G.R. No. L-18649 February 27, 1965
The term "gross output" shall be interpreted as the
CEBU PORTLAND CEMENT COMPANY petitioner, vs.
COMMISSIONER OF INTERNALREVENUE, respondent.
BARRERA, J.:
This is petition filed by the Cebu Portland Cement Company
(CEPOC) for review of the decision of the Court of Tax Appeals (in
CTA Case No. 706) denying its claim against the Commissioner of
Internal Revenue for refund of the sum of P476,208.50,
representing alleged overpayments of ad valorem taxes for the
period of from January 1, 1957 to June 30, 1959, on the ground
that said court erred in upholding the assessment and collection
thereof based on the selling price of the cement petitioner
produced and not on the value of the limestone and shale it
quarried and used in the production of the cement.
There is no controversy as to the fact that for the period of from
April 16, 1957 to July 20, 1959, for the cement it produced and
sold, petitioner was assessed and paid ad valorem taxes in the
total sum of P502,975.28; that its demand for refund of alleged
overpayment having been denied, petitioner filed on October 15,
1959, a corresponding petitioning the Court of Tax Appeals
against the respondent Commissioner of Internal Revenue; and
that after due hearing, the Court of Tax Appeals rendered a
decision on June 21, 1961, declaring the collection of the ad
valorem tax based on the selling price of cement to have been
made in accordance with Section 243 in relation to Section 246 of
the National Internal Revenue Code.
The National Internal Revenue Code, as amended, 1 provides:
Sec. 243. Ad valorem taxes on output of mineral lands not
covered by lease. There shall be assessed and collected on the
actual market value of the annual gross output of the minerals or
mineral products extracted or produced from all mineral lands,
not covered by lease, an ad valorem tax payable to the Collector
of Internal Revenue, in the amount of one and onehalf per centum
of the value of said output.
Before the mineral products are removed from the mines, the
Collector of Internal Revenue or his representatives shall first be
notified of such removal on a form prescribed for the purpose.
Sec. 245. Time and manner of payment of royalties or ad valorem
taxes. The royalties or ad valorem taxes, as the case may be,
shall be due and payable upon removal of the mineral products
from the locality where mined. However, the output of the mine
may be removed from such locality without the pre-payment of
such royalties or ad valorem taxes if the lessee, owner or
operator shall file a bond in the form and amount and with such
sureties as the Collector of Internal Revenue may require,
conditioned upon the payment of such royalties or ad valorem
taxes. ...
Sec. 246. Definition of the terms "gross output", "minerals" and
"mineral products" Disposition of royalties and ad valorem
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taxes.
actual market value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a separate entity
without any deduction from mining, milling, refining,
transporting, handling, marketing, or any other expenses:
Provided, however, ... . The word "minerals" shall mean all
inorganic substances found in nature whether in solid, liquid,
gaseous, or any intermediate state. The term `mineral products'
shall mean things produced by the lessee, concessionaire or
owner of mineral lands, at least eight per cent of which things
must be minerals extracted by such lessee, concessionaire, or
owner of mineral lands. Ten per centum of the royalties and ad
valorem taxes herein provided shall accrue to the municipality
and ten per centum to the province where the mines are situated,
and eighty per centum to the National Treasury. (Emphasis
supplied.)
Herein petitioner contends that the collectible ad valorem tax
should be based on the actual market value of the quaried
minerals that were used in the production of cement; whereas,
respondent Commissioner of Internal Revenue maintains that, as
the cement produced by petitioner consists of 80% minerals, the
same is a mineral product pursuant to the definition given in
Section 246 of the Tax Code, and the ad valorem tax should be
based on its selling price.1wph1.t
It is noteworthy that under Section 242 of the same Code, with
respect to leased mineral lands, the lessee shall pay to the
government, not only rentals for the use of the land, but also
royalty, on the minerals extracted therefrom. These imposts are
levied "for the privilege of exploring, developing, mining,
extracting and disposing of the minerals" from said land. With
respect to mineral lands not under lease, Section 243 governs,
and imposes ad valorem tax on the actual market value of the
gross output of the minerals or mineral products extracted
therefrom. Both sections 242 and 243 are under Title VI of the
Tax Code which refers to Mining Taxes. As under Section 242, the
rentals and royalties collectible from the lessees and
concessionaires of the lease lands are for the privilege of mining
and extracting minerals therefrom, so it may be said that the ad
valorem tax imposed by Section 243 upon those extracting
minerals and minerals products from lands not under lease, is
also for the same purpose, i.e., the privilege of mining and
extracting minerals from said lands. In other words, ad valorem
tax is a tax not on the minerals, but upon the privilege of severing
or extracting the same from the earth, the government's right to
exact the said impost springing from the Regalian theory of State
ownership of its natural resources.
There can be no question that quarried minerals have their own
market value. The dispute here arose, however, from the
construction given to the term mineral products, which was
defined in Section 246 of the Tax Code as, "things produced by
the lessee, concessionaire, or owner of mineral lands, at least
eighty per cent of which things must be minerals extracted by
such lessee, concessionaire or owner of mineral lands."
Respondent argues that since the portland cement produced by
petitioner 2 consists of 80% minerals quarried from its mines,
such cement falls within the definition of a mineral product and
the imposable ad valorem tax should be based on its selling price
which it its actual market value.
This line of argument suffers from two infirmities: First ,while
cement is composed of 80% minerals, it is not merely an
admixture or blending of raw materials, as lime, silica, shale and
others. It is the result of a definite process. the crushing of
minerals, grinding, mixing, calcining, cooling, adding of retarder
or raw gypsum. In short, before cement reaches its saleable form,
the minerals had already undergone a chemical change through
manufacturing process. this could not have been the state of
"mineral products" that the law contemplates for purposes of
imposing the ad valorem tax. It must be remembered that, as
aforestated, this tax is imposed on the privilege of extracting or
severing the minerals from the mines. To our minds, therefore,
the inclusion of the term mineral products is intended to
comprehend cases where the mined or quarried elements may
not be usable in its original state without application of simple
treatments, such as washing, or cutting them into sizes, which
process does not necessarily involve the change or
transformation of the raw materials into a composite, distinct
product. Secondly, respondent cannot use the selling price of the
product in this case as gauge of its actual market value. The
cement here is manufactured by petitioner itself out of materials
quarried from its actual market value. The cement here is
manufactured by petitioner itself out of materials quarried from
its mines. While the selling price of cement may reflect the actual
market value of cement, said selling price cannot be taken as the
market value also of the minerals composing the cement. And it
was not the cement that was mined, only the minerals composing
the finished product.
Anent respondent's contention, however, that the taxes collected
and paid two years before the filing of the action in the Court of
Tax Appeals are barred by prescription the same must be
sustained. By specific provision of Section 306 of the Internal
Revenue Code, action for recovery of tax payments erroneously
or illegally collected must be filed within 2 year from such
payments. As the action in this case was instituted only on
October 15, 1959 overpayments made prior to October 15, 1957
are not longer refundable.
WHEREFORE, the decision of the Court of Tax Appeals under
review is hereby modified, by holding petitioner entitled to the
refund of the corresponding overpayments of ad valorem taxes
made after October 15, 1957. No costs. So ordered.
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant, vs. JUAN POSADAS, JR., Collector of
Internal Revenue, defendant-appellant.
LAUREL, J.:
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On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as
trustee of the estate of Thomas Hanley, deceased, brought this
action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal
Revenue, for the refund of the amount of P2,052.74, paid by the
plaintiff as inheritance tax on the estate of the deceased, and for
the collection of interst thereon at the rate of 6 per cent per
annum, computed from September 15, 1932, the date when the
aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax
in question and which was not included in the original
assessment. From the decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's complaint and the
defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14,
1922, proceedings for the probate of his will and the settlement
and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said
will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew
Matthew Hanley.
5. I direct that all real estate owned by me at the time of my death
be not sold or otherwise disposed of for a period of ten (10) years
after my death, and that the same be handled and managed by
the executors, and proceeds thereof to be given to my nephew,
Matthew Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the same be
used only for the education of my brother's children and their
descendants.
6. I direct that ten (10) years after my death my property be
given to the above mentioned Matthew Hanley to be disposed of
in the way he thinks most advantageous.
xxx xxx xxx
8. I state at this time I have one brother living, named Malachi
Hanley, and that my nephew, Matthew Hanley, is a son of my said
brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper
for the best interests of ther estate to appoint a trustee to
administer the real properties which, under the will, were to pass
to Matthew Hanley ten years after the two executors named in
the will, was, on March 8, 1924, appointed trustee. Moore took
his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the
plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant
Collector of Internal Revenue, alleging that the estate left by the
deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a
deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties
for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge
of 25 per cent on the tax, amounted to P2,052.74. On March 15,
1932, the defendant filed a motion in the testamentary
proceedings pending before the Court of First Instance of
Zamboanga (Special proceedings No. 302) praying that the
trustee, plaintiff herein, be ordered to pay to the Government the
said sum of P2,052.74. The motion was granted. On September
15, 1932, the plaintiff paid said amount under protest, notifying
the defendant at the same time that unless the amount was
promptly refunded suit would be brought for its recovery. The
defendant overruled the plaintiff's protest and refused to refund
the said amount hausted, plaintiff went to court with the result
herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased,
passed to his instituted heir, Matthew Hanley, from the moment
of the death of the former, and that from the time, the latter
became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment
of inheritance tax due on the estate of said deceased.
