G.R. No.

167134 March 18, 2015 In his Decision dated December 20, 2001,10 the CIR denied the protest of
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
TRADERS ROYAL BANK, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before this Court is a Petition for Review on Certiorari filed by petitioner
Commissioner of Internal Revenue (CIR) assailing the Decision1 dated
February 14, 2005 of the Court of Tax: Appeals (CTA) en bane in C.T.A. EB
No. 32, which denied the CIR's appeal of the Decision2 dated April 28, 2004
and Resolution3 dated September 10, 2004 of the CT A Division in C.T.A.
Case No. 6392. The CTA Division cancelled the assessments issued by the
CIR against respondent Traders Royal Bank (TRB) for deficiency
documentary stamp taxes (DST) on the latter's Trust Indenture Agreements for
taxable years 1996 and 1997, in the amounts of
₱10,517,740.57and1!18,349,556.33, respectively.4
TRB. The CIR adopted the position of the BIR examiners that the Special
Savings Deposit should be deemed a time deposit account subject to DST
under Section 180 of the Tax Code of 1977. The CIR reasoned:
[T]his Office believes and so holds that the Special Savings Deposit and Time
Deposit are just one and the same banking transaction. To evade payment of
the DST, efforts were made by banks to place a superficial distinction between
the two (2) deposit accounts by introducing an innovation using a regular
passbook to document the Special Savings Deposit and by claiming that the
said special deposit has no specific maturity date. At first glance, the
innovative scheme may have accomplished in putting a semblance of
difference between the aforesaid two (2) deposit accounts, but an analytical
look at the passbook issued clearly reveals that although it does not have the
form of a certificate nor labelled as such, it has a fixed maturity date and for
all intents and purposes, it has the same nature and substance as a "certificate
of deposit bearing interest." In fact, it could be said that the passbook is in
itself a "certificate of deposit."11
As for the Trust Indenture Agreements, the CIR opined that they were but a
form of deposit, likewise subject to DST. According to the CIR:

TRB is a domestic corporation duly registered with the Securities and In an earlier case involving the same industry issue, We ruled that the
Exchange Commission and authorized by the Bangko Sentral ng Pilipinas essential features/characteristics of a Trust Agreement are as follows:
(BSP) to engage in commercial banking.5 On the strength of the Letter of
Authority (L.A.) No. 000018565 dated July 27, 1998, the Bureau of Internal
A) The required minimum deposit is ₱50,000.00;
Revenue (BIR) conducted an investigation concerning all national internal
revenue tax liabilities of TRB for taxable years 1996-1997. Following the
investigation, the BIR issued a Pre-Assessment Notice dated November 10, B) The shortest maturity date is 30 days;
1999 against TRB. Subsequently, the BIR issued a Formal Letter of Demand
and Assessment Notice Nos. ST-DST-96-0234-996 and ST-DST-97-0233-
C) It is not payable on sight or demand, in case of pretermination,
99,7 all dated December 27, 1999, against TRB for deficiency DST for 1996
prior written notice is required; D) It is automatically renewed in
and 1997, in the total amount of ₱28,867,296.90, broken down as follows:
case the depositor fails to withdraw the deposit at maturity date; E)
The bank used confirmation of participation to evidence the
DEFICIENCY DOCUMENTARY STAMP TAX acceptance of the funds from the trustor.

Industry Issues on: 1996 1997 Based on the foregoing features, it is evident that the contention of the bank is
misplaced. Although the contract is termed as "trust agreement," it can be
Special Savings Deposit ₱5,041,882,798.03 ₱9,579,733,184.65 considered as a misnomer because the relationship existing between the
parties in the subject contract is actually not a trustor-trustee relationship but
Trust Fund 567,500,927.00 55,783,860.92 that of a creditor-debtor relationship, the same relationship governing deposits
Mega Savings Deposit 77,911.32 150,872,997.87 of money in banks.

Total 5,609,461,636.35 9,786,390,043.44 xxxx

Tax Rate .30/200 .30/200

Basic 8,414,192.45 14,679,645.07
Add: Surcharge 2,103,548.11 3,669,911.27
8 properties may be invested by the bank in whatever manner it may deem
TOTAL P 10,517,740.57 P 18,349,556.33
=============== ===============
TRB Vice President Bayani R. Navarro (Navarro) wrote a letter dated January
7, 20009 protesting the foregoing assessments of the BIR on the following
grounds:
In response, we would like to point out that Special Savings Deposits being
savings deposit accounts are not subject to the documentary stamp tax.
Likewise, Trust Indenture Agreement[s] are not subject to documentary stamp
tax for the reason that relationship established between parties is that of the
trustor and trustee, wherein the funds and/or properties of the trustor are given
to the Trustee Bank not as a deposit but under a Common Trust Fund
maintained and to be managed by the Trustee.
The same arguments are being invoked by other banks using similar
instruments and the imposition of the DST is considered as an industry
problem and is being contested by the entire banking community.
In the said contract of trust under the Civil Code, there is only an equitable
transfer of ownership by the trustor to the trustee, the trustor retains his legal
title to the subject property. On the other hand, in the bank’s "trust
agreement," once the specific funds or properties of the trustor are placed
under the common trust fund, there is a complete transfer of ownership from
the trustor to the trustee-bank. It is manifested by the fact that said funds or
necessary, the trustor has no control whatsoever over his funds. Another point
of distinction between the two contracts is that, in the contract of trust every
transaction involving the trust property must be entered into by the trustee for
the benefit of the trustor or his designated beneficiary; while in the bank’s
"trust agreement," all benefits from the transactions involving properties from
the common trust fund will be received solely by the trustee-bank, the
trustor’s only consolation is limited to receiving higher rate of interest from
his property. In effect, the subject "trust agreement" although termed as such
is but a form of a deposit.
The fact that the subject trust agreement is evidenced by a "confirmation of
participation" and not by a certificate of deposit is immaterial. As discussed
above, what is important and controlling is the nature or meaning conveyed by
the document and not the particular label or nomenclature attached to it,
inasmuch as its substance is paramount than its form. Therefore, the
examiners are correct in imposing documentary stamp tax on the bank’s "trust
agreements."12
The CIR ruled in the end:

1
IN VIEW WHEREOF, this Office has resolved to DENY the protest of herein
protestant-bank. Assessment Notice Nos. ST-DST-96-0234-99 and ST-DST-
97-0233-99 demanding payment of the respective amounts of ₱10,517,740.57
and ₱18,349,556.33 as documentary stamp taxes for the taxable years 1996
and 1997 are hereby AFFIRMED in all respects. Consequently, the protestant-
bank is hereby ordered to pay the above-stated amounts plus interest that may
have accrued thereon until actual payment, to the Collection Service, BIR
National Office, Diliman, Quezon City, within thirty (30) days from receipt
hereof, otherwise, collection shall be effected through the summary remedies
provided by law.
This constitutes the final decision of this Office on the matter.13
TRB filed a Petition for Review14 with the CTA, which was docketed as
C.T.A. Case No. 6392. The parties stipulated the following issues to be
resolved by the CTA Division:
A. Whether or not Special Saving Deposits and Mega Savings
Deposits [both are Special Savings Accounts (SSA)] are subject to
documentary stamp tax (DST) under Section 180 of the Tax Code.
B. Whether or not the ordinary saving account passbook issued by
[TRB] x x x can be considered a certificate of deposit subject to
documentary stamp tax (DST).
C. Whether or not the Trust Indenture Agreements are subject to
documentary stamp tax (DST) under Section 180 of the Tax
Code.15
On April 28, 2004, the CTA Division rendered a Decision, resolving the first
two issues in favor of the CIR and the last one in favor of TRB.
The CTA Division agreed with the CIR that the Special Savings Deposits and
Time Deposits were akin to each other in that the bank would acknowledge
the receipt of money on deposit which the bank promised to pay to the
depositor, bearer, or to the order of the bearer after a specified period of time.
In both cases, the deposits could be withdrawn anytime but the depositor
would earn a lower rate of interest. The only difference was the evidence of
the deposits: a passbook for Special Savings Deposits and a certificate of
deposit for Time Deposits. Considering that the passbook and the certificate of
time deposit were evidence of transactions, then both should be subject to
DST, an excise tax on transactions.
The CTA Division, however, concurred with TRB that the Trust Indenture
Agreements were different from the certificate of deposit, thus:
A Trust Indenture Agreement has a different feature and concept from a
certificate of deposit. When a depositor enters into a trust agreement, what is
created is a trustor-trustee relationship. The money deposited is placed in trust
to a common fund and then invested by the Trust Department into a profitable
venture. The yield or return of investment is higher and varies depending on
the actual profit earned. In some trust agreements, a depositor may even get a
negative return of investment. The fact that there is an "expected rate of
return" does not necessarily convert a trust agreement into a time deposit.
Under Section X407 of the Manual of Regulations for Banks it is provided
that "the basic characteristic of trust, other fiduciary and investment
management relationship is the absolute non-existence of a debtor-creditor
relationship, thus, there is no obligation on the part of the trustee, fiduciary or
investment manager to guarantee returns on the funds or properties regardless
of the results of the investment."16
The CTA Division ultimately decreed:
WHEREFORE, the assessments for deficiency documentary stamp taxes on
trust fund against [TRB] for taxable years 1996 and 1997 are hereby
CANCELLED. However, the assessments for deficiency documentary stamp
taxes on special savings deposit and mega savings deposit for same taxable
years 1996 and 1997 are hereby AFFIRMED.
ACCORDINGLY, [TRB] is ORDERED TO PAY the [CIR] the deficiency
documentary stamp taxes for the years 1996 and 1997 in the respective
amounts of ₱9,453,676.33 and ₱18,244,886.69 (all inclusive of 25%
surcharge) totaling ₱27,698,562.92 x x x.
xxxx
In addition, [TRB] is ORDERED TO PAY the [CIR] 20% delinquency
interest on ₱27,698,562.92 computed from February 14, 2002 until fully paid
pursuant to Section 249 of the Tax Code, as amended.17
The parties each filed motions relative to the aforementioned judgment of the
CTA Division, to wit:
1. "Omnibus Motion for Substitution of Parties and Motion for
Reconsideration (Re: Decision dated April 28, 2004)"filed on May
28, 2004 by [TRB] seeking for the:
a. Substitution of parties from Traders Royal Bank to
Bank of Commerce;
b. Reconsideration and reversal of this court’s Decision
promulgated on April 28, 2004 finding [TRB] liable for
deficiency documentary stamp taxes for the taxable
years 1996 and 1997 in the amounts of ₱9,453,676.33
and ₱18,244,886.69, respectively (all inclusive of the
25% surcharge), plus 20% delinquency interest
computed from February 14, 2002 until fully paid; and
c. Cancellation of the subject deficiency tax
assessments.
2. "Motion for Partial Reconsideration" filed on May 24, 2004 by
[CIR] seeking for a partial reversal of this court’s Decision
promulgated on April 28, 2004 with regard to the cancellation by
this court of [CIR’s] assessment for deficiency documentary stamp
taxes on the trust fund against [TRB] for the taxable years 1996
and 1997.18
The CTA Division issued a Resolution dated September 10, 2004 denying the
motions of the parties:
Based on the allegations of [TRB], the Purchase and Sale Agreement
[between TRB and the Bank of Commerce (BOC)] was executed on
November 9, 2001. Upon the execution of the said agreement, the BOC
assumed the deposit liabilities of [TRB] for the taxable years covering 1996
and 1997. However, it is noteworthy to emphasize that the Petition for Review
was filed by [TRB] only on February 15, 2002 after the alleged transfer of
right happened. To adopt the view of [TRB] and pursuant to the quoted
Section 19,Rule 3 of the 1997 Rules of Court, it should have been the BOC
that should have filed the Petition for Review instead of [TRB]. Yet, this was
not the case. The petition was filed by petitioner Traders Royal Bank,
notwithstanding the alleged transfer of rights to Bank of Commerce prior to
the commencement of the action. Failure of[TRB] to show justifiable reasons
for such negligence and blunder, this court cannot then allow the substitution
of parties.
xxxx
There being no other new issues raised by [TRB] which this court has not yet
passed upon in its Decision of April 28, 2004, this court hereby RESOLVES
to DENY[TRB’s] motion.
xxxx
Finding that the issue raised by the [CIR] had been thoroughly discussed in
the Decision of April 28, 2004, this court finds no compelling reason to
modify or alter the same and thereby RESOLVES to DENY [CIR’s] Motion
for Partial Reconsideration.
WHEREFORE, both motions are hereby DENIED for lack of merit.
Accordingly, this court’s Decision promulgated on April 28, 2004 is
AFFIRMED in all respects.19
2
The CIR and TRB filed with the CTA en banc separate Petitions for Review,
docketed as C.T.A. EB Nos. 32 and 34, respectively, partially appealing the
Decision dated April 28, 2004 and Resolution dated September 10, 2004 of
the CTA Division.
The CTA en banc promulgated its Decision in C.T.A. EB No. 32 on February
14, 2005, dismissing the Petition of the CIR and affirming the cancellation by
the CTA Division of the assessments against TRB for DST on its Trust
Indenture Agreements for 1996 to 1997. According to the CTA en banc:
[A]n examination of the Petition for Review revealed that the issues raised
therein by the [CIR] have been discussed at length and directly ruled upon in
the assailed Decision and in the subsequent Resolution. The Court is not
convinced by [CIR’s] arguments on the assigned errors to justify a reversal of
the questioned Decision.
The Manual for Regulations of Banks issued by the Central Bank of the
Philippines has defined the trust business as "xx x any activity resulting from
a trustor-trustee relationship (trusteeship) involving the appointment of a
trustee by a trustor for the administration, holding, management of funds
and/or properties of the trustor by the trustee for use, benefit or advantage of
the trustor or others called beneficiaries (Sec.X403 [a])."
As correctly explained in the questioned Decision, "When a depositor enters
into a trust agreement, what is created is a trustor-trustee relationship. The
money deposited is placed in trust to a common fund and then invested by the
Trust Department into a profitable venture". [CIR’s] contention that there is a
complete transfer of ownership from the trustor to the trustee bank because the
funds may be invested by the bank in whatever manner it may deem necessary
and the trustor having no control whatsoever over his funds runs counter
to[CIR’s] allegation in the Petition that "A contract of trust under the Civil
Code is defined as the legal relationship between one person having an
equitable ownership in property and another person owning [the] legal title to
such property, the equitable ownership of the former entitling him to the
performance of duties and the exercise of certain powers by the latter." (citing
Commentaries and Jurisprudence on the Civil Code of the Philippines, Arturo
Tolentino, Volume 4, p. 669). The [CIR], in effect, admits that the trustee
bank holds legal title over the funds (i.e., has legal ownership of the funds),
and is entitled to exercise certain powers such as the investment of the funds
in behalf of the trustor (which is the essence of the trust business).
[TRB] likewise correctly pointed out that the trust funds managed by its Trust
Department cannot be appropriately alleged as time deposits, because the
acceptance of deposits is beyond the realm of the business of the trust
department of banks as implied under Section X407 of the Manual of
Regulations for Banks inasmuch as no debtor-creditor relationship exists
between the parties in the trust agreement.
The trust placement not being a time deposit, it cannot therefore be subject to
documentary stamp tax as a certificate of deposit.20
Hence, the dispositive portion of the Decision dated February 14, 2005 of the
CTA en banc in C.T.A. EB No. 32 reads:
WHEREFORE, finding that the Petition for Review is patently without merit,
the same is denied due course. Accordingly, the same is DISMISSED. 21
The CTA en banc, in a Decision dated April 26, 2005 in C.T.A. EB No.
34,22 similarly dismissed the Petition of TRB and upheld the ruling of the
CTA Division that TRB was liable for DST on its Special Savings Deposits
for 1996 to 1997, plus surcharge and delinquency interest. The CTA en banc
concluded:
For all intents and purposes, [TRB’s] Special Savings and Mega Savings
Deposit are deemed to be of the same nature and substance as a certificate of
deposit bearing interest. Therefore, We hold that said Special Savings and
Mega Savings passbooks are in themselves certificates of deposit, subject to
documentary stamp tax in accordance with Section 180, National Internal
Revenue Code of 1993, as amended. While the DST is levied on the document
itself, it is not intended to be a tax on the document alone. Rather, the DST is
levied on the exercise of a privilege of conducting a particular business or
transaction through the execution of specific instruments or documents (Phil.
Home Assurance Corp. vs. Court of Appeals, 301 SCRA 435). Lastly, there is
likewise no merit to [TRB’s] contention that the Division erred in denying the
"Motion for Substitution of Parties".
Generally, there is no need of a substitution or joinder of the transferee as a
party-litigant for after all even if the action is continued by or against the
original party, the judgment is binding on all the parties (original party,
adverse party and transferee) (Oria Hnos. v. Gutierrez Hnos., 52 Phil. 156;
Correa v. Pascual, 99 Phil. 696;Bustamante v. Azarcon, L-8939, May 28,
1957). This is a settled rule in this jurisdiction. Indeed, We may say that the
transferee is a proper (or necessary) party, but not an indispensable party to
the original case (Fetalino v. Sanz, 44 Phil. 69).
xxxx
Accordingly, no error was committed by the Division when it denied the
"Motion for Substitution of Parties."23
Consequently, in its Decision dated April 26, 2005 in C.T.A. EB No. 34, the
CTA en banc adjudged:
All the foregoing considered, We see no reason to reverse the assailed
Decision and Resolution of the Division of this Court.
WHEREFORE, premises considered, the instant petition is hereby DENIED
DUE COURSE, and accordingly, DISMISSED for lack of merit.24
TRB filed a Motion for Reconsideration of the foregoing Decision, but said
Motion was denied by the CTA en banc in a Resolution dated June 10, 2005.
The CIR filed a Petition for Review before the Court, docketed as G.R. No.
167134, assailing the Decision dated February 14, 2005 of the CTA en banc in
C.T.A. EB No. 32.
TRB initially filed a Motion for Extension of Time to File Petition for
Review, requesting an extension of 30 days (i.e., until August 1, 2005) within
which to appeal the Decision dated April 26, 2005 and Resolution dated June
10, 2005 of the CTA en banc in C.T.A. EB No. 34. The Motion of TRB was
docketed as G.R. No. 168491.
In a Resolution dated August 3, 2005, the Court consolidated the Petitions in
G.R. Nos. 167134 and 168491 considering that they "assail the same decision
of the Court of Tax Appeals, involve the same parties, and raise interrelated
issues."
Eventually, the Court issued a Resolution dated June26, 2006, in which it
resolved as follows:
It appearing that [TRB] in G.R. No. 168491 failed to file a petition for review
on certiorari within the extended period which expired on August 1, 2005, the
Court further resolves to CONSIDER G.R. No. 168491 CLOSED and
TERMINATED.25
The Resolution dated June 26, 2006 of the Court in G.R. No. 168491 became
final and executory and Entry of Judgment was made in said case on August
24, 2006.
Presently pending resolution by the Court is the Petition for Review of the
CIR in G.R. No. 167134 which appealed the Decision dated February 14,
2005 of the CTA en banc in C.T.A. EB No. 32 based on the lone assignment
of error, viz:
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT
A TRUST INDENTURE AGREEMENT IS NOT A CERTIFICATE OF
DEPOSIT, HENCE, NOT SUBJECT TO DOCUMENTARY STAMP TAX
UNDER SECTION 180 OF THE TAX CODE.26
3
Section 180 of the National Internal Revenue Code (NIRC) of 1977, as
amended by Republic Act No. 7660 – in force in1996 and 1997 – imposed
DST on the following documents:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of
exchange, drafts, instruments and securities issued by the government or any
of its instrumentalities, certificates of deposit bearing interest and others not
payable on sight or demand. – On all loan agreements signed abroad wherein
the object of the contract is located or used in the Philippines; bills of
exchange (between points within the Philippines), drafts, instruments and
securities issued by the Government or any of its instrumentalities or
certificates of deposits drawing interest, or orders for the payment of any sum
of money otherwise than at sight or on demand, or on all promissory notes,
whether negotiable or nonnegotiable, except bank notes issued for circulation,
and on each renewal of any such note, there shall be collected a documentary
stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional
part thereof, of the face value of any such agreement, bill of exchange, draft,
certificate of deposit, or note: Provided, That only one documentary stamp tax
shall be imposed on either loan agreement, or promissory notes issued to
secure such loan, whichever will yield a higher tax: Provided, however, That
loan agreements or promissory notes the aggregate of which does not exceed
Two hundred fifty thousand pesos (₱250,000) executed by an individual for
his purchase on installment for his personal use or that of his family and not
for business, resale, barter or hire of a house, lot, motor vehicle, appliance or
furniture shall be exempt from the payment of the documentary stamp tax
provided under this section.
The CIR maintains that the relationship between TRB and its clients under the
Trust Indenture Agreements was debtor-creditors and the said Agreements
were actually certificates of deposit drawing/bearing interest subject to DST
under Section 180 of the NIRC of 1977, as amended. The CIR points out that
the only basis of the CTA en banc in ruling that the relationship between TRB
and its clients under the Trust Indenture Agreements was that of trustee-
trustors was Section X407 of the 1993 Manual of Regulations for Banks
(MORB) issued by the BSP, which identified the basic characteristics of a
trust. The CIR argues, however, that the very same provision, Section X407 of
the 1993 MORB, identified exceptions, that is, instances when the agreement
or contract would not constitute a trust. A trust as defined in Section X407 of
the 1993 MORB would be in the nature of an exemption from the payment of
DST. Accordingly, TRB had the burden of proving the legal and factual bases
of its claim that its Trust Indenture Agreements fell under the definition of
"trust" and not among the exceptions in Section X407 of the 1993 MORB.
TRB, though, was unable to discharge such burden, failing to present
evidence, whether testimonial or documentary, to prove its entitlement to DST
exemption. The CIR, for its part, claims that the Trust Indenture Agreements
were akin to certificates of deposit because said Agreements also stated
expected rates of return of the investment or for the use of the amounts of
deposits/trust funds for a certain period, clearly falling under the exception to
what constituted a "trust" in Section X407, paragraph (d) of the 1993 MORB.
The CIR also asserts that TRB should not be permitted to escape/evade the
payment of DST by simply labeling its certificates of deposit drawing/bearing
interests as "trust funds." In determining whether a certain
contract/agreement/document/instrument is subject to DST, substance should
control over form and labels.
In addition, the CIR insists that the Trust Indenture Agreements between TRB
and its clients were simple loans governed by Article 1980 of the Civil
Code.27 The trust funds, being generic, could not be segregated from the other
funds/deposits held by TRB. While TRB had the obligation to return the
equivalent amount deposited, it had no obligation to return or deliver the same
money deposited. Legal title to the trust funds was vested/transmitted to TRB
upon perfection of the trust agreement. It then followed that TRB could make
use of the funds/deposits for its banking operations, such as to pay interest on
deposits, to pay withdrawals and dispose of the amount borrowed for any
purpose such as investing the funds/deposits into a profitable venture.
Currently, the CIR avers, the Trust Indenture Agreements may be considered
as "loan agreements" or "debt instruments" subject to DST under Sections
17328 and 17929 of the NIRC of 1997, as amended.
The Petition is meritorious.
Generally, the factual findings of the CTA, a special court exercising expertise
on the subject of tax, are regarded as final, binding and conclusive upon this
Court.30 However, there are well-recognized exceptions to this rule,31 such as
when the conclusion is grounded entirely on speculations, surmises, or
conjectures, as well as when the findings are conclusions without citation of
specific evidence on which they are based.
At the crux of the instant controversy are the Trust Indenture Agreements of
TRB. At issue is whether the said Trust Indenture Agreements constituted
deposits or trusts. The BIR posits that the Agreements were deposits subject to
DST, while TRB proffers that the Agreements were trusts exempt from DST.
Surprisingly, not a single copy of a Trust Indenture Agreement and/or the
Certificate of Participation (issued to the client as evidence of the trust) could
be found in the records of the case.
The conduct by banks, such as TRB, of trusts and other fiduciary business (in
1996 and 1997) was governed by the 1993 MORB, which enumerated the
minimum documentary requirements for trusts, including a written agreement
or indenture and a plan (i.e., written declaration of trust) for common trust
funds (CTF). Relevant provisions of the 1993 MORB are quoted in full below:
Sec. X409 Trust and Other Fiduciary Business. The conduct of trust and other
fiduciary business shall be subject to the following regulations.
§ X409.1 Minimum documentary requirements. Each trust or fiduciary
account shall be covered by a written document establishing such account, as
follows:
a. In the case of accounts created by an order of the court or other
competent authority, the written order of said court or authority.
b. In the case of accounts created by corporations, business firms,
organizations or institutions, the voluntary written agreement or
indenture entered into by the parties, accompanied by a copy of the
board resolution or other evidence authorizing the establishment
of, and designating the signatories to, the trust or other fiduciary
account.
c. In the case of accounts created by individuals, the voluntary
written agreement or indenture entered into by the parties.
The voluntary written agreement or indenture shall include the following
minimum provisions:
(1) Title or nature of contractual agreement in noticeable print;
(2) Legal capacities, in noticeable print, of parties sought to be
covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of the arrangement;
(5) Distribution of the funds and/or properties;
(6) Duties and powers of trustee or fiduciary;
(7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual arrangement and, in appropriate
cases, provision for successor-trustee or fiduciary;
(10) The amount or rate of the compensation of trustee or
fiduciary;
(11) A statement in noticeable print to the effect that trust and
other fiduciary business are not covered by the PDIC and that
losses, if any, shall be for the account of the client; and
4
 (12) Disclosure requirements for transactions requiring prior
authority and/or specific written investment directive from the
client, court of competent jurisdiction or other competent authority.
xxxx
Sec. X410 Common Trust Funds.(1) The administration of CTFs shall be
subject to the provisions of Subsecs. X409.1 up to X409.6 and to the
following regulations.
As an alternative compliance with the required prior authority and disclosure
under Subsecs. X409.2 and X409.3, a list which shall be updated quarterly of
prospective and/or outstanding investment outlets may be made available by
the trustee for the review of all CTF clients.
xxxx
(3) Minimum documentary requirements for common trust funds. In addition
to the trust agreement or indenture required under Subsec. X409.1, each CTF
shall be established, administered and maintained in accordance with a written
declaration of trust referred to as the plan, which shall be approved by the
board of directors of the trustee and a copy submitted to the appropriate
supervising and examining department of the BSP within thirty (30) banking
days prior to its implementation.
The plan shall make provisions on the following matters:
a. Title of the plan;
b. Manner in which the plan is to be operated;
c. Investment powers of the trustee with respect to the plan,
including the character and kind of investments which may be
purchased;
d. Allocation, apportionment, distribution dates of income, profit
and losses;
e. Terms and conditions governing the admission or withdrawal as
well as expansion or contraction of participation in the plan
including the minimum initial placement and account balance to be
maintained by the trustor;
f. Auditing and settlement of accounts of the trustee with respect to
the plan;
g. Detailed information on the basis, frequency, and method of
valuing and accounting of CTF assets and each participation in the
fund;
h. Basis upon which the plan may be terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions which shall be uniformly
applied to all participants in a fund and which shall not be changed
between valuation dates; and
k. Such other matters as may be necessary or proper to define
clearly the rights of participants under the plan.
The legal capacity of the bank administering a CTF shall be indicated in the
plan and other related agreements or contracts as trustee of the fund and not in
any other capacity such as fund manager, financial manager, or like terms.
The provisions of the plan shall control all participations in the fund and the
rights and benefits of all parties in interest.
The plan may be amended by resolution of the board of directors of the
trustee: Provided, however, That participants in the fund shall be immediately
notified of such amendments and shall be allowed to withdraw their
participation if they are not in conformity with the amendments made:
Provided, further, That amendments to the plan shall be submitted to the
appropriate supervising and examining department of the BSP within ten (10)
banking days from approval of the amendments by the board of directors.
A copy of the plan shall be available at the principal office of the trustee
during regular office hours for inspection by any person having an interest in a
trust whose funds are invested in the plan or by his authorized representative.
Upon request, a copy of the plan shall be furnished such person.(Emphases
supplied.)
The importance of the actual Trust Indenture Agreements cannot be gainsaid.
The only way the Court can determine the actual relationship between TRB
and its clients is through a scrutiny of the terms and conditions embodied in
the said Agreements.
Article 1370 of the Civil Code provides:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
In the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to
project that intention in their contract, all the words, not just a particular word
or two, and words in context, not words standing alone.32 In Bautista v. Court
of Appeals,33 this Court said:
The rule is that where the language of a contract is plain and unambiguous, its
meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that
language alone. x x x.
Following the rules on interpretation of contracts, Rule 130, Section 9 of the
Revised Rules of Court lays down the parol evidence rule:
Sec. 9. Evidence of written agreements.– When the terms of an agreement
have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written
agreement.
However, a party may present evidence to modify, explain or add to the terms
of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent
and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.
The term "agreement" includes wills.
The burden fell upon TRB to produce the Trust Indenture Agreements, not
only because the said Agreements were in its possession, but more
importantly, because its protest against the DST assessments was entirely
grounded on the allegation that said Agreements were trusts. TRB was the
petitioner before the CTA in C.T.A. Case No. 6392 and it was among its
5
affirmative allegations that the said Trust Indenture Agreements were trusts,
thus, TRB had the obligation of proving this fact. It is a basic rule of evidence
that each party must prove its affirmative allegation.34 As Rule 131, Section 1
of the Revised Rules of Court states:
Section 1. Burden of proof. — Burden of proof is the duty of a party to
present evidence on the facts in issue necessary to establish his claim or
defense by the amount of evidence required by law.
TRB, in its Formal Offer of Evidence,35 submitted only one document, Exhibit
"A," which was page 10 of the 1993 MORB containing Section X407 on Non-
Trust, Non-Fiduciary and/or Non-Investment Management Activities.
Section X407 of the 1993 MORB is reproduced hereunder:
Sec. X407Non-Trust, Non-Fiduciary and/or Non-Investment Management
Activities The basic characteristic of trust, other fiduciary and investment
management relationship is the absolute non-existence of a debtor-creditor
relationship, thus, there is no obligation on the part of the trustee, fiduciary or
investment manager to guarantee returns on the funds or properties regardless
of the results of the investment. The trustee, fiduciary or investment manager
is entitled to fees/commissions which shall be stipulated and fixed in the
contract or indenture and the trustor or principal is entitled to all the funds or
properties less fees/commissions, losses and other charges. Any
agreement/arrangement that does not conform to these shall not be considered
as trust, other fiduciary and/or investment management relationship.
The following shall not constitute a trust, other fiduciary and/or investment
management relationship:
a. When there is a preponderance of purpose or of intent that the
arrangement creates or establishes a relationship other than a trust,
fiduciary and/or investment management;
b. When the agreement or contract is itself used as a certificate of
indebtedness in exchange for money placement from clients and/or
as the medium for confirming placements and investment thereof;
c. When the agreement or contract of an account is accepted under
the signature(s) of those other than the trust officer or subordinate
officer of the trust department or those authorized by the board of
directors to represent the trust officer;
d. Where there is a fixed rate or guaranty of interest, income or
return in favor of its client or beneficiary: Provided, however, That
where funds are placed in fixed income-generating investments, a
quotation of income expectation or like terms, shall neither be
considered as arrangements with a fixed rate nor a guaranty of
interest, income or return when the agreement or indenture
categorically states in bold letters that the quoted income
expectation or like terms is neither assured nor guaranteed by the
trustee or fiduciary and it does not, therefore, entitle the client to a
fixed interest or return on his investments: Provided, further, that
any of the following practices or practices similar and/or
tantamount thereto shall be construed as fixing or guaranteeing the
rate of interest, income or return:
(1) Issuance of certificates, side agreements, letters of
undertaking, or other similar documents providing for
fixed rates or guaranteeing interest, income or return;
(2) Paying trust earnings based on indicated or expected
yield regardless of the actual investment results;
(3) Increasing or reducing fees in order to meet a
quoted or expected yield;
(4) Entering into any arrangement, scheme or practice
which results in the payment of fixed rates or yield on
trust investments or in the payment of the indicated or
expected yield regardless of the actual investment
results; and
e. Where the risk or responsibility is exclusively with the trustee,
fiduciary or investment manager in case of loss in the investment
of trust, fiduciary or investment management funds, when such
loss is not due to the failure of the trustee or fiduciary to exercise
the skill, care, prudence and diligence required by law.
Trust, other fiduciary and investment management activities involving any of
the foregoing which are accepted, renewed or extended after 16 October 1990
shall be reported as deposit substitutes and shall be subject to the reserve
requirement for deposit substitutes from the time of inception, without
prejudice to the imposition of the applicable sanctions provided for in Sections
36 and 37 of R.A. No. 7653.
A reading of Section X407 of the 1993 MORB reveals that it merely
explained the basic characteristics of a trust or other fiduciary and investment
management relationship, and expressly identified the instances which would
not constitute a trust, fiduciary and/or investment management relationship.
Simply put, Section X407 of the MORB set the standards in determining
whether a contract was one of trust or some other agreement.
Therefore, it was still necessary for TRB to present the Trust Indenture
Agreements to test the terms and conditions thereof against the standards set
by Section X407 of the 1993 MORB. Without the actual Trust Indenture
Agreements, there would be no factual basis for concluding that the same
were trusts under Section X407 of the 1993 MORB. TRB called Mr. Navarro,
its Vice President, to the witness stand to testify on the terms and conditions
of the Trust Indenture Agreements. Mr. Navarro’s testimony, though, cannot
be accorded much weight and credence as it is in violation of the parol
evidence rule.
TRB made no attempt to explain why it did not present the Trust Indenture
Agreements, and it also did not take the effort to establish that any of the
exceptional circumstances under Rule 130, Section 9 of the Revised Rules of
Court, allowing "a party to modify, explain or add to the terms of written
agreement," was extant in this case. Moreover, Mr. Navarro’s testimony
consisted essentially of conclusions of law and general descriptions of trusts
using the very same words and terms under Section X407 of the 1993 MORB.
In contrast, records show that the BIR examiners conducted a thorough audit
and investigation of the books of account of TRB. Mr. Alexander D. Martinez,
a BIR Revenue Officer, testified that it took the BIR team of examiners more
than one-year to conduct and complete the audit and examination of the
documents of TRB, which consisted of approximately 20,000 pages. 36 The
audit and investigation resulted in the issuance of Assessment Notices against
TRB for DST tax liabilities for 1996 and 1997, which were duly received by
TRB. The tax assessments against TRB are presumed valid. In Sy Po v. Court
of Tax Appeals,37 the Court pronounced:
Tax assessments by tax examiners are presumed correct and made in good
faith. The taxpayer has the duty to prove otherwise. In the absence of proof of
any irregularities in the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by his superior officers
will not be disturbed. All presumptions are in favor of the correctness of tax
assessments. (Citations omitted.)
In Marcos II v. Court of Appeals,38 the Court again had the occasion to rule:
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and assessments are presumed correct
and made in good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is
prima facie valid and lawful where it does not appear to have been arrived at
arbitrarily or capriciously. The burden of proof is upon the complaining party
to show clearly that the assessment is erroneous. Failure to present proof of
error in the assessment will justify the judicial affirmance of said assessment.
x x x. (Citations omitted.)
6
Given the failure of TRB to present proof of error in the tax assessments of the
BIR, the Court affirms the same.
The liabilities of TRB for deficiency DST on its Trust Indenture Agreements
for 1996 and 1997 are computed as follows:
1996 1997
Trust Fund P 567,500,927.000 P 55,783,860.92
Tax Rate .30/200 .30/200
Basic Tax 851,251.50 83,676.00
Add: Surcharge 212,812.88 20,919.00
39
Total P 1,064,064.38 P 104,595.00
In addition, TRB is liable for 20%delinquency interest under Section 249 of
the NIRC of 199340
from February 14, 200241 until full payment of its foregoing tax liabilities.
WHEREFORE, premises considered, the instant Petition for Review on
Certiorari is GRANTED. The assailed Decision dated February 14, 2005 of
the CTA en bane in C.T.A. EB No. 32, affirming the Decision dated April 28,
2004 and Resolution dated September 10, 2004 of the CT A Division in
C.T.A. Case No. 6392, is REVERSED and SET ASIDE. Respondent Traders
Royal Bank is ORDERED to pay the deficiency Documentary Stamp Taxes
on its Trust Indenture Agreements for the taxable years 1996 and 1997, in the
amounts of Pl,064,064.38 and "1104, 595.00, respectively, plus 20%
delinquency interest from February 14, 2002 until full payment thereof.
SO ORDERED.
G.R. No. L-41919-24 May 30, 1980
QUIRICO P. UNGAB, petitioner,
vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of
First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N.
ACEBES, in his capacity as State Prosecutor, respondents.
CONCEPCION JR., J:
Petition for certiorari and prohibition with preliminary injunction and
restraining order to annul and set aside the informations filed in Criminal Case
Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of
Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico
Ungab, accused;" and to restrain the respondent Judge from further
proceeding with the hearing and trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia
examined the income tax returns filed by the herein petitioner, Quirico P.
Ungab, for the calendar year ending December 31, 1973. In the course of his
examination, he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR District Revenue
Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing
him that there is due from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and
inviting petitioner to an informal conference where the petitioner, duly
assisted by counsel, may present his objections to the findings of the BIR
Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR District
Revenue Officer protesting the assessment, claiming that he was only a dealer
or agent on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was accurately
stated. BIR Examiner Ben Garcia, however, was fully convinced that the
petitioner had filed a fraudulent income tax return so that he submitted a
"Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal
Revenue. After examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient proof that the
herein petitioner is guilty of tax evasion for the taxable year 1973 and
recommended his prosecution: têñ.£îhqwâ£
(1) For having filed a false or fraudulent income tax
return for 1973 with intent to evade his just taxes due
the government under Section 45 in relation to Section
72 of the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a
year in 1973 and 1974, or a total of unpaid fixed taxes
of P100.00 plus penalties of 175.00 or a total of
P175.00, in accordance with Section 183 of the
National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a
producer of banana poles or saplings, on the total sales
of P129,580.35 to the Davao Fruit Corporation,
depriving thereby the government of its due revenue in
the amount of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution Division, dated
December 12, 1974, the Commissioner of Internal Revenue approved the
prosecution of the petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist
all Provincial and City Fiscals throughout the Philippines in the investigation
and prosecution, if the evidence warrants, of all violations of the National
Internal Revenue Code, as amended, and other related laws, in Administrative
Order No. 116 dated December 5, 1974, and to whom the case was assigned,
conducted a preliminary investigation of the case, and finding probable cause,
filed six (6) informations against the petitioner with the Court of First Instance
of Davao City, to wit: têñ.£îhqwâ£
(1) Criminal Case No. 1960 — Violation of Sec. 45, in
relation to Sec. 72 of the National Internal-Revenue
Code, for filing a fraudulent income tax return for the
calendar year ending December 31, 1973; 4
(2) Criminal Case No. 1961 — Violation of Sec. 182
(a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in
business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed
or privilege tax thereof; 5
(3) Criminal Case No. 1962 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and
complete return on the gross quarterly sales, receipts
and earnings in his business as producer of banana
saplings and to pay the percentage tax due thereon, for
the quarter ending December 31, 1973; 6
(4) Criminal Case No. 1963 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and
complete return on the gross quarterly sales receipts and
earnings in his business as producer of saplings, and to
pay the percentage tax due thereon, for the quarter
ending on March 31, 1973; 7
(5) Criminal Case No. 1964 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and
complete return on the gross quarterly sales, receipts
and earnings in his business as producer of banana
7
 saplings for the quarter ending on June 30, 1973, and to
pay the percentage tax due thereon; 8
(6) Criminal Case No. 1965 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and
complete return on the gross quarterly sales, receipts
and earnings as producer of banana saplings, for the
quarter ending on September 30, 1973, and to pay the
percentage tax due thereon. 9
On September 16, 1975, the petitioner filed a motion to quash the
informations upon the grounds that: (1) the informations are null and void for
want of authority on the part of the State Prosecutor to initiate and prosecute
the said cases; and (2) the trial court has no jurisdiction to take cognizance of
the above-entitled cases in view of his pending protest against the assessment
made by the BIR Examiner. 10 However, the trial court denied the motion on
October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As
prayed for, a temporary restraining order was issued by the Court, ordering the
respondent Judge from further proceeding with the trial and hearing of
Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of
First Instance of Davao, all entitled: "People of the Philippines, plaintiff,
versus Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed against him on
the ground that the respondent State Prosecutor is allegedly without authority
to do so. The petitioner argues that while the respondent State Prosecutor may
initiate the investigation of and prosecute crimes and violations of penal laws
when duly authorized, certain requisites, enumerated by this Court in its
decision in the case of Estrella vs. Orendain, 12 should be observed before
such authority may be exercised; otherwise, the provisions of the Charter of
Davao City on the functions and powers of the City Fiscal will be meaningless
because according to said charter he has charge of the prosecution of all
crimes committed within his jurisdiction; and since "appropriate
circumstances are not extant to warrant the intervention of the State
Prosecution to initiate the investigation, sign the informations and prosecute
these cases, said informations are null and void." The ruling adverted to by the
petitioner reads, as follows: têñ.£îhqwâ£
In view of all the foregoing considerations, it is the
ruling of this Court that under Sections 1679 and 1686
of the Revised Administrative Code, in any instance
where a provincial or city fiscal fails, refuses or is
unable, for any reason, to investigate or prosecute a
case and, in the opinion of the Secretary of Justice it is
advisable in the public interest to take a different course
of action, the Secretary of Justice may either appoint as
acting provincial or city fiscal to handle the
investigation or prosecution exclusively and only of
such case, any practicing attorney or some competent
officer of the Department of Justice or office of any city
or provincial fiscal, with complete authority to act
therein in all respects as if he were the provincial or city
fiscal himself, or appoint any lawyer in the government
service, temporarily to assist such city of provincial
fiscal in the discharge of his duties, with the same
complete authority to act independently of and for such
city or provincial fiscal provided that no such
appointment may be made without first hearing the
fiscal concerned and never after the corresponding
information has already been filed with the court by the
corresponding city or provincial fiscal without the
conformity of the latter, except when it can be patently
shown to the court having cognizance of the case that
said fiscal is intent on prejudicing the interests of
justice. The same sphere of authority is true with the
prosecutor directed and authorized under Section 3 of
Republic Act 3783, as amended and/or inserted by
Republic Act 5184. The observation in Salcedo vs.
Liwag, supra, regarding the nature of the power of the
Secretary of Justice over fiscals as being purely over
administrative matters only was not really necessary, as
indicated in the above relation of the facts and
discussion of the legal issues of said case, for the
resolution thereof. In any event, to any extent that the
opinion therein may be inconsistent herewith the same
is hereby modified.
The contention is without merit. Contrary to the petitioner's claim, the rule
therein established had not been violated. The respondent State Prosecutor,
although believing that he can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought permission from the
City Fiscal of Davao City before he started the preliminary investigation of
these cases, and the City Fiscal, after being shown Administrative Order No.
116, dated December 5, 1974, designating the said State Prosecutor to assist
all Provincial and City fiscals throughout the Philippines in the investigation
and prosecution of all violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the respondent State
Prosecutor to conduct the investigation of said cases, and in fact, said
investigation was conducted in the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations was precipitate
and premature since the Commissioner of Internal Revenue has not yet
resolved his protests against the assessment of the Revenue District Officer;
and that he was denied recourse to the Court of Tax Appeals.
The contention is without merit. What is involved here is not the collection of
taxes where the assessment of the Commissioner of Internal Revenue may be
reviewed by the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to
enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under the
Code. têñ.£îhqwâ£
The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary before
the taxpayer can be prosecuted criminally for the
charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully
filed fraudulent returns with intent to evade and defeat a
part or all of the tax. 14
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfuly filed a fraudulent
return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to
discover the error and promptly to assess has no
connections with the commission of the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment
may affect the suspension of the prescriptive period for the collection of taxes,
but not the prescriptive period of a criminal action for violation of
law. 16Obviously, the protest of the petitioner against the assessment of the
District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. Accordingly, the respondent Judge did not
abuse his discretion in denying the motion to quash filed by the petitioner.
WHEREFORE, the petition should be, as it is hereby dismissed. The
temporary restraining order heretofore issued is hereby set aside. With costs
against the petitioner.
SO ORDERED.
G.R. No. 162155 August 28, 2007
COMMISSIONER OF INTERNAL REVENUE and ARTURO V.
PARCERO in his official capacity as Revenue District Officer of Revenue
District No. 049 (Makati), Petitioners,
vs.
PRIMETOWN PROPERTY GROUP, INC., Respondent.
8
 DECISION
CORONA, J.:
1 appeal in the CA.17
This petition for review on certiorari seeks to set aside the August 1, 2003
decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 64782 and its
February 9, 2004 resolution denying reconsideration. 3
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown
Property Group, Inc., applied for the refund or credit of income tax respondent
paid in 1997. In Yap's letter to petitioner revenue district officer Arturo V.
Parcero of Revenue District No. 049 (Makati) of the Bureau of Internal
Revenue (BIR),4 he explained that the increase in the cost of labor and
materials and difficulty in obtaining financing for projects and collecting
receivables caused the real estate industry to slowdown.5 As a consequence,
while business was good during the first quarter of 1997, respondent suffered
losses amounting to ₱71,879,228 that year.6
According to Yap, because respondent suffered losses, it was not liable for
income taxes.7 Nevertheless, respondent paid its quarterly corporate income
tax and remitted creditable withholding tax from real estate sales to the BIR in
the total amount of ₱26,318,398.32.8 Therefore, respondent was entitled to tax
refund or tax credit.9
On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to
submit additional documents to support its claim.10 Respondent complied but
its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for
review11 in the Court of Tax Appeals (CTA).
On December 15, 2000, the CTA dismissed the petition as it was filed beyond
the two-year prescriptive period for filing a judicial claim for tax refund or tax
credit.12 It invoked Section 229 of the National Internal Revenue Code
(NIRC):
Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. -- No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively 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 filed 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 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. (emphasis
supplied)
The CTA found that respondent filed its final adjusted return on April 14,
1998. Thus, its right to claim a refund or credit commenced on that date. 13
The tax court applied Article 13 of the Civil Code which states:
Art. 13. When the law speaks of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each; months, of
thirty days; days, of twenty-four hours, and nights from sunset to sunrise.
If the months are designated by their name, they shall be computed by the
number of days which they respectively have.
In computing a period, the first day shall be excluded, and the last included.
(emphasis supplied)
Thus, according to the CTA, the two-year prescriptive period under Section
229 of the NIRC for the filing of judicial claims was equivalent to 730 days.
Because the year 2000 was a leap year, respondent's petition, which was filed
731 days14 after respondent filed its final adjusted return, was filed beyond the
reglementary period.15
Respondent moved for reconsideration but it was denied.16 Hence, it filed an
On August 1, 2003, the CA reversed and set aside the decision of the
CTA.18 It ruled that Article 13 of the Civil Code did not distinguish between a
regular year and a leap year. According to the CA:
The rule that a year has 365 days applies, notwithstanding the fact that a
particular year is a leap year.19
In other words, even if the year 2000 was a leap year, the periods covered by
April 15, 1998 to April 14, 1999 and April 15, 1999 to April 14, 2000 should
still be counted as 365 days each or a total of 730 days. A statute which is
clear and explicit shall be neither interpreted nor construed.20
Petitioners moved for reconsideration but it was denied.21 Thus, this appeal.
Petitioners contend that tax refunds, being in the nature of an exemption,
should be strictly construed against claimants.22 Section 229 of the NIRC
should be strictly applied against respondent inasmuch as it has been
consistently held that the prescriptive period (for the filing of tax refunds and
tax credits) begins to run on the day claimants file their final adjusted
returns.23 Hence, the claim should have been filed on or before April 13, 2000
or within 730 days, reckoned from the time respondent filed its final adjusted
return.
The conclusion of the CA that respondent filed its petition for review in the
CTA within the two-year prescriptive period provided in Section 229 of the
NIRC is correct. Its basis, however, is not.
The rule is that the two-year prescriptive period is reckoned from the filing of
the final adjusted return.24 But how should the two-year prescriptive period be
computed?
As already quoted, Article 13 of the Civil Code provides that when the law
speaks of a year, it is understood to be equivalent to 365 days. In National
Marketing Corporation v. Tecson,25 we ruled that a year is equivalent to 365
days regardless of whether it is a regular year or a leap year.26
However, in 1987, EO27 292 or the Administrative Code of 1987 was enacted.
Section 31, Chapter VIII, Book I thereof provides:
Sec. 31. Legal Periods. — "Year" shall be understood to be twelve
calendar months; "month" of thirty days, unless it refers to a specific
calendar month in which case it shall be computed according to the number of
days the specific month contains; "day", to a day of twenty-four hours and;
"night" from sunrise to sunset. (emphasis supplied)
A calendar month is "a month designated in the calendar without regard to the
number of days it may contain."28 It is the "period of time running from the
beginning of a certain numbered day up to, but not including, the
corresponding numbered day of the next month, and if there is not a sufficient
number of days in the next month, then up to and including the last day of that
month."29 To illustrate, one calendar month from December 31, 2007 will be
from January 1, 2008 to January 31, 2008; one calendar month from January
31, 2008 will be from February 1, 2008 until February 29, 2008. 30
A law may be repealed expressly (by a categorical declaration that the law is
revoked and abrogated by another) or impliedly (when the provisions of a
more recent law cannot be reasonably reconciled with the previous
one).31Section 27, Book VII (Final Provisions) of the Administrative Code of
1987 states:
Sec. 27. Repealing clause. — All laws, decrees, orders, rules and regulation,
or portions thereof, inconsistent with this Code are hereby repealed or
modified accordingly.
9
A repealing clause like Sec. 27 above is not an express repealing clause
because it fails to identify or designate the laws to be abolished.32 Thus, the
provision above only impliedly repealed all laws inconsistent with the
Administrative Code of 1987.1avvphi1
Implied repeals, however, are not favored. An implied repeal must have been
clearly and unmistakably intended by the legislature. The test is whether the
subsequent law encompasses entirely the subject matter of the former law and
they cannot be logically or reasonably reconciled.33
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter — the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the Administrative
Code of 1987, however, a year is composed of 12 calendar months. Needless
to state, under the Administrative Code of 1987, the number of days is
irrelevant.
There obviously exists a manifest incompatibility in the manner of computing
legal periods under the Civil Code and the Administrative Code of 1987. For
this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of
1987 to this case, the two-year prescriptive period (reckoned from the time
respondent filed its final adjusted return34 on April 14, 1998) consisted of 24
calendar months, computed as follows:
We therefore hold that respondent's petition (filed on April 14, 2000) was filed
on the last day of the 24th calendar month from the day respondent filed its
final adjusted return. Hence, it was filed within the reglementary period.
Accordingly, the petition is hereby DENIED. The case is REMANDED to
the Court of Tax Appeals which is ordered to expeditiously proceed to hear
C.T.A. Case No. 6113 entitled Primetown Property Group, Inc. v.
Commissioner of Internal Revenue and Arturo V. Parcero.
No costs.
SO ORDERED.
G.R. No. 163445 December 18, 2007
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC BAY
MOTORS CORPORATION, petitioners,
vs.
HON. GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue (BIR), THE
REGIONAL DIRECTOR, BIR, Region III, THE REVENUE DISTRICT
OFFICER, BIR, Special Economic Zone, and OFFICE OF THE
SOLICITOR GENERAL, respondents.
DECISION
PUNO, C.J.:

Year 1 1st calendar month April 15, 1998 to May 14, 1998At bar is a petition for review on certiorari seeking the reversal of the
decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 79329 declaring
2nd calendar month May 15, 1998 to June 14, 1998the Regional Trial Court (RTC) of Olongapo City, Branch 74, without
jurisdiction over Civil Case No. 275-0-2003.
3rd calendar month June 15, 1998 to July 14, 1998

4th calendar month July 15, 1998 to August 14, 1998The facts are undisputed.

5th calendar month August 15, 1998 to September 14, 1998

Congress enacted Republic Act (R.A.) No. 7227 creating the Subic Special
6th calendar month September 15, 1998 to October 14, 1998Economic Zone (SSEZ) and extending a number of economic or tax
incentives therein. Section 12 of the law provides:
7th calendar month October 15, 1998 to November 14, 1998

8th calendar month November 15, 1998 to December 14, 1998 (a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the
9th calendar month December 15, 1998 to January 14, 1999 Local Government Code, the [SSEZ] shall be developed into a
self-sustaining, industrial, commercial, financial and investment
10th calendar month January 15, 1999 to February 14, 1999 center to generate employment opportunities in and around the
zone and to attract and promote productive foreign investments;
11th calendar month February 15, 1999 to March 14, 1999

12th calendar month March 15, 1999 to April 14, 1999 (b) The [SSEZ] shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and
Year 2 13th calendar month April 15, 1999 to May 14, 1999 capital within, into and exported out of the [SSEZ], as well as
provide incentives such as tax and duty-free importations of raw
14th calendar month May 15, 1999 to June 14, 1999
materials, capital and equipment. However, exportation or
15th calendar month June 15, 1999 to July 14, 1999 removal of goods from the territory of the [SSEZ] to the other
parts of the Philippine territory shall be subject to customs
16th calendar month July 15, 1999 to August 14, 1999 duties and taxes under the Customs and Tariff Code and other
relevant tax laws of the Philippines;
17th calendar month August 15, 1999 to September 14, 1999

18th calendar month September 15, 1999 to October 14, 1999 (c) The provision of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
19th calendar month October 15, 1999 to November 14, 1999 imposed within the [SSEZ]. In lieu of paying taxes, three percent
(3%) of the gross income earned by all businesses and enterprise
20th calendar month November 15, 1999 to December 14, 1999 within the [SSEZ] shall be remitted to the National Government,
one percent (1%) each to the local government units affected by
21st calendar month December 15, 1999 to January 14, 2000 the declaration of the zone in proportion to their population area,
22nd calendar month January 15, 2000 to February 14, 2000 and other factors. In addition, there is hereby established a
development fund of one percent (1%) of the gross income earned
23rd calendar month February 15, 2000 to March 14, 2000 by all business and enterprise within the [SSEZ] to be utilized for
the development of municipalities outside the City of Olongapo
24th calendar month March 15, 2000 to April 14, 2000 and the Municipality of Subic, and other municipalities contiguous
to the base areas.

10
 In case of conflict between national and local laws with respect to
tax exemption privileges in the [SSEZ], the same shall be resolved
in favor of the latter;
(d) No exchange control policy shall be applied and free markets
for foreign exchange, gold, securities and future shall be allowed
and maintained in the [SSEZ]; (emphasis supplied)
On January 24, 1995, then Secretary of Finance Roberto F. De Ocampo,
through the recommendation of then Commissioner of Internal Revenue (CIR)
Liwayway Vinzons-Chato, issued Revenue Regulations [Rev. Reg.] No. 1-
95,2 providing the "Rules and Regulations to Implement the Tax Incentives
Provisions Under Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227,
[o]therwise known as the Bases Conversion and Development Act of 1992."
Subsequently, Rev. Reg. No. 12-973 was issued providing for the "Regulations
Implementing Sections 12(c) and 15 of [R.A.] No. 7227 and Sections 24(b)
and (c) of [R.A.] No. 7916 Allocating Two Percent (2%) of the Gross Income
Earned by All Businesses and Enterprises Within the Subic, Clark, John Hay,
Poro Point Special Economic Zones and other Special Economic Zones under
PEZA." On September 27, 1999, Rev. Reg. No. 16-994 was issued "Amending
[RR] No. 1-95, as amended, and other related Rules and Regulations to
Implement the Provisions of paragraphs (b) and (c) of Section 12 of [R.A.]
No. 7227, otherwise known as the ‘Bases Conversion and Development Act of
1992’ Relative to the Tax Incentives Granted to Enterprises Registered in the
Subic Special Economic and Freeport Zone."
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue
Memorandum Circular (RMC) No. 31-2003 setting the "Uniform Guidelines
on the Taxation of Imported Motor Vehicles through the Subic Free Port Zone
and Other Freeport Zones that are Sold at Public Auction." The assailed
portions of the RMC read:
1.2. In case the consignee-auctioneer is a registered
enterprise and/or locator not entitled to the preferential
tax treatment or if the same is entitled from such
incentive but its total income from the customs territory
exceeds 30% of its entire income derived from the
customs territory and the freeport zone, the income
derived from the public auction shall be subjected to the
regular internal revenue taxes imposed by the Tax
Code.
xxx
1.4. In the event that the winning bidder shall bring the
motor vehicles into the customs territory, the winning
bidder shall be deemed the importer thereof and shall be
liable to pay the VAT and excise tax, if applicable,
based on the winning bid price. However, in cases
where the consignee-auctioneer has already paid the
VAT and excise tax on the motor vehicles before the
registration thereof with LTO and the conduct of public
auction, the additional VAT and excise tax shall be paid
by winning bidder resulting from the difference
between the winning bid price and the value used by the
consignee-auctioneer in payment of such taxes. For
excise tax purposes, in case the winning bid price is
lower than the total costs to import,
reconditioning/rehabilitation of the motor vehicles, and
other administrative and selling expenses, the basis for
the computation of the excise tax shall be the total costs
plus ten percent (10%) thereof. The additional VAT and
excise taxes shall be paid to the BIR before the
auctioned motor vehicles are registered with the LTO.

