, i.e., to 1999, 2000,
2001, and so on and so forth, until actually
applied or credited to a tax liability of BPI.
Finally, while the Court, in Philam,
was firm in its position that the choice of option as
regards the excess income tax shall be
irrevocable, it was less rigid in the determination
of which option the taxpayer actually chose. It
did not limit itself to the indication by the taxpayer
of its option in the ITR.
Thus, failure of the taxpayer to make
an appropriate marking of its option in the ITR
does not automatically mean that the taxpayer
has opted for a tax credit. The Court ratiocinated
in G.R. No. 156637[if !supportFootnotes][15][endif] of Philam:
One cannot
get a tax refund and a tax
credit at the same time
for the same excess
income taxes paid.
Failure to signify ones
intention in the FAR
does not mean outright
barring of a valid
request for a refund,
should one still choose
this option later on. A
tax credit should be
construed merely as an
alternative remedy to a
tax refund under Section
76, subject to prior
verification and approval
by respondent.
x x x Despite
the failure of [Philam] to
53
in 1999 and incurred zero tax liability in 2000. In
G.R. No. 162004 of Philam, the Court found:
First, the fact
that it filled out the
portion Prior Years
Excess Credits in its
1999 FAR means that it
categorically availed itself
of the carry-over option.
In fact, the line that
precedes that phrase in
the BIR form clearly
states Less: Tax
Credits/Payments. The
contention that it merely
filled out that portion
because it was a
requirement and that to
have done otherwise
would have been
tantamount to falsifying
the FAR is a long shot.
The FAR is
the most reliable
firsthand evidence of
corporate acts pertaining
to income taxes. In it are
found the itemization and
summary of additions to
and deductions from
income taxes due.
These entries are not
without rhyme or reason.
They are required,
because they facilitate
the tax administration
process.[if !supportFootnotes][18]
FIRST DIVISION
COMMISSIONER OF
No. 149671
INTERNAL REVENUE,
Petitioner,
Present:
G.R.
[endif]
Chairman,
- versus Ynares-Santiago,
Austria-Martinez,
BPI itself never denied that its
original intention was to carry over the excess
income tax credit it acquired in 1998, and only
chose to refund the said amount when it was
unable to apply the same to any tax liability in the
succeeding taxable years. There can be no
doubt that BPI opted to carry over its excess
income tax credit from 1998; it only subsequently
changed its mind which it was barred from
doing by the irrevocability rule.
Callejo, Sr.,
and
Chico-Nazario, JJ
SEKISUI JUSHI
Promulgated:
PHILIPPINES, INC.,
Respondent.
July 21, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
54
-- -- -- -- -- -- x
DECISION
PANGANIBAN, CJ:
B
usiness enterprises registered with the Philippine
Export Zone Authority (PEZA) may choose
between two fiscal incentive schemes: (1) to pay
a five percent preferential tax rate on its gross
income and thus be exempt from all other taxes;
or (b) to enjoy an income tax holiday, in which
case it is not exempt from applicable national
revenue taxes including the value-added tax
(VAT). The present respondent, which availed
itself of the second tax incentive scheme, has
proven that all its transactions were export sales.
Hence, they should be VAT zero-rated.
supportFootnotes][5][endif]
The Facts
The uncontested[if !supportFootnotes][6][endif]
facts are narrated by the CA as follows:
The Case
Before us is a Petition for Review[if !
under Rule 45 of the Rules of
Court, challenging the August 16, 2001
Decision[if !supportFootnotes][2][endif] of the Court of Appeals
(CA) in CA-GR SP No. 64679. The assailed
Decision upheld the April 26, 2001 Decision[if !
supportFootnotes][3][endif]
of the Court of Tax Appeals (CTA)
in CTA Case No. 5751. The CA Decision
disposed as follows:
supportFootnotes][1][endif]
WHEREFO
RE, premises
considered, the present
petition for review is
hereby DENIED DUE
COURSE and
accordingly DISMISSED
for lack of merit. The
Decision dated April 26,
2001 of the Court of Tax
Appeals in CTA Case No.
5751 is hereby
AFFIRMED and
UPHELD.[if !supportFootnotes][4]
[endif]
Respondent
is a domestic corporation
duly organized and
existing under and by
virtue of the laws of the
Philippines with principal
office located at the
Special Export
Processing Zone,
Laguna Technopark,
Bian, Laguna. It is
principally engaged in the
business of
manufacturing, importing,
exporting, buying, selling,
or otherwise dealing in,
at wholesale such goods
as strapping bands and
other packaging
materials and goods of
similar nature, and any
and all equipment,
materials, supplies used
or employed in or related
to the manufacture of
such finished products.
Having
registered with the
Bureau of Internal
Revenue (BIR) as a
55
value-added tax (VAT)
taxpayer, respondent
filed its quarterly returns
with the BIR, for the
period January 1 to June
30, 1997, reflecting
therein input taxes in the
amount of P4,631,132.70
paid by it in connection
with its domestic
purchase of capital
goods and services.
Said input taxes
remained unutilized since
respondent has not
engaged in any business
activity or transaction for
which it may be liable for
output tax and for which
said input taxes may be
credited.
On
November 11, 1998,
respondent filed with the
One-Stop-Shop InterAgency Tax Credit and
Duty Drawback Center of
the Department of
Finance (CENTER-DOF)
two (2) separate
applications for tax
credit/refund of VAT input
taxes paid for the period
January 1 to March 31,
1997 and April 1 to June
30, 1997, respectively.
There being no action on
its application for tax
credit/refund under
Section 112 (B) of the
1997 National Internal
Revenue Code (Tax
Code), as amended,
private respondent filed,
within the two (2)-year
prescriptive period under
Section 229 of said
Code, a petition for
review with the Court of
Tax Appeals on March
26, 1999.
Petitioner
56
Ruling of the Court of Appeals
an [e]cozone [e]xport
[e]nterprise, its business
is not subject to VAT
pursuant to Section 24 of
Republic Act No. 7916 in
relation to Section 103
(now Sec. 109) of the Tax
Code, as amended by
R.A. 7716.
II.
III.
The Issue
Petitioner raises this sole issue for
our consideration:
Whether or
not respondent is entitled
to the refund or issuance
of tax credit certificate in
the amount of
P4,377,102.26 as alleged
unutilized input taxes
paid on domestic
purchase of capital
goods and services for
the period covering
January 1 to June 30,
1997.[if !supportFootnotes][13][endif]
supportFootnotes][14][endif]
Sole Issue:
Entitlement to Refund
57
Technology (Philippines).[if !supportFootnotes][17][endif]
An entity registered with the PEZA as
an ecozone[if !supportFootnotes][18][endif] may be covered by
the VAT system. Section 23 of Republic Act
7916, as amended, gives a PEZA-registered
enterprise the option to choose between two
fiscal incentives: a) a five percent preferential tax
rate on its gross income under the said law; or b)
an income tax holiday provided under Executive
Order No. 226 or the Omnibus Investment Code
of 1987, as amended. If the entity avails itself of
the five percent preferential tax rate under the
first scheme, it is exempt from all taxes, including
the VAT;[if !supportFootnotes][19][endif] under the second, it is
exempt from income taxes for a number of years,
[if !supportFootnotes][20][endif]
but not from other national
internal revenue taxes like the VAT.[if !supportFootnotes][21]
[endif]
SO ORDERED.
