G.R. No.

147375 June 26, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

TINGA, J.:

At issue is the question of whether the 20% final tax on a bank’s passive income, withheld from the bank at
source, still forms part of the bank’s gross income for the purpose of computing its gross receipts tax liability.
Both the Court of Tax Appeals (CTA) and the Court of Appeals answered in the negative. We reverse, in favor
of petitioner, following our ruling in China Banking Corporation v. Court of Appeals.1

A brief background of the tax law involved is in order.

Domestic corporate taxpayers, including banks, are levied a 20% final withholding tax on bank deposits under
Section 24(e)(1)2 in relation to Section 50(a)3 of Presidential Decree No. 1158, otherwise known as the
National Internal Revenue Code of 1977 ("Tax Code"). Banks are also liable for a tax on gross receipts
derived from sources within the Philippines under Section 1194 of the Tax Code, which provides, thus:

Sec. 119. Tax on banks and non-bank financial intermediaries. — There shall be collected a tax on gross
receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in
accordance with the following schedule:

(a) On interest, commissions and discounts from lending activities as well as income from financial
leasing, on the basis of remaining maturities of instruments from which such receipts are derived.

Short-term maturity — not in excess of two (2) years . . . . . . . . 5%

Medium-term maturity — over two (2)

years but not exceeding four (4) years . . . . . . . . . . . . . . . . . . . 3%

Long term maturity —

(i) Over four (4) years but

not exceeding seven (7) years . . . . . . . . . . . . . . . . . . . . . 1%

(ii) Over seven (7) years . . . . . . . . . . . . . . . . . . . . . . . . . . 0%

(b) On dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%

(c) On royalties, rentals of property, real or personal,

profits from exchange and all other items treated as gross
income under Section 28 of this Code . . . . . . . . . . . . . . . . . . . . . . . . . 5%

Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru
pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes
of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied
accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on
persons performing similar banking activities.
As a domestic corporation, the interest earned by respondent Bank of the Philippine Islands (BPI) from
deposits and similar arrangements are subjected to a final withholding tax of 20%. Consequently, the interest
income it receives on amounts that it lends out are always net of the 20% withheld tax. As a bank, BPI is
furthermore liable for a 5% gross receipts tax on all its income.

For the four (4) quarters of the year 1996, BPI computed its 5% gross receipts tax payments by including in its
tax base the 20% final tax on interest income that had been withheld and remitted directly to the Bureau of
Internal Revenue (BIR).

On 30 January 1996, the CTA rendered a decision in Asian Bank Corporation v. Commissioner of Internal
Revenue,5 holding that the 20% final tax withheld on a bank’s interest income did not form part of its taxable
gross receipts for the purpose of computing gross receipts tax.

BPI wrote the BIR a letter dated 15 July 1998 citing the CTA Decision in Asian Bank and requesting a refund
of alleged overpayment of taxes representing 5% gross receipts taxes paid on the 20% final tax withheld at
source.

Inaction by the BIR on this request prompted BPI to file a Petition for Review against the Commissioner of
Internal Revenue (Commissioner) with the CTA on 19 January 1999. Conceding its claim for the first three
quarters of the year as having been barred by prescription, BPI only claimed alleged overpaid taxes for the
final quarter of 1996.

Following its own doctrine in Asian Bank, the CTA rendered a Decision,6 holding that the 20% final tax
withheld did not form part of the respondent’s taxable gross receipts and that gross receipts taxes paid
thereon are refundable. However, it found that only P13,843,455.62 in withheld final taxes were substantiated
by BPI; it awarded a refund of the 5% gross receipts tax paid thereon in the amount of P692,172.78.

On appeal, the Court of Appeals promulgated a Decision7 affirming the CTA. It cited this Court’s decision in
Commissioner of Internal Revenue v. Tours Specialists, Inc.,8 in which we held that the "gross receipts subject
to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to
them and do not redound to the taxpayer’s benefit" in concluding that "it would be unjust and confiscatory to
include the withheld 20% final tax in the tax base for purposes of computing the gross receipts tax since the
amount corresponding to said 20% final tax was not received by the taxpayer and the latter derived no benefit
therefrom."9

The Court of Appeals also held that Section 4(e) of Revenue Regulations No. 12-80 mandates the deduction
of the final tax paid on interest income in computing the tax base for the gross receipts tax. Section 4(e)
provides, thus:

Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank
financial intermediaries, not performing quasi-banking activities. – The rates of taxes to be imposed on the
gross receipts of such financial institutions shall be based on all items of income actually received. Mere
accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then
the amount actually received shall be included in the tax base of such financial institutions, as provided
hereunder. (Emphasis supplied.)

The present Petition for Review filed by the Commissioner seeks to annul the adverse Decisions of the CTA
and the Court of Appeals and raises the sole issue of whether the 20% final tax withheld on a bank’s passive
income should be included in the computation of the gross receipts tax.

In assailing the findings of the lower courts, the Commissioner makes the following arguments: (1) the term
"gross receipts" must be applied in its ordinary meaning; (2) there is no provision in the Tax Code or any
special laws that excludes the 20% final tax in computing the tax base of the 5% gross receipts tax; (3)
Revenue Regulations No. 12-80, Section 4(e), is inapplicable in the instant case; and (4) income need not
actually be received to form part of the taxable gross receipts. Additionally, petitioner points out that the CTA
Asian Bank case cited by petitioner BPI has already been superseded by the CTA decisions in Standard
Chartered Bank v. Commissioner of Internal Revenue and Far East Bank and Trust Company v.
Commissioner of Internal Revenue, both promulgated on 16 November 2001.

The issues raised by the Commissioner have already been ruled upon in his favor by this Court in China
Banking Corporation v. Court of Appeals10 and reiterated in Commissioner of Internal Revenue v. Solidbank
Corporation11 and more recently in Commissioner of Internal Revenue v. Bank of Commerce.12 Consequently,
the petition must be granted.

The Tax Code does not provide a definition of the term "gross receipts."13 Accordingly, the term is properly
understood in its plain and ordinary meaning14 and must be taken to comprise of the entire receipts without
any deduction.15 We, thus, made the following disquisition in Bank of Commerce:16

The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without
deduction." A common definition is "without deduction." "Gross" is also defined as "taking in the whole; having
no deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts." Gross
is the antithesis of net. Indeed, in China Banking Corporation v. Court of Appeals, the Court defined the term
in this wise:

As commonly understood, the term "gross receipts" means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net receipts. Any
deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law
itself makes an exception. As explained by the Supreme Court of Pennsylvania in Commonwealth of
Pennsylvania v. Koppers Company, Inc., —

Highly refined and technical tax concepts have been developed by the accountant and legal technician
primarily because of the impact of federal income tax legislation. However, this in no way should affect or
control the normal usage of words in the construction of our statutes; and we see nothing that would require
us not to include the proceeds here in question in the gross receipts allocation unless statutorily such
inclusion is prohibited. Under the ordinary basic methods of handling accounts, the term gross receipts, in the
absence of any statutory definition of the term, must be taken to include the whole total gross receipts without
any deductions, x x x. [Citations omitted] (Emphasis supplied)"

Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:

The word "gross" appearing in the term "gross receipts," as used in the ordinance, must have been and was
there used as the direct antithesis of the word "net." In its usual and ordinary meaning "gross receipts" of a
business is the whole and entire amount of the receipts without deduction, x x x. On the contrary, "net
receipts" usually are the receipts which remain after deductions are made from the gross amount thereof of
the expenses and cost of doing business, including fixed charges and depreciation. Gross receipts become
net receipts after certain proper deductions are made from the gross. And in the use of the words "gross
receipts," the instant ordinance, of course, precluded plaintiff from first deducting its costs and expenses of
doing business, etc., in arriving at the higher base figure upon which it must pay the 5% tax under this
ordinance. (Emphasis supplied)

Absent a statutory definition, the term "gross receipts" is understood in its plain and ordinary meaning. Words
in a statute are taken in their usual and familiar signification, with due regard to their general and popular use.
The Supreme Court of Hawaii held in Bishop Trust Company v. Burns that —

x x x It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of the
legislature, the language used therein is to be taken in the generally accepted and usual sense. Courts will
presume that the words in a statute were used to express their meaning in common usage. This principle is
equally applicable to a tax statute. [Citations omitted] (Emphasis supplied)

Additionally, we held in Solidbank, to wit:17"[W]e note that US cases have persuasive effect in our jurisdiction,
because Philippine income tax law is patterned after its US counterpart.
"‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount received or accrued
during such period from the sale, exchange, or other disposition of x x x other property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The
gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued
during such period x x x."

"x x x [B]y gross earnings from operations x x x was intended all operations x x x including incidental,
subordinate, and subsidiary operations, as well as principal operations."

"When we speak of the ‘gross earnings’ of a person or corporation, we mean the entire earnings or receipts of
such person or corporation from the business or operations to which we refer."

From these cases, "gross receipts"] refer to the total, as opposed to the net, income. These are therefore the
total receipts before any deduction for the expenses of management. Webster’s New International Dictionary,
in fact, defines gross as "whole or entire."

The legislative intent to apply the term in its ordinary meaning may also be surmised from a historical
perspective of the levy on gross receipts. From the time the gross receipts tax on banks was first imposed in
1946 under R.A. No. 39 and throughout its successive reenactments,18 the legislature has not established a
definition of the term "gross receipts." Absent a statutory definition of the term, the BIR had consistently
applied it in its ordinary meaning, i.e., without deduction. On the presumption that the legislature is familiar
with the contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the
statute, subsequent legislative reenactments of the subject levy sans a definition of the term "gross receipts"
reflect that the BIR’s application of the term carries out the legislative purpose.19

Furthermore, Section 119 (a)20 of the Tax Code expressly includes interest income as part of the base income
from which the gross receipts tax on banks is computed. This express inclusion of interest income in taxable
gross receipts creates a presumption that the entire amount of the interest income, without any deduction, is
subject to the gross receipts tax.21

The exclusion of the 20% final tax on passive income from the taxpayer’s tax base is effectively a tax
exemption, the application of which is highly disfavored.22 The rule is that whoever claims an exemption must
justify this right by the clearest grant of organic or statute law.23 Like the other banks who have asserted a
right tantamount

to exception under these circumstances, BPI has failed to present a clear statutory basis for its claim to take
away the interest income withheld from the purview of the levy on gross tax receipts.