II. Tax treatments on the transactions involved in the importation of motor

1.5 In case the services of a professional auctioneer is
vehicles through the SSEFZ and other legislated Freeport zones and
employed for the public auction, the final withholding
subsequent sale thereof through public auction.—Pursuant to existing revenue
tax of 25%, in case he/she is a non-resident citizen or
issuances, the following are the uniform tax treatments that are to be adopted
alien, or the expanded withholding tax of 20%, in case
on the different transactions involved in the importation of motor vehicles
he/she is a resident citizen or alien, shall be withheld by
through the SSEFZ and other legislated Freeport zones that are subsequently
the consignee-auctioneer from the amount of
sold through public auction:
consideration to be paid to the professional auctioneer
and shall be remitted accordingly to the BIR.
A. Importation of motor vehicles into the freeport zones
This was later amended by RMC No. 32-2003,5 to wit:
1. Motor vehicles that are imported into the Freeport zones for
exclusive use within the zones are, as a general rule, exempt from
II. The imported motor vehicles after its release from Customs
customs duties, taxes and other charges, provided that the
custody are sold through public auction/negotiated sale by the
importer-consignee is a registered enterprise within such freeport
consignee within or outside of the Freeport Zone:
zone. However, should these motor vehicles be brought out into
the customs territory without returning to the freeport zones, the
customs duties, taxes and other charges shall be paid to the BOC A. The gross income earned by the consignee-seller
before release thereof from its custody. from the public auction/negotiated sale of the imported
vehicles shall be subject to the preferential tax rate of
five percent (5%) in lieu of the internal revenue taxes
xxx
imposed by the National Internal Revenue Code of
1997, provided that the following conditions are
3. For imported motor vehicles that are imported by persons that present:
are not duly registered enterprises of the freeport zones, or that the
same are intended for public auction within the freeport zones, the
1.That the consignee-seller is a duly
importer-consignee/auctioneer shall pay the value-added tax
registered enterprise entitled to such
(VAT) and excise tax to the BOC before the registration thereof
preferential tax rate as well as a registered
under its name with the LTO and/or the conduct of the public
taxpayer with the Bureau of Internal
auction.
Revenue (BIR).

xxx
2.That the total income generated by the
consignee-seller from sources within the
B. Subsequent sale/public auction of the motor vehicles customs territory does not exceed thirty
percent (30%) of the total income derived
from all sources.
1. Scenario One – The public auction is conducted by the
consignee of the imported motor vehicles within the freeport zone
B. In case the consignee-seller is a registered enterprise
and/or locator not entitled to the preferential tax
xxx treatment or if the same is entitled from such incentive
but its total income from the customs territory exceeds
thirty percent (30%) of its entire income derived from
11
 the customs territory and the freeport zone, the sales or
income derived from the public auction/negotiated sale
shall be subjected to the regular internal revenue taxes
imposed by the Tax Code. The consignee-seller shall
also observe the compliance requirements prescribed by
the Tax Code. When public auction or negotiated sale is
conducted within or outside of the freeport zone, the
following tax treatment shall be observed:
1. Value Added Tax (VAT)/ Percentage Tax
(PT) – VAT or PT shall be imposed on
every public auction or negotiated sale.
2. Excise Tax – The imposition of excise tax
on public auction or negotiated sale shall be
held in abeyance pending verification that
the importer’s selling price used as a basis
by the Bureau of Customs in computing the
excise tax is correctly determined.
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors
Corporation are corporations organized under Philippine laws with principal
place of business within the SSEZ. They are engaged in the importation of
mainly secondhand or used motor vehicles and heavy transportation or
construction equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying for the
nullification of RMC No. 31-2003 for being unconstitutional and an ultra
vires act. The complaint was docketed as Civil Case No. 275-0-2003 and
raffled to Branch 74. Subsequently, petitioners filed their "First Amended
Complaint to Declare Void, Ultra Vires, and Unconstitutional [RMC] No. 31-
2003 dated June 3, 2003 and [RMC] No. 32-2003 dated June 5, 2003, with
Application for a Writ of Temporary Restraining Order and Preliminary
Injunction"6 to enjoin respondents from implementing the questioned RMCs
while the case is pending. Particularly, they question paragraphs II(A)(1) and
(3), II(B)(1.2), (1.4) and (1.5) of RMC No. 31-2003 and paragraphs II(A)(2)
and (B) of RMC No. 32-2003. Before a responsive pleading was filed,
petitioners filed their Second Amended Complaint7 to include Rev. Reg. Nos.
1-95, 12-97 and 16-99 dated January 24, 1995, August 7, 1997 and September
27, 1999, respectively, which allegedly contain some identical provisions as
the questioned RMCs, but without changing the cause of action in their First
Amended Complaint.
The Office of the Solicitor General (OSG) submitted its "Comment (In
Opposition to the Application for Issuance of a Writ of Preliminary
Injunction)."8 Respondents CIR, Regional Director and Revenue District
Officer submitted their joint "Opposition (To The Prayer for Preliminary
Injunction and/or Temporary Restraining Order by Petitioners)."9
Then Secretary of Finance Jose Isidro N. Camacho filed a Motion to Dismiss
the case against him, alleging that he is not a party to the suit and petitioners
have no cause of action against him.10 Respondents CIR, BIR Regional
Director and BIR Revenue District Officer also filed their joint Motion to
Dismiss on the grounds that "[t]he trial court has no jurisdiction over the
subject matter of the complaint" and "[a] condition precedent, that is,
exhaustion of administrative remedies, has not been complied
with."11 Petitioners filed their "Motion to Expunge from the Records the
Respondents[’] Motion to Dismiss"12 for allegedly failing to comply with
Section 4, Rule 15 of the Rules of Court. To this, the respondents filed their
Opposition.13
Meantime, BIR Revenue District Officer Rey Asterio L. Tambis sent a 10-
Day Preliminary Notice14 to the president of petitioner AIAI for unpaid VAT
on auction sales conducted on June 6-8, 2003, as per RMC No. 32-2003.
On August 1, 2003, the trial court issued its order15 granting the application
for a writ of preliminary injunction. The dispositive portion of the order states:
WHEREFORE, premises considered, petitioners’ application for
the issuance of a writ of preliminary injunction is hereby
GRANTED. Let the writ issue upon the filing and approval by the
court of an injunction bond in the amount of Php 1 Million.
SO ORDERED.16
Consequently, respondents CIR, the BIR Regional Director of Region III, the
BIR Revenue District Officer of the SSEZ, and the OSG filed with the CA a
petition for certiorari under Rule 65 of the Rules of Court with prayer for the
issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction to enjoin the trial court from exercising jurisdiction over the case. 17
Meantime, BIR Regional Director Danilo A. Duncano sent a Preliminary
Assessment Notice18 to the President of AIAI, informing him of the VAT due
from the company for the auction sales conducted on June 6-8, 2003 as per
RMC No. 32-2003, plus surcharge, interest and compromise penalty.
Thereafter, a Formal Letter of Demand19 was sent to the President of petitioner
AIAI by the Officer-in-Charge of the BIR Office of the Regional Director.
On March 31, 2004, the CA issued its assailed decision, the dispositive
portion of which states:
WHEREFORE, the petition is GRANTED. Public respondent
Regional Trial Court, Branch 74, of Olongapo City is hereby
declared bereft of jurisdiction to take cognizance of Civil Case No.
275-0-2003. Accordingly, said Civil Case No. 275-0-2003 is
hereby DISMISSED and the assailed Order dated August 1,
2003, ANNULLED and SET ASIDE.
SO ORDERED.20
Hence, this Petition for Review on Certiorari21 with an application for a
temporary restraining order and a writ of preliminary injunction to enjoin
respondents "from pursuing sending letters of assessments to petitioners."
Petitioners raise the following issues:
[a] [W]hether a petition for certiorari under Rule 65 of the New
Rules is proper where the issue raised therein has not yet been
resolved at the first instance by the Court where the original action
was filed, and, necessarily, without first filing a motion for
reconsideration;
[b] [W]hich Court- the regular courts of justice established under
Batas Pambansa Blg. 129 or the Court of Tax Appeals – is the
proper court of jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional and against an existing
law where the challenge does not involve the rate and figures of
the imposed taxes;
[c] [D]ependent on an affirmative resolution of the second issue in
favor of the regular courts of justice, whether the writ of
preliminary injunction granted by the Court at Olongapo City was
properly and legally issued.22
Petitioners contend that there were fatal procedural defects in respondents’
petition for certiorari with the CA. They point out that the CA resolved the
issue of jurisdiction without waiting for the lower court to first rule on the
issue. Also, respondents did not file a motion for reconsideration of the trial
court’s order granting the writ of preliminary injunction before filing the
petition with the CA.
The arguments are unmeritorious.
Jurisdiction is defined as the power and authority of a court to hear, try and
decide a case.23 The issue is so basic that it may be raised at any stage of the
proceedings, even on appeal.24 In fact, courts may take cognizance of the issue
even if not raised by the parties themselves.25 There is thus no reason to
preclude the CA from ruling on this issue even if allegedly, the same has not
yet been resolved by the trial court.
As to respondents’ failure to file a motion for reconsideration, we agree with
the ruling of the CA, which states:
12
 It is now settled that the filing of a motion for reconsideration is
not always sine qua non before availing of the remedy of
certiorari.26 Hence, the general rule of requiring a motion for
reconsideration finds no application in a case where what is
precisely being assailed is lack of jurisdiction of the respondent
court.27 And considering also the urgent necessity for resolving the
issues raised herein, where further delay could prejudice the
interests of the government,28 the haste with which the Solicitor
General raised these issues before this Court becomes
understandable.29
Now, to the main issue: does the trial court have jurisdiction over the subject
matter of this case?
Petitioners contend that jurisdiction over the case at bar properly pertains to
the regular courts as this is "an action to declare as unconstitutional, void and
against the provisions of [R.A. No.] 7227" the RMCs issued by the CIR. They
explain that they "do not challenge the rate, structure or figures of the imposed
taxes, rather they challenge the authority of the respondent Commissioner to
impose and collect the said taxes." They claim that the challenge on the
authority of the CIR to issue the RMCs does not fall within the jurisdiction of
the Court of Tax Appeals (CTA).
Petitioners’ arguments do not sway.
R.A. No. 1125, as amended, states:
Sec. 7. Jurisdiction.—The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein
provided—
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue
Code or other laws or part of law administered by the Bureau
of Internal Revenue; x x x (emphases supplied)
We have held that RMCs are considered administrative rulings which are
issued from time to time by the CIR.30
Rodriguez v. Blaquera31 is in point. This case involves Commonwealth Act
No. 466, as amended by R.A. No. 84, which imposed upon firearm holders the
duty to pay an initial license fee of P15 and an annual fee of P10 for each
firearm, with the exception that in case of "bona fide and active members of
duly organized gun clubs and accredited by the Provost Marshal General," the
annual fee is reduced to P5 for each firearm. Pursuant to this, the CIR issued
General Circular No. V-148 which stated that "bona fide and active members
of duly organized gun clubs and accredited by the Provost Marshal General…
shall pay an initial fee of fifteen pesos and an annual fee of five pesos for each
firearm held on license except caliber .22 revolver or rifle." The General
Circular further provided that "[m]ere membership in the gun club does not, as
a matter of right, entitle the member to the reduced rates prescribed by law.
The licensee must be accredited by the Chief of Constabulary… [and] the
firearm covered by the license of the member must be of the target model in
order that he may be entitled to the reduced rates." Rodriguez, as manager of
the Philippine Rifle and Pistol Association, Inc., a duly accredited gun club, in
behalf of the members who have paid under protest the regular annual fee
of P10, filed an action in the Court of First Instance (now RTC) of Manila for
the nullification of the circular and the refund of P5. On the issue of
jurisdiction, plaintiff similarly contended that the action was not an appeal
from a ruling of the CIR but merely an attempt to nullify General Circular No.
V-148, hence, not within the jurisdiction of the CTA. The Court, in finding
this argument unmeritorious, explained:
We find no merit in this pretense. General Circular No. V-148
directs the officers charged with the collection of taxes and license
fees to adhere strictly to the interpretation given by the defendant
to the statutory provision above mentioned, as set forth in the
circular. The same incorporates, therefore, a decision of the
Collector of Internal Revenue (now Commissioner of Internal
Revenue) on the manner of enforcement of said statute, the
administration of which is entrusted by law to the Bureau of
Internal Revenue. As such, it comes within the purview of [R.A.]
No. 1125, section 7 of which provides that the [CTA] "shall
exercise exclusive appellate jurisdiction to review by appeal * * *
decisions of the Collector of Internal Revenue in * * * matters
arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue."
Besides, it is plain from plaintiff’s original complaint that one of
its main purposes was to secure an order for the refund of the sums
collected in excess of the amount he claims to be due by way of
annual fee from the gun club members, regardless of the class of
firearms they have. Although the prayer for reimbursement has
been eliminated from his amended complaint, it is only too obvious
that the nullification of General Circular No. V-148 is merely a
step preparatory to a claim for refund.
Similarly, in CIR v. Leal,32 pursuant to Section 116 of Presidential Decree
No. 1158 (The National Internal Revenue Code, as amended) which states that
"[d]ealers in securities shall pay a tax equivalent to six (6%) per centum of
their gross income. Lending investors shall pay a tax equivalent to five (5%)
per cent, of their gross income," the CIR issued Revenue Memorandum Order
(RMO) No. 15-91 imposing 5% lending investor’s tax on pawnshops based on
their gross income and requiring all investigating units of the BIR to
investigate and assess the lending investor’s tax due from them. The issuance
of RMO No. 15-91 was an offshoot of the CIR’s finding that the pawnshop
business is akin to that of "lending investors" as defined in Section 157(u) of
the Tax Code. Subsequently, the CIR issued RMC No. 43-91 subjecting pawn
tickets to documentary stamp tax. Respondent therein, Josefina Leal, owner
and operator of Josefina’s Pawnshop, asked for a reconsideration of both
RMO No. 15-91 and RMC No. 43-91, but the same was denied by petitioner
CIR. Leal then filed a petition for prohibition with the RTC of San Mateo,
Rizal, seeking to prohibit petitioner CIR from implementing the revenue
orders. The CIR, through the OSG, filed a motion to dismiss on the ground of
lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition for
certiorari and prohibition with the CA which dismissed the petition "for lack
of basis." In reversing the CA, dissolving the Writ of Preliminary Injunction
issued by the trial court and ordering the dismissal of the case before the trial
court, the Supreme Court held that "[t]he questioned RMO No. 15-91 and
RMC No. 43-91 are actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of pawnshops." They were
issued pursuant to the CIR’s power under Section 24533 of the Tax Code "to
make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws, including ruling on the classification of
articles of sales and similar purposes." The Court held that under R.A. No.
1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings
of the CIR are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of
motor vehicles sold at public auction within the SSEZ to implement Section
12 of R.A. No. 7227 which provides that "exportation or removal of goods
from the territory of the [SSEZ] to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines." They were issued
pursuant to the power of the CIR under Section 4 of the National Internal
Revenue Code,34 viz:
Section 4. Power of the Commissioner to Interpret Tax Laws and
to Decide Tax Cases.-- The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.
The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals. (emphases
supplied)
Petitioners point out that the CA based its decision on Section 7 of R.A. No.
1125 that the CTA "shall exercise exclusive appellate jurisdiction to review by
appeal…" decisions of the CIR. They argue that in the instant case, there is no
decision of the respondent CIR on any disputed assessment to speak of as
13
what is being questioned is purely the authority of the CIR to impose and
collect value-added and excise taxes.
Petitioners’ failure to ask the CIR for a reconsideration of the assailed revenue
regulations and RMCs is another reason why the instant case should be
dismissed. It is settled that the premature invocation of the court's intervention
is fatal to one's cause of action. If a remedy within the administrative
machinery can still be resorted to by giving the administrative officer every
opportunity to decide on a matter that comes within his jurisdiction, then such
remedy must first be exhausted before the court’s power of judicial review can
be sought.35 The party with an administrative remedy must not only initiate the
prescribed administrative procedure to obtain relief but also pursue it to its
appropriate conclusion before seeking judicial intervention in order to give the
administrative agency an opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to the court. 36
Petitioners’ insistence for this Court to rule on the merits of the case would
only prove futile. Having declared the court a quo without jurisdiction over
the subject matter of the instant case, any further disquisition would be obiter
dictum.
IN VIEW WHEREOF, the petition is DENIED.
SO ORDERED.
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due
process, taxpayers must be informed in writing of the law and the facts upon
which a tax assessment is based; otherwise, the assessment is void. Being
invalid, the assessment cannot in turn be used as a basis for the perfection of a
tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of
the Rules of Court, assailing the August 8, 2003 Decision 3 of the Court of
Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the
assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the
Court of Tax Appeals is ANNULLED and SET ASIDE without prejudice to
the action of the National Evaluation Board on the proposed compromise
settlement of the Maria C. Tancinco estate’s tax liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292
square-meter residential lot and an old house thereon (or ‘subject property’)
located at 4931 Pasay Road, Dasmariñas Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997
by a certain Raymond Abad (or ‘Abad’), Revenue District Office No. 50
(South Makati) conducted an investigation on the decedent’s estate (or
‘estate’). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority
No. 132963 for the regular investigation of the estate tax case. Azucena T.
Reyes (or ‘[Reyes]’), one of the decedent’s heirs, received the Letter of
Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal
Revenue (or ‘BIR’), issued a preliminary assessment notice against the estate
in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent
(or ‘heirs’) received a final estate tax assessment notice and a demand letter,
both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of
surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the
assessment [o]n behalf of the heirs on the ground that the subject property had
already been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’)
issued a preliminary collection letter to [Reyes], followed by a Final Notice
Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the
estate, followed on February 11, 1999 by Notices of Levy on Real Property
and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March
11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50%
of the basic tax due, citing the heirs’ inability to pay the tax assessment. On
March 20, 2000, [the CIR] rejected [Reyes’s] offer, pointing out that since the
estate tax is a charge on the estate and not on the heirs, the latter’s financial
incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the
CIR] demanded payment of the amount of P18,034,382.13 on or before April
15, 2000[;] otherwise, the notice of sale of the subject property would be
published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to
pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated
the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline,
the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6,
2000 that the subject property would be sold at public auction on August 8,
2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division.
Assailing the scheduled auction sale, she asserted that x x x the assessment,
letter of demand[,] and the whole tax proceedings against the estate are void
ab initio. She offered to file the corresponding estate tax return and pay the
correct amount of tax without surcharge [or] interest.
"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the
Collection Enforcement Division to proceed with the August 8, 2000 auction
sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview
with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of
Preliminary Injunction or Status Quo Order, which was granted by the CTA
on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the amount
of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale
of the subject property or from issuing a [W]arrant of [D]istraint or
[G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.
14
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that "On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of
the CTA no longer has jurisdiction over the case[,] because the assessment which pertinently reads:
against the estate is already final and executory; and (ii) that the petition was
filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied
‘WHEREFORE, in view of all the foregoing, the instant [P]etition for
[the CIR’s] motion.
[R]eview is hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to
PAY deficiency estate tax in the amount of Nineteen Million Five Hundred
"During the pendency of the [P]etition for [R]eview with the CTA, however, Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
the BIR issued Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue computed as follows:
Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to compromise
xxxxxxxxx
their tax liability.