III. In holding that the inheritance tax in question be based upon
the value of the estate upon the death of the testator, and not, as
it should have been held, upon the value thereof at the expiration
of the period of ten years after which, according to the testator's
will, the property could be and was to be delivered to the
instituted heir.
IV. In not allowing as lawful deductions, in the determination of
the net amount of the estate subject to said tax, the amounts
allowed by the court as compensation to the "trustees" and paid
to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in
denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff
and assigns the following error besides:
The lower court erred in not ordering the plaintiff to pay to the
defendant the sum of P1,191.27, representing part of the interest
at the rate of 1 per cent per month from April 10, 1924, to June
30, 1931, which the plaintiff had failed to pay on the inheritance
tax assessed by the defendant against the estate of Thomas
Hanley.
The following are the principal questions to be decided by this
court in this appeal: (a) When does the inheritance tax accrue
and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later? (c) In determining
the net value of the estate subject to tax, is it proper to deduct the
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compensation due to trustees? (d) What law governs the case at
bar? Should the provisions of Act No. 3606 favorable to the tax-
payer be given retroactive effect? (e) Has there been deliquency
in the payment of the inheritance tax? If so, should the additional
interest claimed by the defendant in his appeal be paid by the
estate? Other points of incidental importance, raised by the
parties in their briefs, will be touched upon in the course of this
opinion.
(a) The accrual of the inheritance tax is distinct from the
obligation to pay the same. Section 1536 as amended, of the
Administrative Code, imposes the tax upon "every transmission
by virtue of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. (61 C. J., p.
1592.) It is in reality an excise or privilege tax imposed on the
right to succeed to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to become operative at or
after death. Acording to article 657 of the Civil Code, "the rights
to the succession of a person are transmitted from the moment of
his death." "In other words", said Arellano, C. J., ". . . the heirs
succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the
death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.
Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13;
Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14
Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras
Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434;
Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs.
Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of
Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article
657 of the Civil Code is applicable to testate as well as intestate
succession, it operates only in so far as forced heirs are
concerned. But the language of article 657 of the Civil Code is
broad and makes no distinction between different classes of
heirs. That article does not speak of forced heirs; it does not even
use the word "heir". It speaks of the rights of succession and the
transmission thereof from the moment of death. The provision of
section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to
effect transmission of property does not affect the general rule
laid down in article 657 of the Civil Code. The authentication of a
will implies its due execution but once probated and allowed the
transmission is effective as of the death of the testator in
accordance with article 657 of the Civil Code. Whatever may be
the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the
decedent's death. The time when the heirs legally succeed to the
inheritance may differ from the time when the heirs actually
receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el
falleimiento del causante, hasta que el heredero o legatario entre
en posesion de los bienes de la herencia o del legado, transcurra
mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe
considerarse como complemento del presente." (5 Manresa, 305;
see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died
on May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27,
1922, it does not follow that the obligation to pay the tax arose as
of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as
amended by Act No. 3031, in relation to section 1543 of the same
Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions.
The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor.
In the last two cases, if the scale of taxation appropriate to the
new beneficiary is greater than that paid by the first, the former
must pay the difference.
SEC. 1544. When tax to be paid. The tax fixed in this article
shall be paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the death
of the predecessor; but if judicial testamentary or intestate
proceedings shall be instituted prior to the expiration of said
period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore prescribed,
interest at the rate of twelve per centum per annum shall be
added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand
thereof by the collector, there shall be further added a surcharge
of twenty-five per centum.
A certified of all letters testamentary or of admisitration shall be
furnished the Collector of Internal Revenue by the Clerk of Court
within thirty days after their issuance.
It should be observed in passing that the word "trustee",
appearing in subsection (b) of section 1543, should read
"fideicommissary" or "cestui que trust". There was an obvious
mistake in translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here no
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fiduciary heirs, first heirs, legatee or donee. Under the subsection,
the tax should have been paid before the delivery of the
properties in question to P. J. M. Moore as trustee on March 10,
1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so
far as the real properties are concerned, did not and could not
legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27,
1922 and, that the inheritance tax should be based on the value of
the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the
real properties in question had a reasonable value of only P5,787.
This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would
generate an inheritance tax which, excluding deductions, interest
and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the
estate to impose inheritance taxes takes its being and if, upon the
death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the
vlaue of the estate as it stood at the time of the decedent's death,
regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692,
1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup.
Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an
inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that
time of such property as passes to him. Subsequent appreciation
or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in
Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
that, in the case of contingent remainders, taxation is postponed
until the estate vests in possession or the contingency is settled.
This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania
and Wisconsin. This rule, horever, is by no means entirely
satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its
anterior system, we find upon examination of cases and
authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market
value and the payment forthwith of the tax on its out of the
corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69;
69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp.,
769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez,
172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82
N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc.
App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California
adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that
a transmission by inheritance is taxable at the time of the
predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary,
and the tax measured by the value of the property transmitted at
that time regardless of its appreciation or depreciation.
(c) Certain items are required by law to be deducted from the
appraised gross in arriving at the net value of the estate on which
the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the
trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until
March 10, 1924, among which were their fees and the proven
debts of the deceased. The plaintiff contends that the
compensation and fees of the trustees, which aggregate
P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also
be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine
the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the
judicial expenses of the testamentary or intestate proceedings, . . .
."
A trustee, no doubt, is entitled to receive a fair compensation for
his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed.,
1047). But from this it does not follow that the compensation due
him may lawfully be deducted in arriving at the net value of the
estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining
the net value of the estate subject to inheritance tax (61 C. J., p.
1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated. (Ibid.; In
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re
Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in
paragraph 5 of his will, the testator expressed the desire that his
real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial
expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101
Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises,
does not come properly within the class or reason for exempting
administration expenses. . . . Service rendered in that behalf have
no reference to closing the estate for the purpose of a distribution
thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . .
of the character of that here before the court, are created for the
the benefit of those to whom the property ultimately passes, are
of voluntary creation, and intended for the preservation of the
estate. No sound reason is given to support the contention that
such expenses should be taken into consideration in fixing the
value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due
from the estate of Thomas Hanley under the provisions of section
1544 of the Revised Administrative Code, as amended by section
3 of Act No. 3606. But Act No. 3606 went into effect on January 1,
1930. It, therefore, was not the law in force when the testator
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died on May 27, 1922. The law at the time was section 1544
above-mentioned, as amended by Act No. 3031, which took effect
on March 9, 1922.
It is well-settled that inheritance taxation is governed by the
statute in force at the time of the death of the decedent (26 R. C.
L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer
can not foresee and ought not to be required to guess the
outcome of pending measures. Of course, a tax statute may be
made retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents of social
life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct.
Rep., 44.) But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup.
Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S.,
602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish,
247 U. S., 221.) "A statute should be considered as prospective in
its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly
demands or expresses that it shall have a retroactive effect, . . . ."
(61 C. J., P. 1602.) Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance makes section 3
of Act No. 3606, amending section 1544 of the Revised
Administrative Code, applicable to all estates the inheritance
taxes due from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can begiven the statute by this
court.
The defendant Collector of Internal Revenue maintains, however,
that certain provisions of Act No. 3606 are more favorable to the
taxpayer than those of Act No. 3031, that said provisions are
penal in nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of
Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25
per cent is based on the tax only, instead of on both the tax and
the interest, as provided for in Act No. 3031, and (2) the taxpayer
is allowed twenty days from notice and demand by rthe Collector
of Internal Revenue within which to pay the tax, instead of ten
days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment
for an offense committed against the state which, under the
Constitution, the Executive has the power to pardon. In common
use, however, this sense has been enlarged to include within the
term "penal statutes" all status which command or prohibit
certain acts, and establish penalties for their violation, and even
those which, without expressly prohibiting certain acts, impose a
penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal
laws, although there are authorities to the contrary. (See
Sutherland, Statutory Construction, 361; Twine Co. vs.
Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C.