The CA and CTA found that
respondent had availed itself of the fiscal
incentive of an income tax holiday under
Executive Order No. 226. This Court respects
that factual finding. Absent a sufficient showing
of error, findings of the CTA as affirmed by the CA
are deemed conclusive.[if !supportFootnotes][22][endif]
Moreover, a perusal of the pleadings and
supporting documents before us indicates that
when it registered as a VAT-entity -- a fact
admitted by the parties -- respondent intended to
avail itself of the income tax holiday.[if !supportFootnotes]
[23][endif]
Verily, being a question of fact, the type of
fiscal incentive chosen cannot be a subject of this
Petition, which should raise only questions of law.
SECOND DIVISION
COMMISSIONER
OF INTERNAL
REVENUE,
Petitioner,
- versus -
SONY
PHILIPPINES,
Promulgated:
INC.,
November 17, 2010
Respondent.
X
--------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
This petition for review on certiorari
seeks to set aside the May 17, 2007 Decision
and the July 5, 2007 Resolution of the Court of
Tax Appeals En Banc[if !supportFootnotes][1][endif] (CTAEB), in C.T.A. EB No. 90, affirming the October
26, 2004 Decision of the CTA-First Division[if !
supportFootnotes][2][endif]
which, in turn, partially granted
the petition for review of respondent Sony
Philippines, Inc. (Sony). The CTA-First Division
58
decision cancelled the deficiency assessment
issued by petitioner Commissioner of Internal
Revenue (CIR) against Sony for Value Added Tax
(VAT) but upheld the deficiency assessment for
expanded withholding tax (EWT) in the amount of
P1,035,879.70 and the penalties for late
remittance of internal revenue taxes in the
amount of P1,269, 593.90.[if !supportFootnotes][3][endif]
Surcharge
Interest up to 3-31-2000
Compromise
Penalties Due
THE FACTS:
GRAND TOTAL
Compromise
supportFootnotes][7][endif]
59
because the subsidized advertising expense paid
by Sony which was duly covered by a VAT
invoice resulted in an input VAT credit. As regards
the EWT, the CTA-First Division maintained the
deficiency EWT assessment on Sonys motor
vehicles and on professional fees paid to general
professional partnerships. It also assessed the
amounts paid to sales agents as commissions
with five percent (5%) EWT pursuant to Section
1(g) of Revenue Regulations No. 6-85. The CTAFirst Division, however, disallowed the EWT
assessment on rental expense since it found that
the total rental deposit of P10,523,821.99 was
incurred from January to March 1998 which was
again beyond the coverage of LOA 19734.
Except for the compromise penalties, the CTAFirst Division also upheld the penalties for the
late payment of VAT on royalties, for late
remittance of final withholding tax on royalty as of
December 1997 and for the late remittance of
EWT by some of Sonys branches.[if !supportFootnotes][8]
[endif]
In sum, the CTA-First Division partly granted
Sonys petition by cancelling the deficiency VAT
assessment but upheld a modified deficiency
EWT assessment as well as the penalties. Thus,
the dispositive portion reads:
WHEREFOR
E, the petition for review
is hereby PARTIALLY
GRANTED. Respondent
is ORDERED to
CANCEL and
WITHDRAW the
deficiency assessment
for value-added tax for
1997 for lack of merit.
However, the deficiency
assessments for
expanded withholding tax
and penalties for late
remittance of internal
revenue taxes are
UPHELD.
Accordingly,
petitioner is DIRECTED
to PAY the respondent
the deficiency expanded
withholding tax in the
amount of P1,035,879.70
and the following
penalties for late
remittance of internal
revenue taxes in the sum
of P1,269,593.90:
[if !supportLists]1.
Royalty
[if !supportLists]2.
Royalty
[if !supportLists]3.
Branches
Total
[endif]VAT on
P
429,242.07
[endif]Withholding Tax on
831,428.20
[endif]EWT of Petitioners
8,923.63
1,269,593.90
SO
ORDERED.[if !supportFootnotes][9]
[endif]
60
WITHHOLDING TAX IN
THE AMOUNT OF
PHP1,992,462.72:
[if !supportLists]1.
[endif]Whether or not
respondent (Sony) is liable for the deficiency VAT
in the amount of P11,141,014.41;
[if !supportLists]2.
[endif]Whether or not the
commission expense in the amount of
P2,894,797.00 should be subjected to 10%
withholding tax instead of the 5% tax rate;
[if !supportLists]3.
[endif]Whether or not the
withholding assessment with respect to the 5%
withholding tax on rental deposit in the amount of
P10,523,821.99 is proper; and
[if !supportLists]4. [endif]Whether or not the
remittance of final withholding tax on royalties
covering the period January to March 1998 was
filed outside of time.[if !supportFootnotes][11][endif]
Finding no cogent reason to reverse
the decision of the CTA-First Division, the CTAEB dismissed CIRs petition on May 17, 2007.
CIRs motion for reconsideration was denied by
the CTA-EB on July 5, 2007.
I
THE CTA EN
BANC ERRED IN
RULING THAT
RESPONDENT IS NOT
LIABLE FOR
DEFICIENCY VAT IN
THE AMOUNT OF
PHP11,141,014.41.
supportFootnotes][12][endif]
II
AS TO
RESPONDENTS
DEFICIENCY
EXPANDED
61
enables said revenue officer to examine the
books of account and other accounting records of
a taxpayer for the purpose of collecting the
correct amount of tax.[if !supportFootnotes][15][endif] The
very provision of the Tax Code that the CIR relies
on is unequivocal with regard to its power to grant
authority to examine and assess a taxpayer.
SEC. 6.
Power of the
Commissioner to Make
Assessments and
Prescribe Additional
Requirements for Tax
Administration and
Enforcement.
(A)Examinati
on of Returns and
Determination of tax Due.
After a return has been
filed as required under
the provisions of this
Code, the Commissioner
or his duly authorized
representative may
authorize the
examination of any
taxpayer and the
assessment of the
correct amount of tax:
Provided, however, That
failure to file a return
shall not prevent the
Commissioner from
authorizing the
examination of any
taxpayer. x x x
[Emphases supplied]
62
disallowance of the input VAT credits that should
have been realized from the advertising expense
of the latter.[if !supportFootnotes][18][endif] It is evident under
Section 110[if !supportFootnotes][19][endif] of the 1997 Tax
Code that an advertising expense duly covered
by a VAT invoice is a legitimate business
expense. This is confirmed by no less than CIRs
own witness, Revenue Officer Antonio Aluquin.[if !
supportFootnotes][20][endif]
There is also no denying that
Sony incurred advertising expense. Aluquin
testified that advertising companies issued
invoices in the name of Sony and the latter paid
for the same.[if !supportFootnotes][21][endif] Indubitably, Sony
incurred and paid for advertising expense/
services. Where the money came from is another
matter all together but will definitely not change
said fact.
The CIR further argues that Sony
itself admitted that the reimbursement from SIS
was income and, thus, taxable. In support of this,
the CIR cited a portion of Sonys protest filed
before it:
The fact that
due to adverse economic
conditions, SonySingapore has granted to
our client a subsidy
equivalent to the latters
advertising expenses will
not affect the validity of
the input taxes from such
expenses. Thus, at the
most, this is an additional
income of our client
subject to income tax.