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on

"On November 25, 2000, [Reyes] filed an application with the BIR for the
deficiency estate tax due of P17,934,382.13 from January 11, 2001 until full
compromise settlement (or ‘compromise’) of the assessment against the estate
payment thereof pursuant to Section 249(c) of the Tax Code, as amended.’
pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000
and RMO No. 42-2000.
"In arriving at its decision, the CTA ratiocinated that there can only be a
perfected and consummated compromise of the estate’s tax liability[,] if the
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement
NEB has approved [Reyes’s] application for compromise in accordance with
of the hearing before the CTA scheduled on January 9, 2001, citing her
RR No. 6-2000, as implemented by RMO No. 42-2000.
pending application for compromise with the BIR. The motion was granted
and the hearing was reset to February 6, 2001.
"Anent the validity of the assessment notice and letter of demand against the
estate, the CTA stated that ‘at the time the questioned assessment notice and
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on
letter of demand were issued, the heirs knew very well the law and the facts
February 6, 2001, this time on the ground that she had already paid the
on which the same were based.’ It also observed that the petition was not filed
compromise amount of P1,062,778.20 but was still awaiting approval of the
within the 30-day reglementary period provided under Sec. 11 of Rep. Act No.
National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset
1125 and Sec. 228 of the Tax Code."5
the hearing to February 27, 2001.

Ruling of the Court of Appeals

"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the
Settlement of Disputed Assessment as a Perfected Compromise. In said
motion, she alleged that [the CIR] had not yet signed the compromise[,]
because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the
[CIR]. [Reyes] posited that the absence of the requisite initials and
signature[s] on said documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval
of the NEB, [Reyes’s] application for compromise with the BIR cannot be
considered a perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a
Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10,
2001, the CTA denied the [M]otion for [R]econsideration with the suggestion
that[,] for an orderly presentation of her case and to prevent piecemeal
resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition
for [R]eview[,] setting forth the new issue of whether there was already a
perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the
CTA, followed on June 4, 2001 by its Amplificatory Arguments (for the
Supplemental Petition for Review), raising the following issues:
In partly granting the Petition, the CA said that Section 228 of the Tax Code
and RR 12-99 were mandatory and unequivocal in their requirement. The
assessment notice and the demand letter should have stated the facts and the
law on which they were based; otherwise, they were deemed void. 6 The
appellate court held that while administrative agencies, like the BIR, were not
bound by procedural requirements, they were still required by law and equity
to observe substantive due process. The reason behind this requirement, said
the CA, was to ensure that taxpayers would be duly apprised of -- and could
effectively protest -- the basis of tax assessments against them.7Since the
assessment and the demand were void, the proceedings emanating from them
were likewise void, and any order emanating from them could never attain
finality.
The appellate court added, however, that it was premature to declare as
perfected and consummated the compromise of the estate’s tax liability. It
explained that, where the basic tax assessed exceeded P1 million, or where the
settlement offer was less than the prescribed minimum rates, the National
Evaluation Board’s (NEB) prior evaluation and approval were the conditio
sine qua non to the perfection and consummation of any
compromise.8Besides, the CA pointed out, Section 204(A) of the Tax Code
applied to all compromises, whether government-initiated or not.9 Where the
law did not distinguish, courts too should not distinguish.

‘1. Whether or not an offer to compromise by the [CIR], with the Hence, this Petition.10
acquiescence by the Secretary of Finance, of a tax liability pending in court,
that was accepted and paid by the taxpayer, is a perfected and consummated
The Issues
compromise.

In GR No. 159694, petitioner raises the following issues for the Court’s
‘2. Whether this compromise is covered by the provisions of Section 204 of
consideration:
the Tax Code (CTRP) that requires approval by the BIR [NEB].’

"I.
"Answering the Supplemental Petition, [the CIR] averred that an application
for compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000
requires the evaluation and approval of either the NEB or the Regional Whether petitioner’s assessment against the estate is valid.
Evaluation Board (or ‘REB’), as the case may be.
"II.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the
motion was granted on July 11, 2001. After submission of memoranda, the
case was submitted for [D]ecision. Whether respondent can validly argue that she, as well as the other heirs, was
not aware of the facts and the law on which the assessment in question is
based, after she had opted to propose several compromises on the estate tax