A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the
Revised Penal Code is not applicable to the case at bar, and in the
absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may
arise at a certain time and the tax may be paid within another
given time. As stated by this court, "the mere failure to pay one's
tax does not render one delinqent until and unless the entire
period has eplased within which the taxpayer is authorized by
law to make such payment without being subjected to the
payment of penalties for fasilure to pay his taxes within the
prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to
pay the inheritance tax before the delivery of the decedent's
property to the trustee. Stated otherwise, the defendant contends
that delivery to the trustee was delivery to the cestui que trust,
the beneficiery in this case, within the meaning of the first
paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is
sustained. The appointment of P. J. M. Moore as trustee was made
by the trial court in conformity with the wishes of the testator as
expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is
clear. No particular or technical words are required to create a
testamentary trust (69 C. J., p. 711). The words "trust" and
"trustee", though apt for the purpose, are not necessary. In fact,
the use of these two words is not conclusive on the question that
a trust is created (69 C. J., p. 714). "To create a trust by will the
testator must indicate in the will his intention so to do by using
language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their
interest in the ttrust, the purpose or object of the trust, and the
property or subject matter thereof. Stated otherwise, to
constitute a valid testamentary trust there must be a concurrence
of three circumstances: (1) Sufficient words to raise a trust; (2) a
definite subject; (3) a certain or ascertain object; statutes in some
jurisdictions expressly or in effect so providing." (69 C. J., pp.
705,706.) There is no doubt that the testator intended to create a
trust. He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose.
The probate court certainly exercised sound judgment in
appointment a trustee to carry into effect the provisions of the
will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date
trust estate vested in him (sec. 582 in relation to sec. 590, Code of
Civil Procedure). The mere fact that the estate of the deceased
was placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the
inheritance tax. The corresponding inheritance tax should have
been paid on or before March 10, 1924, to escape the penalties of
the laws. This is so for the reason already stated that the delivery
of the estate to the trustee was in esse delivery of the same estate
to the cestui que trust, the beneficiary in this case. A trustee is but
an instrument or agent for the cestui que trust (Shelton vs. King,
299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When
6|P a g e
Moore accepted the trust and took possesson of the trust estate
he thereby admitted that the estate belonged not to him but to
his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65
C. J., p. 692, n. 63). He did not acquire any beneficial interest in
the estate. He took such legal estate only as the proper execution
of the trust required (65 C. J., p. 528) and, his estate ceased upon
the fulfillment of the testator's wishes. The estate then vested
absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the
conclusion we have reached. Were we to hold that the payment of
the tax could be postponed or delayed by the creation of a trust of
the type at hand, the result would be plainly disastrous. Testators
may provide, as Thomas Hanley has provided, that their estates
be not delivered to their beneficiaries until after the lapse of a
certain period of time. In the case at bar, the period is ten years.
In other cases, the trust may last for fifty years, or for a longer
period which does not offend the rule against petuities. The
collection of the tax would then be left to the will of a private
individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very
exeistence of government. (Dobbins vs. Erie Country, 16 Pet.,
435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25
Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed.,
101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194;
26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs.
Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to
pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state (Dobbins vs. Erie
Country, supra). For this reason, no one is allowed to object to or
resist the payment of taxes solely because no personal benefit to
him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup.
Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by
construction, the government's power of taxation (Bromley vs.
McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46)
they also will not place upon tax laws so loose a construction as
to permit evasions on merely fanciful and insubstantial
distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U.
S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in
Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481;
Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs.
Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43
Phil., 803.) When proper, a tax statute should be construed to
avoid the possibilities of tax evasion. Construed this way, the
statute, without resulting in injustice to the taxpayer, becomes
fair to the government.
That taxes must be collected promptly is a policy deeply
intrenched in our tax system. Thus, no court is allowed to grant
injunction to restrain the collection of any internal revenue tax (
sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40
Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461),
this court had occassion to demonstrate trenchment adherence
to this policy of the law. It held that "the fact that on account of
riots directed against the Chinese on October 18, 19, and 20,
1924, they were prevented from praying their internal revenue
taxes on time and by mutual agreement closed their homes and
stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment
of the taxes or to accept them without the additional penalty of
twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the
United States, ". . . that the modes adopted to enforce the taxes
levied should be interfered with as little as possible. Any delay in
the proceedings of the officers, upon whom the duty is developed
of collecting the taxes, may derange the operations of
government, and thereby, cause serious detriment to the public."
(Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill
and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been
delinquent in the payment of inheritance tax and, therefore, liable
for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the
date when Moore became trustee. The interest due should be
computed from that date and it is error on the part of the
defendant to compute it one month later. The provisions cases is
mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and
neither the Collector of Internal Revenuen or this court may
remit or decrease such interest, no matter how heavily it may
burden the taxpayer.
To the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the Collector of Internal
Revenue, a surcharge of twenty-five per centum should be added
(sec. 1544, subsec. (b), par. 2, Revised Administrative Code).
Demand was made by the Deputy Collector of Internal Revenue
upon Moore in a communiction dated October 16, 1931 (Exhibit
29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the
tenth day fell on December 1, 1931. As the tax and interest due
were not paid on that date, the estate became liable for the
payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss
the fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and
surcharge due from the estate of Thomas Hanley inaccordance
with the conclusions we have reached.
At the time of his death, the deceased left real properties valued
at P27,920 and personal properties worth P1,465, or a total of
P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under secftion 1539 of the
Revised Administrative Code, we have P28,904.19 as the net
value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the
Revised Administrative Code, should be imposed at the rate of
7|P a g e
one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty
thousand pesos, plus an additional two hundred per centum. One
per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional
two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums
collectible under section 1544 of the Revised Administrative
Code. First should be added P1,465.31 which stands for interest
at the rate of twelve per centum per annum from March 10, 1924,
the date of delinquency, to September 15, 1932, the date of
payment under protest, a period covering 8 years, 6 months and
5 days. To the tax and interest thus computed should be added
the sum of P724.88, representing a surhcarge of 25 per cent on
both the tax and interest, and also P10, the compromise sum
fixed by the defendant (Exh. 29), giving a grand total of
P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the
sums of P1,581.69 is legally due from the estate. This last sum is
P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than
what he claims, we must hold that the plaintiff is liable only in the
sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with
costs against the plaintiff in both instances. So ordered.
G.R. No. L-14519 July 26, 1960
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. LUIS G.
ABLAZA, defendant-appellee.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila,
Hon. Carmelino G. Alvendia, presiding, dismissing an action
instituted by the Government to recover income taxes from the
defendant-appellee corresponding to the years 1945, 1946, 1947
and 1948.
The record discloses that on October 3, 1951, the Collector of
Internal Revenue assessed income taxes for the years 1945,
1946, 1947 and 1948 on the income tax returns of defendant-
appellee Luis G. Ablaza. The assessments total P5,254.70 (Exhibit
"I"). On October 16, 1951, the accountants for Ablaza requested a
reinvestigation of Ablaza's tax liability, on the ground that (1) the
assessment is based on third-party information and (3) neither
the taxpayer nor his accountants were permitted to appear in
person (Exh. "J"). The petition for reinvestigation was granted in
a letter of the Collector of Internal Revenue, dated October 17,
1951. On October 30, 1951, the accountants for Ablaza again sent
another letter to the Collector of Internal Revenue submitting a
copy of their own computation (Exh. "L"). On October 23, 1952,
said accountants again submitted a supplemental memorandum
(Exh. "M"). On March 10, 1954, the accountants for Ablaza sent a
letter to the examiner of accounts and collections of the Bureau of
Internal Revenue, stating:
In this connection, we wish to state that this case is presently
under reinvestigation as per our request dated October 16, 1951,
and your letter to us dated October 17, 1951, and that said tax
liability being only a tentative assessment, we are not as yet
advised of the results of the requested reinvestigation.
In view thereof, we wish to request, in fairness to the taxpayer
concerned, that we be furnished a copy of the detailed
computation of the alleged tax liability as soon as the
reinvestigation is terminated to enable us to prove the veracity of
the taxpayer's side of the case, and if it is found out that said
assessment is proper and in order, we assure you of our
assistance in the speedy disposition of this case. (Exh. "P")
On February 11, 1957, after the reinvestigation, the Collector of
Internal Revenue made a final assessment of the income taxes of
Ablaza, fixing said income taxes for the years already mentioned
at P2,066.56 (Exh. "Q"). Notice of the said assessment was sent
(Exhs. "V", "W" and "X") and upon receipt thereof the accountants
of Ablaza sent a letter to the Collector of Internal Revenue, dated
May 8, 1957, protesting the assessments, on the ground that the
income taxes are no longer collectible for the reason that they
have already prescribed. As the Collector did not agree to the
alleged claim of prescription, action was instituted by him in the
Court of First Instance to recover the amount assessed. The Court
of First Instance upheld the contention of Ablaza that the action
to collect the said income taxes had prescribed. Against this
decision the case was brought here on appeal, where it is claimed
by the Government that the prescriptive period has not fully run
at the time of the assessment, in view especially of the letter of
the accountants of Ablaza, dated March 10, 1954, pertinent
provisions of which are quoted above.