We submit further that
our client is not subject to
VAT on the subsidy
income as this was not
derived from the sale of
goods or services.[if !
supportFootnotes][22][endif]
63
Regarding the deficiency EWT
assessment, more particularly Sonys
commission expense, the CIR insists that said
deficiency EWT assessment is subject to the ten
percent (10%) rate instead of the five percent
(5%) citing Revenue Regulation No. 2-98 dated
April 17, 1998.[if !supportFootnotes][24][endif] The said
revenue regulation provides that the 10% rate is
applied when the recipient of the commission
income is a natural person. According to the CIR,
Sonys schedule of Selling, General and
Administrative expenses shows the commission
expense as commission/dealer salesman
incentive, emphasizing the word salesman.
On the other hand, the application of
the five percent (5%) rate by the CTA-First
Division is based on Section 1(g) of Revenue
Regulations
No. 6-85 which provides:
(g) Amounts
paid to certain Brokers
and Agents. On gross
payments to customs,
insurance, real estate
and commercial brokers
and agents of
professional entertainers
five per centum (5%).[if !
supportFootnotes][25][endif]
by petitioner, such
expense is composed of
Commission Expense
in the amount of
P10,200.00 and Broker
Dealer of P2,894,797.00.
[if !supportFootnotes][26][endif]
64
65
10% on the value of the vessels."3 On 3 June
1988, private respondent Magsaysay Lines, Inc.
(Magsaysay Lines) offered to buy the shares and
the vessels for P168,000,000.00. The bid was
made by Magsaysay Lines, purportedly for a new
company still to be formed composed of itself,
Baliwag Navigation, Inc., and FIM Limited of the
Marden Group based in Hongkong (collectively,
private respondents).4 The bid was approved by
the Committee on Privatization, and a Notice of
Award dated 1 July 1988 was issued to
Magsaysay Lines.
On 28 September 1988, the implementing
Contract of Sale was executed between NDC, on
one hand, and Magsaysay Lines, Baliwag
Navigation, and FIM Limited, on the other.
Paragraph 11.02 of the contract stipulated that
"[v]alue-added tax, if any, shall be for the account
of the PURCHASER."5 Per arrangement, an
irrevocable confirmed Letter of Credit previously
filed as bidders bond was accepted by NDC as
security for the payment of VAT, if any. By this
time, a formal request for a ruling on whether or
not the sale of the vessels was subject to VAT
had already been filed with the Bureau of Internal
Revenue (BIR) by the law firm of Sycip Salazar
Hernandez & Gatmaitan, presumably in behalf of
private respondents. Thus, the parties agreed
that should no favorable ruling be received from
the BIR, NDC was authorized to draw on the
Letter of Credit upon written demand the amount
needed for the payment of the VAT on the
stipulated due date, 20 December 1988.6
In January of 1989, private respondents through
counsel received VAT Ruling No. 568-88 dated
14 December 1988 from the BIR, holding that the
sale of the vessels was subject to the 10% VAT.
The ruling cited the fact that NDC was a VATregistered enterprise, and thus its "transactions
incident to its normal VAT registered activity of
leasing out personal property including sale of its
own assets that are movable, tangible objects
which are appropriable or transferable are subject
to the 10% [VAT]."7
Private respondents moved for the
reconsideration of VAT Ruling No. 568-88, as well
as VAT Ruling No. 395-88 (dated 18 August
1988), which made a similar ruling on the sale of
the same vessels in response to an inquiry from
the Chairman of the Senate Blue Ribbon
Committee. Their motion was denied when the
BIR issued VAT Ruling Nos. 007-89 dated 24
February 1989, reiterating the earlier VAT rulings.
At this point, NDC drew on the Letter of Credit to
pay for the VAT, and the amount of
P15,120,000.00 in taxes was paid on 16 March
1989.
On 10 April 1989, private respondents filed an
Appeal and Petition for Refund with the CTA,
followed by a Supplemental Petition for Review
on 14 July 1989. They prayed for the reversal of
VAT Rulings No. 395-88, 568-88 and 007-89, as
66
No. 5-87 must be a consequence of the
"retirement from or cessation of business" by the
owner of the goods, as provided for in Section
100 of the Tax Code. The Court of Appeals also
agreed with the CTA that the classification of
transactions "deemed sale" was a classification
statute, and not an exemption statute, thus
warranting the resolution of any doubt in favor of
the taxpayer.14
To the mind of the Court, the arguments raised in
the present petition have already been
adequately discussed and refuted in the rulings
assailed before us. Evidently, the petition should
be denied. Yet the Court finds that Section 99 of
the Tax Code is sufficient reason for upholding
the refund of VAT payments, and the subsequent
disquisitions by the lower courts on the
applicability of Section 100 of the Tax Code and
Section 4 of R.R. No. 5-87 are ultimately
irrelevant.
A brief reiteration of the basic principles
governing VAT is in order. VAT is ultimately a tax
on consumption, even though it is assessed on
many levels of transactions on the basis of a
fixed percentage.15 It is the end user of consumer
goods or services which ultimately shoulders the
tax, as the liability therefrom is passed on to the
end users by the providers of these goods or
services16 who in turn may credit their own VAT
liability (or input VAT) from the VAT payments
they receive from the final consumer (or output
VAT).17 The final purchase by the end consumer
represents the final link in a production chain that
itself involves several transactions and several
acts of consumption. The VAT system assures
fiscal adequacy through the collection of taxes on
every level of consumption,18 yet assuages the
manufacturers or providers of goods and services
by enabling them to pass on their respective VAT
liabilities to the next link of the chain until finally
the end consumer shoulders the entire tax
liability.
Yet VAT is not a singular-minded tax on every
transactional level. Its assessment bears direct
relevance to the taxpayers role or link in the
production chain. Hence, as affirmed by Section
99 of the Tax Code and its subsequent
incarnations,19 the tax is levied only on the sale,
barter or exchange of goods or services by
persons who engage in such activities, in the
course of trade or business. These
transactions outside the course of trade or
business may invariably contribute to the
production chain, but they do so only as a matter
of accident or incident. As the sales of goods or
services do not occur within the course of trade
or business, the providers of such goods or
services would hardly, if at all, have the
opportunity to appropriately credit any VAT
liability as against their own accumulated VAT
collections since the accumulation of output VAT
arises in the first place only through the ordinary
67
It would have been a different matter if Section
100 purported to define the phrase "in the course
of trade or business" as expressed in Section 99.
If that were so, reference to Section 100 would
have been necessary as a means of ascertaining
whether the sale of the vessels was "in the
course of trade or business," and thus subject to
VAT. But that is not the case. What Section 100
and Section 4(E)(i) of R.R. No. 5-87 elaborate on
is not the meaning of "in the course of trade or
business," but instead the identification of the
transactions which may be deemed as sale. It
would become necessary to ascertain whether
under those two provisions the transaction may
be deemed a sale, only if it is settled that the
transaction occurred in the course of trade or
business in the first place. If the transaction
transpired outside the course of trade or
business, it would be irrelevant for the purpose of
determining VAT liability whether the transaction
may be deemed sale, since it anyway is not
subject to VAT.