Bereft of a clear statutory basis on which to hinge its claim, BPI’s view, as adopted by the Court of Appeals, is
that Section 4(e) of Revenue Regulations No. 12-80 establishes the exclusion of the 20% final tax withheld
from the bank’s taxable gross receipts.

However, we agree with the Commissioner that BPI’s asserted right under Section 4(e) of Revenue
Regulations No. 12-80 presents a misconstruction of the provision. While, indeed, the provision states that
"[t]he rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all
items of income actually received," it goes on to distinguish actual receipt from accrual, i.e., that "[m]ere
accrual shall not be considered, but once payment is received on such accrual or in case of
prepayment, then the amount actually received shall be included in the tax base of such financial
institutions x x x."

Section 4(e) recognizes that income could be recognized by the taxpayer either at the time of its actual receipt
or its accrual,24 depending on the accounting method used by the taxpayer,25 but establishes the rule that, for
purposes of gross receipts tax, interest income is taxable upon actual receipt of the income, as opposed to
the time of its accrual. Section 4(e) does not exclude accrued interest income from gross receipts but merely
postpones its inclusion until actual payment of the interest to the lending bank, thus mandating that "[m]ere
accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then
the amount actually received shall be included in the tax base of such financial institutions x x x."26

Even if Section 4(e) had been properly construed, it still cannot be the basis for deducting the income tax
withheld since Section 4(e) has been superseded by Section 7 of Revenue Regulations No. 17-84, which
states, thus:

SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. —

(a) The interest earned on Philippine Currency bank deposits and yield from deposit
substitutes subjected to the withholding taxes in accordance with these regulations need not
be included in the gross income in computing the depositor's/investor's income tax liability in
accordance with the provision of Section 29(b), (c) and (d) of the National Internal Revenue Code, as
amended.

(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for
purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as
interest expense deductible for purposes of computing taxable net income of the payor.

(c) If the recipient of the above-mentioned items of income are financial institutions, the same
shall be included as part of the tax base upon which the gross receipt tax is imposed.
(Emphasis supplied.)

The provision categorically provides that if the recipient of interest subjected to withholding taxes is a
financial institution, the interest shall be included as part of the tax base upon which the gross
receipts tax is imposed.

The implied repeal of Section 4(e) is undeniable. Section 4(e) imposes the gross receipts tax only on all items
of income actually received, as opposed to their mere accrual, while Section 7 of Revenue Regulations No.
17-84 includes all interest income (whether actual or accrued) in computing the gross receipts tax.27 Section
4(e) of Revenue Regulations No. 12-80 was superseded by the later rule, because Section 4(e) thereof is not
restated in Revenue Regulations No. 17-84.28 Clearly, then, the current revenue regulations requires
interest income, whether actually received or merely accrued, to form part of the bank’s taxable gross
receipts.29

The Commissioner correctly controverts the conclusion made by the Court of Appeals that it would be "unjust
and confiscatory to include the withheld 20% final tax in the tax base for purposes of computing the gross
receipts tax since the amount corresponding to said 20% final tax was not received by the taxpayer and the
latter derived no benefit therefrom."30

Receipt of income may be actual or constructive. We have held that the withholding process results in the
taxpayer’s constructive receipt of the income withheld, to wit:

By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in
Articles 531 and 532 of our Civil Code.

Under Article 531:

"Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right."

Article 532 states:

"Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent,
or by any person without any power whatever; but in the last case, the possession shall not be considered as
acquired until the person in whose name the act of possession was executed has ratified the same, without
prejudice to the juridical consequences of negotiorum gestio in a proper case."

The last means of acquiring possession under Article 531 refers to juridical acts—the acquisition of
possession by sufficient title—to which the law gives the force of acts of possession. Respondent argues that
only items of income actually received should be included in its gross receipts. It claims that since the amount
had already been withheld at source, it did not have actual receipt thereof.

We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is
through the proper acts and legal formalities established therefor. The withholding process is one such act.
There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession
by any person without any power whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding agent of the
government, because the taxpayer ratifies the very act of possession for the government. There is
thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and
yield on deposit substitutes that are subjected to FWT are indeed—for legal purposes—tantamount to
delivery, receipt or remittance.31 (Emphasis supplied.)

Thus, BPI constructively received income by virtue of its acquiescence to the extinguishment of its 20% final
tax liability when the withholding agents remitted BPI’s income to the government. Consequently, it received
the amounts corresponding to the 20% final tax and benefited therefrom.

The cases cited by BPI, Commissioner of Internal Revenue v. Tours Specialists, Inc.32 and Commissioner of
Internal Revenue v. Manila Jockey Club, Inc.,33 in which this Court held that "gross receipts subject to tax
under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them
and do not redound to the taxpayer's benefit,"34 only further substantiate the fact that BPI benefited from the
withheld amounts.

In Tours Specialists and Manila Jockey Club, the taxable entities held the subject monies not as income
earned but as mere trustees. As such, they held the money entrusted to them but which neither belonged to
them nor redounded to their benefit. On the other hand, BPI cannot be considered as a mere trustee; it is the
actual owner of the funds. As owner thereof, it was BPI’s tax obligation to the government that was
extinguished upon the withholding agent’s remittance of the 20% final tax. We elucidated on BPI’s ownership
of the funds in China Banking, to wit:

Manila Jockey Club does not support CBC’s contention but rather the Commissioner’s proposition. The Court
ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely held by it in trust
did not form part of Manila Jockey Club’s gross receipts. Conversely, receipts owned by the Manila Jockey
Club would form part of its gross receipts.

In the instant case, CBC owns the interest income which is the source of payment of the final
withholding tax. The government subsequently becomes the owner of the money constituting the final
tax when CBC pays the final withholding tax to extinguish its obligation to the government. This is the
consideration for the transfer of ownership of the money from CBC to the government. Thus, the
amount constituting the final tax, being originally owned by CBC as part of its interest income, should
form part of its taxable gross receipts.

In Commissioner v. Tours Specialists, Inc., the Court excluded from gross receipts money entrusted by
foreign tour operators to Tours Specialists to pay the hotel accommodation of tourists booked in various local
hotels. The Court declared that Tours Specialists did not own such entrusted funds and thus the funds were
not subject to the 3% contractor’s tax payable by Tours Specialists. The Court held:

x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary
that there must be a law or regulation which would exempt such monies and receipts within the meaning of
gross receipts under the Tax Code.

x x x [T]he room charges entrusted by the foreign travel agencies to the private respondent do not form part of
its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private
respondent. The private respondent never benefited from their payment to the local hotels. x x x [T]his
arrangement was only to accommodate the foreign travel agencies.

Unless otherwise provided by law, ownership is essential in determining whether interest income
forms part of taxable gross receipts. Ownership is the circumstance that makes interest income part
of the taxable gross receipts of the taxpayer. When the taxpayer acquires ownership of money
representing interest, the money constitutes income or receipt of the taxpayer.

In contrast, the trustee or agent does not own the money received in trust and such money does not
constitute income or receipt for which the trustee or agent is taxable. This is a fundamental concept in
taxation. Thus, funds received by a money remittance agency for transfer and delivery to the beneficiary do
not constitute income or gross receipts of the money remittance agency. Similarly, a travel agency that
collects ticket fares for an airline does not include the ticket fare in its gross income or receipts. In these
cases, the money remittance agency or travel agency does not acquire ownership of the funds received.35
(Emphasis supplied.)

BPI argues that to include the 20% final tax withheld in its gross receipts tax base would be to tax twice its
passive income and would constitute double taxation. Granted that interest income is being taxed twice, this,
however, does not amount to double taxation. There is no double taxation if the law imposes two different
taxes on the same income, business or property. 36 In Solidbank, we ruled, thus:

Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x taxing
the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT [Final
Withholding Tax] is the passive income generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT [Gross Receipts Tax] is the privilege of engaging in the
business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a
property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for
engaging in business and further taxed differently for the income derived therefrom. Akin to our ruling in
Velilla v. Posadas, these two taxes are entirely distinct and are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing authority—
the national government under the Tax Code—and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and
withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which
it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding,
while the GRT is a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the
same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory.
Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not
double taxation.37
Clearly, therefore, despite the fact that that interest income is taxed twice, there is no double taxation present
in this case.

An interpretation of the tax laws and relevant jurisprudence shows that the tax on interest income of banks
withheld at source is included in the computation of their gross receipts tax base.

WHEREFORE, the Petition is GRANTED. The assailed Decisions of the Court of Appeals and the Court of
Tax Appeals are REVERSED AND SET ASIDE. Petitioner Commissioner of Internal Revenue’s denial of
respondent Bank of Philippine Islands’ claim for refund is SUSTAINED. No costs.

SO ORDERED.

G.R. No. 83736 January 15, 1992

COMMISSIONER OF INTERNAL REVENUE vs. TMX SALES, INC. and THE COURT OF TAX APPEALS,
respondents.

In a case involving corporate quarterly income tax, does the two-year prescriptive period to claim a refund of
erroneously collected tax provided for in Section 292 (now Section 230) of the National Internal Revenue
Code commence to run from the date the quarterly income tax was paid, as contended by the petitioner, or
from the date of filing of the Final Adjustment Return (final payment), as claimed by the private respondent?

Section 292 (now Section 230) of the National Internal Revenue Code provides:

Sec. 292. 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 of Internal Revenue; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.