It is of course true on October 14, 1951, Ablaza's accountants
requested a reinvestigation of the assessment of the income taxes
against him, the period of prescription of action to collect the
taxes was suspended. (Sec. 333, C. A. No. 466.) The provision of
law on prescription was adopted in our statute books upon
recommendation of the tax commissioner of the Philippines
which declares:
Under the former law, the right of the Government to collect the
tax does not prescribe. However, in fairness to the taxpayer, the
Government should be estopped from collecting the tax where it
failed to make the necessary investigation and assessment within
5 years after the filing of the return and where it failed to collect
the tax within 5 years from the date of assessment thereof. just as
the government is interested in the stability of its collection, so
also are the taxpayers entitled to an assurance that they will not
be subjected to further investigation for tax purposes after the
expiration of a reasonable period of time. (Vol. II, Report of the
Tax Commission of the Philippines, pp. 321-322)
8|P a g e
The law prescribing a limitation of actions for the collection of
the income tax is beneficial both to the Government and to its
citizens; to the Government because tax officers would be obliged
to act promptly in the making of assessment, and to citizens
because after the lapse of the period of prescription citizens
would have a feeling of security against unscrupulous tax agents
who will always find an excuse to inspect the books of taxpayers,
not to determine the latter's real liability, but to take advantage
of every opportunity to molest peaceful, law-abiding citizens.
Without such legal defense taxpayers would furthermore be
under obligation to always keep their books and keep them open
for inspection subject to harassment by unscrupulous tax agents.
The law on prescription being a remedial measure should be
interpreted in a way conducive to bringing about the beneficient
purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the
approval of the law.
The question in the case at bar boils down to the interpretation of
Exhibit "P", dated March 10, 1954, quoted above. If said letter be
interpreted as a request for further investigation or a new
investigation, different and distinct from the investigation
demanded or prayed for in Ablaza's first letter, Exhibit "L", then
the period of prescription would continue to be suspended
thereby. but if the letter in question does not ask for another
investigation, the result would be just the opposite. In our
opinion the letter in question, Exhibit "P", does not ask for
another investigation. Its first paragraph quoted above shows
that the reinvestigation then being conducted was by virtue of its
request of October 16, 1951. All that the letter asks is that the
taxpayer be furnished a copy of the computation. The request
may be explained in this manner: As the reinvestigation was
allowed on October 1, 1951 and on October 16, 1951, the
taxpayer supposed or expected that at the time, March, 1954 the
reinvestigation was about to be finished and he wanted a copy of
the re-assessment in order to be prepared to admit or contest it.
Nowhere does the letter imply a demand or request for a ready
requested and, therefore, the said letter may not be interpreted
to authorize or justify the continuance of the suspension of the
period of limitations.
We find the appeal without merit and we hereby affirm the
judgment of the lower court dismissing the action. Without costs.
G.R. No. L-30211 October 5, 1976
GOODRICH EMPLOYEES ASSOCIATION, petitioner, vs. THE
HONORABLE DELFIN B. FLORES, JUDGE OF THE COURT OF
FIRST INSTANCE OF RIZAL, PASIG BRANCH XI and B. F.
GOODRICH PHILIPPINES, INC., respondents.
FERNANDO, J.:
The crucial question raised by petitioner B. F. Goodrich
Employees Association in this certiorari and prohibition
proceeding is whether respondent Judge Delfin B. Flores, since
deceased, could entertain a suit for damages filed by private
respondent . B. F. Goodrich Philippines, Inc., the employer,
because of a strike by such union characterized by management
as an unfair labor practice. Previously there was instituted by it
the very same unfair labor practice charge with now defunct
Court of Industrial Relations. The answer supplied in categorical
language both by Associated Labor Union v. Gomez 1 and
Progressive Labor Association v. Atlas Consolidated Mining and
Development Corporation, 2 is that a court of first instance is
devoid of jurisdiction, the matter being appropriately for the
Court of Industrial Relations. It is true that the Gomez decision
was not promulgated until February 9, 1967, while the suit for
damages by private respondent based on an unfair labor practice
was filed with respondent Judge as early as October 12, 1965, as
noted during the pendency of an unfair labor practice complaint
based on the same strike in the Court of Industrial Relations. 3 It
could be said that respondent Judge, when he assumed
jurisdiction in 1965, could not have known any better. No such
excuse could be relied upon, however, as of June 5, 1967 when
the motion to dismiss precisely on the ground of lack of
jurisdiction was presented to him. For the Gomez ruling had in
the meanwhile, on February 9, 1967, to be exact, made its
appearance. That circumstance ought to have prompted him to
grant such motion and thus terminate the civil suit for damages
allegedly arising from the unfair labor practice, Instead, he
denied it.
That was to act not in accordance with but contrary to our
controlling decisions. It ought not to have been the case. Since
jurisdiction was lacking, a case for certiorari and prohibition has
been made out.
1. This is the doctrine announced by this Court through
Justice Sanchez with such clarity in Gomez: "Nor will Sugecos
averment below that it suffers damages by reason of the strike,
work to defeat the CIR's jurisdiction to hear the unfair labor
practice charge, Reason for this is that the right to damages
"would still to depend on the evidence in the unfair labor practice
case"in the CIR. To hold otherwise is to sanction split
jurisdictionwhich is obnoxious to the orderly administration of
justice. 5 Justice J.B.L. Reyes in Progressive Labor Association
decision was equally explicit: "In its effort to sustain the
jurisdiction of the lower court over the present case, appellants
also advance the argument that their demand for damages
anyway cannot be entertained by the Industrial Court. This does
not improve the situation at all. As already held b this Court, mere
allegation that the plaintiff suffered damages because of the
complained acts does not work to divest the Court of Industrial
Relations of jurisdiction to hear the unfair labor practice charge.
For it must be realized that the right to damages would still have
to depend on the evidence to be presented in the unfair labor
case. To hold that the demand for damages is to be passed upon
by the regular courts independently or separately from the unfair
labor practice accusation would be to sanction split jurisdiction,
which is prejudicial to the orderly administration of justice. 6
Thereafter the same jurist had occasion to reiterate the doctrine
in the two subsequent decisions of Leoquenio v. Dry Bottling Co.
7 and Associated Labor Union v. Cruz. 8
9|P a g e
2. Associated Labor Union v. Gomez 9 is also notable for
this categorical pronouncement concerning the exclusive
jurisdiction of the Court of Industrial Relations over unfair labor
practice controversies. To quote from Justice Sanchez anew: "A
rule buttressed upon statute and reason that is frequently
reiterated in jurisprudence is that labor cases involving unfair
labor practice are within the exclusive jurisdiction of the CIR. By
now, this rule has ripened into dogma. It thus commands
adherence, not breach. 10 This excerpt was referred to with
approval by Justice Teehankee, speaking for this Court in Veteran
Security Free Workers Union v. Cloribel, 11 thus: "It has long
been accepted as dogma that cases involving unfair labor practice
fall within the exclusive jurisdiction of the Court of Industrial
Relations, by virtue of the explicit provision of Section 5(a) of the
Industrial Peace Act ... . 12 As was further clarified by the
ponencia of Justice Dizon in Meralco Workers Union v. Gaerlan,
13 where the subject matter is within the competence of the CIR,
it "must be deemed to have jurisdiction of all incidental matters
connected with the main issue ... ." 14 So it was repeated in Lakas
ng Manggagawang Makabayan v. Abiera. 15 There has been since
then no deviation from such a controlling doctrine in accordance
with the express terms of the Industrial Peace Act. 16
3. Rightfully, the able counsel for petitioner, Attorney J. C.
Espinas, concentrated on the crucial and decisive aspect of lack of
jurisdiction. Understandably, the knowledgeable Attorney
Manuel Chan for private respondent sought refuge in the minute
resolution of this Court of October 28, 1968 dismissing a case of
similar nature by the same parties "without prejudice to asking
suspension of proceedings in the Court of First Instance. 17 That
is hardly relevant to the disposition of this present petition.
There is no res judicata. The principle underlying Social Security
System v. Court of Appeals 18 cautions against such an approach.
The very resolution, in the traditional language of the law, can
rightfully be interpreted as evincing respect for the well-settled
doctrine of ripeness for appellate review. With respondent Judge
apparently unable to perceive the clear and manifest import of
authoritative decisions, this Court, in its resolution of March 4,
1969, left no doubt that the question raised in this petition was of
such moment, indicative as it was of the failure of the lower court
to abide by the controlling doctrines, that it forthwith required
respondents "to file an answer to the petition for certiorari and
prohibition. 19 This it did notwithstanding the investment in the
petition that there was a previous proceeding filed b the same
union against the same judge, and the same employer which
resulted in the aforesaid resolution of October 25, 1968. 20 It
cannot be doubted, therefore, that this Court took into
consideration that particular defense raised and found it lacking
in merit.