Accordingly, the Court rules that given the
undisputed finding that the transaction in question
was not made in the course of trade or business
of the seller, NDC that is, the sale is not subject
to VAT pursuant to Section 99 of the Tax Code,
no matter how the said sale may hew to those
transactions deemed sale as defined under
Section 100.
In any event, even if Section 100 or Section 4 of
R.R. No. 5-87 were to find application in this
case, the Court finds the discussions offered on
this point by the CTA and the Court of Appeals (in
its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as
among the transactions deemed sale those
involving "change of ownership of business."
However, Section 4(E) of R.R. No. 5-87,
reflecting Section 100 of the Tax Code, clarifies
that such "change of ownership" is only an
attending circumstance to "retirement from or
cessation of business[, ] with respect to all goods
on hand [as] of the date of such retirement or
cessation."25 Indeed, Section 4(E) of R.R. No. 587 expressly characterizes the "change of
ownership of business" as only a "circumstance"
that attends those transactions "deemed sale,"
which are otherwise stated in the same section.26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
L
HOLDING
S, INC.
PHILIPPIN
E
BRANCH,
Presen
t:
CARPI
O, J.,
Chairp
erson,
NACH
URA,
PERAL
TA,
ABAD,
and
MEND
OZA,
JJ.
COMMISS
IONER OF
INTERNA
L
REVENUE
,
[if !
suppor
tLineBr
eakNe
wLine]
[endif]
Promul
gated:
Petitioner,
- versus
Respon
dent.
if
]
Januar
y 19,
2011
x
--------------------------------------------------------------------------------------- x
DECISION
MENDOZA, J.:
This is a petition for review on
certiorari under Rule 45 filed
by petitioner
Exxonmobil Petroleum and Chemical Holdings,
Inc. - Philippine Branch (Exxon) to set aside the
September 7, 2007 Decision[if !supportFootnotes][1][endif]
of the Court of Tax Appeals En Banc (CTA-En
Banc) in CTA E.B. No. 204,
and its
November 27, 2007 Resolution[if !supportFootnotes][2][endif]
denying petitioners motion for reconsideration.
THE FACTS
SECOND DIVISION
EXXONM
OBIL
PETROLE
UM AND
CHEMICA
G.R.
No.
18090
9
[if !
suppo
rtMisa
ligned
Rows]
[
e
n
d
68
[if !supportFootnotes][9][endif]
supportFootnotes][12][endif]
69
taxpayer, pursuant to Section 204(C) of the
NIRC.[if !supportFootnotes][31][endif] As categorically ruled in
the Cebu Portland Cement[if !supportFootnotes][32][endif] and
Contex[if !supportFootnotes][33][endif] cases, in the case of
indirect taxes, it is the manufacturer of the goods
who is entitled to claim any refund thereof.[if !
supportFootnotes][34][endif]
Therefore, it follows that the
indirect taxes paid by the manufacturers or
producers of the goods cannot be refunded to the
purchasers of the goods because the purchasers
are not the taxpayers.[if !supportFootnotes][35][endif]
The CTA also emphasized that tax refunds
are in the nature of tax exemptions and are, thus,
regarded as in derogation of sovereign authority
and construed strictissimi juris against the person
or entity claiming the exemption.[if !supportFootnotes][36]
II.
[endif]
I. On respondents motion to
resolve first the issue of whether
or not the petitioner is the
proper party that may ask for a
refund.
For a logical resolution of the issues,
the court will tackle first the issue of whether or
not the CTA erred in granting respondents
Motion to Resolve First the Issue of Whether or
Not the Petitioner is the Proper Party that may
Ask for a Refund.[if !supportFootnotes][39][endif] In said
motion, the CIR prayed that the CTA First
Division resolve ahead of the other stipulated
issues the sole issue of whether petitioner was
the proper party to ask for a refund.[if !supportFootnotes]
[40][endif]
70
Exxon opines that the CIRs motion is
essentially a motion to dismiss filed out of time,[if !
supportFootnotes][41][endif]
as it was filed after petitioner
began presenting evidence[if !supportFootnotes][42][endif]
more than a year after the filing of the Answer.[if !
supportFootnotes][43][endif]
By praying that Exxon be
declared as not the proper party to ask for a
refund, the CIR asked for the dismissal of the
petition, as the grant of the Motion to Resolve
would bring trial to a close.[if !supportFootnotes][44][endif]
Moreover, Exxon states that the
motion should have also complied with the threeday notice and ten-day hearing rules provided in
Rule 15 of the Rules of Court.[if !supportFootnotes][45][endif]
Since the CIR failed to set its motion for any
hearing before the filing of the Answer, the motion
should have been considered a mere scrap of
paper.[if !supportFootnotes][46][endif]
Finally, citing Maruhom v.
Commission on Elections and Dimaporo,[if !
supportFootnotes][47][endif]
Exxon argues that a defendant
who desires a preliminary hearing on special and
affirmative defenses must file a motion to that
effect at the time of filing of his answer.[if !
supportFootnotes][48][endif]
supportFootnotes][53][endif]
71
hearing on a simple issue of fact that could have
possibly settled the entire case. Verily, where a
preliminary hearing appears to suffice, there is no
reason to go on to trial. One reason why dockets
of trial courts are clogged is the unreasonable
refusal to use a process or procedure, like a
motion to dismiss, which is designed to
abbreviate the resolution of a case.[if !supportFootnotes][59]
[endif]
(Underscoring supplied.)
72
Excise taxes are imposed under Title VI of
the NIRC. They apply to specific goods
manufactured or produced in the Philippines for
domestic sale or consumption or for any other
disposition, and to those that are imported.[if !
supportFootnotes][71][endif]
In effect, these taxes are
imposed when two conditions concur: first, that
the articles subject to tax belong to any of the
categories of goods enumerated in Title VI of the
NIRC; and second, that said articles are for
domestic sale or consumption, excluding those
that are actually exported.[if !supportFootnotes][72][endif]
(c) Entities
which are by law exempt
from direct and indirect
taxes. (Underscoring
supplied.)
supportFootnotes][73][endif]
73
As petitioner is not the statutory taxpayer, it is not
entitled to claim a refund of excise taxes paid.
The question we are faced with now is, if
the party statutorily liable for the tax is different
from the party who bears the burden of such tax,
who is entitled to claim a refund of the tax paid?
Sections 129 and 130 of the NIRC provide:
SEC. 129. Goods subject to Excise Taxes. Excise taxes apply to goods manufactured or
produced in the Philippines for domestic sales or
consumption or for any other disposition and to
things imported. The excise tax imposed herein
shall be in addition to the value-added tax
imposed under Title IV.
For purposes
of this Title, excise taxes
herein imposed and
based on weight or
volume capacity or any
other physical unit of
measurement shall be
referred to as 'specific
tax' and an excise tax
herein imposed and
based on selling price or
other specified value of
the good shall be
referred to as 'ad
valorem tax.'
Should
domestic products be
removed from the place
of production without the
payment of the tax, the
owner or person having
possession thereof shall
be liable for the tax due
thereon.