In any case no such suit or proceeding shall be begun after the expiration of two years from
the date of payment of that tax or penalty regardless of any supervening cause that may arise
after payment: . . . (Emphasis supplied)

The facts of this case are uncontroverted.

Private respondent TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for the first
quarter of 1981, declaring an income of P571,174.31, and consequently paying an income tax thereon of
P247,010.00 on May 15, 1981. During the subsequent quarters, however, TMX Sales, Inc. suffered losses so
that when it filed on April 15, 1982 its Annual Income Tax Return for the year ended December 31, 1981, it
declared a gross income of P904,122.00 and total deductions of P7,060,647.00, or a net loss of
P6,156,525.00 (CTA Decision, pp. 1-2; Rollo, pp. 45-46).

Thereafter, on July 9, 1982, TMX Sales, Inc. thru its external auditor, SGV & Co. filed with the Appellate
Division of the Bureau of Internal Revenue a claim for refund in the amount of P247,010.00 representing
overpaid income tax. (Rollo, p. 30)

This claim was not acted upon by the Commissioner of Internal Revenue. On March 14, 1984, TMX Sales,
Inc. filed a petition for review before the Court of Tax Appeals against the Commissioner of Internal Revenue,
praying that the petitioner, as private respondent therein, be ordered to refund to TMX Sales, Inc. the amount
of P247,010.00, representing overpaid income tax for the taxable year ended December 31, 1981.
In his answer, the Commissioner of Internal Revenue averred that "granting, without admitting, the amount in
question is refundable, the petitioner (TMX Sales, Inc.) is already barred from claiming the same considering
that more than two (2) years had already elapsed between the payment (May 15, 1981) and the filing of the
claim in Court (March 14, 1984). (Sections 292 and 295 of the Tax Code of 1977, as amended)."

On April 29, 1988, the Court of Tax Appeals rendered a decision granting the petition of TMX Sales, Inc. and
ordering the Commissioner of Internal Revenue to refund the amount claimed.

The Tax Court, in granting the petition, viewed the quarterly income tax paid as a portion or installment of the
total annual income tax due. Said the Tax Court in its assailed decision:

xxx xxx xxx

When a tax is paid in installments, the prescriptive period of two years provided in Section 306
(now Section 292) of the Revenue Code should be counted from the date of the final payment
or last installment. . . . This rule proceeds from the theory that in contemplation of tax laws,
there is no payment until the whole or entire tax liability is completely paid. Thus, a payment of
a part or portion thereof, cannot operate to start the commencement of the statute of
limitations. In this regard the word "tax" or words "the tax" in statutory provisions comparable
to section 306 of our Revenue Code have been uniformly held to refer to the entire tax and not
a portion thereof (Clark v. U.S., 69 F. 2d 748; A.S. Kriedner Co. v. U.S., 30 F Supp. 274; Hills
v. U.S., 50 F 2d 302, 55 F 2d 1001), and the vocable "payment of tax" within statutes requiring
refund claim, refer to the date when all the tax was paid, not when a portion was paid (Braun
v. U.S., 8 F supp. 860, 863; Collector of Internal Revenue v. Prieto, 2 SCRA 1007;
Commissioner of Internal Revenue v. Palanca, 18 SCRA 496).

Petitioner Commissioner of Internal Revenue is now before this Court seeking a reversal of the above
decision. Thru the Solicitor General, he contends that the basis in computing the two-year period of
prescription provided for in Section 292 (now Section 230) of the Tax Code, should be May 15, 1981, the date
when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return for the year
ended December 31, 1981 was filed.

He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R. No. 68013, November
12, 1984) involving a similar set of facts, wherein this Court in a minute resolution affirmed the Court of
Appeals' decision denying the claim for refund of the petitioner therein for being barred by prescription.

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under
the circumstances to lay down a categorical pronouncement on the question as to when the two-year
prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this
regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case
of its previous ruling in the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the
other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application of the
law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil 236 [1933]), this
Court stated that statutes should receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS
SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect
to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute,
and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be
considered. (Manila Lodge No. 761, et al. v. Court of Appeals, et al., 73 SCRA 162 [1976]) Every section,
provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the
law and every part of the act is to be taken into view. (Chartered Bank v. Imperial, 48 Phil. 931 [1921]; Lopez
v. El Hogar Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of
the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85
(now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on
Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of
accounts. All these provisions of the Tax Code should be harmonized with each other.

Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a tax
erroneously or illegally paid, counted from the tile the tax was paid. But a literal application of this provision in
the case at bar which involves quarterly income tax payments may lead to absurdity and inconvenience.

Section 85 (now Section 68) provides for the method of computing corporate quarterly income tax which is on
a cumulative basis, to wit:

Sec. 85. Method of computing corporate quarterly income tax. — Every corporation shall file in
duplicate a quarterly summary declaration of its gross income and deductions on a cumulative
basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of
this Code shall be levied, collected and paid. The tax so computed shall be decreased by the
amount of tax previously paid or assessed during the preceding quarters and shall be paid not
later than sixty (60) days from the close of each of the first three (3) quarters of the taxable
year, whether calendar or fiscal year. (Emphasis supplied)

while Section 87 (now Section 69) requires the filing of an adjustment returns and final payment of income
tax, thus:

Sec. 87. Filing of adjustment returns final payment of income tax. — On or before the fifteenth
day of April or on or before the fifteenth day of the fourth month following the close of the fiscal
year, every taxpayer covered by this Chapter shall file an Adjustment Return covering the total
net taxable income of the preceding calendar or fiscal year and if the sum of the quarterly tax
payments made during that year is not equal to the tax due on the entire net taxable income of
that year the corporation shall either (a) pay the excess tax still due or (b) be refunded the
excess amount paid as the case may be. . . . (Emphasis supplied)

In the case at bar, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based on its
Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax paid during the first
quarter. A literal application of Section 292 (now Section 230) would thus pose no problem as the two-year
prescriptive period reckoned from the time the quarterly income tax was paid can be easily determined.
However, if the quarter in which the overpayment is made, cannot be ascertained, then a literal application of
Section 292 (Section 230) would lead to absurdity and inconvenience.

The following application of Section 85 (now Section 68) clearly illustrates this point:

FIRST QUARTER:

Gross Income 100,000.00

Less: Deductions 50,000.00

—————

Net Taxable Income 50,000.00

=========

Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00

=========

SECOND QUARTER:

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00 150,000.00

—————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00 125,000.00

—————

Net Taxable Income 25,000.00

=========

Tax Due Thereon 6,250.00

Less: Tax Paid 1st Quarter 12,500.00

—————

Creditable Income Tax (6,250.00)

—————

THIRD QUARTER:

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00

3rd Quarter 100,000.00 250,000.00

—————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00

3rd Quarter 25,000.00 150,000.00

————— —————

100,000.00

=========

Tax Due Thereon 25,000.00

 Less: Tax Paid 1st Quarter 12,500.00

2nd Quarter — 12,500.00

————— =========

FOURTH QUARTER: (Adjustment Return required in Sec. 87)

Gross Income 1st Quarter 100,000.00

2nd Quarter 50,000.00

3rd Quarter 100,000.00

4th Quarter 75,000.00 325,000.00

————— —————

Less: Deductions 1st Quarter 50,000.00

2nd Quarter 75,000.00

3rd Quarter 25,000.00

4th Quarter 100,000.00 250,000.00

————— —————

Net Taxable Income 75,000.00

=========

Tax Due Thereon 18,750.00

Less: Tax Paid 1st Quarter 12,500.00

2nd Quarter —

3rd Quarter 12,500.00 25,000.00

————— —————

Creditable Income Tax (to be REFUNDED) (6,250.00)

=========

Based on the above hypothetical data appearing in the Final Adjustment Return, the taxpayer is entitled under
Section 87 (now Section 69) of the Tax Code to a refund of P6,250.00. If Section 292 (now Section 230) is
literally applied, what then is the reckoning date in computing the two-year prescriptive period? Will it be the
1st quarter when the taxpayer paid P12,500.00 or the 3rd quarter when the taxpayer also paid P12,500.00?
Obviously, the most reasonable and logical application of the law would be to compute the two-year
prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it
can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of
overpaid income tax.
Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the books of
accounts of companies or persons with gross quarterly sales or earnings exceeding Twenty Five Thousand
Pesos (P25,000.00) be audited and examined yearly by an independent Certified Public Accountant and their
income tax returns be accompanied by certified balance sheets, profit and loss statements, schedules listing
income producing properties and the corresponding incomes therefrom and other related statements.

It is generally recognized that before an accountant can make a certification on the financial statements or
render an auditor's opinion, an audit of the books of accounts has to be conducted in accordance with
generally accepted auditing standards.

Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then
it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been audited
and adjusted, that is truly reflective of the results of the operations of a business enterprise. Thus, it is only
when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is
still due or a refund can be claimed based on the adjusted and audited figures.

Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented
per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of
the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of
gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or
portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is
reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final
payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section
230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax
Return and final payment of income tax.

In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when
a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the
National internal Revenue Code should be counted from the date of the final payment. This ruling is reiterated
in Commission of Internal Revenue v. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year prescriptive period under
Section 306 (Section 292) of the Tax Code, should be from the date of the last installment.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales,
Inc. is not yet barred by prescription.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DENIED. The decision of the Court of
Tax Appeals dated April 29, 1988 is AFFIRMED. No costs.

SO ORDERED.