4. The conclusion reached by this Court to nullify on
jurisdictional ground the challenged order gains added
reinforcement from their draconian Character. On August 31,
1968, the dispositive portion of the decision reached by
respondent Judge was amended to read as follows: "[Wherefore],
judgment is hereby rendered in favor of the plaintiff B. F.
Goodrich Philippines, Incorporated, and against the defendants
Goodrich Employees Association (PLUM) Celedonio Francisco,
Melencio Bautista, Luis V. Mendez, Loreto R. Sotto, Gabino
Magdamit, Jose Porcuna, Igm . Idio Tayag, Teofilo Malicdem
Leonardo Pilande, Leonardo Calimotan, Eleuterio Alvarez, August
Lopez, and L. de los Reyes, directing the said defendants to pay
the plaintiff the amount of Six Hundred Eighty-Six
Thousand Seven Hundred (P686,700.00) Pesos plus interest at
the rate of 1% per month from January 1, 1966 until the said
amount is fully paid; P25,000.00 as moral damages; P25,000.00
as exemplary damages; P50,000.00 as attorney's fees and to pay
the costs of this suit." 21 Then came on January 20, 1969 an order
that could deal a death-blow to petitioner union: "Let a writ of
execution issue in favor of the plaintiff B. F. Goodrich Philippines,
Inc., and against the defendants Goodrich Employees Association
(PLUM), Celedonio Francisco, Melencio Bautista, Luis V. Mendez,
Loreto R. Sotto, Gabino Magdamit, Jose Porcuna, Igmidio Tayag,
Teofilo Malicdem Leonardo Pilande, Leonardo Calimotan,
Eleuterio Alvarez, August Lopez. and L. de los Reyes for the full
satisfaction of its claims." 22 Thus there is the sad spectacle of a
court acting without jurisdiction, guided solely by its own
unaided appraisal of a matter clearly beyond its competence,
inflicting what in the apt phrase of Justice Laurel could very well
be a "mortal wound" to the labor movement. There is no better
illustration of the wisdom of the view of Justice J.B.L. Reyes that
labor controversies should be left for disposition not to an
ordinary court but to an agency better equipped by training,
experience and background to handle them. This observation was
made by him as far back as 1957. 23 The regular courts, as he
pointed out, "have not intervened in labor cases [since 1936] and
are therefore illprepared to apply labor laws and policies. And
the frequency with which this Court has had to upset their labor
injunctions attest to the fact. 24 What is more, that is not protect
labor as required by the 1935 Constitution that was in force
when this litigation arose. 25 That is to make a mockery of the
fundamental principle of social justice, again as therein
enshrined. 26 If there is one case then where the vivid rhetoric of
Justice Street in Banco Espanol-Filipino v. Palanca 27 finds
application, this is it: "Where a judgment or judicial order is void
in this sense it may be said to be a lawless thing, which can be
treated as an outlaw and slain at sight or ignored wherever and
whenever it exhibits its head. 28 Only thus may there be fidelity
to the even greater concern shown by the present Constitution
for the workers as evidenced by the expanded and more
generous scope to both concepts of protection to labor 29 and
social justice. 30 Thereby the goal of what in the inspired
language of the First Lady is, "a compassionate society" 31 may
be truly achieved.
WHEREFORE, the writ of prohibition is granted and the
successor of respondent Judge Delfin B. Flores in Branch XI of the
Court of First Instance of Rizal is hereby perpetually restrained
from taking any further action in Civil Case No. 8962 entitled B. F.
Goodrich Philippines, Inc. v. Philippine Labor Unity Movement,
Goodrich Employees Association, et al., except for the purpose of
dismissing the same. The writ of certiorari is likewise granted
setting aside, nullifying and declaring without any force or effect
10 | P a g e
respondent Judge's decision of August 31, 1968 and his order of
January 20, 1969, for having been issued without jurisdiction. No
costs.
G.R. No. 161997 October 25, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.
PHILIPPINE NATIONAL BANK, Respondent.
GARCIA, J.:
Thru this appeal by way of a petition for review on certiorari
under Rule 45 of the Rules of Court, petitioner Commissioner of
Internal Revenue seeks to set aside the Decision dated October
14, 20031 of the Court of Appeals (CA) in CA-G.R. SP No. 76488
and its Resolution dated January 26, 20042 denying petitioners
motion for reconsideration.
The petition is cast against the following factual setting:
In early April 1991, respondent Philippine National Bank (PNB)
issued to the Bureau of Internal Revenue (BIR) PNB Cashiers
Check No. 109435 for P180,000,000.00. The check represented
PNBs advance income tax payment for the banks 1991
operations and was remitted in response to then President
Corazon C. Aquinos call to generate more revenues for national
development. The BIR acknowledged receipt of the amount by
issuing Payment Order No. C-10151465 and BIR Confirmation
Receipt No. 22063553, both dated April 15, 1991.3
Via separate letters dated April 19 and 29, 1991 and May 14,
19914 to then BIR Commissioner Jose C. Ong, PNB requested the
issuance of a tax credit certificate (TCC) to be utilized against
future tax obligations of the bank.
For the first and second quarters of 1991, PNB also paid
additional taxes amounting to P6,096,150.00 and
P26,854,505.80, respectively, as shown in its corporate quarterly
income tax return filed on May 30, 1991.5 Inclusive of the P180
Million aforementioned, PNB paid and BIR received in 1991 the
aggregate amount of P212, 950,656.79.6 This final figure, if
tacked to PNBs prior years excess tax credit (P1,385,198.30)
and the creditable tax withheld for 1991 (P3,216,267.29), adds
up to P217,552,122.38.
By the end of CY 1991, PNBs annual income tax liability, per its
1992 annual income tax return,7 amounted to P144,253,229.78,
which, when compared to its claimed total credits and tax
payments of P217,552,122.38, resulted to a credit balance in its
favor in the amount of P73,298,892.60.8 This credit balance was
carried-over to cover tax liability for the years 1992 to 1996, but,
as PNB alleged, was never applied owing to the banks negative
tax position for the said inclusive years, having incurred losses
during the 4-year period.
On July 28, 1997, PNB wrote then BIR Commissioner Liwayway
Vinzons-Chato, Attention: Appellate Division, to inform her about
the above developments and to reiterate its request for the
issuance of a TCC, this time for the "unutilized balance of its
advance payment made in 1991 amounting to P73,298,892.60".9
This request was forwarded for review and further processing to
the Office of the Deputy Commissioner for Legal and Inspection
Group, Lilian B. Hefti, and then to the BIRs Large Taxpayers
Service.
In a letter dated July 26, 2000, PNB sought reconsideration of the
decision of Deputy Commissioner Hefti not to take cognizance of
the banks claim for tax credit certificate on the ground that the
jurisdiction of the Appellate Division is limited to claims for tax
refund and credit "involving erroneous or illegal collection of
taxes whenever there are questions of law and/or facts and does
not include claims for refund of advance payment, pursuant to
Revenue Administrative Order [RAO] No. 7-95 dated October 10,
1995."10 In her letter-reply dated August 8, 2008,11 Deputy
Commissioner Hefti denied PNBs request for reconsideration
with the following explanations:
In reply, please be advised that upon review . . . of your case, this
Office finds that the same presents no legal question for
resolution. Rather, what is involved is the verification of factual
matters, i.e., the existence of material facts to establish your
entitlement to refund. Such facts were initially verified through
the proper audit of your refund case by the investigating unit
under the functional control and supervision of the Deputy
Commissioner, Operations Group of this Bureau. It is therefore
right and proper for the Operations Group to review, confirm
and/or pass judgment upon the findings of the unit under it.
At any rate, sound management practices demand that issues as
crucial as refund cases be subjected to complete staff work. There
might be a little delay in the transition of cases but expect the
new procedures to be well-established in no time. Allow us,
however, to allay your concern about delayed processing of your
claim. In fact, the undersigned has made representations with the
Operations Group about your case and if you would check the
status of your case again, you will find that the same has been
duly acted upon." (Emphasis supplied)
On August 14, 2001, PNB again wrote the BIR requesting that it
be allowed to apply its unutilized advance tax payment of
P73,298,892.60 to the banks future gross receipts tax liability.12
Replying, the BIR Commissioner denied PNBs claim for tax credit
for the following reasons stated in his letter of May 21, 2002, to
wit:13
1. The amount subject of claim for [TCC] is being carried over
from your 1991 to 1996 Annual Income Tax Returns. xxx. To
grant your claim would result into granting it twice first for tax
carry over as shown in your 1991 amended Income Tax Return
and second for granting a tax credit.
2. When you requested for a refund on April 19, 1991, reiterated
on April 29, 1991 and again on May 14, 1991 on alleged excess
income taxes, the same was considered premature since the
determination . . . of your income tax liability can only be
11 | P a g e
ascertained upon filing of your Final or Adjusted Income Tax
Return for 1991 on or before April 15, 1992.