74
supportFootnotes][79][endif]
The proper
party to question, or
seek a refund of, an
indirect tax is the
statutory taxpayer, the
person on whom the
tax is imposed by law
and who paid the
same even if he shifts
the burden thereof to
another. Section 130
(A) (2) of the NIRC
provides that "[u]nless
otherwise specifically
allowed, the return shall
be filed and the excise
tax paid by the
manufacturer or
producer before removal
75
of domestic products
from place of
production." Thus,
Petron Corporation, not
Silkair, is the statutory
taxpayer which is
entitled to claim a refund
based on Section 135 of
the NIRC of 1997 and
Article 4(2) of the Air
Transport Agreement
between RP and
Singapore.
Even if
Petron Corporation
passed on to Silkair
the burden of the tax,
the additional amount
billed to Silkair for jet
fuel is not a tax but
part of the price which
Silkair had to pay as a
purchaser.[if !supportFootnotes]
[86][endif]
(Emphasis and
underscoring supplied.)
xxx
xxx
xxx
[if !supportLists](C)
[endif]Credit or
refund taxes erroneously or illegally received
or penalties imposed without authority, refund the
value of internal revenue stamps when they are
returned in good condition by the purchaser, and,
in his discretion, redeem or change unused
stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or
refund within two (2) years after the payment of
the tax or penalty: Provided, however, That a
return showing an overpayment shall be
considered as a written claim for credit or refund.
xxx
xxx
xxx
76
producers are exempt from excise taxes, the First
Division of this Court sanctioned a unilateral
amendment of existing bilateral agreements
which the Philippines have (sic) with other
countries, in violation of the basic international
principle of pacta sunt servanda is misplaced.
First, the findings of fact of the First Division of
this Court that when petitioner sold the Jet A-1
fuel to international carriers, it did so free of tax
negates any violation of the exemption from
excise tax of the petroleum products sold to
international carriers insofar as this case is
concerned. Secondly, the right of international
carriers to invoke the exemption granted under
Section 135 (a) of the 1997 NIRC has neither
been affected nor restricted in any way by the
ruling of the First Division of this Court. At the
point of sale, the international carriers are free to
invoke the exemption from excise taxes of the
petroleum products sold to them. Lastly, the lawmaking body is presumed to have enacted a later
law with the knowledge of all other laws involving
the same subject matter.[if !supportFootnotes][90][endif]
(Underscoring supplied.)
WHEREFORE, the petition is DENIED.
SO ORDERED.
P1,6
===
167
25% surcharge
41,9
125
16,0
P35
===
77
surcharge and interest plus 20% interest from
January 24, 1992 until fully paid pursuant to
Section 248 and 249 of the Tax Code.
The compromise penalty of P16,000.00 imposed
by the respondent in her assessment letter shall
not be included in the payment as there was no
compromise agreement entered into between
petitioner and respondent with respect to the
value-added tax deficiency.5
On July 26, 1995, respondent filed with the Court
of Appeals, a petition for review of the decision of
the Court of Appeals.
After due proceedings, on May 13, 1996, the
Court of Appeals rendered decision reversing that
of the Court of Tax Appeals, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, judgment
is hereby rendered REVERSING and SETTING
ASIDE the questioned Decision promulgated on
22 June 1995. The assessment for deficiency
value-added tax for the taxable year 1988
inclusive of surcharge, interest and penalty
charges are ordered CANCELLED for lack of
legal and factual basis. 6
The Court of Appeals anchored its decision on
the ratiocination in another tax case involving the
same parties,7 where it was held that
COMASERCO was not liable to pay fixed and
contractor's tax for services rendered to
Philamlife and its affiliates. The Court of Appeals,
in that case, reasoned that COMASERCO was
not engaged in business of providing services to
Philamlife and its affiliates. In the same manner,
the Court of Appeals held that COMASERCO
was not liable to pay VAT for it was not engaged
in the business of selling services.
On July 16, 1996, the Commissioner of Internal
Revenue filed with this Court a petition for review
on certiorari assailing the decision of the Court of
Appeals.
On August 7, 1996, we required respondent
COMASERCO to file comment on the petition,
and on September 26, 1996, COMASERCO
complied with the resolution.8
We give due course to the petition.
At issue in this case is whether COMASERCO
was engaged in the sale of services, and thus
liable to pay VAT thereon.
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.
We agree with the Commissioner.
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
78
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.
Sec. 108 of the National Internal Revenue Code
of 1997 10 defines the phrase "sale of services" as
the "performance of all kinds of services for
others for a fee, remuneration or consideration."
It includes "the supply of technical advice,
assistance or services rendered in connection
with technical management or administration of
any scientific, industrial or commercial
undertaking or project." 11
On February 5, 1998, the Commissioner of
Internal Revenue issued BIR Ruling No. 010-98
12 emphasizing that a domestic corporation that
provided technical, research, management and
technical assistance to its affiliated companies
and received payments on a reimbursement-ofcost basis, without any intention of realizing profit,
was subject to VAT on services rendered. In fact,
even if such corporation was organized without
any intention realizing profit, any income or profit
generated by the entity in the conduct of its
activities was subject to income tax.
Hence, it is immaterial whether the primary
purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on
a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining
liability for VAT on services rendered. As long as
the entity provides service for a fee, remuneration
or consideration, then the service rendered is
subject to VAT.1awp++i1
At any rate, it is a rule that because taxes are the
lifeblood of the nation, statutes that allow
exemptions are construed strictly against the
grantee and liberally in favor of the government.
Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the
language of the law; it cannot be merely implied
therefrom. 13 In the case of VAT, Section 109,
Republic Act 8424 clearly enumerates the
transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the
exemptions.
Both the Commissioner of Internal Revenue and
the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to Philamlife
and its affiliates are subject to VAT. As pointed out
by the Commissioner, the performance of all
REVENUE,
Petitioner,
Present:
CARPIO, J.,
Chairperson,
- versus -
BRION,
DEL CASTILLO,
79
ABAD, and
SM PRIME
HOLDINGS, INC.
PEREZ, JJ.
Promulgated:
Respondents.
February 26,
2010
x------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
When the intent of the law is not
apparent as worded, or when the application of
the law would lead to absurdity or injustice,
legislative history is all important. In such cases,
courts may take judicial notice of the origin and
history of the law,[if !supportFootnotes][1][endif] the
deliberations during the enactment,[if !supportFootnotes][2]
[endif]
as well as prior laws on the same subject
matter[if !supportFootnotes][3][endif] to ascertain the true
intent or spirit of the law.
This Petition for Review on Certiorari
under Rule 45 of the Rules of Court, in relation to
Republic Act (RA) No. 9282,[if !supportFootnotes][4][endif]
seeks to set aside the April 30, 2008 Decision[if !
supportFootnotes][5][endif]
and the June 24, 2008
Resolution[if !supportFootnotes][6][endif] of the Court of Tax
Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings,
Inc. (SM Prime) and First Asia Realty
Development Corporation (First Asia) are
domestic corporations duly organized and
existing under the laws of the Republic of the
Philippines. Both are engaged in the business of
operating cinema houses, among others.[if !
supportFootnotes][7][endif]
80
Consolidated Petitions
The Commissioner of Internal
Revenue (CIR) filed his Answers to the Petitions
filed by SM Prime and First Asia.[if !supportFootnotes][27]
[endif]
81
Reconsideration.