[G.R. No. 122480. April 12, 2000]

BPI-FAMILY SAVINGS BANK, Inc., petitioner, vs. COURT OF APPEALS, COURT

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

If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must
it apply the same standard against itself in refunding excess payments. When it is undisputed
that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money
not belonging to it. No one, not even the State, should enrich oneself at the expense of another.
 The Case

Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of
Appeals (CA) in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision of
1[1] 2[2]

the Court of Tax Appeals (CTA). The CA disposed as follows:

"WHEREFORE, foregoing premises considered, the petition is hereby

DISMISSED for lack of merit." 3[3]

On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as
follows:

"WHEREFORE, in [view of] all the foregoing, Petitioner’s claim for refund is hereby
DENIED and this Petition for Review is DISMISSED for lack of merit." 4[4]

Also assailed is the November 8, 1995 CA Resolution denying reconsideration.

5[5]

The Facts

The facts of this case were summarized by the CA in this wise:

"This case involves a claim for tax refund in the amount of P112,491.00
representing petitioner’s tax withheld for the year 1989.

In its Corporate Annual Income Tax Return for the year 1989, the following items
are reflected:

Income.............................P1,017,931,831.00
Deductions........................P1,026,218,791.00
Net Income (Loss).................(P8,286,960.00)
Taxable Income (Loss).............P8,286,960.00

Less:

1988 Tax Credit...............P185,001.00

1989 Tax Credit...............P112,491.00

TOTAL AMOUNT......................P297,492.00
REFUNDABLE

"It appears from the foregoing 1989 Income Tax Return that petitioner had a total
refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax
refund in the present case. However, petitioner declared in the same 1989 Income
1
2
3
4
5
 Tax Return that the said total refundable amount of P297,492.00 will be applied as
tax credit to the succeeding taxable year.

"On October 11, 1990, petitioner filed a written claim for refund in the amount of
P112,491.00 with the respondent Commissioner of Internal Revenue alleging that
it did not apply the 1989 refundable amount of P297,492.00 (including
P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities due to
the alleged business losses it incurred for the same year.

"Without waiting for respondent Commissioner of Internal Revenue to act on the

claim for refund, petitioner filed a petition for review with respondent Court of Tax
Appeals, seeking the refund of the amount of P112,491.00.

"The respondent Court of Tax Appeals dismissed petitioner’s petition on the

ground that petitioner failed to present as evidence its Corporate Annual Income
Tax Return for 1990 to establish the fact that petitioner had not yet credited the
amount of P297,492.00 (inclusive of the amount P112,491.00 which is the subject
of the present controversy) to its 1990 income tax liability.

"Petitioner filed a motion for reconsideration, however, the same was denied by
respondent court in its Resolution dated May 6, 1994." 6[6]

As earlier noted, the CA affirmed the CTA. Hence, this Petition. 7[7]

Ruling of the Court of Appeals

In affirming the CTA, the Court of Appeals ruled as follows:

"It is incumbent upon the petitioner to show proof that it has not credited to its
1990 Annual income Tax Return, the amount of P297,492.00 (including
P112,491.00), so as to refute its previous declaration in the 1989 Income Tax
Return that the said amount will be applied as a tax credit in the succeeding year
of 1990. Having failed to submit such requirement, there is no basis to grant the
claim for refund. x x x

"Tax refunds are in the nature of tax exemptions. As such, they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. In other words, the burden of proof rests
upon the taxpayer to establish by sufficient and competent evidence its entitlement
to the claim for refund."
8[8]

Issue

6
7
8
In their Memorandum, respondents identify the issue in this wise:

"The sole issue to be resolved is whether or not petitioner is entitled to the refund
of P112,491.00, representing excess creditable withholding tax paid for the taxable
year 1989." 9[9]

The Court’s Ruling

The Petition is meritorious.

Main Issue: Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus
entitled to a refund amounting to P112,491. Pursuant to Section 69 of the 1986 Tax Code
10[10]

which states that a corporation entitled to a refund may opt either (1) to obtain such refund or (2)
to credit said amount for the succeeding taxable year, petitioner indicated in its 1989 Income
Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year,
1990. Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would
claim the amount as a tax refund, instead of applying it as a tax credit. When no action from the
BIR was forthcoming, petitioner filed its claim with the Court of Tax Appeals.

The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its
1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the
following year, the Tax Court held that petitioner was presumed to have done so. The CTA and
the CA ruled that petitioner failed to overcome this presumption because it did not present its
1990 Return, which would have shown that the amount in dispute was not applied as a tax
credit. Hence, the CA concluded that petitioner was not entitled to a tax refund.

We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are
binding on this Court. This rule, however, does not apply where, inter alia, the judgment is
premised on a misapprehension of facts, or when the appellate court failed to notice certain
relevant facts which if considered would justify a different conclusion. This case is one such
11[11]

exception.

In the first place, petitioner presented evidence to prove its claim that it did not apply the amount
as a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of
petitioner’s accounting department, testified to this fact. It likewise presented its claim for refund
and a certification issued by Mr. Gil Lopez, petitioner’s vice-president, stating that the amount of
P112,491 "has not been and/or will not be automatically credited/offset against any succeeding
quarters’ income tax liabilities for the rest of the calendar year ending December 31, 1990." Also
presented were the quarterly returns for the first two quarters of 1990.

9
10
11
The Bureau of Internal Revenue, for its part, failed to controvert petitioner’s claim. In fact, it
presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR
could have easily disproved petitioner’s claim. To repeat, it did not do so.

More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner’s
Motion for Reconsideration filed before the CTA. A final adjustment return shows whether a
12[12]

corporation incurred a loss or gained a profit during the taxable year. In this case, that Return
clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not
have applied the amount in dispute as a tax credit.

Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition
to petitioner’s Motion and the 1990 Final Adjustment Return attached thereto. In denying the
Motion for Reconsideration, however, the CTA ignored the said Return. In the same vein, the
CA did not pass upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial.
The law creating the Court of Tax Appeals, however, specifically provides that proceedings
before it "shall not be governed strictly by the technical rules of evidence." The paramount
13[13]

consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of
issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at
a just determination of a controversy.

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

It should be stressed that the rationale of the rules of procedure is to secure a just determination
of every action. They are tools designed to facilitate the attainment of justice. But there can be
14[14]

no just determination of the present action if we ignore, on grounds of strict technicality, the
Return submitted before the CTA and even before this Court. To repeat, the undisputed fact
15[15]

is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the
tax credit could be applied. Consequently, there is no reason for the BIR and this Court to
withhold the tax refund which rightfully belongs to the petitioner.

Public respondents maintain that what was attached to petitioner’s Motion for Reconsideration
was not the final adjustment Return, but petitioner’s first two quarterly returns for 1990. This16[16]

allegation is wrong. An examination of the records shows that the 1990 Final Adjustment Return
was attached to the Motion for Reconsideration. On the other hand, the two quarterly returns for
1990 mentioned by respondent were in fact attached to the Petition for Review filed before the
CTA. Indeed, to rebut respondents’ specific contention, petitioner submitted before us its
Surrejoinder, to which was attached the Motion for Reconsideration and Exhibit "A" thereof, the
Final Adjustment Return for 1990. 17[17]

12
13
14
15
16
17
CTA Case No. 4897

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision
rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year
1990. In that case, the Tax Court held that "petitioner suffered a net loss for the taxable year
1990 x x x." Respondent, however, urges this Court not to take judicial notice of the said
18[18]

case.19[19]

As a rule, "courts are not authorized to take judicial notice of the contents of the records of other
cases, even when such cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are actually pending before
the same judge." 20[20]

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters
ought to be known to judges because of their judicial functions. In this case, the Court notes that
a copy of the Decision in CTA Case No. 4897 was attached to the Petition for Review filed
before this Court. Significantly, respondents do not claim at all that the said Decision was
fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision,
claiming merely that the Court cannot take judicial notice thereof.

To our mind, respondents’ reasoning underscores the weakness of their case. For if they had
really believed that petitioner is not entitled to a tax refund, they could have easily proved that it
did not suffer any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the
fact appearing therein -- that petitioner suffered a net loss in 1990 – in the same way that it
refused to controvert the same fact established by petitioner’s other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner’s case. It is
merely one more bit of information showing the stark truth: petitioner did not use its 1989 refund
to pay its taxes for 1990.

Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the claimant. Under the facts of this case, we hold that
petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances, however, should not compel
the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and
that it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and
legalisms, however exalted, should not be misused by the government to keep money not
belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State
expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the
same standard against itself in refunding excess payments of such taxes. Indeed, the State
must lead by its own example of honor, dignity and uprightness.

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of
the Court of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is

18
19
20
ordered to refund to petitioner the amount of P112,491 as excess creditable taxes paid in 1989.
No costs.

SO ORDERED.

G.R. No. 84111 December 22, 1989 JIMMY O. YAOKASIN, petitioner,

vs.
THE COMMISSIONER OF CUSTOMS, SALVADOR M. MISON and the DISTRICT COLLECTOR OF THE
PORT OF TACLOBAN, VICENTE D. YUTANGCO, respondents.

This petition questions the power of automatic review of the Commissioner of Customs over the
decision of the Collector of Customs in protest and seizure cases.

On May 27, 1988, the Philippine Coast Guard seized 9000 bags/ sacks of refined sugar, which
were being unloaded from the M/V Tacloban, and turned them over to the custody of the Bureau
of Customs.

The petitioner presented a sales invoice from the Jordan Trading of Iloilo (Annex A, Petition) to
prove that the sugar was purchased locally. The District Collector of Customs, however,
proceeded with the seizure of the bags of sugar.

On June 3 and 6, 1988, show-cause hearings were conducted. On June 7, 1988, the District
Collector of Customs ordered the release of the sugar as follows:

WHEREFORE, premises considered subject Nine Thousand (9,000) sacks/bags

of refined sugar are hereby ordered released to Mr. Jimmy O. Yaokasin,
consignee/claimant and the immediate withdrawal of Customs Guard within its
bodega's premises. (p. 276, Rollo.)

On June 10, 1988, the decision, together with the entire records of the case, were transmitted
to, and received by, the Commissioner of Customs (Annex H, Petition, p. 277, Rollo).