3. When you carried over the excess tax payments from 1991 to
1996 Annual Income Tax Return, you had already abandoned
your original intention of claiming for a [TCC]. Furthermore, the
1991 amended Income Tax Return you filed on April 14, 1994
clearly showed that the amount being claimed has already been
applied as tax credit against your 1992 income tax liability.
4. Although there was already a recommendation for the issuance
of a [TCC] by the Chief, Appellate Division and concurred in by
the Assistant Commissioner, Legal Service, the recommendation
was for . . . year 1992 and not for the taxable year 1991, which is
the taxable year involved in this case.
5. Even if you reiterated your claim for tax credit certificate when
you filed your claim on July 28, 1997, the same has already
prescribed on the ground that it was filed beyond the two (2)
year prescriptive period as provided for under Section 204 of
NIRC. [Words in bracket and emphasis added]
On June 20, 2002, PNB, via a petition for review, appealed the
denial action of the BIR Commissioner to the Court of Tax
Appeals (CTA). There, its appellate recourse was docketed as
C.T.A. Case No. 6487.
The Revenue Commissioner filed a motion to dismiss PNBs
aforementioned petition on ground of prescription under the
1977 National Internal Revenue Code (NIRC)14. To this motion,
PNB interposed an opposition, citing Commissioner of Internal
Revenue vs. Philippine American Life Insurance Co.15
In its Resolution of October 10, 2002,16 the CTA granted the
Commissioners motion to dismiss and, accordingly, denied PNBs
petition for review, pertinently stating as follows:
To reiterate, both the claim for refund and the subsequent appeal
to this court must be filed within the same two (2)-year period
[provided in Sec. 230 of the NIRC]. This is not subject to
qualification. The court is bereft of any jurisdiction or authority
to hear the instant Petition for Review, considering that the
above stated action for refund was filed beyond the two (2)-year
prescriptive period as allowed under the Tax Code. (Words in
bracket added)
PNBs motion for reconsideration was denied by the tax court in
its subsequent Resolution of March 20, 2003.17
In time, PNB filed a petition for review with the Court of Appeals
(CA), thereat docketed as CA-G.R. SP No. 76488, arguing that the
applicability of the two (2)-year prescriptive period is not
jurisdictional and that said rule admits of certain exceptions.18
Following the filing by the Commissioner Internal Revenue of his
Comment to PNBs petition in CA-G.R. in SP No. 76488,
respondent PNB filed a Supplement to its Petition for Review.19
In the herein assailed Decision dated October 14, 2003,20 the
appellate court reversed the ruling of the CTA, disposing as
follows:
WHEREFORE, premises considered, the present petition is
hereby GIVEN DUE COURSE. Consequently, the assailed
Resolutions dated October 10, 2002 and March 30, 2003 of the
Court of Tax Appeals in C.T.A. Case No. 6487 are hereby
ANNULLED and SET ASIDE. The case is hereby REMANDED to the
respondent Commissioner for issuance with deliberate dispatch
of the tax credit certificate after completion of processing of
petitioners claim/request by the concerned BIR officer/s as to
the correct amount of tax credit to which petitioner is entitled.
No pronouncements as to costs.
SO ORDERED.
In gist, the appellate court predicated its disposition on the
following main premises:
1. Considering the "special circumstance" that the tax credit PNB
has been seeking is to be sourced not from any tax erroneously or
illegally collected but from advance income tax payment
voluntarily made in response to then President Aquinos call to
generate more revenues for the government, in no way can the
amount of P180 million advanced by PNB in 1991 be considered
as erroneously or illegally paid tax.21
2. The BIR is deemed to have waived the two (2)-year
prescriptive period when its officials led the PNB to believe that
its request for tax credit had not yet prescribed since the matter
was not being treated as an ordinary claim for tax refund/credit
or a simple case of excess payment.
3. Commissioner of Internal Revenue vs. Philippine American Life
Insurance Co.22 instructs that even if the two (2)-year
prescriptive period under the Tax Code had already lapsed, the
same is not jurisdictional, and may be suspended for reasons of
equity and other special circumstances. PNBs failure to apply the
advance income tax payment due to its negative tax liability in
the succeeding taxable years i.e., 1992-1996, should not be
subject to the two (2)-year limitation as to bar its claim for tax
credit. The advance income tax payment, made as it were under
special circumstances, warrants a suspension of the two (2)-year
limitation, underscoring the fact that PNBs claim is not even a
simple case of excess payment.
In time, the BIR Commissioner moved for a reconsideration, but
its motion was denied by the appellate court in its equally
challenged Resolution of January 26, 2004.23
Hence, the Commissioners present recourse on the following
substantive submissions:
1. A prior tax assessment before respondent PNB can apply for
tax credit is unnecessary;
12 | P a g e
2. PNBs letter dated April 19, 29 and May 14, 1991 cannot be
legally interpreted as claims for refund or tax credit as required
by the NIRC;
3. PNBs claim for tax credit is barred by prescription; and
4. The equitable principle of estoppel does bar the BIR petitioner
from collecting taxes due. 24
Petitioner first scores the CA for concluding that "the amount of
advance income tax payment voluntarily remitted to the BIR by
the [respondent] was not a consequence of a prior tax
assessment or computation by the taxpayer based on business
income" and, therefore, it cannot "be treated as similar to those
national revenue taxes erroneously, illegally or wrongfully paid
as to be automatically covered by the two (2)-year limitation
under Sec. 230 [of the NIRC] for the right to its recovery."
Petitioner invokes the all too-familiar principle that the collection
of taxes, being the lifeblood of the nation,25 should be summary
and with the least interference from the courts.
Pressing its point, petitioner asserts that what transpired under
the premises is a case of excessive collection not arising from an
erroneous, illegal of wrongful assessment and collection.
According to petitioner, respondent PNB, after making a
prepayment of taxes in 1991, had realized, upon filing, in 1992, of
its 1991 final annual income tax return, the excess payment by
simple process of mathematical computation; hence, it was
unnecessary to make any assessment of overpaid taxes.
Moreover, petitioner points out that the tenor of PNBs letters of
April 19, 29, and May 14, 199126 indicated a mere request for an
issuance of a TCC covering the advance payments of taxes, not a
claim for refund or tax credit of overpaid national internal
revenue taxes.
Citing Revenue Regulation No. 10-77, petitioner likewise argues
that any excess or overpaid income tax for a given taxable year
may be carried to the succeeding taxable year only. It cannot,
petitioner expounds, go beyond, as what respondent PNB
attempted to do in 1997, when, after realizing the inapplicability
of the excess carry-forward scheme for its 1992 income tax
liabilities owing to its negative tax position for the 1992 to 1996
tax period, it belatedly requested for a TCC issuance.
Lastly, petitioner urges the Court to make short shrift of the
invocation of equity and estoppel, on the postulate that the
erroneous application and enforcement of tax laws by public
officers does not preclude the subsequent correct application of
such laws.27
In its Comment, respondent PNB contends that its claim for tax
credit did not arise from overpayment resulting from erroneous,
illegal or wrongful collection of tax. And obviously having in mind
the holding of this Court in Juan Luna Subdivision Inc. vs.
Sarmiento,28 respondent stresses that its P180 Million advance
income tax payment for 1991 partakes of the nature of a deposit
made in anticipation of taxes not yet due or levied. Accordingly,
respondent adds, the P180 Million was strictly not a payment of a
valid and existing tax liability, let alone an erroneous payment,
the refund of which is governed by Section 230 of the NIRC.
Taking a different tack, respondent PNB would also argue that,
even assuming, in gratia argumenti that the two (2)-year
limitation in Section 230 of the NIRC is of governing application,
still the prescriptive period set forth therein is not jurisdictional.
The suspension of the statutory limitation in this case, PNB adds,
is justified under exceptional circumstance.
We rule for respondent PNB.
As may be recalled, both the CTAs and the BIRs refusal to grant
PNBs claim for refund or credit was based on the proposition
that such claim was time-barred. On the other hand, the CA
rejected both the CTAs and BIRs stance for reasons as shall be
explained shortly.
As we see it then, the core issue in this case pivots on the
applicability hereto of the two (2)-year prescriptive period under
in Section 230 (now Sec. 229) of the NIRC, reading:
"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 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 [(2)] 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.
(Underscoring added.)
Here, respondent PNB requested the BIR to issue a TCC on the
remaining balance of the advance income tax payment it made in
1991. It should be noted that the request was made considering
that, while PNB carried over such credit balance to the
succeeding taxable years, i.e., 1992 to 1996, its negative tax
position during said tax period prevented it from actually
applying the credit balance of P73, 298,892.60. It is fairly correct
to say then that the claim for tax credit was specifically pursued
to enable the respondent bank to utilize the same for future tax
liabilities. However, petitioner ruled that the claim in question is
time-barred, the bank having filed such claim only in 1997, or
more than two (2) years from 1992 when the overpayment of
annual income tax for 1991 was realized by the bank and the
amount of excess payment ascertained with the filing of its final
1991 income tax return.