The CTA En Banc held that Section
108 of the NIRC actually sets forth an exhaustive
enumeration of what services are intended to be
subject to VAT. And since the showing or
exhibition of motion pictures, films or movies by
cinema operators or proprietors is not among the
enumerated activities contemplated in the phrase
sale or exchange of services, then gross
receipts derived by cinema/ theater operators or
proprietors from admission tickets in showing
motion pictures, film or movie are not subject to
VAT. It reiterated that the exhibition or showing of
motion pictures, films, or movies is instead
subject to amusement tax under the LGC of
1991. As regards the validity of RMC No. 282001, the CTA En Banc agreed with its First
Division that the same cannot be given force and
effect for failure to comply with RMC No. 20-86.
Issue
Hence, the present recourse, where
petitioner alleges that the CTA En Banc seriously
erred:
[if !supportLists](1)
[endif]In
not finding/holding that the gross receipts derived
by operators/proprietors of cinema houses from
admission tickets [are] subject to the 10% VAT
because:
[if !supportLists](a)
[endif]THE EXHIBITION
OF MOVIES BY CINEMA
OPERATORS/PROPRIETORS TO THE PAYING
PUBLIC IS A SALE OF SERVICE;
[if !supportLists](b)
[endif]UNLESS
EXEMPTED BY LAW, ALL SALES OF
SERVICES ARE EXPRESSLY SUBJECT TO VAT
UNDER SECTION 108 OF THE NIRC OF 1997;
[if !supportLists](c)
[endif]SECTION 108 OF
THE NIRC OF 1997 IS A CLEAR PROVISION
OF LAW AND THE APPLICATION OF RULES
OF STATUTORY CONSTRUCTION AND
EXTRINSIC AIDS IS UNWARRANTED;
[if !supportLists](d)
[endif]GRANTING
WITHOUT CONCEDING THAT RULES OF
CONSTRUCTION ARE APPLICABLE HEREIN,
STILL THE HONORABLE COURT
ERRONEOUSLY APPLIED THE SAME AND
PROMULGATED DANGEROUS PRECEDENTS;
[if !supportLists](e)
[endif]THERE IS NO
VALID, EXISTING PROVISION OF LAW
EXEMPTING RESPONDENTS SERVICES
FROM THE VAT IMPOSED UNDER SECTION
108 OF THE NIRC OF 1997;
[if !supportLists](f)
[endif]QUESTIONS ON
In invalidating Revenue
Memorandu
m Circular
(RMC) No.
28-2001.[if !
supportFootnotes][38]
[endif]
82
from cinema/theater admission tickets from the
list of services which are subject to the national
amusement tax under Section 125 of the NIRC of
1997 reinforces this legislative intent.
Respondents also highlight the fact that RMC No.
28-2001 on which the deficiency assessments
were based is an unpublished administrative
ruling.
Our Ruling
xxxx
The petition is bereft of merit.
The enumeration of services subject to VAT
under Section 108 of the NIRC is not exhaustive
x x x x (Emphasis supplied)
83
Exhibition in Blacks Law Dictionary
is defined as To show or
display. x x x To produce
anything in public so that
it may be taken into
possession (6th ed., p.
573). While the word
lease is defined as a
contract by which one
owning such property
grants to another the
right to possess, use and
enjoy it on specified
period of time in
exchange for periodic
payment of a stipulated
price, referred to as rent
(Blacks Law Dictionary,
6th ed., p. 889). x x x[if !
supportFootnotes][40][endif]
SECTION
102. Value-added tax
on sale of services. (a)
Rate and base of tax.
There shall be levied,
assessed and collected,
a value-added tax
equivalent to 10%
percent of gross receipts
derived by any person
engaged in the sale of
services. The phrase
sale of services means
the performance of all
kinds of services for
others for a fee,
remuneration or
consideration, including
those performed or
rendered by construction
and service contractors;
stock, real estate,
commercial, customs and
immigration brokers;
lessors of personal
property; lessors or
distributors of
cinematographic films;
persons engaged in
milling, processing,
manufacturing or
repacking goods for
others; and similar
services regardless of
whether or not the
performance thereof calls
for the exercise or use of
the physical or mental
faculties: Provided That
the following services
performed in the
Philippines by VATregistered persons shall
be subject to 0%:
84
(b)
Determination of the tax.
(1) Tax billed as a
separate item in the
invoice. If the tax is
billed as a separate item
in the invoice, the tax
shall be based on the
gross receipts, excluding
the tax.
(1)
Processing
manufacturing or
repacking goods for other
persons doing business
outside the Philippines
which goods are
subsequently exported, x
xx
(2)
Tax
not billed separately or is
billed erroneously in the
invoice. If the tax is
not billed separately or is
billed erroneously in the
invoice, the tax shall be
determined by multiplying
the gross receipts
(including the amount
intended to cover the tax
or the tax billed
erroneously) by 1/11.
(Emphasis supplied)
xxxx
Gross
receipts means the total
amount of money or its
equivalent representing
the contract price,
compensation or service
fee, including the amount
charged for materials
supplied with the
services and deposits or
advance payments
actually or constructively
received during the
taxable quarter for the
service performed or to
be performed for another
person, excluding valueadded tax.
85
admission to places of
amusement has been
transferred to the local
governments to the
exclusion of the national
government.
xxxx
Since the
promulgation of the Local
Tax Code which took
effect on June 28, 1973
none of the amendatory
laws which amended the
National Internal
Revenue Code, including
the value added tax law
under Executive Order
No. 273, has amended
the provisions of Section
11 of the Local Tax Code.
Accordingly, the sole
jurisdiction for collection
of amusement tax on
admission receipts in
places of amusement
rests exclusively on the
local government, to the
exclusion of the national
government. Since the
Bureau of Internal
Revenue is an agency of
the national government,
then it follows that it has
no legal mandate to levy
amusement tax on
admission receipts in the
said places of
amusement.
Considering
the foregoing legal
background, the
provisions under Section
123 of the National
Internal Revenue Code
as renumbered by
Executive Order No. 273
(Sec. 228, old NIRC)
pertaining to amusement
taxes on places of
amusement shall be
implemented in
accordance with BIR
RULING, dated
December 4, 1973 and
BIR RULING NO. 231-86
dated November 5, 1986
to wit:
x x x
Accordingly, only the
gross receipts of the
amusement places
derived from sources
other than from
admission tickets shall
be subject to x x x
amusement tax
prescribed under
Section 228 of the Tax
Code, as amended (now
Section 123, NIRC, as
amended by E.O. 273).
The tax on gross
receipts derived from
admission tickets shall
be levied and collected
by the city government
pursuant to Section 23
of Presidential Decree
No. 231, as amended x
x x or by the
provincial government,
pursuant to Section 11
of P.D. 231, otherwise
known as the Local Tax
86
Code. (Emphasis
supplied)
government.
[if !supportLists](4)
[endif]Under the
NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or
operators of cabarets, day and night clubs, JaiAlai and race tracks.
[if !supportLists](5)
[endif]The VAT law
was enacted to replace the tax on original and
subsequent sales tax and percentage tax on
certain services.