On June 14, 1988, without modifying his decision, the District Collector of Customs ordered the
warehouse, wherein the bags of sugar were stored, to be sealed.

On June 19, 1988, the Economic Intelligence and Investigation Board (EIIB) filed a Motion for
Reconsideration (Annex I, Petition, p. 278, Rollo), for "further hearing on the merits" (p. 279,
Rollo), based on evidence that the seized sugar was of foreign origin. Petitioner opposed the
motion for being merely pro forma and/or that the same was, in effect, a motion for new trial.

Hearing Officer Paula Alcazaren set the Motion for reconsideration for hearing on July 13, 1988.

But before that, or on July 4, 1988, the Commissioner of Customs by "2nd Indorsement"
returned to the District Collector of Customs the:

... folder of Tacloban S.I. No. 06-01 (R.P. vs. 9000 bags/sacks of refined sugar,
MR. JIMMY YAOKASIN, consignee/claimant), together with the proposed
decision, for hearing and/or resolution of the government is motion for
reconsideration ... . (p. 437, Rollo, Emphasis Ours.)
On the same date, July 4, 1988, petitioner applied for and secured a writ of replevin from the
Regional Trial Court of Leyte (CC 7627, Branch VII), through a Petition/Complaint for certiorari
Prohibition with Replevin and Damages with Preliminary Injunction and/or Restraining Order
(Annex L, Petition, p. 288, Rollo).

On July 12, 1988, respondent District Collector of Customs filed an Answer assailing the court's
jurisdiction. On the same day, the District Collector and the Commissioner of Customs filed in
the Court of Appeals a Petition for certiorari and Prohibition with Application for a Writ of
Preliminary Injunction and/or Restraining Order to annul the July 4, 1988 — "Order Granting
Replevin with Temporary Restraining Order" (CA-G.R. SP NO. 15090; p. 396, Rollo).

On July 15, 1988, the Collector of Customs reconsidered his June 7, 1988 decision, as follows:

WHEREFORE, the undersigned hereby reconsiders his Decision, finds that the
9,000 bags/sacks of refined sugar in question are of foreign origin, smuggled into
the country, and declares them forfeited in favor of the government.

Considering the provision in the quoted Customs Memorandum Order, especially

the latter part thereof prohibiting the release of the articles in question to the
claimant, and considering also that the said sacks of sugar are presently stored in
the bodega of claimant, and considering further that there are no facilities for
storage in Tacloban City, for security reasons, the Honorable Commissioner of
Customs is respectfully and earnestly urged to order the immediate transfer of the
sugar from the said bodega to any Customs Warehouse, preferably in Manila and
to this end to order the setting aside of such sum of money in order to effectively
accomplish this purpose." (p. 11, Rollo.)

Also, on the same day, the Court of Appeals: (a) gave due course to respondent's petition; and
(b) restrained Judge Pedro S. Espina, Regional Trial Court, Leyte, from further proceeding in
Civil Case No. 7627, and from enforcing his Order of July 4, 1988.

It is petitioner's contention that the June 7, 1988 decision of the District Collector of Customs
became final and executory, in view of the absence of an appeal therefrom by the "aggrieved
party" (himself) within the 15-day period provided for in Sec. 2313 of the Tariff and Customs
Code. Hence, the release of the 9,000 bags of sugar must be upheld.

On the other hand, the District Collector and the Commissioner of Customs argue that since the
June 7, 1988 decision is adverse to the government, the case should go to the Commissioner of
Customs on automatic review, pursuant to Memorandum Order No. 20-87, dated May 18, 1987,
of former Acting Commissioner of Customs Alexander Padilla, which provides:

CUSTOMS MEMORANDUM ORDER

NO. 20-87

TO: All Collectors of Customs and Others Concerned

Effective immediately, you are hereby directed to implement strictly the following
—
 Decisions of the Collector of Customs in seizure and protest cases
are subject to review by the Commissioner upon appeal as provided
under existing laws; provided, however, that where a decision of the
Collector of Customs in such seizure and protest cases is adverse to
the government it shall automatically be reviewed by the
Commissioner of Customs. (PD. No. 1, Annex C.)

In view thereof, no releases in any seizure or like cases may be effected unless
and until the decision of the Collector has been confirmed in writing by the
Commissioner of Customs.

For immediate and strict compliance.

The memorandum order implements Section 12 (Art. IV, Part. IV, Vol. I) of the Integrated
Reorganization Plan (hereafter, "PLAN") which provides:

12. The Collector of Customs at each principal port of entry shall be the official
head of the customs service in his port and district responsible to the
Commissioner. He shall have the authority to take final action on the enforcement
of tariff and customs laws within his collection district and on administrative
matters in accordance with Chapter III, Part II of this Plan. Decisions of the
Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however,
that where a decision of a Collector of Customs in such seizure and protest cases
is adverse to the government, it shall automatically be reviewed by the
Commissioner of Customs which, if affirmed, shall automatically be elevated for
final review by the Secretary of Finance; provided, further that if within thirty days
from receipt of the records of the case by the Commissioner of Customs or the
Secretary of Finance, no decision is rendered by the Commissioner of Customs or
the Secretary of Finance, the decision under review shall become final and
executory. (Emphasis supplied)

In Presidential Decree No. 1, dated September 24, 1972, former President Marcos decreed and
ordered that the Plan be (4 adopted, approved, and made as part of the law of the land." Under
the 1987 Constitution, "[a]ll existing laws, decrees, executive orders, proclamations, letters of
instruction, and other executive issuances not inconsistent with this Constitution shall remain
operative until amended, repealed, or revoked" (Sec. 3, Art. XVIII). While some provisions of the
Plan have ceased to be operative because of subsequent reorganizations, other provisions,
such as Section 12 have not been repealed by subsequent legislation.

Section 12 of the Plan applies to petitioner's shipment of 9,000 bags of sugar. Taxes being the
lifeblood of the Government, Section 12, which the Commissioner of Customs in his Customs
Memorandum Order No. 20-87, enjoined all collectors to follow strictly, is intended to protect the
interest of the Government in the collection of taxes and customs duties in those seizure and
protest cases which, without the automatic review provided therein, neither the Commissioner of
Customs nor the Secretary of Finance would probably ever know about. Without the automatic
review by the Commissioner of Customs and the Secretary of Finance, a collector in any of our
country's far-flung ports, would have absolute and unbridled discretion to determine whether
goods seized by him are locally produced, hence, not dutiable or of foreign origin, and therefore
subject to payment of customs duties and taxes. His decision, unless appealed by the aggrieved
party (the owner of the goods), would become final with 'the no one the wiser except himself
and the owner of the goods. The owner of the goods cannot be expected to appeal the
collector's decision when it is favorable to him. A decision that is favorable to the taxpayer would
correspondingly be unfavorable to the Government, but who will appeal the collector's decision
in that case certainly not the collector.

Evidently, it was to cure this anomalous situation (which may have already defrauded our
government of huge amounts of uncollected taxes), that the provision for automatic review by
the Commissioner of Customs and the Secretary of Finance of unappealed seizure and protest
cases was conceived to protect the government against corrupt and conniving customs
collectors.

Section 12 of the Plan and Section 2313 of the Tariff and Customs Code do not conflict with
each other. They may co-exist. Section 2313 of the Code provides for the procedure for the
review of the decision of a collector in seizure and protest cases upon appeal by the aggrieved
party, i.e., the importer or owner of the goods. On the other hand, Section 12 of the Plan refers
to the general procedure in appeals in seizure and protest cases with a special proviso on
automatic review when the collector's decision is adverse to the government. Section 2313 and
the proviso in Section 12, although they both relate to the review of seizure and protest cases,
refer to two different situations — when the collector's decision is adverse to the importer or
owner of the goods, and when the decision is adverse to the government.

The decision of the Court in the case of Sy Man vs. Jacinto (93 Phil. 1093 [19531]), which the
petitioner invokes as precedent, is riot in point. In the present case the Acting Commissioner, in
issuing the memorandum circular, was directing strict compliance with an existing provision of
law, which mandates automatic review of decisions of collectors in seizure and protest cases
which are adverse to the government. On the other hand, in Sy Man, the memorandum order of
the Insular Collector of Customs directed the elevation of records in seizure and forfeiture cases
for automatic review even if he had not been expressly granted such power under the then
existing law.

The objection to the enforcement of Section 12 of the Plan and CMO No. 20-87 on the ground
that they had not been published in the Official Gazette, is not well taken. The Plan, as part of
P.D. No. 1, was "adopted, approved and made as part of the law of the land" and published in
Volume 68, No. 40, p. 7797 of the Official Gazette issue of October 2, 1972.

Article 2 of the Civil Code, which requires laws to be published in the Official Gazette, does not
apply to CMO No. 20-87 which is only an administrative order of the Commissioner of Customs
addressed to his subordinates. the customs collectors.

Commonwealth Act No. 638 (an Act to Provide for the Uniform Publication and Distribution of
the Official Gazette) enumerates what shall be published in the Official Gazette besides
legislative acts and resolutions of a public nature of the Congress of the Philippines. Executive
and administrative orders and proclamations, shall also be published in the Official Gazette,
except such as have no general applicability." CMO No. 20-87 requiring collectors of customs to
comply strictly with Section 12 of the Plan, is an issuance which is addressed only to particular
persons or a class of persons (the customs collectors). "It need not be published, on the
assumption that it has been circularized to all concerned" (Tanada vs. Tuvera, 136 SCRA 27).

WHEREFORE, the petition for review is denied for lack of merit. The temporary restraining order
which we issued in this case is hereby made permanent. Cost against the petitioner.
SO ORDERED.