13 | P a g e
In rejecting petitioners ruling, as seconded by the CTA, the CA
stated that PNBs request for issuance of a tax credit certificate on
the balance of its advance income tax payment cannot be treated
as a simple case of excess payment as to be automatically covered
by the two (2)-year limitation in Section 230, supra of the NIRC.
We agree with the Court of Appeals.
Section 230 of the Tax Code, as couched, particularly its statute of
limitations component, is, in context, intended to apply to suits
for the recovery of internal revenue taxes or sums erroneously,
excessively, illegally or wrongfully collected.
Black defines the term erroneous or illegal tax as one levied
without statutory authority.29 In the strict legal viewpoint,
therefore, PNBs claim for tax credit did not proceed from, or is a
consequence of overpayment of tax erroneously or illegally
collected. It is beyond cavil that respondent PNB issued to the
BIR the check for P180 Million in the concept of tax payment in
advance, thus eschewing the notion that there was error or
illegality in the payment. What in effect transpired when PNB
wrote its July 28, 1997 letter30 was that respondent sought the
application of amounts advanced to the BIR to future annual
income tax liabilities, in view of its inability to carry-over the
remaining amount of such advance payment to the four (4)
succeeding taxable years, not having incurred income tax liability
during that period.
The instant case ought to be distinguished from a situation
where, owing to net losses suffered during a taxable year, a
corporation was also unable to apply to its income tax liability
taxes which the law requires to be withheld and remitted. In the
latter instance, such creditable withholding taxes, albeit also
legally collected, are in the nature of "erroneously collected
taxes" which entitled the corporate taxpayer to a refund under
Section 230 of the Tax Code. So it is that in Citibank, N.A. vs. Court
of Appeals31, we held:
The taxes thus withheld and remitted are provisional in nature.
We repeat: five percent 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., this
Court ruled that the payments of quarterly income taxes (per
Section 68, NIRC) should be considered mere installments on the
annual tax due. These quarterly tax payments . . . 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 aforecited revenue regulation, became
untenable and took on the nature of erroneously collected taxes
at the end of the taxable year. (Underscoring added)
Analyzing the underlying reason behind the advance payment
made by respondent PNB in 1991, the CA held that it would be
improper to treat the same as erroneous, wrongful or illegal
payment of tax within the meaning of Section 230 of the Tax
Code. So that even if the respondents inability to carry-over the
remaining amount of its advance payment to taxable years 1992
to 1996 resulted in excess credit, it would be inequitable to
impose the two (2)-year prescriptive period in Section 230 as to
bar PNBs claim for tax credit to utilize the same for future tax
liabilities. We quote with approval the CAs disquisition on this
point:
Thus, in no sense can the subject amount of advance income tax
voluntarily remitted to the BIR by the [respondent], not as a
consequence of prior tax assessment or computation by the
taxpayer based on business income, be treated as similar to those
national revenue taxes erroneously, illegally or wrongfully paid
as to be automatically covered by the two (2)-year limitation
under Sec. 230 for the right to its recovery. When the P180
million advance income tax payment was tendered by
[respondent], no tax had been assessed or due, or actually
imposed and collected by the BIR. Neither can such payment be
considered as illegal having been made in response to a call of
patriotic duty to help the national government . We therefore
hold that the tax credit sought by [respondent] is not simply a
case of excess payment, but rather for the application of the
balance of advance income tax payment for subsequent taxable
years after failure or impossibility to make such application or
carry over the preceding four (4)-year period when no tax
liability was incurred by petitioner due to losses in its operations.
It is truly inequitable to strictly impose the two (2)-year
prescriptive period as to legally bar any request for such tax
credit certificate considering the special circumstances under
which the advance income tax payment was made and the
unexpected event (four years of business losses) which
prevented such application or carry over. Ironically, both the
[petitioner] and CTA would fault the [respondent] for electing to
credit or carry over the excess amount of tax payment advanced
instead of choosing to refund any such excess amount, holding
that such decision on the part of petitioner caused the two (2)-
year period to lapse without the petitioner filing such a request
for the issuance of a tax credit certificate. They emphasized that
the advance tax payment was made with the understanding that
any excess amount will be either carried over to the next taxable
year or refunded. It appears then that the request for issuance of
a tax credit certificate was arbitrarily interpreted by respondent
as a simple claim for refund instead of a request for application of
the balance (excess amount) to tax liability for the succeeding
14 | P a g e
taxable years, as was the original intention of [respondent] when
it tendered the advance payment in 1991."32 (Emphasis in the
original; words in bracket added)
Petitioner insists that a prior tax assessment in this case was
unnecessary, the excess tax payment having already been
ascertained by the end of 1992 upon the filing by respondent of
its adjusted final return. Thus, petitioner adds, the two (2)-year
prescriptive period to recover said excess credit balance had
begun to run from the accomplishment of the said final return
and, ergo, PNBs claim for tax credit asserted in 1997 is definitely
belated. Additionally, petitioner, citing Revenue Regulation No.
10-77, contends that the carrying forward of any excess or
overpaid income tax for a given taxable year is limited to the
succeeding taxable year only.
We do not agree.
Revenue Regulation No. 10-7733 governs the method of
computing corporate quarterly income tax on a cumulative basis.
Section 7 thereof provides:
SEC. 7. Filing of final or adjustment return and final payment of
income tax. -- A final or an adjustment return . . . covering the
total taxable income of the corporation for the preceding
calendar or fiscal year shall be filed on or before the 15th day of
the fourth month following the close of the calendar or fiscal
year. xxxx. The amount of income tax to be paid shall be the
balance of the total income tax shown on the final or adjustment
return after deducting therefrom the total quarterly income taxes
paid during the preceding first three quarters of the same
calendar or fiscal year.
"Any excess of the total quarterly payments over the actual
income tax computed and shown in the adjustment or final
corporate income tax return shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the succeeding
taxable year. The corporation must signify in its annual corporate
adjustment return its intention whether to request for the refund
of the overpaid income or claim for automatic tax credit to be
applied against its income tax liabilities for the quarters of the
succeeding taxable year by filling the appropriate box on the
corporate tax return. (B.I.R. Form No. 1702) [Emphasis added]
As can be gleaned from the above, the mandate of Rev. Reg. No.
10-77 is hardly of any application to PNBs advance payment
which, needless to stress, are not "quarterly payments" reflected
in the adjusted final return, but a lump sum payment to cover
future tax obligations. Neither can such advance lump sum
payment be considered overpaid income tax for a given taxable
year, so that the carrying forward of any excess or overpaid
income tax for a given taxable year is limited to the succeeding
taxable year only.34 Clearly, limiting the right to carry-over the
balance of respondents advance payment only to the
immediately succeeding taxable year would be unfair and
improper considering that, at the time payment was made, BIR
was put on due notice of PNBs intention to apply the entire
amount to its future tax obligations.
In Commissioner vs. Phi-am Life35, the Court ruled that an
availment of a tax credit due for reasons other than the
erroneous or wrongful collection of taxes may have a different
prescriptive period. Absent any specific provision in the Tax Code
or special laws, that period would be ten (10) years under Article
1144 of the Civil Code. Significantly, Commissioner vs. Phil-Am is
partly a reiteration of a previous holding that even if the two (2)-
year prescriptive period, if applicable, had already lapsed, the
same is not jurisdictional36 and may be suspended for reasons of
equity and other special circumstances.37
While perhaps not in all fours because it involved the refund of
overpayment due to misinterpretation of the law on franchise,
our ruling in Panay Electric Co. vs. Collector of Internal
Revenue38, is apropos. There, the Court stated:
"xxx(L)egally speaking, the decision of the Tax Court [on the two-
year prescriptive period for tax refund] is therefore correct,
being in accordance with law. However, ones conscience does
not and cannot rest easy on this strict application of the law,
considering the special circumstances that surround this case.
Because of his erroneous interpretation of the law on franchise
taxes, the Collector, from the year 1947 had illegally collected
from petitioner the respectable sum of . . . . From a moral
standpoint, the Government would be enriching itself of this
amount at the expense of the taxpayer. (Words in bracket added
and underscoring added.)
Like the CA, this Court perceives no compelling reason why the
principle enunciated in Panay Electric and Commissioner vs. Phil-
Am Life should not be applied in this case, more so since the
amount over which tax credit is claimed was theoretically booked
as advance income tax payment. It bears stressing that
respondent PNB remitted the P180 Million in question as a
measure of goodwill and patriotism, a gesture noblesse oblige, so
to speak, to help the cash-strapped national government. It would
thus indeed, be unfair, as the CA correctly observed, to leave
respondent PNB to suffer losing millions of pesos advanced by it
for future tax liabilities. The cut becomes all the more painful
when it is considered that PNBs failure to apply the balance of
such advance income tax payment from 1992 to 1996 was, to
repeat, due to business downturn experienced by the bank so
that it incurred no tax liability for the period.