15
due, and even prematurely acting on such proposal by paying 20% of the basic
estate tax due."11
The foregoing issues can be simplified as follows: first, whether the
assessment against the estate is valid; and, second, whether the compromise
entered into is also valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and
mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --
xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made: otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts
on which the assessment of estate taxes had been made. She was merely
notified of the findings by the CIR, who had simply relied upon the provisions
of former Section 22913 prior to its amendment by Republic Act (RA) No.
8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer
of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued
against the estate. On April 22, 1998, the final estate tax assessment notice, as
well as demand letter, was also issued. During those dates, RA 8424 was
already in effect. The notice required under the old law was no longer
sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of
the recommendation for the assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly assessing a taxpayer.
The act cannot be taken to mean that Reyes already knew the law and the facts
on which the assessment was based. It does not at all conform to the
compulsory requirement under Section 228. Moreover, the Letter of Authority
received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in
Chapter III of Title VIII, which deals with remedies. Being procedural in
nature, can its provision then be applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights, do not fall
under the general rule against the retroactive operation of statutes. 14 Clearly,
Section 228 provides for the procedure in case an assessment is protested. The
provision does not create new or take away vested rights. In both instances, it
can surely be applied retroactively. Moreover, RA 8424 does not state, either
expressly or by necessary implication, that pending actions are excepted from
the operation of Section 228, or that applying it to pending proceedings would
impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-
99 is of no moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the
provisions of the Tax Code.15 While it is desirable for the government
authority or administrative agency to have one immediately issued after a law
is passed, the absence of the regulation does not automatically mean that the
law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already
stated that the taxpayer must be informed of both the law and facts on which
the assessment was based. Thus, the CIR should have required the assessment
officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate
of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations -- old as they were
-- should be in harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would
be too wide a stretch of the imagination, though, to still issue a regulation that
would simply require tax officials to inform the taxpayer, in any manner, of
the law and the facts on which an assessment was based. That requirement is
neither difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative
of certain rights and corresponding obligations, is given retroactive effect as
of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the
Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting
an assessment has been amended. Furthermore, in case of discrepancy
between the law as amended and its implementing but old regulation, the
former necessarily prevails.18 Thus, between Section 228 of the Tax Code and
the pertinent provisions of RR 12-85, the latter cannot stand because it cannot
go beyond the provision of the law. The law must still be followed, even
though the existing tax regulation at that time provided for a different
procedure. The regulation then simply provided that notice be sent to the
respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the
taxpayer be accorded due process. Not only was the law here disregarded, but
no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations:
that taxpayers should be able to present their case and adduce supporting
evidence.19 In the instant case, respondent has not been informed of the basis
of the estate tax liability. Without complying with the unequivocal mandate of
first informing the taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest can be made. 20 The
haphazard shot at slapping an assessment, supposedly based on estate
taxation’s general provisions that are expected to be known by the taxpayer, is
utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the
demand letter sent, reveals the lack of basis for -- not to mention the
insufficiency of -- the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as
any arbitrariness will negate the very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government
cannot be estopped by the negligence or omission of its agents, the obligatory
provision on protesting a tax assessment cannot be rendered nugatory by a
mere act of the CIR .
16
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the
mandatory provisions of law are void, except when the law itself authorizes
the validity of those acts.23 Failure to comply with Section 228 does not only
render the assessment void, but also finds no validation in any provision in the
Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the
estate tax liability has been perfected and consummated, considering the
earlier determination that the assessment against the estate was void. Nothing
has been settled or finalized. Under Section 204(A) of the Tax Code, where
the basic tax involved exceeds one million pesos or the settlement offered is
less than the prescribed minimum rates, the compromise shall be subject to the
approval of the NEB composed of the petitioner and four deputy
commissioners.
Finally, as correctly held by the appellate court, this provision applies to all
compromises, whether government-initiated or not. Ubi lex non distinguit, nec
nos distinguere debemos. Where the law does not distinguish, we should not
distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 162852 December 16, 2004
PHILIPPINE JOURNALISTS, INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review filed by Philippine Journalists, Incorporated (PJI)
assailing the Decision1 of the Court of Appeals dated August 5, 2003,2 which
ordered petitioner to pay the assessed tax liability of P111,291,214.46 and the
Resolution3 dated March 31, 2004 which denied the Motion for
Reconsideration.
The case arose from the Annual Income Tax Return filed by petitioner for the
calendar year ended December 31, 1994 which presented a net income of
P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits
for the year, petitioner paid the amount of P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal
Revenue (BIR) issued Letter of Authority No. 87120 4 for Revenue Officer
Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine
petitioner’s books of account and other accounting records for internal
revenue taxes for the period January 1, 1994 to December 31, 1994.
From the examination, the petitioner was told that there were deficiency taxes,
inclusive of surcharges, interest and compromise penalty in the following
amounts:
Value Added Tax P 229,527.90
Income Tax 125,002,892.95
Withholding Tax 2,748,012.35
Total P 127,980,433.20
In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion
invited petitioner to send a representative to an informal conference on
September 15, 1997 for an opportunity to object and present documentary
evidence relative to the proposed assessment. On September 22, 1997,
petitioner’s Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute
of Limitation Under the National Internal Revenue Code (NIRC)".5 The
document "waive[d] the running of the prescriptive period provided by
Sections 223 and 224 and other relevant provisions of the NIRC and
consent[ed] to the assessment and collection of taxes which may be found due
after the examination at any time after the lapse of the period of limitations
fixed by said Sections 223 and 224 and other relevant provisions of the NIRC,
until the completion of the investigation".6
On July 2, 1998, Revenue Officer De Vera submitted his audit report
recommending the issuance of an assessment and finding that petitioner had
deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998,
the Assessment Division of the BIR issued Pre-Assessment Notices which
informed petitioner of the results of the investigation. Thus, BIR Revenue
Region No. 6, Assessment Division/Billing Section, issued
Assessment/Demand No. 33-1-000757-947 on December 9, 1998 stating the
following deficiency taxes, inclusive of interest and compromise penalty:
Income Tax P108,743,694.88
Value Added Tax 184,299.20
Expanded Withholding Tax 2,363,220.38
Total P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter was sent by Deputy
Commissioner Romeo S. Panganiban to the petitioner to pay the assessment
within ten (10) days from receipt of the letter. On November 10, 1999, a Final
Notice Before Seizure8 was issued by the same deputy commissioner giving
the petitioner ten (10) days from receipt to pay. Petitioner received a copy of
the final notice on November 24, 1999. By letters dated November 26, 1999,
petitioner asked to be clarified how the tax liability of P111,291,214.46 was
reached and requested an extension of thirty (30) days from receipt of the
clarification within which to reply.9
The BIR received a follow-up letter from the petitioner asserting that its (PJI)
records do not show receipt of Tax Assessment/Demand No. 33-1-000757-
94.10 Petitioner also contested that the assessment had no factual and legal
basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-
04611 signed by Deputy Commissioner Romeo Panganiban for the BIR was
received by the petitioner.
Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA)
which was amended on May 12, 2000. Petitioner complains: (a) that no
assessment or demand was received from the BIR; (b) that the warrant of
distraint and/or levy was without factual and legal bases as its issuance was
premature; (c) that the assessment, having been made beyond the 3-year
prescriptive period, is null and void; (d) that the issuance of the warrant
without being given the opportunity to dispute the same violates its right to
due process; and (e) that the grave prejudice that will be sustained if the
warrant is enforced is enough basis for the issuance of the writ of preliminary
injunction.
On May 14, 2002, the CTA rendered its decision,13 to wit:
As to whether or not the assessment notices were received by the
petitioner, this Court rules in the affirmative.
17
To disprove petitioner’s allegation of non-receipt of the aforesaid
assessment notices, respondent presented a certification issued by
the Post Master of the Central Post Office, Manila to the effect that
Registered Letter No. 76134 sent by the BIR, Region No. 6,
Manila on December 15, 1998 addressed to Phil. Journalists, Inc.
at Journal Bldg., Railroad St., Manila was duly delivered to and
received by a certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999. Respondent also showed proof
that in claiming Registered Letter No. 76134, Mr. Sanchez
presented three identification cards, one of which is his company
ID with herein petitioner.
… BIR, denying the request for reconsideration or reinvestigation
However, as to whether or not the Waiver of the Statute of
Limitations is valid and binding on the petitioner is another
question. Since the subject assessments were issued beyond the
three-year prescriptive period, it becomes imperative on our part to
rule first on the validity of the waiver allegedly executed on
September 22, 1997, for if this court finds the same to be
ineffective, then the assessments must necessarily fail.
… expiration date; (2) it does not state the date of acceptance by the
After carefully examining the questioned Waiver of the Statute of
Limitations, this Court considers the same to be without any
binding effect on the petitioner for the following reasons:
The waiver is an unlimited waiver. It does not contain a definite
expiration date. Under RMO No. 20-90, the phrase indicating the
expiry date of the period agreed upon to assess/collect the tax after
the regular three-year period of prescription should be filled up…
…
Secondly, the waiver failed to state the date of acceptance by the
Bureau which under the aforequoted RMO should likewise be
indicated…
… flaw of the decision. The period of prescription for the assessment
Finally, petitioner was not furnished a copy of the waiver. It is to
be noted that under RMO No. 20-90, the waiver must be executed
in three (3) copies, the second copy of which is for the taxpayer. It
is likewise required that the fact of receipt by the taxpayer of
his/her file copy be indicated in the original copy. Again,
respondent failed to comply.
It bears stressing that RMO No. 20-90 is directed to all concerned
internal revenue officers. The said RMO even provides that the
procedures found therein should be strictly followed, under pain of
being administratively dealt with should non-compliance result to
prescription of the right to assess/collect…
Thus, finding the waiver executed by the petitioner on September
22, 1997 to be suffering from legal infirmities, rendering the same
invalid and ineffective, the Court finds Assessment/Demand No.
33-1-000757-94 issued on December 5, 1998 to be time-barred.
Consequently, the Warrant of Distraint and/or Levy issued
pursuant thereto is considered null and void.
WHEREFORE, in view of all the foregoing, the instant Petition
for Review is hereby GRANTED. Accordingly, the deficiency
income, value-added and expanded withholding tax assessments
issued by the respondent against the petitioner on December 9,
1998, in the total amount of P111,291,214.46 for the year 1994 are
hereby declared CANCELLED, WITHDRAWN and WITH NO
FORCE AND EFFECT. Likewise, Warrant of Distraint and/or
Levy No. 33-06-046 is hereby declared NULL and VOID.
SO ORDERED.14
After the motion for reconsideration of the Commissioner of Internal Revenue
was denied by the CTA in a Resolution dated August 2, 2002, an appeal was
filed with the Court of Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of Appeals disagreed with the
ruling of the CTA, to wit:
… The petition for review filed on 26 April 2000 with CTA was
neither timely filed nor the proper remedy. Only decisions of the
may be appealed to the CTA. Mere assessment notices which have
become final after the lapse of the thirty (30)-day reglementary
period are not appealable. Thus, the CTA should not have
entertained the petition at all.
…
… [T]he CTA found the waiver executed by Phil. Journalists to be
invalid for the following reasons: (1) it does not indicate a definite
BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a
copy of the waiver. These grounds are merely formal in nature.
The date of acceptance by the BIR does not categorically appear in
the document but it states at the bottom page that the BIR
"accepted and agreed to:"…, followed by the signature of the
BIR’s authorized representative. Although the date of acceptance
was not stated, the document was dated 22 September 1997. This
date could reasonably be understood as the same date of
acceptance by the BIR since a different date was not otherwise
indicated. As to the allegation that Phil. Journalists was not
furnished a copy of the waiver, this requirement appears ridiculous.
Phil. Journalists, through its comptroller, Lorenza Tolentino,
signed the waiver. Why would it need a copy of the document it
knowingly executed when the reason why copies are furnished to a
party is to notify it of the existence of a document, event or
proceeding? …
As regards the need for a definite expiration date, this is the biggest
of taxes may be extended provided that the extension be made in
writing and that it be made prior to the expiration of the period of
prescription. These are the requirements for a valid extension of
the prescriptive period. To these requirements provided by law, the
memorandum order adds that the length of the extension be
specified by indicating its expiration date. This requirement could
be reasonably construed from the rule on extension of the
prescriptive period. But this requirement does not apply in the
instant case because what we have here is not an extension of the
prescriptive period but a waiver thereof. These are two (2) very
different things. What Phil. Journalists executed was a renunciation
of its right to invoke the defense of prescription. This is a valid
waiver. When one waives the prescriptive period, it is no longer
necessary to indicate the length of the extension of the prescriptive
period since the person waiving may no longer use this defense.
WHEREFORE, the 02 August 2002 resolution and 14 May 2002
decision of the CTA are hereby SET ASIDE. Respondent Phil.
Journalists is ordered [to] pay its assessed tax liability of
P111,291,214.46.
SO ORDERED.15
Petitioner’s Motion for Reconsideration was denied in a Resolution dated
March 31, 2004. Hence, this appeal on the following assignment of errors:
I.
The Honorable Court of Appeals committed grave error in ruling
that it is outside the jurisdiction of the Court of Tax Appeals to
entertain the Petition for Review filed by the herein Petitioner at
18
 the CTA despite the fact that such case inevitably rests upon the
validity of the issuance by the BIR of warrants of distraint and levy
contrary to the provisions of Section 7(1) of Republic Act No.
1125.
II.
The Honorable Court of Appeals gravely erred when it ruled that
failure to comply with the provisions of Revenue Memorandum
Order (RMO) No. 20-90 is merely a formal defect that does not
invalidate the waiver of the statute of limitations without stating
the legal justification for such conclusion. Such ruling totally
disregarded the mandatory requirements of Section 222(b) of the
Tax Code and its implementing regulation, RMO No. 20-90 which
are substantive in nature. The RMO provides that violation thereof
subjects the erring officer to administrative sanction. This directive
shows that the RMO is not merely cover forms.
III.
The Honorable Court of Appeals gravely erred when it ruled that
the assessment notices became final and unappealable. The
assessment issued is void and legally non-existent because the BIR
has no power to issue an assessment beyond the three-year
prescriptive period where there is no valid and binding waiver of
the statute of limitation.
IV.
The Honorable Court of Appeals gravely erred when it held that
the assessment in question has became final and executory due to
the failure of the Petitioner to protest the same. Respondent had no
power to issue an assessment beyond the three year period under
the mandatory provisions of Section 203 of the NIRC. Such
assessment should be held void and non-existent, otherwise,
Section 203, an expression of a public policy, would be rendered
useless and nugatory. Besides, such right to assess cannot be
validly granted after three years since it would arise from a
violation of the mandatory provisions of Section 203 and would go
against the vested right of the Petitioner to claim prescription of
assessment.
V.
The Honorable Court of Appeals committed grave error when it
HELD valid a defective waiver by considering the latter a waiver
of the right to invoke the defense of prescription rather than an
extension of the three year period of prescription (to make an
assessment) as provided under Section 222 in relation to Section
203 of the Tax Code, an interpretation that is contrary to law,
existing jurisprudence and outside of the purpose and intent for
which they were enacted.16
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the CTA over the issues in
this case. The Court of Appeals ruled that only decisions of the BIR denying a
request for reconsideration or reinvestigation may be appealed to the CTA.
Since the petitioner did not file a request for reinvestigation or reconsideration
within thirty (30) days, the assessment notices became final and unappealable.
The petitioner now argue that the case was brought to the CTA because the
warrant of distraint or levy was illegally issued and that no assessment was
issued because it was based on an invalid waiver of the statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act
Creating the Court of Tax Appeals, provides for the jurisdiction of that special
court:
SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein
provided –
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue
Code or other laws or part of law administered by the Bureau
of Internal Revenue; (Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the Commissioner of Internal Revenue on matters relating to
assessments or refunds. The second part of the provision covers other cases
that arise out of the NIRC or related laws administered by the Bureau of
Internal Revenue. The wording of the provision is clear and simple. It gives
the CTA the jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of Limitations
was validly effected.
This is not the first case where the CTA validly ruled on issues that did not
relate directly to a disputed assessment or a claim for refund. In Pantoja v.
David,17 we upheld the jurisdiction of the CTA to act on a petition to
invalidate and annul the distraint orders of the Commissioner of Internal
Revenue. Also, in Commissioner of Internal Revenue v. Court of
Appeals,18 the decision of the CTA declaring several waivers executed by the
taxpayer as null and void, thus invalidating the assessments issued by the BIR,
was upheld by this Court.
The second and fifth assigned errors both focus on Revenue Memorandum
Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the
statute of limitations. The Court of Appeals held that the requirements and
procedures laid down in the RMO are only formal in nature and did not
invalidate the waiver that was signed even if the requirements were not strictly
observed.
The NIRC, under Sections 203 and 222,19 provides for a statute of limitations
on the assessment and collection of internal revenue taxes in order to
safeguard the interest of the taxpayer against unreasonable
investigation.20Unreasonable investigation contemplates cases where the
period for assessment extends indefinitely because this deprives the taxpayer
of the assurance that it will no longer be subjected to further investigation for
taxes after the expiration of a reasonable period of time. As was held
in Republic of the Phils. v. Ablaza:21
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 a 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 beneficent purpose of
affording protection to the taxpayer within the contemplation
of the Commission which recommend the approval of the
law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the
period of prescription for the assessment and collection of taxes. A cursory
reading of the Order supports petitioner’s argument that the RMO must be
strictly followed, thus:
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form
may be reproduced by the Office concerned but there should be
no deviation from such form. The phrase "but not after
__________ 19___" should be filled up…
2. …
19
 Soon after the waiver is signed by the taxpayer, the Commissioner
of Internal Revenue or the revenue official authorized by him,
as hereinafter provided, shall sign the waiver indicating that
the Bureau has accepted and agreed to the waiver. The date of
such acceptance by the Bureau should be indicated…
3. The following revenue officials are authorized to sign the
waiver.
A. In the National Office
…
3. Commissioner For tax cases involving
more than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect
to tax cases still pending investigation and
the period to assess is about to prescribe
regardless of amount.
… Here, the three waivers signed by Carnation do not bear
5. The foregoing procedures shall be
strictly followed. Any revenue official
found not to have complied with this
Order resulting in prescription of the
right to assess/collect shall be
administratively dealt with. (Emphasis
supplied)22
A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers’ right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed.23The waiver of the statute of limitations is not a waiver of the right
to invoke the defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR that the period
to issue an assessment and collect the taxes due is extended to a date certain.
The waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally particularly where the language of the document is
equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.24 RMO No. 20-90 explains the rationale of a
waiver:
... The phrase "but not after _________ 19___" should be filled up.
This indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time
within which to effect the assessment/collection of the tax in
addition to the ordinary prescriptive period. (Emphasis
supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by
petitioner’s comptroller on September 22, 1997 is not valid and binding
because it does not conform with the provisions of RMO No. 20-90. It did not
specify a definite agreed date between the BIR and petitioner, within which
the former may assess and collect revenue taxes. Thus, petitioner’s waiver
became unlimited in time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed
only by a revenue district officer, not the Commissioner, as mandated by the
NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer
or the BIR, but is a bilateral agreement between two parties to extend the
period to a date certain. The conformity of the BIR must be made by either the
Commissioner or the Revenue District Officer. This case involves taxes
amounting to more than One Million Pesos (P1,000,000.00) and executed
almost seven months before the expiration of the three-year prescription
period. For this, RMO No. 20-90 requires the Commissioner of Internal
Revenue to sign for the BIR.
The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt
with waivers that were not signed by the Commissioner but were argued to
have been given implied consent by the BIR. We invalidated the subject
waivers and ruled:
Petitioner’s submission is inaccurate…
…
The Court of Appeals itself also passed upon the validity of the
waivers executed by Carnation, observing thus:
We cannot go along with the petitioner’s theory.
Section 319 of the Tax Code earlier quoted is clear and
explicit that the waiver of the five-year26 prescriptive
period must be in writing and signed by both the BIR
Commissioner and the taxpayer.
the written consent of the BIR Commissioner as
required by law.
We agree with the CTA in holding "these ‘waivers’ to
be invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent by
the respondent (Commissioner of Internal Revenue)."
…
For sure, no such written agreement concerning the said
three waivers exists between the petitioner and private
respondent Carnation.
…
What is more, the waivers in question reveal that they are in no
wise unequivocal, and therefore necessitates for its binding effect
the concurrence of the Commissioner of Internal Revenue…. On
this basis neither implied consent can be presumed nor can it
be contended that the waiver required under Sec. 319 of the
Tax Code is one which is unilateral nor can it be said that
concurrence to such an agreement is a mere formality because
it is the very signatures of both the Commissioner of Internal
Revenue and the taxpayer which give birth to such a valid
agreement.27 (Emphasis supplied)
The other defect noted in this case is the date of acceptance which makes it
difficult to fix with certainty if the waiver was actually agreed before the
expiration of the three-year prescriptive period. The Court of Appeals held
that the date of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by the BIR.
Petitioner points out however that Revenue District Officer Sarmiento could
not have accepted the waiver yet because she was not the Revenue District
Officer of RDO No. 33 on such date. Ms. Sarmiento’s transfer and assignment
to RDO No. 33 was only signed by the BIR Commissioner on January 16,
1998 as shown by the Revenue Travel Assignment Order No. 14-98.28 The
Court of Tax Appeals noted in its decision that it is unlikely as well that Ms.
Sarmiento made the acceptance on January 16, 1998 because "Revenue
Officials normally have to conduct first an inventory of their pending papers
and property responsibilities."29
Finally, the records show that petitioner was not furnished a copy of the
waiver. Under RMO No. 20-90, the waiver must be executed in three copies
with the second copy for the taxpayer. The Court of Appeals did not think this
20
was important because the petitioner need not have a copy of the document it
knowingly executed. It stated that the reason copies are furnished is for a party
to be notified of the existence of a document, event or proceeding.
The flaw in the appellate court’s reasoning stems from its assumption that the
waiver is a unilateral act of the taxpayer when it is in fact and in law an
agreement between the taxpayer and the BIR. When the petitioner’s
comptroller signed the waiver on September 22, 1997, it was not yet complete
and final because the BIR had not assented. There is compliance with the
provision of RMO No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish the taxpayer with a
copy of the waiver is not only to give notice of the existence of the document
but of the acceptance by the BIR and the perfection of the agreement.
The waiver document is incomplete and defective and thus the three-year
prescriptive period was not tolled or extended and continued to run until April
17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued
on December 9, 1998 was invalid because it was issued beyond the three (3)
year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-
046 which petitioner received on March 28, 2000 is also null and void for
having been issued pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review
is GRANTED. The Decision of the Court of Appeals dated August 5, 2003
and its Resolution dated March 31, 2004 are REVERSED and SET ASIDE.
The Decision of the Court of Tax Appeals in CTA Case No. 6108 dated May
14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and
void, is REINSTATED.
SO ORDERED.
G.R. No. 178087 May 5, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government
and the taxpayer.1 Exceptions extending the period to assess must, therefore,
be strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision2 dated
March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation
of the assessment notices for having been issued beyond the prescriptive
period and the Resolution3 dated May 18, 2007 denying the motion for
reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual
Income Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of
Internal Revenue (BIR) served upon respondent three Notices of Presentation
of Records. Respondent failed to comply with these notices, hence, the BIR
issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which
was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter
dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant,
executed a Waiver of the Defense of Prescription,4 which was notarized on
January 22, 2002, received by the BIR Enforcement Service on January 31,
2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted
by the Assistant Commissioner of the Enforcement Service, Percival T.
Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed
by Pasco on February 18, 2003, notarized on February 19, 2003, received by
the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant
Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal
Letter of Demand with Assessment Notices for taxable year 1998, dated
September 26, 2003 which was received by respondent on November 12,
2003.
Respondent challenged the assessments by filing its "Protest on Various Tax
Assessments" on December 3, 2003 and its "Legal Arguments and Documents
in Support of Protests against Various Assessments" on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting
the immediate payment of the following tax liabilities:
Kind of Tax Amount
Income Tax ₱ 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total ₱25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed,
respondent filed on August 27, 2004 a Petition for Review7 with the CTA.
Petitioner in turn filed his Answer.8
On April 11, 2005, respondent filed an "Urgent Motion for Preferential
Resolution of the Issue on Prescription."9
On October 4, 2005, the CTA Second Division issued a Resolution10 canceling
the assessment notices issued against respondent for having been issued
beyond the prescriptive period. It found the first Waiver of the Statute of
Limitations incomplete and defective for failure to comply with the provisions
of Revenue Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign
the waiver, as the tax case involves more than ₱1,000,000.00. In this regard,
only the Commissioner is authorized to enter into agreement with the
petitioner in extending the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within
the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on
the original copy. The requirement to furnish the taxpayer with a copy of the
waiver is not only to give notice of the existence of the document but also of
the acceptance by the BIR and the perfection of the agreement.1avvphi1
The subject waiver is therefore incomplete and defective. As such, the three-
year prescriptive period was not tolled or extended and continued to run. x x
x11
21
Petitioner moved for reconsideration but the CTA Second Division denied the
motion in a Resolution12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was authorized to
sign the waiver pursuant to Revenue Delegation Authority Order (RDAO) No.
05-01, it found that the first waiver was still invalid based on the second and
third grounds stated by the CTA Second Division. Pertinent portions of the
Decision read as follows:
While the Court En Banc agrees with the second and third grounds for
invalidating the first waiver, it finds that the Assistant Commissioner of the
Enforcement Service is authorized to sign the waiver pursuant to RDAO No.
05-01, which provides in part as follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement
Service cases
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those
cases falling under Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution
of certain legal issues prior to prescription and for issuance/compliance of
Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are pending in or subject
to review or approval by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is
authorized to sign waivers in tax fraud cases. A perusal of the records reveals
that the investigation of the subject deficiency taxes in this case was
conducted by the National Investigation Division of the BIR, which was
formerly named the Tax Fraud Division. Thus, the subject assessment is a tax
fraud case.
Nevertheless, the first waiver is still invalid based on the second and third
grounds stated by the Court in Division. Hence, it did not extend the
prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver
is invalid for violating Section 222(b) of the 1997 Tax Code which mandates
that the period agreed upon in a waiver of the statute can still be extended by
subsequent written agreement, provided that it is executed prior to the
expiration of the first period agreed upon. As previously discussed, the
exceptions to the law on prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on
December 31, 2002. The second waiver in the instant case which was
supposed to extend the period to assess to December 31, 2003 was executed
on February 18, 2003 and was notarized on February 19, 2003. Clearly, the
second waiver was executed after the expiration of the first period agreed
upon. Consequently, the same could not have tolled the 3-year prescriptive
period to assess.13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT
THE GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF
RESPONDENT PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its
accountant, effectively tolled or extended the period within which the
assessment can be made. In disputing the conclusion of the CTA that the
waivers are invalid, petitioner claims that respondent is estopped from
adopting a position contrary to what it has previously taken. Petitioner insists
that by acquiescing to the audit during the period specified in the waivers,
respondent led the government to believe that the "delay" in the process would
not be utilized against it. Thus, respondent may no longer repudiate the
validity of the waivers and raise the issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written
authority from it, in clear violation of RDAO No. 5-01. As to the doctrine of
estoppel by acquiescence relied upon by petitioner, respondent counters that
the principle of equity comes into play only when the law is doubtful, which is
not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC)
mandates the government to assess internal revenue taxes within three years
from the last day prescribed by law for the filing of the tax return or the actual
date of filing of such return, whichever comes later. Hence, an assessment
notice issued after the three-year prescriptive period is no longer valid and
effective. Exceptions however are provided under Section 222 16 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period
within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the
three-year prescriptive period, but claims that the period was extended by the
two waivers executed by respondent’s accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect
taxes may only be extended upon a written agreement between the CIR and
the taxpayer executed before the expiration of the three-year period. RMO 20-
9017 issued on April 4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay
down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-
90. The phrase "but not after ______ 19 ___", which indicates the
expiry date of the period agreed upon to assess/collect the tax after
the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the
authority is delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the
waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be
indicated. However, before signing the waiver, the CIR or the
22
 revenue official authorized by him must make sure that the waiver
is in the prescribed form, duly notarized, and executed by the
taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon
in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy
to be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver.
The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the
agreement.19
A perusal of the waivers executed by respondent’s accountant reveals the
following infirmities:
1. The waivers were executed without the notarized written
authority of Pasco to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not
indicated in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the
three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from
claiming prescription since by executing the waivers, it was the one which
asked for additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company,20 the doctrine of estoppel prevented the taxpayer from raising the
defense of prescription against the efforts of the government to collect the
assessed tax. However, it must be stressed that in the said case, estoppel was
applied as an exception to the statute of limitations on collection of taxes and
not on the assessment of taxes, as the BIR was able to make an assessment
within the prescribed period. More important, there was a finding that the
taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its
second final return filed on November 28, 1946 was made on February 11,
1947. Upon receipt of this assessment respondent requested for at least one
year within which to pay the amount assessed although it reserved its right to
question the correctness of the assessment before actual payment. Petitioner
granted an extension of only three months. When it failed to pay the tax within
the period extended, petitioner sent respondent a letter on November 28, 1950
demanding payment of the tax as assessed, and upon receipt of the letter
respondent asked for a reinvestigation and reconsideration of the assessment.
When this request was denied, respondent again requested for a
reconsideration on April 25, 1952, which was denied on May 6, 1953, which
denial was appealed to the Conference Staff. The appeal was heard by the
Conference Staff from September 2, 1953 to July 16, 1955, and as a result of
these various negotiations, the assessment was finally reduced on July 26,
1955. This is the ruling which is now being questioned after a protracted
negotiation on the ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the
tax by distraint or levy or by proceeding in court within the 5-year period from
the filing of the second amended final return due to the several requests of
respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment.
Because of such requests, several reinvestigations were made and a hearing
was even held by the Conference Staff organized in the collection office to
consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is
most unfair for respondent to now take advantage of such desistance to elude
his deficiency income tax liability to the prejudice of the Government
invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there
are cases however where a taxpayer may be prevented from setting up the
defense of prescription even if he has not previously waived it in writing as
when by his repeated requests or positive acts the Government has been, for
good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities
that hold, based on weighty reasons, that such an attitude or behavior should
not be countenanced if only to protect the interest of the Government.
This case has no precedent in this jurisdiction for it is the first time that such
has risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is
fundamental and unquestioned. ‘He who prevents a thing from being done
may not avail himself of the nonperformance which he has himself
occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified."’ "(R. H. Stearns Co. vs. U.S., 78 L. ed.,
647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The
plaintiff is now estopped and should not be permitted to raise the defense of
the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp.
588].21
Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to
persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a
detailed procedure for the proper execution of the waiver, which the BIR must
strictly follow. As we have often said, the doctrine of estoppel is predicated
on, and has its origin in, equity which, broadly defined, is justice according to
natural law and right.22 As such, the doctrine of estoppel cannot give validity
to an act that is prohibited by law or one that is against public policy.23 It
should be resorted to solely as a means of preventing injustice and should not
be permitted to defeat the administration of the law, or to accomplish a wrong
or secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate.24 Simply put, the doctrine of estoppel
must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself
issued. As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate the
date of acceptance and the receipt by the respondent of the waivers. Having
caused the defects in the waivers, the BIR must bear the consequence. It
cannot shift the blame to the taxpayer. To stress, a waiver of the statute of
limitations, being a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly
construed.25
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use
this as an excuse for issuing the assessments beyond the three-year period
because with or without the required documents, the CIR has the power to
make assessments based on the best evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March
30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.
SO ORDERED.
23
G.R. No. 170257 September 7, 2011 1995 (ST-
DST2-95-
0210-2000) 367,207,105.29 331,535,844.68 300,000.00 699,042,949.97
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, 1994 (ST-
DST3-94-
vs. 0211-2000) 460,370,640.05 512,193,460.02 300,000.00 972,864,100.07
COMMISSIONER OF INTERNAL REVENUE, Respondent. 1994 (ST-
DST4-94-
0212-2000) 223,037,675.89 240,050,706.09 300,000.00 463,388,381.98
DECISION
TOTALS ₱2,130,226,954.83 ₱2,035,495,733.89 ₱4,335,945.52 ₱4,170,058,634.49
MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 seeking to set aside Disagreeing with the said deficiency tax assessment, RCBC filed a protest on
the July 27, 2005 Decision1 and October 26, 2005 Resolution2 of the Court of February 24, 2000 and later submitted the relevant documentary evidence to
Tax Appeals En Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled "Rizal support it. Much later on November 20, 2000, it filed a petition for review
Commercial Banking Corporation v. Commissioner of Internal Revenue." before the CTA, pursuant to Section 228 of the 1997 Tax Code.7