G.R. No. 168498 April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming the
Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the
Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A.
Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for Reconsideration,
respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax
Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was
excusable and raised the following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE
DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF
THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY
PRESCRIBED – A FACT NOT DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA DECISION,
AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY
FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF
TAX APPEALS HAD JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A
DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS
AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND
UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE
COURT OF TAX APPEALS.2

Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a mere
rehash of petitioner’s previous arguments, all of which have been considered and found without merit in our
Decision dated June 16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary period
was excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not
aware of its issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioner’s
counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake
of his counsel as a ground for reversing or setting aside the adverse judgment, thereby putting no end to
litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have guarded
against and by reason of which the rights of an aggrieved party have probably been impaired. Petitioner’s
former counsel’s omission could hardly be characterized as excusable, much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive promptly
judicial notices and pleadings intended for them. Apparently, petitioner’s counsel was not only remiss in
complying with this admonition but he also failed to check periodically, as an act of prudence and diligence,
the status of the pending case before the CTA Second Division. The fact that counsel allegedly had not
renewed the employment of his secretary, thereby making the latter no longer attentive or focused on her
work, did not relieve him of his responsibilities to his client. It is a problem personal to him which should not in
any manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened
considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its
petition for review for late filing. It claims that rules of procedure are intended to help secure, not override,
substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence in
handling the case fell short of that required under the circumstances. He was well aware of the motion filed by
the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003, that a
hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing
the motion was submitted for resolution. Petitioner’s counsel apparently did not show enthusiasm in the case
he was handling as he should have been vigilant of the outcome of said motion and be prepared for the
necessary action to take whatever the outcome may have been. Such kind of negligence cannot support
petitioner’s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also, petitioner’s
failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of
legality or validity of the assessment and prescription of the Government’s right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as
are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125,
otherwise known as the Law Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) 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 in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
 thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals6 state:

RULE 4
Jurisdiction of the Court

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
or other applicable law provides a specific period for action: Provided, that in case of disputed
assessments, the inaction of the Commissioner of Internal Revenue within the one hundred
eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a
denial for purposes of allowing the taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax
case; Provided, further, that should the taxpayer opt to await the final decision of the
Commissioner of Internal Revenue on the disputed assessments beyond the one hundred
eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court
under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims
for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review
with the Court prior to the expiration of the two-year period under Section 229 of the National
Internal Revenue Code;

RULE 8
Procedure in Civil Cases

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision, ruling
or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of
internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of
its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a
copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal
Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on
claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition
for review within the two-year period prescribed by law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include
not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions,
rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with
jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or
ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on
the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and failure to
comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and
determine the correctness of the assessments. Such period is not merely directory but mandatory and it is
beyond the power of the courts to extend the same.7

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of
submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals
within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on
the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the
application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of
submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals.
Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of
the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did
not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final,
demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and
thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After
availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not
successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing
the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed
assessment because of the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for
reconsideration. Although the same was raised in the petition for review, it was dismissed for late filing. No
motion for reconsideration was filed hence the disputed assessment became final, demandable and
executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief from judgment.
However, it failed to raise the issue of prescription therein. After its petition for relief from judgment was
denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for review before this Court
without raising the issue of prescription. It is only in the instant motion for reconsideration that petitioner raised
the issue of prescription which is not allowed. The rule is well-settled that points of law, theories, issues and
arguments not adequately brought to the attention of the lower court need not be considered by the reviewing
court as they cannot be raised for the first time on appeal,8 much more in a motion for reconsideration as in
this case, because this would be offensive to the basic rules of fair play, justice and due process.9 This last
ditch effort to shift to a new theory and raise a new matter in the hope of a favorable result is a pernicious
practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

SO ORDERED.

G.R. Nos. 171383 & 172379 November 14, 2008

SILKAIR (SINGAPORE) PTE. LTD., vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

The Case

G.R. No. 171383

Silkair (Singapore) Pte. Ltd. (petitioner) filed this Petition for Review1 to reverse the Court of Tax Appeals'
Decision2 dated 20 October 2005 in C.T.A. Case No. 6217 as well as the Resolution dated 3 February 2006
denying the Motion for Reconsideration. In the assailed decision, the Court of Tax Appeals En Banc denied
petitioner's claim for refund or issuance of a tax credit certificate of P4,239,374.81, representing excise taxes
paid on petitioner's purchase of aviation jet fuel from Petron Corporation (Petron) for the period from 1
January 1999 to 30 June 1999.

G.R. No. 172379

Petitioner filed this Petition for Review3 to reverse the Court of Tax Appeals' Decision4 dated 5 January 2006
in C.T.A. Case No. 6308 as well as the Resolution dated 18 April 2006 denying the Motion for
Reconsideration. In the assailed decision, the Court of Tax Appeals En Banc denied petitioner's claim for
refund or issuance of a tax credit certificate of P4,831,224.70, representing excise taxes paid on petitioner's
purchase of aviation jet fuel from Petron for the period from 1 July 1999 to 31 December 1999.

On 2 August 2006, this Court issued a resolution to consolidate both cases since they involve the same
parties and the same issue, whether petitioner is entitled to a refund of the excise taxes paid on its purchases
of aviation jet fuel from Petron.

The Facts

Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine representative
office in Cebu City. It is engaged in business as an on-line international carrier, operating the Singapore-
Cebu-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Davao-Singapore routes.5

From 1 January 1999 to 31 December 1999, petitioner purchased aviation jet fuel from Petron for use on
petitioner's international flights.6 Based on the Aviation Delivery Receipts and Invoices presented, P3.67 per
liter as excise (specific) tax was added to the amount paid by petitioner on its purchases of aviation jet fuel.7
Petitioner, through its sister company Singapore Airlines Ltd., paid P4,239,374.81 from 1 January 1999 to 30
June 19998 and P4,831,224.70 from 1 July 1999 to 31 December 1999,9 as excise taxes for its purchases of
the aviation jet fuel from Petron. Petitioner, contending that it is exempt from the payment of excise taxes,
filed a formal claim for refund with the Commissioner of Internal Revenue (respondent).

Petitioner claims that it is exempt from the payment of excise tax under the 1997 National Internal Revenue
Code (NIRC), specifically Section 135, and under Article 4 of the Air Transport Agreement between the
Governments of the Republic of the Philippines and the Republic of Singapore (Air Agreement).10

Section 135 of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. -
Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored
in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to
be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use or consumption: Provided, however, That the country of said foreign
 international carrier or exempt entities or agencies exempts from similar taxes petroleum products
sold to Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes.11

Article 4 of the Air Agreement provides:

Art. 4

xxx

2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on
board aircraft in the territory of one Contracting Party by, or on behalf of, a designated airline of the
other Contracting Party and intended solely for use in the operation of the agreed services shall, with
the exception of charges corresponding to the services performed, be exempt from the same custom
duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party,
even when these supplies are to be used on the parts of the journey performed over the territory of
the Contracting Party in which they are introduced into or taken on board. The materials referred to
above may be required to be kept under customs supervision and control.12

Petitioner contends that in reality, it paid the excise taxes due on the transactions and Petron merely remitted
the payment to the Bureau of Internal Revenue (BIR). Petitioner argues that to adhere to the view that Petron
is the legal claimant of the refund will make petitioner's right to recover the erroneously paid taxes dependent
solely on Petron's action over which petitioner has no control. If Petron fails to act or acts belatedly,
petitioner's claim will be barred, depriving petitioner of its private property.13

Petitioner also maintains that to hold that only Petron can legally claim the refund will negate the tax
exemption expressly granted to petitioner under the NIRC and the Air Agreement.14 Petitioner argues that a
tax exemption is a personal privilege of the grantee, which is petitioner in this case. Petitioner further argues
that a tax exemption granted to the buyer cannot be availed of by the seller; hence, in the present case,
Petron as seller cannot legally claim the refund. On the other hand, if only the entity that paid the tax - Petron
in this case - can claim the refund, then petitioner as the grantee of the tax exemption cannot enjoy its tax
exemption. In short, neither petitioner nor Petron can claim the refund, rendering the tax exemption useless.
Petitioner submits that this is contrary to the language and intent of the NIRC and the Air Agreement.15

Petitioner also cites this Court's Resolution in Maceda v. Macaraig, Jr.,16 quoting the opinion of the Secretary
of Justice which states, thus:

The view which refuses to accord the exemption because the tax is first paid by the seller disregards
realities and gives more importance to form than substance. Equity and law always exalt substance
over form.17

Petitioner believes that its tax exemption under Section 135 of the NIRC also includes its entitlement to a
refund from the BIR in any case of erroneous payment of excise tax.18

Respondent claims that as explained in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,19
the nature of an indirect tax allows the tax to be passed on to the purchaser as part of the commodity's
purchase price. However, an indirect tax remains a tax on the seller. Hence, if the buyer happens to be tax
exempt, the seller is nonetheless liable for the payment of the tax as the same is a tax not on the buyer but on
the seller.20

Respondent insists that in indirect taxation, the manufacturer or seller has the option to shift the burden of the
tax to the purchaser. If and when shifted, the amount added by the manufacturer or seller becomes part of the
purchase price of the goods. Thus, the purchaser does not really pay the tax but only the price of the
commodity and the liability for the payment of the indirect tax remains with the manufacturer or seller. 21 Since
the liability for the excise tax payment is imposed by law on Petron as the manufacturer of the petroleum
products, any claim for refund should only be made by Petron as the statutory taxpayer.22

The Ruling of the Court of Tax Appeals

G.R. No. 171383

On 20 October 2005, the Court of Tax Appeals En Banc (CTA) ruled that the excise tax imposed on the
removal of petroleum products by the oil companies is an indirect tax.23 Although the burden to pay an indirect
tax can be passed on to the purchaser of the goods, the liability to pay the indirect tax remains with the
manufacturer or seller.24 When the manufacturer or seller decides to shift the burden of the indirect tax to the
purchaser, the tax becomes a part of the price; therefore, the purchaser does not really pay the tax per se but
only the price of the commodity.25