The rule of long standing is that the Court will not set aside
lightly the conclusions reached by the CTA which, by the very
nature of its functions, is dedicated exclusively to the resolution
of tax problems and has, accordingly, developed an expertise on
the subject, unless there has been an abuse or improvident
exercise of authority.39 It is likewise settled that to a claimant
rests the onus to establish the factual basis of his or her claim for
tax credit or refund.40 In this case, however, petitioner does not
dispute that a portion of the P180 Million PNB remitted to the
BIR in 1991 as advance payment remains unutilized for the
purpose for which it was intended in the first place. But
15 | P a g e
petitioner asserts that respondents right to recover the same is
already time-barred. The CTA upheld the position of petitioner.
The CA ruled otherwise. We find the CAs position more in accord
with the facts on record and is consistent with applicable laws
and jurisprudence.
Verily, the suspension of the two (2)-year prescriptive period is
warranted not solely by the objective or purpose pursuant to
which respondent PNB made the advance income tax payment in
1991. Records show that petitioners very own conduct led the
bank to believe all along that its original intention to apply the
advance payment to its future income tax obligations will be
respected by the BIR. Notwithstanding respondent PNBs failure
to request for tax credit after incurring negative tax position in
1992, up to taxable year 1996, there appears to be a valid reason
to assume that the agreed carrying forward of the balance of the
advance payment extended to succeeding taxable years, and not
only in 1992. Thus, upon posting a net income in 1997 and
regaining a profitable business operation, respondent bank
promptly sought the issuance of a TCC for the reason that its
credit balance of P73, 298,892.60 remained unutilized. If ever,
petitioners pose about respondent PNB never having made a
written claim for refund only serves to buttress the latters
position that it was not out to secure a refund or recover the
aforesaid amount, but for the BIR to issue a TCC so it can apply
the same to its future tax obligations.
Lest it be overlooked, petitioner peremptorily denied the request
for tax credit on the ground of its having been filed beyond the
two (2)-year prescriptive period. In the same breath, however,
petitioner appears to have glossed over an incident which
amounts to an earlier BIR ruling that "there is no legal question
to be resolved but only a factual investigation" in the processing
of PNBs claim. Even as petitioner concluded such administrative
investigation, it did not deny the request for issuance of a tax
credit certificate on any factual finding, such as the veracity of
alleged business losses in the taxable years 1992 to 1996, during
which the respondent bank alleged the credit balance was not
applied. Lastly, there is no indication that petitioner considered
respondents request as an ordinary claim for refund, the very
reason why the same was referred by the BIR for processing to
the Operations Group of the Bureau.
Hence, no reversible error was committed by the CA in holding
that, upon basic considerations of equity and fairness,
respondents request for issuance of a tax credit certificate
should not be subject to the two (2)-year limitation in Section
230 of the NIRC.
With the foregoing disquisitions, the Court finds it unnecessary to
delve on the question of whether or not mistakes of tax officers
constitute a bar to collection of taxes by the BIR Commissioner.
The procedural issue presently raised by petitioner, i.e.,
respondent PNBs alleged non-compliance with the forum
shopping rule when its petition for review filed with the CTA did
not contain the requisite authority of PNB Vice President Ligaya
R. Gagolinan to sign the certification, need not detain us long.
Petitioner presently faults the CA for not having taken notice that
PNBs initiatory pleading before the CTA suffers from an infirmity
that justifies the dismissal thereof. But it is evident that the issue
of forum shopping is being raised for the first time in this
appellate proceedings. Accordingly, the Court loathes to
accommodate petitioners urging for the dismissal of
respondents basic claim on the forum-shopping angle. As earlier
ruled by this Court, a party ought to invoke the issue of forum
shopping, assuming its presence, at the first opportunity in his
motion to dismiss or similar pleading filed in the trial court. Else,
he is barred from raising the ground of forum shopping in the
Court of Appeals and in this Court.41 So it must be here.
WHEREFORE, the petition is DENIED for lack of merit and the
assailed decision and resolution of the Court of Appeals in CA-
G.R. SP No. 76488 AFFIRMED.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.,
plaintiff-appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE
MUNICIPAL MAYOR, ET AL., defendant appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance
of Leyte in its Civil Case No. 3294, which was certified to Us by
the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No.
2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling
Company of the Philippines, Inc., commenced a complaint with
preliminary injunction before the Court of First Instance of Leyte
for that court to declare Section 2 of Republic Act No. 2264. 1
otherwise known as the Local Autonomy Act, unconstitutional as
an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts,
the material portions of which state that, first, both Ordinances
Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of
said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was
approved on September 25, 1962, levies and collects "from soft
drinks producers and manufacturers a tai of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked." 2 For
the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the
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Municipal Treasurer a monthly report, of the total number of
bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was
approved on October 28, 1962, levies and collects "on soft drinks
produced or manufactured within the territorial jurisdiction of
this municipality a tax of ONE CENTAVO (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of
computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of
gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is
denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered
judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the
plaintiff to pay the taxes due under the oft the said Ordinances;
and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company
appealed to the Court of Appeals, which, in turn, elevated the case
to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent
attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by
the people. 6 It is a power that is purely legislative and which the
central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon
the theory of separation of powers. The exception, however, lies
in the case of municipal corporations, to which, said theory does
not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication,
the legislative power to create political corporations for purposes
of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the
New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and
to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the
power of local taxation.
The plenary nature of the taxing power thus delegated, contrary
to plaintiff-appellant's pretense, would not suffice to invalidate
the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that
which is exercised by itself. When it is said that the taxing power
may be delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for
reasons of public policy the State has not deemed wise to tax for
more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the
taxing power, except when the taking of the property is in the
lawful exercise of the taxing power, as when (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the jurisdiction
of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for
hearing are provided. 11 Due process is usually violated where
the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e.,
extraterritorial taxation; and arbitrary or oppressive methods are
used in assessing and collecting taxes. But, a tax does not violate
the due process clause, as applied to a particular taxpayer,
although the purpose of the tax will result in an injury rather
than a benefit to such taxpayer. Due process does not require that
the property subject to the tax or the amount of tax to be raised
should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process
of law. 12
There is no validity to the assertion that the delegated authority
can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. 13 The reason is that the
State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of
the United States and some states of the Union. 14 Double
taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity 15 or by the
same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23
and 27 constitute double taxation, because these two ordinances
cover the same subject matter and impose practically the same
tax rate. The thesis proceeds from its assumption that both
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ordinances are valid and legally enforceable. This is not so. As
earlier quoted, Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft drinks producers
or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the
bottle used. When it was discovered that the producer or
manufacturer could increase the volume contents of the bottle
and still pay the same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October 28, 1962,
imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks produced:
in Ordinance No. 23, it was 1/16 of a centavo for every bottle
corked; in Ordinance No. 27, it is one centavo (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity. The intention
of the Municipal Council of Tanauan in enacting Ordinance No. 27
is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even
without words to that effect. 18 Plaintiff-appellant in its brief
admitted that defendants-appellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation of facts
confirms the fact that the Acting Municipal Treasurer of Tanauan,
Leyte sought t6 compel compliance by the plaintiff-appellant of
the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even
the Provincial Fiscal, counsel for defendants-appellees admits in
his brief "that Section 7 of Ordinance No. 27, series of 1962
clearly repeals Ordinance No. 23 as the provisions of the latter
are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining
Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, accepting those which
are mentioned therein." As long as the text levied under the
authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the
ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19
The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage
tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to enact. 20
But, the imposition of "a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not
partake of the nature of a percentage tax on sales, or other taxes
in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. The volume capacity
of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is
not set ratio between the volume of sales and the amount of the
tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes
are those imposed on specified articles, such as distilled spirits,
wines, fermented liquors, products of tobacco other than cigars
and cigarettes, matches firecrackers, manufactured oils and other
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs.
22 Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces,

U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1- centavos per case, 23
cannot be considered unjust and unfair. 24 an increase in the tax
alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed
much discretion in determining the reates of imposable taxes. 25
This is in line with the constutional policy of according the widest
possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax Code
(PD No. 231, July 1, 1973). 26 Unless the amount is so excessive
as to be prohibitive, courts will go slow in writing off an
ordinance as unreasonable. 27 Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were to
be realized. 28

Finally, the municipal license tax of P1,000.00 per corking

machine with five but not more than ten crowners or P2,000.00
with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks
and/or mineral waters under Ordinance No. 54, series of 1964, as
amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the
validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged
in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a
municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act

No. 2264, otherwise known as the Local Autonomy Act, as
amended, is hereby upheld and Municipal Ordinance No. 27 of
the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.

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