THE FACTS On December 6, 2000, RCBC received another Formal Letter of Demand with
Assessment Notices dated October 20, 2000, following the reinvestigation it
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation requested, which drastically reduced the original amount of deficiency taxes to
engaged in general banking operations. It seasonably filed its Corporation the following:8
Annual Income Tax Returns for Foreign Currency Deposit Unit for the
calendar years 1994 and 1995.3
Particulars Basic Tax Interest Compromise Penalties Total

On August 15, 1996, RCBC received Letter of Authority No. 133959 issued
by then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, Deficiency Income Tax
1995 (INC-95-000003) ₱ 374,348.45 ₱ 346,656.92 ₱ 721,005.37
authorizing a special audit team to examine the books of accounts and other
accounting records for all internal revenue taxes from January 1, 1994 to 1994 (INC-94-000002) 1,392,366.28 1,568,605.52 2,960,971.80
December 31, 1995.4
Deficiency Gross Receipts Tax

1995 (GRT-95-000004) 2,000,926.96 3,322,589.63 ₱ 1,367,222.04 6,690,738.63

On January 23, 1997, RCBC executed two Waivers of the Defense of
Prescription Under the Statute of Limitations of the National Internal Revenue 1994 (GRT-94-000003) 138,368.61 161,872.32 300,240.93
Code covering the internal revenue taxes due for the years 1994 and 1995, Deficiency Final Withholding Tax
effectively extending the period of the Bureau of Internal Revenue (BIR) to
assess up to December 31, 2000.5 1995 (FT-95-000005) 362,203.47 351,287.75 713,491.22

1994 (FT-94-000004) 188,746.43 220,807.47 409,553.90

Subsequently, on January 27, 2000, RCBC received a Formal Letter of Deficiency Final Tax on FCDU Onshore Income
Demand together with Assessment Notices from the BIR for the following
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 160,561,009.28
deficiency tax assessments:6
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 74,707,305.36

Compromise Deficiency Expanded Withholding Tax

Particulars Basic Tax Interest Penalties Total 1995 (EWT-95-000004) 520,869.72 505,171.80 25,000.00 1,051,041.03

1994 (EWT-94-000003) 297,949.95 348,560.63 25,000.00 671,510.58

Deficiency Income Tax
1995 (ST-INC- Deficiency Documentary Stamp Tax
95-0199-2000) ₱ 252,150,988.01 ₱ 191,496,585.96 ₱ 25,000.00 ₱ 443,672,573.97
1995 (DST-95-000006) 599,890.72 149,972.68 749,863.40
1994 (ST-INC-
94-0200-2000) 216,478,397.90 207,819,261.99 25,000.00 424,322,659.89 1995 (DST2-95-000002) 24,953,842.46 6,238,460.62 31,192,303.08
Deficiency Gross Receipts Tax
1995 (ST- 1994 (DST-94-000005) 905,064.74 226,266.18 1,131,330.92
GRT-95-0201-
2,819,745.52 28,945,525.41 1994 (DST2-94-000001) 17,040,104.84 4,260,026.21 21,300,131.05
2000) 13,697,083.68 12,428,696.21
1994 (ST-
GRT-94-0202- TOTALS ₱ 164,712,903.44 ₱ 126,155,645.38 ₱ 12,291,947.73 ₱ 303,160,496.55
2000) 2,488,462.38 2,755,716.42 25,000.00 5,269,178.80
Deficiency Final Withholding Tax
1995 (ST-
EWT-95-0203-
2000) 64,365,610.12 58,757,866.78 25,000.00 123,148,477.15 On the same day, RCBC paid the following deficiency taxes as assessed by
1994 (ST- the BIR:9
EWT-94-0204-
2000) 53,058,075.25 59,047,096.34 25,000.00 112,130,171.59
Deficiency Final Tax on FCDU Onshore Income Particulars 1994 1995 Total
1995 (ST-OT-
95-0205-2000) 81,508,718.20 61,901,963,.52 25,000.00 143,435,681.72 Deficiency Income Tax ₱ ₱ 722,236.11 ₱ 3,687,785.55
1994 (ST-OT- 2,965,549.44
94-0206-2000) 34,429,503.10 33,052,322.98 25,000.00 67,506,826.08
Deficiency Gross Receipts 300,695.84 6,701,893.17 7,002,589.01
Deficiency Expanded Withholding Tax Tax
1995 (ST-
EWT-95-0207- Deficiency Final Withholding 410,174.44 714,682.02 1,124,856.46
2000) 5,051,415.22 4,583,640.33 113,000.00 9,748,055.55 Tax
1994 (ST-
EWT-94-0208- Deficiency Expanded 672,490.14 1,052,753.48 1,725,243.62
2000) 4,482,740.35 4,067,626.31 78,200.00 8,628,566.66 Withholding Tax
Deficiency Documentary Stamp Tax
Deficiency Documentary 1,131,330.92 749,863.40 1,881,194.32
1995 (ST- Stamp Tax
DST1-95-
0209-2000) 351,900,539.39 315,804,946.26 250,000.00 667,955,485.65 TOTALS ₱ ₱ ₱

24
 5,480,240.78 9,941,428.18 15,421,668.96 ordered RCBC to pay the amount of ₱ 132,654,261.69 plus 20% delinquency
tax.18

RCBC elevated the case to the CTA-En Banc where it raised the following
issues:
RCBC, however, refused to pay the following assessments for deficiency
onshore tax and documentary stamp tax which remained to be the subjects of I.
its petition for review:10

Whether or not the right of the respondent to assess deficiency

Particulars 1994 1995 Total onshore tax and documentary stamp tax for taxable year 1994
and 1995 had already prescribed when it issued the formal
Deficiency Final Tax on FCDU Onshore Income
letter of demand and assessment notices for the said taxable
Basic ₱ 34,429,503.10 ₱ 81,508,718.20 ₱ 115,938,221.30 years.

Interest 40,277,802.26 79,052,291.08 119,330,093.34

II.
Sub Total ₱ 74,707,305.36 ₱ 160,561,009.28 ₱ 235,268,314.64

Deficiency Documentary Stamp Tax Whether or not petitioner is liable for deficiency onshore tax
for taxable year 1994 and 1995.
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30

Surcharge 4,260,026.21 6,238,460.62 10,498,486.83 III.

Sub Total ₱ 21,300,131.05 ₱ 31,192,303.08 ₱ 52,492,434.13

TOTALS ₱ 96,007,436.41 ₱ 191,753,312.36 ₱ 287,760,748.77

RCBC argued that the waivers of the Statute of Limitations which it executed
on January 23, 1997 were not valid because the same were not signed or
conformed to by the respondent CIR as required under Section 222(b) of the
Tax Code.11 As regards the deficiency FCDU onshore tax, RCBC contended
that because the onshore tax was collected in the form of a final withholding
tax, it was the borrower, constituted by law as the withholding agent, that was
primarily liable for the remittance of the said tax.12
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-
First Division) promulgated its Decision13which partially granted the petition
for review. It considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax, deficiency final
withholding tax, deficiency expanded withholding tax, and deficiency
documentary stamp tax (not an industry issue) for 1994 and 1995. 14 It,
however, upheld the assessment for deficiency final tax on FCDU onshore
income and deficiency documentary stamp tax for 1994 and 1995 and ordered
RCBC to pay the following amounts plus 20% delinquency tax:15
Particulars 1994 1995
Deficiency Final Tax on FCDU Onshore Income
Basic ₱ 22,356,324.43 ₱ 16,067,952.86
Whether or not petitioner’s special savings account is subject
to documentary stamp tax under then Section 180 of the 1993
Tax Code.19
The CTA-En Banc, in its assailed Decision, denied the petition for lack of
merit. It ruled that by receiving, accepting and paying portions of the reduced
assessment, RCBC bound itself to the new assessment, implying that it
recognized the validity of the waivers.20 RCBC could not assail the validity of
the waivers after it had received and accepted certain benefits as a result of the
execution of the said waivers.21 As to the deficiency onshore tax, it held that
because the payor-borrower was merely designated by law to withhold and
remit the said tax, it would then follow that the tax should be imposed on
RCBC as the payee-bank.22 Finally, in relation to the assessment of the
deficiency documentary stamp tax on petitioner’s special savings account, it
held that petitioner’s special savings account was a certificate of deposit and,
as such, was subject to documentary stamp tax.23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated
July 22, 2009, informing the Court that this petition, relative to the DST
Total deficiency assessment, had been rendered moot and academic by its payment
of the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings
Account (SSA) for taxable years 1994 and 1995 after the BIR approved its
₱ 115,938, 221.30
applications for tax abatement.24

Interest 26,153,837.08 15,583,713.19 119,330,093.34

In its November 17, 2009 Comment to the Manifestation, the CIR pointed out
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34 that the only remaining issues raised in the present petition were those
pertaining to RCBC’s deficiency tax on FCDU Onshore Income for taxable
Deficiency Documentary Stamp Tax (Industry Issue)
years 1994 and 1995 in the aggregate amount of ₱ 80,161,827.56 plus 20%
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30 delinquency interest per annum. The CIR prayed that RCBC be considered to
have withdrawn its appeal with respect to the CTA-En Banc ruling on its DST
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83
on SSA deficiency for taxable years 1994 and 1995 and that the questioned
Sub Total 21,300,131.05 31,192,303.08 52,492,434.13 CTA decision regarding RCBC’s deficiency tax on FCDU Onshore Income
for the same period be affirmed.25
TOTALS ₱ 69,810,292.56 ₱ 62,843,969.13 ₱ 171,822,527.47

Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005,
arguing that: (1) the CTA erred in its addition of the total amount of
deficiency taxes and the correct amount should only be ₱ 132,654,261.69 and
not ₱ 171,822,527.47; (2) the CTA erred in holding that RCBC was estopped
from questioning the validity of the waivers; (3) it was the payor-borrower as
withholding tax agent, and not RCBC, who was liable to pay the final tax on
FCDU, and (4) RCBC’s special savings account was not subject to
documentary stamp tax.16
THE ISSUES
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the
waivers of the statute of limitations, is rendered estopped from
questioning the validity of the said waivers with respect to the assessment
of deficiency onshore tax.26

In its Resolution17 dated April 11, 2005, the CTA-First Division substantially and
upheld its earlier ruling, except for its inadvertence in the addition of the total
amount of deficiency taxes. As such, it modified its earlier decision and

25
Whether petitioner, as payee-bank, can be held liable for deficiency
onshore tax, which is mandated by law to be collected at source in the
form of a final withholding tax.27
THE COURT’S RULING
Petitioner is estopped from
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the
ground that the said waivers were merely attested to by Sixto Esquivias, then
Coordinator for the CIR, and that he failed to indicate acceptance or
agreement of the CIR, as required under Section 223 (b) of the 1977 Tax
Code.28 RCBC further argues that the principle of estoppel cannot be applied
against it because its payment of the other tax assessments does not signify a
clear intention on its part to give up its right to question the validity of the
waivers.29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on
the rule that "an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person
relying thereon." A party is precluded from denying his own acts, admissions
or representations to the prejudice of the other party in order to prevent fraud
and falsehood.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of
those waivers. Had petitioner truly believed that the waivers were invalid and
that the assessments were issued beyond the prescriptive period, then it should
not have paid the reduced amount of taxes in the revised assessment. RCBC’s
subsequent actioneffectively belies its insistence that the waivers are invalid.
The records show that on December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment on the uncontested taxes.
Thus, RCBC is estopped from questioning the validity of the waivers. To hold
otherwise and allow a party to gainsay its own act or deny rights which it had
previously recognized would run counter to the principle of equity which this
institution holds dear.31
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who is
directly liable for the payment of onshore tax, citing Section 2.57(A) of
Revenue Regulations No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding tax system the
amount of income tax withheld by the withholding agent is constituted as a
full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor
as a withholding agent. Thus, in case of his failure to withhold the tax or
in case of under withholding, the deficiency tax shall be collected from the
payor/withholding agent. The payee is not required to file an income tax
return for the particular income. (Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in
citing the abovementioned Revenue Regulations No. 2-98 because the same
governs collection at source on income paid only on or after January 1, 1998.
The deficiency withholding tax subject of this petition was supposed to have
been withheld on income paid during the taxable years of 1994 and 1995.
Hence, Revenue Regulations No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive
Secretary,32 the Court has explained that the purpose of the withholding tax
system is three-fold: (1) to provide the taxpayer with a convenient way of
paying his tax liability; (2) to ensure the collection of tax, and (3) to improve
the government’s cashflow. Under the withholding tax system, the payor is the
taxpayer upon whom the tax is imposed, while the withholding agent simply
acts as an agent or a collector of the government to ensure the collection of
taxes.33 1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax
collector and not a taxpayer, as elucidated by this Court in the case
of Commissioner of Internal Revenue v. Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding agent is the
payor, a separate entity acting no more than an agent of the government for
the collection of the tax in order to ensure its payments; the payer is the
taxpayer – he is the person subject to tax imposed by law; and the payee is the
taxing authority. In other words, the withholding agent is merely a tax
collector, not a taxpayer. Under the withholding system, however, the agent-
payor becomes a payee by fiction of law. His (agent) liability is direct and
independent from the taxpayer, because the income tax is still imposed on
and due from the latter. The agent is not liable for the tax as no wealth
flowed into him – he earned no income. The Tax Code only makes the agent
personally liable for the tax arising from the breach of its legal duty to
withhold as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for
the collection of income tax, but for the enforcement of the withholding
provision of Section 53 of the Tax Code, compliance with which is imposed
on the withholding agent and not upon the taxpayer."35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent
from that of the taxpayer.1âwphi1 The former cannot be made liable for the
tax due because it is the latter who earned the income subject to withholding
tax. The withholding agent is liable only insofar as he failed to perform his
duty to withhold the tax and remit the same to the government. The liability
for the tax, however, remains with the taxpayer because the gain was realized
and received by him.
While the payor-borrower can be held accountable for its negligence in
performing its duty to withhold the amount of tax due on the transaction,
RCBC, as the taxpayer and the one which earned income on the transaction,
remains liable for the payment of tax as the taxpayer shares the responsibility
of making certain that the tax is properly withheld by the withholding agent,
so as to avoid any penalty that may arise from the non-payment of the
withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame
on the payor-borrower as the withholding agent. As such, it is liable for
payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal Revenue
Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit
System. – Income derived by a depository bank under the expanded foreign
currency deposit system from foreign currency transactions with nonresidents,
offshore banking units in the Philippines, local commercial banks including
branches of foreign banks that may be authorized by the Central Bank to
transact business with foreign currency depository system units and other
depository banks under the expanded foreign currency deposit system shall be
exempt from all taxes, except taxable income from such transactions as may
be specified by the Secretary of Finance, upon recommendation of the
Monetary Board to be subject to the usual income tax payable by banks:
Provided, That interest income from foreign currency loans granted by
such depository banks under said expanded system to residents (other
than offshore banking units in the Philippines or other depository banks
under the expanded system) shall be subject to a 10% tax. (Emphasis
supplied)
26
As a final note, this Court has consistently held that findings and conclusions Petitioner filed a Motion for Reconsideration13 which was denied.14 The
of the CTA shall be accorded the highest respect and shall be presumed valid, Resolution denying its motion for reconsideration was received by petitioner
in the absence of any clear and convincing proof to the contrary.36 The CTA, on October 31, 2006.15
as a specialized court dedicated exclusively to the study and resolution of tax
problems, has developed an expertise on the subject of taxation.37 As such, its
On November 21, 2006, petitioner filed a petition for review before the CTA
decisions shall not be lightly set aside on appeal, unless this Court finds that
En Banc16 which, by Decision17 of July 5, 2007, held that the petition before
the questioned decision is not supported by substantial evidence or there is a
the First Division, as well as that before it, was filed out of time.
showing of abuse or improvident exercise of authority on the part of the Tax
Court.38
Hence, the present petition,18 petitioner arguing that the CTA En Banc erred in
holding that the petition it filed before the CTA First Division as well as that
WHEREFORE, the petition is DENIED.
filed before it (CTA En Banc) was filed out of time.

SO ORDERED.
The petition is bereft of merit.