The CTA pointed out that Section 130(A)(2)26 of the NIRC provides that the liability for the payment of excise
taxes is imposed upon the manufacturer or producer of the petroleum products. Under the law, the
manufacturer or producer is the taxpayer. The CTA stated that it is only the taxpayer that may ask for a refund
in case of erroneous payment of taxes. Citing Cebu Portland Cement Co. v. Collector of Internal Revenue,27
the CTA ruled that the producer of the goods is the one entitled to claim for a refund of indirect taxes.28 The
CTA held that since the liability for the excise taxes was placed on Petron as the manufacturer of the
petroleum products and it was shown in the Excise Tax Returns29 that the excise taxes were paid by Petron,
any claim for refund of the excise taxes should only be made by Petron as the taxpayer. This is in
consonance with the rule on strictissimi juris with respect to tax exemptions. Petitioner cannot be considered
the taxpayer because what was transferred to petitioner was only the burden and not the liability to pay the
excise tax on petroleum products.30

The CTA also considered the Aviation Fuel Supply Agreement between petitioner and Petron, which states:

Buyer shall pay any taxes, fees or other charges imposed by any national, local or airport authority on
the delivery, sale, inspection, storage and use of fuel, except for taxes on Seller's income and taxes
on raw material. To the extent allowed, Seller shall show these taxes, fees and other charges as
separate items on the invoice for the account of the Buyer.31

However, the CTA held that even with this provision, the liability for the excise tax remained with Petron as
manufacturer or producer of the aviation jet fuel. The shifting of the burden of the excise tax to petitioner did
not transform petitioner into a taxpayer. Hence, Petron is the proper party that can claim for refund of any
erroneous excise tax payments.32

G.R. No. 172379

The CTA En Banc held that excise taxes on domestic products are paid by the manufacturer or producer
before removal of the products from the place of production. The payment of an excise tax, being an indirect
tax, can be shifted to the purchaser of goods but the statutory liability for such payment is still with the seller
or manufacturer.33 The CTA cited Maceda v. Macaraig, Jr.:34

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
is engaged in. Examples are custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to
the Bureau of Internal Revenue after converting the crude oil into petroleum products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else." For example, the excise tax and ad valorem taxes that the oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its
buyer, like the NPC, by adding them to the "cash" and/or "selling price."35
The CTA further cited Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue36 and Contex
Corporation v. Hon. Commissioner of Internal Revenue37 and concluded that the tax sought to be refunded is
an excise tax on petroleum products, partaking of the nature of an indirect tax.38

The CTA further ruled that while it is cognizant of the exempt status of petitioner under the NIRC and the Air
Agreement, it is also aware that the right to claim for refund of taxes erroneously paid lies with the person
statutorily liable to pay the tax in accordance with Section 204 of the NIRC.39 The CTA also suggested that
petitioner should invoke its tax exemption to Petron before buying the petroleum products.40 The CTA
concluded that the right to claim for the refund of the excise taxes paid on the petroleum products lies with
Petron which paid and remitted the excise taxes to the BIR.

The Issue

Petitioner submits this sole issue for our consideration: whether petitioner is the proper party to claim a refund
for the excise taxes paid.41

The Ruling of the Court

The issue presented is not novel. In a similar case involving the same parties, this Court has categorically
ruled that "the proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person
on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another."42
The Court added that "even if Petron Corporation passed on to Silkair the burden of the tax, the additional
amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser."43

An excise tax is an indirect tax where the tax burden

can be shifted to the consumer but the tax liability remains with the
manufacturer or producer.

Section 129 of the NIRC provides that excise taxes refer to taxes imposed on specified goods manufactured
or produced in the Philippines for domestic sale or consumption or for any other disposition and to things
imported. The excise taxes are collected from manufacturers or producers before removal of the domestic
products from the place of production. Although excise taxes can be considered as taxes on production, they
are really taxes on property as they are imposed on certain specified goods.44

Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel an excise tax of P3.67
per liter of volume capacity. Since the tax imposed is based on volume capacity, the tax is referred to as
"specific tax."45 However, excise tax, whether classified as specific or ad valorem tax, is basically an indirect
tax imposed on the consumption of a specified list of goods or products. The tax is directly levied on the
manufacturer upon removal of the taxable goods from the place of production but in reality, the tax is passed
on to the end consumer as part of the selling price of the goods sold.46

In Commissioner of Internal Revenue v. Philippine Long Distance Company,47 the Court explained the
difference between a direct tax and an indirect tax:

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of
taxation, taxes may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended or desired,
should pay them; they are impositions for which a taxpayer is directly liable on the transaction or
business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the burden to someone
else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax
falls on one person but the burden thereof can be shifted or passed on to another person,
such as when the tax is imposed upon goods before reaching the consumer who ultimately
 pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden,
not the liability to pay it, to the purchaser as part of the price of goods sold or services
rendered. (Emphasis supplied)

In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an indirect tax where
the tax burden can be shifted to the buyer:

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else". For example, the excise and ad valorem taxes that the oil companies pay to the
Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its
buyer, like the NPC, by adding them to the cash and/or "selling price."48

When Petron removes its petroleum products from its refinery in Limay, Bataan, 49 it pays the excise tax due
on the petroleum products thus removed. Petron, as manufacturer or producer, is the person liable for the
payment of the excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is
the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes. However, since an
excise tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by treating
it as part of the cost of the goods and tacking it on to the selling price.

As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of
Internal Revenue:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the
tax becomes part of the price which the purchaser must pay.50

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The
fact that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not make
the latter the taxpayers and the former the withholding agent.

Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform
petitioner's status into a statutory taxpayer.

In the refund of indirect taxes, the statutory taxpayer

is the proper party who can claim the refund.

Section 204(c) of the NIRC provides:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The
Commissioner may -

xxx

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall
be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return
filed showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis
and underscoring supplied)

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a
taxpayer as "any person subject to tax." In Commissioner of Internal Revenue v. Procter and Gamble Phil.
Mfg. Corp., the Court ruled that:
 A "person liable for tax" has been held to be a "person subject to tax" and properly considered a
"taxpayer." The terms "liable for tax" and "subject to tax" both connote a legal obligation or duty to pay
a tax.51

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer, is the "person subject to tax." In this case, Petron,
which paid the excise tax upon removal of the products from its Bataan refinery, is the "person liable for tax."
Petitioner is neither a "person liable for tax" nor "a person subject to tax." There is also no legal duty on the
part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the
aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the
excise tax is imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid to the BIR.

The General Terms & Conditions for Aviation Fuel Supply (Supply Contract) signed between petitioner (buyer)
and Petron (seller) provide:

11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of any taxes, duties
or charges, Buyer shall timely deliver to Seller a valid exemption certificate for such purchase.52
(Emphasis supplied)

This provision instructs petitioner to timely submit a valid exemption certificate to Petron in order that Petron
will not pass on the excise tax to petitioner. As correctly suggested by the CTA, petitioner should invoke its tax
exemption to Petron before buying the aviation jet fuel. Petron, however, remains the statutory taxpayer on
those excise taxes.

Revenue Regulations No. 3-2008 (RR 3-2008) provides that "subject to the subsequent filing of a claim for
excise tax credit/refund or product replenishment, all manufacturers of articles subject to excise tax under
Title VI of the NIRC of 1997, as amended, shall pay the excise tax that is otherwise due on every removal
thereof from the place of production that is intended for exportation or sale/delivery to international carriers or
to tax-exempt entities/agencies."53 The Department of Finance and the BIR recognize the tax exemption
granted to international carriers but they consistently adhere to the view that manufacturers of articles subject
to excise tax are the statutory taxpayers that are liable to pay the tax, thus, the proper party to claim any tax
refunds.

Wherefore, we DENY the petition. We AFFIRM the assailed Decisions dated 20 October 2005 and 5 January
2006 and the Resolutions dated 3 February 2006 and 18 April 2006 of the Court of Tax Appeals in C.T.A.
Case Nos. 6217 and 6308, respectively.

SO ORDERED.

G.R. No. 105208 May 29, 1995 COMMISSIONER OF INTERNAL REVENUE vs.THE PHILIPPINE
AMERICAN LIFE INSURANCE CO., THE COURT OF TAX APPEALS and THE COURT OF APPEALS,
respondents.

This is a petition for review on certiorari filed by petitioner, Commissioner of Internal Revenue, of the Decision
1
dated March 26, 1992 of the Court of Appeals in CA-GR No. 26598, entitled "Commissioner of Internal
Revenue v. The Philippine American Life Insurance Co. & the Court of Tax Appeals" affirming the decision of
respondent Court of Tax Appeals which ordered the refund to the Philippine American Life Insurance Co.
(Philamlife) of the amount of P3,643,015.00 representing excess corporate income taxes for the first and
second quarters of 1983. Private respondent filed a case before the Court of Tax Appeals (CTA) docketed as
CTA Case No. 4018 entitled "The Philippine American Life Insurance Company versus Commissioner of
Internal Revenue."

On September 16, 1991, the CTA rendered a decision in the above-entitled case, the dispositive portion of
which states:

WHEREFORE, petitioner's claim for refund for P3,246,141.00 and P396,874.00 representing
excess corporated income tax payments for the first and second quarters of 1983,
respectively, or a total of P3,643,015.00 is hereby GRANTED. Accordingly, respondent
Commissioner of Internal Revenue, is hereby ordered to refund to petitioner Philippine
American Life Insurance Company the total amount of P3,643,015.00.

With respect to petitioner's claim for refund of P215,742.00 representing 1983 withholding
taxes on rental income the same is hereby DENIED for failure to present proof of actual-
withholding and payment with the Bureau of Internal Revenue. No costs.

The facts, uncontroverted by petitioner, are:

On May 30, 1983, private respondent Philamlife paid to the Bureau of Internal Revenue (BIR) its first quarterly
corporate income tax for Calendar Year (CY) 1983 amounting to P3,246,141.00.