[if !supportLists](6)
[endif]When the VAT
law was implemented, it exempted persons
subject to amusement tax under the NIRC from
the coverage of VAT.
[if !supportLists](7)
[endif]When the
Local Tax Code was repealed by the LGC of
1991, the local government continued to impose
amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses
and other places of amusements.
[if !supportLists](8)
[endif]Amendments
to the VAT law have been consistent in exempting
persons subject to amusement tax under the
NIRC from the coverage of VAT.
[if !supportLists](9)
[endif]Only lessors
or distributors of cinematographic films are
included in the coverage of VAT.
These reveal the legislative intent not
to impose VAT on persons already covered by the
amusement tax. This holds true even in the case
of cinema/theater operators taxed under the LGC
of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain
services. The mere fact that they are taxed by
the local government unit and not by the national
government is immaterial. The Local Tax Code, in
transferring the power to tax gross receipts
derived by cinema/theater operators or proprietor
from admission tickets to the local government,
did not intend to treat cinema/theater houses as a
separate class. No distinction must, therefore,
be made between the places of amusement
taxed by the national government and those
taxed by the local government.
To hold otherwise would impose an
unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an
additional 10%[if !supportFootnotes][55][endif] VAT on top of
the 30% amusement tax imposed by Section 140
of the LGC of 1991, or a total of 40% tax. Such
imposition would result in injustice, as persons
taxed under the NIRC of 1997 would be in a
better position than those taxed under the LGC of
1991. We need not belabor that a literal
application of a law must be rejected if it will
87
operate unjustly or lead to absurd results.[if !
supportFootnotes][56][endif]
Thus, we are convinced that the
legislature never intended to include
cinema/theater operators or proprietors in the
coverage of VAT.
On this point, it is apropos to quote the
case of Roxas v. Court of Tax Appeals,[if !
supportFootnotes][57][endif]
to wit:
The power of
taxation is sometimes
called also the power to
destroy. Therefore, it
should be exercised with
caution to minimize injury
to the proprietary rights
of a taxpayer. It must be
exercised fairly, equally
and uniformly, lest the tax
collector kill the hen that
lays the golden egg.
And, in order to maintain
the general public's trust
and confidence in the
Government this power
must be used justly and
not treacherously.
of persons to
cinema/theater and other
places of amusement
had, thereafter, been
transferred to the
provincial government, to
the exclusion of the
national or municipal
government (Sections 11
& 13, Local Tax Code).
However, the said
provision containing the
exclusive power of the
provincial government to
impose amusement tax,
had also been repealed
and/or deleted by
Republic Act (RA) No.
7160, otherwise known
as the Local Government
Code of 1991, enacted
into law on October 10,
1991. Accordingly, the
enactment of RA No.
7160, thus, eliminating
the statutory
prohibition on the
national government to
impose business tax on
gross receipts from
admission of persons
to places of
amusement, led the
way to the valid
imposition of the VAT
pursuant to Section 102
(now Section 108) of
the old Tax Code, as
amended by the
Expanded VAT Law (RA
No. 7716) and which
was implemented
beginning January 1,
1996.[if !supportFootnotes][58][endif]
(Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by
the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of
cinema/theater operators or proprietors derived
from admission tickets. The removal of the
prohibition under the Local Tax Code did not
grant nor restore to the national government the
power to impose amusement tax on
cinema/theater operators or proprietors. Neither
88
did it expand the coverage of VAT. Since the
imposition of a tax is a burden on the taxpayer, it
cannot be presumed nor can it be extended by
implication. A law will not be construed as
imposing a tax unless it does so clearly,
expressly, and unambiguously.[if !supportFootnotes][59][endif]
As it is, the power to impose amusement tax on
cinema/theater operators or proprietors remains
with the local government.
supportFootnotes][60][endif]
89
CITIBANK, N.A., petitioner,
vs.
COURT OF APPEALS and COMMISSIONER
OF INTERNAL REVENUE, respondents.
PANGANIBAN, J.:
The law requires a lessee to withhold and remit to
the Bureau of Internal Revenue (BIR) five percent
(5%) of the rental due the lessor, by way of
advance payment of the latter's income tax
liability. Is the lessor entitled to a refund of such
withheld amount after it is determined that the
lessor was not, in fact, liable for any income tax
at all because its annual operation resulted in a
net loss as shown in its income tax return filed at
the end of the taxable year?
This is the question raised in this petition for
review on certiorari of the Court of Appeals 1
Decision 2 promulgated on May 27, 1992 and
Resolution 3 promulgated on October 27, 1992 in
CA-G.R. No. SP-26555, reversing the decision of
the Court of Tax Appeals which allowed the tax
refund.
The Facts
The facts, as found by Respondent Court, are
undisputed. 4
From the pleadings and supporting papers on
hand, it can be gathered that Citibank N.A.
Philippine Branch (CITIBANK) is a foreign
corporation doing business in the Philippines. In
1979 and 1980, its tenants withheld and paid to
the Bureau of Internal Revenue the following
taxes on rents due to Citibank, pursuant to
Section 1(c) of the Expanded Withholding Tax
Regulations (BIR Revenue Regulations No. 1378, as amended), to wit:
1979
First quarter P60,690.97
Second quarter 69,897.08
Third quarter 69,160.89
Fourth quarter 70,160.56
P270,160.56
1980
First quarter P78,370.22
Second quarter 69,049.37
Third quarter 79,139.60
Fourth quarter 72,270.10
P298,829.29
On April 15, 1980, Citibank filed its corporate
income tax returns for the year ended December
31, 1979 (Exh. "E:), showing a net loss of
P74,854,916.00 and its tax credits totalled
P6,257,780.00, even without including the
amounts withheld on rental income under the
Expanded Withholding Tax System, the same not
having been utilized or applied for the reason that
the year's operation resulted in a loss. (Exh. & "E1 & E-2"). The taxes thus withheld by the tenants
from rentals paid to Citibank in 1979 were not
included as tax credits although a rental income
90
Court.
The Issues
The appellate court ruled that it was not enough
for petitioner to show its lack of income tax
liability against which the five percent withholding
tax could be credited. Petitioner should have also
shown that the withholding tax was illegally or
erroneously collected and remitted by the
tenants. On the other hand, petitioner counters
that Respondent Court failed to grasp "two
fundamental concepts in the present income tax
system, namely: (1) the yearly computation of the
corporate income tax and (2) the nature of the
creditable withholding tax."
In the main, petitioner thus raises the following
issues: (1) For creditable withholding tax to be
refundable, when should the illegality or error in
its assessment or collection be reckoned: at the
time of withholding or at the end of the taxable
year? (2) Where the income tax returns show that
no income tax is payable to the government, is a
creditable withholding tax, as contradistinguished
from a final tax, refundable (or creditable) at the
end of the taxable year?
The Court's Ruling
The petition is meritorious.
First Issue: Determination of the Illegality or Error
in Assessment or Collection
Tax refunds are allowed under Section 230 of the
National Internal Revenue Code:
Sec. 230. Recovery of tax erroneously or illegally
collected. No suit or proceeding shall be
maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been
collected without authority or of any sum alleged
to have been excessive or in any manner
wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be
begun after the expiration of two years from the
date of payment of the tax or penalty regardless
of any supervening cause that may arise after
payment: Provided, however, That the
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the
face of the return upon which payment was
made, such payment appears clearly to have
been erroneously paid.