G.R. No. 179343 January 21, 2010

Section 228 of the 1997 Tax Code provides that an assessment

FISHWEALTH CANNING CORPORATION, Petitioner,

x x x may be protested administratively by filing a request for reconsideration
vs.
or reinvestigation within thirty (30) days from receipt of the assessment in
COMMISSIONER OF INTERNAL REVENUE, Respondent.
such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant
DECISION supporting documents shall have been submitted; otherwise, the assessment
shall become final.
CARPIO MORALES, J.:
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
The Commissioner of Internal Revenue (respondent), by Letter of Authority
adversely affected by the decision or inaction may appeal to the Court of Tax
dated May 16, 2000,1 ordered the examination of the internal revenue taxes for
Appeals within thirty (30) days from receipt of the said decision, or from the
the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The
lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
investigation disclosed that petitioner was liable in the amount of
become final, executory and demandable. (underscoring supplied)1avvphi1
₱2,395,826.88 representing income tax, value added tax (VAT), withholding
tax deficiencies and other miscellaneous deficiencies. Petitioner eventually
settled these obligations on August 30, 2000.2 In the case at bar, petitioner’s administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent
and which petitioner received on August 4, 2005. Under the above-quoted
On August 25, 2000, respondent reinvestigated petitioner’s books of accounts
Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal
and other records of internal revenue taxes covering the same period for the
respondent’s denial of its protest to the CTA.
purpose of which it issued a subpoena duces tecum requiring petitioner to
submit its records and books of accounts. Petitioner requested the cancellation
of the subpoena on the ground that the same set of documents had previously Since petitioner received the denial of its administrative protest on August 4,
been examined. 2005, it had until September 3, 2005 to file a petition for review before the
CTA Division. It filed one, however, on October 20, 2005, hence, it was filed
out of time. For a motion for reconsideration of the denial of the
As petitioner did not heed the subpoena, respondent thereafter filed a criminal
administrative protest does not toll the 30-day period to appeal to the CTA.
complaint against petitioner for violation of Sections 5 (c) and 266 of the 1997
Internal Revenue Code, which complaint was dismissed for insufficiency of
evidence.3 On petitioner’s final contention that it has a meritorious case in view of the
dismissal of the above-mentioned criminal case filed against it for violation of
the 1997 Internal Revenue Code,19 the same fails. For the criminal complaint
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice
was instituted not to demand payment, but to penalize the taxpayer for
of income tax and VAT deficiencies totaling ₱67,597,336.75 for the taxable
violation of the Tax Code.20
year 1999,4 which assessment petitioner contested by letter of September 23,
2003.5
WHEREFORE, the petition is DISMISSED.
Respondent thereafter issued a Final Decision on Disputed Assessment dated
August 2, 2005, which petitioner received on August 4, 2005, denying its Costs against petitioner.
letter of protest, apprising it of its income tax and VAT liabilities in the
amounts of "₱15,396,905.24 and ₱63,688,434.40 [sic], respectively, for the
SO ORDERED.
taxable year 1999,"6 and requesting the immediate payment thereof, "inclusive
of penalties incident to delinquency." Respondent added that if petitioner
disagreed, it may appeal to the Court of Tax Appeals (CTA) "within thirty G.R. No. 173854 March 15, 2010
(30) days from date of receipt hereof, otherwise our said deficiency income
and value-added taxes assessments shall become final, executory, and
demandable."7 COMMISSIONER OF INTERNAL REVENUE,
vs.
FAR EAST BANK & TRUST COMPANY (NOW BANK OF THE
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a PHILIPPINE ISLANDS), Respondent.
Letter of Reconsideration dated August 31, 2005.8
DECISION
By a Preliminary Collection Letter dated September 6, 2005, respondent
demanded payment of petitioner’s tax liabilities,9 drawing petitioner to file
on October 20, 2005 a Petition for Review10 before the CTA. DEL CASTILLO, J.:

In his Answer,11 respondent argued, among other things, that the petition was Entitlement to a tax refund is for the taxpayer to prove and not for the
filed out of time which argument the First Division of the CTA upheld and government to disprove.
accordingly dismissed the petition.12

27
This Petition for Review on Certiorari assails the January 31, 2006 Gross Income ₱16,531,038 7,
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 56773 which
reversed and set aside the October 4, 1999 Decision 2 of the Court of Tax Less: Deductions 1,327,549 7,
Appeals (CTA) in CTA Case No. 5487. Also assailed is the July 19, 2006
Resolution3 of the CA denying the motion for reconsideration.
Net Income 15,203,539
The CTA found that respondent Far East Bank & Trust Company failed to Tax Rate 35%
prove that the income derived from rentals and sale of real property from
which the taxes were withheld were reflected in its 1994 Annual Income Tax Income Tax Due Thereon 5,321,239
Return. The CA found otherwise.

Factual Antecedents Consolidated Tax Due for

Both CBU and FCDU Operations ₱ 5,321,239
On April 10, 1995, respondent filed with the Bureau of Internal Revenue
(BIR) two Corporate Annual Income Tax Returns, one for its Corporate
Banking Unit (CBU)4 and another for its Foreign Currency Deposit Unit
(FCDU),5 for the taxable year ending December 31, 1994. The return for the Less:
CBU consolidated the respondent’s overall income tax liability for 1994,
which reflected a refundable income tax of ₱12,682,864.00, computed as Prior year’s (1994) excess 12,682,864
follows: income tax credit
Additional prior year’s excess 6,283,484
FCDU CBU income tax credit

Gross Income ₱13,319,068 Creditable Taxes

5,348,080,630
Less: Deductions 1,397,157 Withheld at Source
5,432,828,719 3,798,024
Refundable Income Tax [₱17,443,133]8

Net Income 11,921,911 [84,748,089]

Tax Rate 35% 35%
Out of the ₱17,433,133.00 refundable income tax, only ₱13,645,109.00 was
sought to be refunded by respondent. As to the remaining ₱3,798,024.00,
respondent opted to carry it over to the next taxable year.
Income Tax Due Thereon 4,172,669 NIL
On May 17, 1996, respondent filed a claim for refund of the amount of
₱13,645,109.00 with the BIR. Due to the failure of petitioner Commissioner
Consolidated Tax Due for of Internal Revenue (CIR) to act on the claim for refund, respondent was
compelled to bring the matter to the CTA on April 8, 1997 via a Petition for
Both CBU and FCDU Operations ₱ 4,172,669
Review docketed as CTA Case No. 5487.

After the filing of petitioner’s Answer, trial ensued.

Less:
To prove its entitlement to a refund, respondent presented the following
documents:
Quarterly Income Tax Payments
CBU -1st Quarter 633,085 Exhibits Nature and Description

-2nd Quarter 11,844,333

A Corporate Annual Income Tax Return covering income of
FCDU -1st Quarter 955, 280 respondent’s CBU for the year ended December 31, 1994 together
with attachments
-2nd Quarter 1,104,942

B Corporate Annual Income Tax Return covering income of

Less: respondent’s FCDU for the year ended December 31, 1994
together with attachments
Creditable Taxes 2,317,893
Withheld at Source C Corporate Annual Income Tax Return covering income of
respondent’s CBU for the year ended December 31, 1995 together
Refundable Income Tax [₱12,682,864] 6
with attachments

D Corporate Annual Income Tax Return covering income of

Pursuant to Section 697 of the old National Internal Revenue Code (NIRC), respondent’s FCDU for the year ended December 31, 1995
together with attachments
the amount of ₱12,682,864.00 was carried over and applied against
respondent’s income tax liability for the taxable year ending December 31, N to Z; Certificates of Creditable
1995. On April 15, 1996, respondent filed its 1995 Annual Income Tax
Return, which showed a total overpaid income tax in the amount of AA to UU Withholding Tax and Monthly Remittance Returns of
₱17,443,133.00, detailed as follows: Income Taxes Withheld issued by various withholding agents for
the year ended December 31, 1994
FCDU CBU

28
 VV Letter claim for refund dated May 8, 1996 filed with the
Revenue District Office No. 33 on May 17, 19969
Petitioner, on the other hand, did not present any evidence.
Ruling of the Court of Tax Appeals
On October 4, 1999, the CTA rendered a Decision denying respondent’s claim
for refund on the ground that respondent failed to show that the income
derived from rentals and sale of real property from which the taxes were
withheld were reflected in its 1994 Annual Income Tax Return.
On October 20, 1999, respondent filed a Motion for New Trial based on
excusable negligence. It prayed that it be allowed to present additional
evidence to support its claim for refund.
However, the motion was denied on December 16, 1999 by the CTA. It
reasoned, thus:
[Respondent] is reminded that this case was originally submitted for decision
as early as September 22, 1998 (p. 497, CTA Records). In view, however, of
the Urgent Motion to Admit Memorandum filed on April 27, 1999 by Atty.
Louella Martinez, who entered her appearance as collaborating counsel of
Atty. Manuel Salvador allegedly due to the latter counsel’s absences, this
Court set aside its resolution of September 22, 1998 and considered this case
submitted for decision as of May 7, 1999. Nonetheless, it took [respondent]
another five months after it was represented by a new counsel and after a
decision unfavorable to it was rendered before [respondent] realized that an
additional material documentary evidence has to be presented by way of a
new trial, this time initiated by a third counsel coming from the same law
firm. x x x
Furthermore, in ascertaining whether or not the income upon which the taxes
were withheld were included in the returns of the [respondent], this Court
based its findings on the income tax returns and their supporting schedules
prepared and reviewed by the [respondent] itself and which, to Us, are enough
to support the conclusion reached.1avvphi1
WHEREFORE, in view of the foregoing, [respondent’s] Motion for New Trial
is hereby DENIED for lack of merit.
SO ORDERED.10
Ruling of the Court of Appeals
On appeal, the CA reversed the Decision of the CTA. The CA found that
respondent has duly proven that the income derived from rentals and sale of
real property upon which the taxes were withheld were included in the return
as part of the gross income.
Hence, this present recourse.
Issue
The lone issue presented in this petition is whether respondent has proven its
entitlement to the refund.11
Our Ruling
We find that the respondent miserably failed to prove its entitlement to the
refund. Therefore, we grant the petition filed by the petitioner CIR for being
meritorious.
A taxpayer claiming for a tax credit or refund of creditable withholding tax
must comply with the following requisites:
1) The claim must be filed with the CIR within the two-year period
from the date of payment of the tax;
2) It must be shown on the return that the income received was
declared as part of the gross income; and
3) The fact of withholding must be established by a copy of a
statement duly issued by the payor to the payee showing the
amount paid and the amount of the tax withheld.12
The two-year period requirement is based on Section 229 of the NIRC of 1997
which provides that:
SECTION 229. Recovery of Tax Erroneously or Illegally Collected. — No
suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in
any manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed 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. (Formerly Section 230
of the old NIRC)
While the second and third requirements are found under Section 10 of
Revenue Regulation No. 6-85, as amended, which reads:
Section 10. Claims for tax credit or refund. — Claims for tax credit or refund
of income tax deducted and withheld on income payments shall be given due
course only when it is shown on the return that the income payment received
was declared as part of the gross income and the fact of withholding is
established by a copy of the statement duly issued by the payer to the payee
(BIR Form No. 1743.1) showing the amount paid and the amount of tax
withheld therefrom.
Respondent timely filed its claim for refund.
There is no dispute that respondent complied with the first requirement. The
filing of respondent’s administrative claim for refund on May 17, 1996 and
judicial claim for refund on April 8, 1997 were well within the two-year
period from the date of the filing of the return on April 10, 1995.13
Respondent failed to prove that the income derived from rentals and sale of
real property were included in the gross income as reflected in its return.
However, as to the second and third requirements, the tax court and the
appellate court arrived at different factual findings.
The CTA ruled that the income derived from rentals and sales of real property
were not included in respondent’s gross income. It noted that in respondent’s
1994 Annual Income Tax Return, the phrase "NOT APPLICABLE" was
printed on the space provided for rent, sale of real property and trust income.
The CTA also declared that the certifications issued by respondent cannot be
considered in the absence of the Certificates of Creditable Tax Withheld at
Source. The CTA ruled that:
x x x the Certificates of Creditable Tax Withheld at Source submitted by
[respondent] pertain to rentals of real property while the Monthly Remittance
Returns of Income Taxes Withheld refer to sales of real property. But, if we
are to look at Schedules 3, 4, and 5 of the Annual Income Tax Return of
[respondent] for 1994 (Exhibit "A"), there was no showing that the Rental
Income and Income from Sale of Real Property were included as part of the
gross income appearing in Section A of the said return. In fact, under the said
schedules, the phrase "NOT APPLICABLE" was printed by [respondent].
Verily, the income of [respondent] coming from rent and sale of real property
upon which the creditable taxes withheld were based were not duly reflected.
As to the certifications issued by the [respondent] (Exh. UU), the same cannot
29
be considered in the absence of the requisite Certificates of Creditable Tax
Withheld at Source.
Based on the foregoing, [respondent] has failed to comply with two essential
requirements for a valid claim for refund. Consequently, the same cannot be
given due course. 14 (Emphasis supplied)
On the other hand, the CA found thus:
We disagree with x x x CTA’s findings. In the case of Citibank, N.A. vs. Court
of Appeals (280 SCRA 459), the Supreme Court held that:
"a refund claimant is required to prove the inclusion of the income payments
which were the basis of the withholding taxes and the fact of withholding.
However, a detailed proof of the truthfulness of each and every item in the
income tax return is not required. x x x
x x x The grant of a refund is founded on the assumption that the tax return is
valid; that is, the facts stated therein are true and correct. x x x"
In the case at bench, the BIR examined [respondent] Bank’s Corporate Annual
Income Tax Returns for the years 1994 and 1995 when they were filed on
April 10, 1995 and April 15, 1996, respectively. Presumably, the BIR found
no false declaration in them because it did not allege any false declaration
thereof in its Answer (to the petition for review) filed before x x x CTA.
Nowhere in the Answer, did the BIR dispute the amount of tax refund being
claimed by [respondent] Bank as inaccurate or erroneous. In fact, the reason
given by the BIR (in its Answer to the petition for review) why the claimed
tax refund should be denied was that "x x x the amount of ₱13,645,109.00 was
not illegally or erroneously collected, hence, the petition for review has no
basis" [see Record, p. 32]. The amount of ₱17,433,133.00 reflected as
refundable income tax in [respondent] Bank’s Corporate Annual Income Tax
Return for the year 1995 was not disputed by the BIR to be inaccurate because
there were certain income not included in the return of the [respondent].
Verily, this leads Us to a conclusion that [respondent] Bank’s Corporate
Annual Income Tax Returns submitted were accepted as regular and even
accurate by the BIR.
Incidentally, under Sec. 16 of the NIRC, the Commissioner of the BIR is
tasked to make an examination of returns and assess the correct amount of tax,
to wit:
"Sec. 16. Power of the Commissioner to make assessment and prescribe
additional requirements for tax administration and enforcement.
(a) After a return is filed as required under the provision of this Code, the
Commissioner shall examine it and assess the correct amount of tax. x x x"
which the [petitioner] Commissioner undeniably failed to do. Moreover,
noteworthy is the fact that during the hearing of the petition for review before
the CTA, [petitioner] Commissioner of the BIR submitted the case for
decision "in view of the fact that he has no evidence to present nor records to
submit relative to the case" x x x
Thus, although it is a fact that [respondent] failed to indicate said income
payments under the appropriate Schedules 3, 4, and 5 of Section C of its 1994
Annual Income Tax Return (Exhibit "A"), however, We give credence to
[respondent] Bank’s assertion that it reported the said income payments as
part of its gross income when it included the same as part of the "Other
Income," "Trust Income," and "Interest Income" stated in the Schedule of
Income (referred to as an attachment in Section C of Exhibit "A", x x x and in
the 1994 audited Financial Statements (FS) supporting [respondent’s] 1994
Annual Corporate Income Tax Return. The reason why the phrase "NOT
APPLICABLE" was indicated in schedules 3, 4, and 5 of Section C of
[respondent’s] 1994 Annual Income Tax Return is due to the fact that
[respondent] Bank already reported the subject rental income and income
from sale of real property in the Schedule of Income under the headings
"Other Income/Earnings," "Trust Income" and "Interest Income." Therefore,
[respondent] Bank still complied with the second requirement that the income
upon which the taxes were withheld are included in the return as part of the
gross income.
xxxx
[Respondent] Bank’s various documentary evidence showing that it had
satisfied all requirements under the Tax Code vis-à-vis the Bureau of Internal
Revenue’s failure to adduce any evidence in support of their denial of the
claim, [respondent] Bank should, therefore, be granted the present claim for
refund.15 (Emphasis supplied)
Between the decision of the CTA and the CA, it is the former’s that is based
on the evidence and in accordance with the applicable law and jurisprudence.
To establish the fact of withholding, respondent submitted Certificates of
Creditable Tax Withheld at Source and Monthly Remittance Returns of
Income Taxes Withheld, which pertain to rentals and sales of real property,
respectively. However, a perusal of respondent’s 1994 Annual Income Tax
Return shows that the gross income was derived solely from sales of services.
In fact, the phrase "NOT APPLICABLE" was printed on the schedules
pertaining to rent, sale of real property, and trust income. 16 Thus, based on the
entries in the return, the income derived from rentals and sales of real property
upon which the creditable taxes were withheld were not included in
respondent’s gross income as reflected in its return. Since no income was
reported, it follows that no tax was withheld. To reiterate, it is incumbent upon
the taxpayer to reflect in his return the income upon which any creditable tax
is required to be withheld at the source.17
Respondent’s explanation that its income derived from rentals and sales of
real properties were included in the gross income but were classified as "Other
Earnings" in its Schedule of Income18 attached to the return is not supported
by the evidence. There is nothing in the Schedule of Income to show that the
income under the heading "Other Earnings" includes income from rentals and
sales of real property. No documentary or testimonial evidence was presented
by respondent to prove this. In fact, respondent, upon realizing its omission,
filed a motion for new trial on the ground of excusable negligence with the
CTA. Respondent knew that it had to present additional evidence showing the
breakdown of the "Other Earnings" reported in its Schedule of Income
attached to the return to prove that the income from rentals and sales of real
property were actually included under the heading "Other
Earnings."19 Unfortunately, the CTA was not convinced that there was
excusable negligence to justify the granting of a new trial.
Accordingly, the CA erred in ruling that respondent complied with the second
requirement.
Respondent failed to present all the Certificates of Creditable Tax Withheld at
Source.
The CA likewise failed to consider in its Decision the absence of several
Certificates of Creditable Tax Withheld at Source. It immediately granted the
refund without first verifying whether the fact of withholding was established
by the Certificates of Creditable Tax Withheld at Source as required under
Section 10 of Revenue Regulation No. 6-85. As correctly pointed out by the
CTA, the certifications (Exhibit UU) issued by respondent cannot be
considered in the absence of the required Certificates of Creditable Tax
Withheld at Source.
The burden is on the taxpayer to prove its entitlement to the refund.
Moreover, the fact that the petitioner failed to present any evidence or to
refute the evidence presented by respondent does not ipso facto entitle the
respondent to a tax refund. It is not the duty of the government to disprove a
taxpayer’s claim for refund. Rather, the burden of establishing the factual
basis of a claim for a refund rests on the taxpayer.20
And while the petitioner has the power to make an examination of the returns
and to assess the correct amount of tax, his failure to exercise such powers
does not create a presumption in favor of the correctness of the returns. The
taxpayer must still present substantial evidence to prove his claim for refund.
As we have said, there is no automatic grant of a tax refund.21
30
Hence, for failing to prove its entitlement to a tax refund, respondent’s claim
must be denied. Since tax refunds partake of the nature of tax exemptions,
which are construed strictissimi juris against the taxpayer, evidence in support
of a claim must likewise be strictissimi scrutinized and duly proven.22

WHEREFORE, the petition is GRANTED. The assailed January 31, 2006

Decision of the Court of Appeals in CA-G.R. SP No. 56773 and its July 19,
2006 Resolution are REVERSED and SET ASIDE. The October 4, 1999
Decision of the Court of Tax Appeals denying respondent’s claim for tax
refund for failure to prove that the income derived from rentals and sale of
real property from which the taxes were withheld were reflected in its 1994
Annual Income Tax Return, is REINSTATED and AFFIRMED.

SO ORDERED.

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