Petitioner maintains that it is entitled to a refund
of the five percent creditable withholding tax in
1979 and 1980, since its operations resulted in a
net loss and thus did not have any income tax
liability for such years. Respondent Court refused
to allow the claim for refund for the reason that
the taxes were "not illegally or erroneously
collected:" 10
It is decisively clear that the instant claim for tax
91
The question arises: whether the taxes withheld
remained legal and correct at the end of each
taxable year. We hold in the negative.
The withholding tax system was devised for two
main reasons: first, to provide the taxpayer a
convenient manner to meet his probable income
tax liability; and second, to ensure the collection
of the income tax which could otherwise be lost
or substantially reduced through failure to file the
corresponding returns. 13 To these, a third reason
may be added: to improve the government's cash
flow. Under Section 53 a-f of the tax code which
was in effect at the time this case ripened,
withholding of tax at source was mandated in
cases of: (a) tax free covenant bonds, (b)
payments of interest, dividends, rents, royalties,
salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or
other fixed or determinable annual, periodical, or
casual gains, profits and income, and capital
gains of non-resident aliens and foreign
corporations; (c) dividends from a domestic
corporation and royalties received by resident
individuals and corporation; (d) certain dividends;
(e) interest on bank deposit; and (f) other items of
income payable to resident individuals or
corporations. Section 53-f was amended by
Presidential Decree No. 1351, delegating to the
Secretary of Finance the power to require the
withholding of a tax, as follows:
Sec. 1. Section 53 (f) of the National Internal
Revenue Code of 1997 is hereby amended to
read as follows:
(f) The Secretary of Finance may, upon
recommendation of the Commissioner of Internal
Revenue, require also the withholding of a tax on
the same items of income payable to persons
(natural or juridical) residing in the Philippines by
the same persons mentioned in paragraph (b) (1)
of this Section at the rate of not less than 2-1/2%
but not more than 35% thereof which shall be
credited against the income tax liability of the
taxpayer for the taxable year.
Pursuant to said P.D. No. 1351 and in
accordance with Section 4 in relation to Section
326 14 of the National Internal Revenue Code, the
Commissioner promulgated on September 7,
1978, Revenue Regulations No. 13-78 to
implement the withholding of creditable income
taxes from certain types of income. Rev. Reg. No.
13-78 requires that a certain percentage of
income be deducted and withheld by a payor,
who is constituted as the withholding agent, and
paid to the revenue district officer or BIR
collection agent. Section 1 of this revenue
regulation provides:
Sec. 1. Income payments subject to withholding
tax and rates prescribed therein. Except as
herein otherwise provided, there shall be withheld
a creditable income tax at the rates herein
specified for each class of payee from the
following items of income payments to persons
92
case may be.
In case the corporation is entitled to a refund of
the excess estimated quarterly income taxes
paid, the refundable amount shown on its final
adjustment return may be credited against the
estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable year.
The taxes thus withheld and remitted are
provisional in nature. 19 We repeat: five per cent
of the rental income withheld and remitted to the
BIR pursuant to Rev. Reg. No. 13-78 is, unlike
the withholding of final taxes on passive incomes,
a creditable withholding tax; that is, creditable
against income tax liability if any, for that taxable
year.
In Commissioner of Internal Revenue vs. TMX
Sales, Inc., 20 this Court ruled that the payments
of quarterly income taxes (per Section 68, NIRC)
should be considered mere installments of the
annual tax due. These quarterly tax payments,
which are computed based on the cumulative
figures of gross receipts and deductions in order
to arrive at a net taxable income, should be
treated as advances or portions of the annual
income tax due, to be adjusted at the end of the
calendar or fiscal year. The same holds true in
the case of the withholding of creditable tax at
source. Withholding taxes are "deposits" which
are subject to adjustments at the proper time
when the complete tax liability is determined.
In this case, the payments of the withholding
taxes for 1979 and 1980 were creditable to the
income tax liability, if any, of petitioner-bank,
determined after the filing of the corporate
income tax returns on April 15, 1980 and April 15,
1981. As petitioner posted net losses in its 1979
and 1980 returns, it was not liable for any income
taxes. Consequently and clearly, the taxes
withheld during the course of the taxable year,
while collected legally under the aforesaid
revenue regulation, became untenable and took
on the nature of erroneously collected taxes at
the end of the taxable year.
Second Issue: Onus of Disputing a Claim for
Refund
In general, there is no disagreement that a
claimant has the burden of proof to establish the
factual basis of his or her claim for tax credit or
refund. 21 Tax refunds, like tax exemptions, are
construed strictly against the taxpayer. The
mechanics of a tax refunds provided in Rev. Reg.
No. 13-78:
Sec. 8. Claims for tax credit or refund. Claims
for tax credit or refund of income tax deducted
and withheld on income payments shall be given
due course only when it is shown on the return
that the income payment received was declared
as part of the gross income and the fact of
withholding is established by a copy of the
statement, duly issued by the payor to the payee
(BIR Form No. 1743-A) showing the amount paid
and the amount of tax withheld therefrom.
93
Twenty Five Thousand Pesos (P25,000.00) be
audited and examined yearly by an independent
Certified Public Accountant and their income tax
returns be accompanied by certified balance
sheets, profit and loss statements, schedules
listing income producing properties and the
corresponding incomes therefrom and other
related statements.
It is generally recognized that before an
accountant can make a certification on the
financial statements or render an auditor's
opinion, an audit of the books of accounts has to
be conducted in accordance with generally
accepted auditing standards.
Since the audit, as required by Section 321 (now
Section 232) of the Tax Code is to be conducted
yearly, then it is the Final Adjustment Return,
where the figures of the gross receipts and
deductions have been audited and adjusted, that
is truly reflective of the results of the operations of
a business enterprise. Thus, it is only when the
Adjustment Return covering the whole year is
filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on
the adjusted and audited figures.
Therefore, the alleged irregularity in the declared
operational losses is a matter which must be
proven by competent evidence. In resisting the
claims of petitioner, Respondent Commissioner
set up the defense of the legality of the collection
of the creditable withholding tax as well as
prescription, instead of presenting an assessment
of the proper tax liability of the petitioner. This fact
leads us to the conclusion that the income tax
returns were accepted as accurate and regular by
the BIR.
After this case was filed, the Commissioner
clarified on June 27, 1994, the onus probandi of a
taxpayer claiming refund of overpaid withholding
taxes, inter alia, in Revenue Regulation No. 1294, Section 10:
Sec. 10. Claim for Tax Credit or Refund.
(a) Claims for Tax Credit or Refund of income tax
deducted and withheld on income payments shall
be given due course only when it is shown on the
return that the income payment received has
been declared as part of the gross income and
the fact of withholding is established by a copy of
the Withholding Tax Statement duly issued by the
payor to the payee showing the amount paid and
the amount of tax withheld therefrom.
(b) Excess Credits. A taxpayer's excess
expanded withholding tax credits for the taxable
quarter/taxable year shall automatically be
allowed as a credit for purposes of filing his
income tax return for the taxable quarter/taxable
year immediately succeeding the taxable
quarter/taxable year in which the aforesaid