On August 29, 1983, it paid P396,874.00 for the Second Quarter of 1983.

For the Third Quarter of 1983, private respondent declared a net taxable income of P2,515,671.00 and a tax
due of P708,464.00. After crediting the amount of P3,899,525.00 it declared a refundable amount of
P3,158,061.00.

For its Fourth and final quarter ending December 31, private respondent suffered a loss and thereby had no
income tax liability. In the return for that quarter, it declared a refund of P3,991,841.00 representing the first
and second quarterly payments: P215,742.00 as withholding taxes on rental income for 1983 and
P133,084.00 representing 1982 income tax refund applied as 1983 tax credit.

In 1984, private respondent again suffered a loss and declared no income tax liability. However, it applied as
tax credit for 1984, the amount of P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and
the amount of P250,867.00 as withholding tax on rental income for 1984.

On September 26, 1984, private respondent filed a claim for its 1982 income tax refund of P133,084.00. On
November 22, 1984, it filed a petition for review with the Court of Tax Appeals (C.T.A. Case No. 3868) with
respect to its 1982 claim for refund of P133,084.00.

On December 16, 1985, it filed another claim for refund with petitioners appellate division in the aggregate
amount of P4,109,624.00, computed as follows:

1982 income tax refundable

applied as tax credit P 133,084
1983 income tax refundable
applied as tax credit P 3,858,757
1984 tax credit on rental P 250,867

T o t a l P 4,242,708

Less: 1983 claim for

refund already
 filed with the
BIR and the
CTA
(Case No. 3868) P 133,084
——————
Net Amount Refundable — P 4,109,624
===========

On January 2, 1986, private respondent filed a petition for review with the CTA, docketed as CTA Case No.
4018 regarding its 1983 and 1984 claims for refund in the above-stated amount.

Later, it amended its petition by limiting its claim for refund to only P3,858,757.00 computed as follows:

Calendar Year
Ending 12-31-83
Date Paid O.R. No. Amount Paid
First Quarter 5/30/83 B2269337 P3,246,141.00
Second Quarter 8/29/83 B1938178 396,874.00
1983 Withholding Tax on rental income 215,742.00
1983 Income Tax Refundable P3,858,757.00

The issue in this case is the reckoning date of the two-year prescriptive period provided in Section 230 of the
National Internal Revenue Code (formerly Section 292) which states that:

Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained

in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment: Provided, however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.

Forfeiture of refund. — A refund check or warrant issued in accordance with the pertinent
provisions of this Code which shall remain unclaimed or uncashed within five (5) years from
the date the said warrant or check was mailed or delivered shall be forfeited in favor of the
government and the amount thereof shall revert to the General Fund.

Petitioner poses the following question: In a case such as this, where a corporate taxpayer remits/pays to the
BIR tax withheld on income for the first quarter but whose business operations actually resulted in a loss for
that year, as reflected in the Corporate Final Adjustment Return subsequently filed with the BIR, should not
the running of the prescriptive period commence from the remittance/payment at the end of the first quarter of
the tax withheld instead of from the filing of the Final Adjustment Return?
In support of its contention, petitioner cites the case of Pacific Procon Ltd. v. Court of Tax Appeals, et a1. 2
wherein the CTA denied therein petitioner's claim for refund after it construed Section 292 (now Section 230)
of the NIRC to be mandatory and "not subject to any qualification," hence it applies regardless of the
conditions under which payment may have been made. The Tax Court ruled:

Under Section 292 (formerly Section 306) of the National Internal Revenue Code, a claim for
refund of a tax alleged to have been erroneously or illegally collected shall be filed with the
Commissioner of Internal Revenue within two years from the date of payment of the tax, and
that no suit or proceeding for refund shall be begun after the expiration of the said two-year
period (Citation omitted). As a matter of fact, the said section further provides that: . . . In any
case, no such suit or proceeding shall be begun after the expiration of two years from the date
of payment of the tax or the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment.

Petitioner states that the phrase "regardless of supervening cause that may arise after payment" is an
amendatory phrase under the said Section 292 which did not appear in Section 306 of the old Tax Code
before it was amended by Presidential Decree No. 69, which became effective January 1, 1973. Petitioner
argues that the incorporation of the said phrase did away with any other interpretation and, therefore, the
reckoning period of prescription under Section 292 (now section 230) is from the date of payment of tax
regardless of financial loss (the "supervening cause"). Thus, the claim for refund of the amounts of
P3,246,141.00 and P396,874.00 paid on May 30, 1983 and August 29, 1983, respectively, has prescribed.

We find petitioner's contentions to be unmeritorious.

It is true that in the Pacific Procon case, we held that the right to bring an action for refund had prescribed, the
tax having been found to have been paid at the end of the first quarter when the withholding tax
corresponding thereto was remitted to the Bureau of Internal Revenue, not at the time of filing of the Final
Adjustment Return in April of the following year.

However, this case was overturned by the Court in Commissioner of Internal Revenue v. TMX Sales
Incorporated and the Court of Tax Appeals, 3 wherein we said:

. . . in resolving the instant case, it is necessary that we consider not only Section 292 (now
Section 230) of the National Internal Revenue Code but also the other provisions of the Tax
Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now
Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment
and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of
the Tax Code should be harmonized with each other.

Section 292 (now Section 230) stipulates that the two-year prescriptive period to claim refunds should be
counted from date of payment of the tax sought to be refunded. When applied to tax payers filing income tax
returns on a quarterly basis, the date of payment mentioned in Section 292 (now Section 230) must be
deemed to be qualified by Sections 68 and 69 of the present Tax Code which respectively provide:

Sec. 68 Declaration of Quarterly Income Tax. — Every corporation shall file in duplicate a
quarterly summary declaration of its gross income and deductions on a cumulative basis for
the preceding quarter or quarters upon which the income tax, as provided in Title II of this
Code shall be levied, collected and paid. The Tax so computed shall be decreased by the
amount of tax previously paid or assessed during the preceding quarters and shall be paid not
later than sixty (60) days from the close of each of the first three (3) quarters of the taxable
year.

Sec. 69. Final Adjustment Return. — Every corporation liable to tax under Section 24 shall file
a final adjustment return covering the total net income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable net income of that year the corporation shall either:
 (a) Pay the excess still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes
paid, the refundable amount shown on its final adjustment return may be credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable
year.

It may be observed that although quarterly taxes due are required to be paid within sixty days from the close
of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows
that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely
partial taxes due from a corporation. Neither amount can serve as the final figure to quantity what is due the
government nor what should be refunded to the corporation.

This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides that
the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final
adjustment return and not on its quarterly returns.

Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not have been able to
ascertain on that date, that the said amount was refundable. The same applies with cogency to the payment
of P396,874.00 on August 29, 1983.

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present
case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record shows that
the claim for refund was filed on December 10, 1985 and the petition for review was brought before the CTA
on January 2, 1986. Both dates are within the two-year reglementary period. Private respondent being a
corporation, Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year
prescriptive period for refunds. As we have earlier said in the TMX Sales case, Sections 68, 69, and 70 on
Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it.

Moreover, even if the two-year period had already lapsed, the same is not jurisdictional 4 and may be
suspended for reasons of equity and other special circumstances. 5

Petitioner also raises the issue of whether or not private respondent has satisfactorily shown by competent
evidence that it is entitled to the amount sought to be refunded. This being a question of fact, this Court is
bound by the findings of the Court of Tax Appeals which has clearly established the propriety of private
respondent's claim for refund for excess 1983 quarterly income tax payments. On the other hand, petitioner
Commissioner of Internal Revenue has failed to present any documentary or testimonial evidence in support
of his case. Instead, he opted to postpone the hearings several times and later chose to submit the case for
decision on the basis of the records and pleadings of instant case.

To repeat, we find that private respondent has presented sufficient evidence in support of its claim for refund,
whereas petitioner has failed to controvert the same adequately.

WHEREFORE, the instant petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED in toto. No costs.

SO ORDERED.
G.R. No. L-66160 May 21, 1990 COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents.

This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in
CTA Case No. 2989 reversing the Commissioner of Internal Revenue.

In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue
assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total
sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on
January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), received by petitioner on January 13,
1975, private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was served
on private respondent's counsel, Clemente Celso, on November 25, 1976.

In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit "D-
1") private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration
of the summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of
Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and
docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in the said collection
case was issued to private respondent on December 28, 1978.

On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's
assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA
Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be rendered holding that it is
not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee
Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979 (Rollo, pp. 50-53).

Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent —

WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from,

assessing against and demanding from petitioner the payment of deficiency income tax,
inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76
and P583,155.22 for the years 1971 and 1972, respectively, is reversed.

Hence, the instant petition.

The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January 28,
1985, resolved to give due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145).
In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on the other hand, filed
their brief on June 6, 1985 (Rollo, p. 156).

The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals has
jurisdiction over this case and (b) on the merits, whether or not Union Shipping Corporation acting as a mere
"husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of
the latter.
The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an
assessment because it is the most drastic action of all media of enforcing the collection of tax, and is
tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner
contends that the warrant of distraint and levy was issued after respondent corporation filed a request for
reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed
assessments (Brief for petitioner, pp. 9 and 12).

Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from
receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation
sought redress from the Tax Court, petitioner's decision has long become final and executory.

On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to
the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment.

Specifically, this Court ruled:

. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final determination on the disputed
assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the
basis of this statement indubitably showing that the Commissioner's communicated action is
his final decision on the contested assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax court accrues. This rule of
conduct would also obviate all desire and opportunity on the part of the taxpayer to continually
delay the finality of the assessment — and, consequently, the collection of the amount
demanded as taxes — by repeated requests for recomputation and reconsideration. On the
part of the Commissioner, this would encourage his office to conduct a careful and thorough
study of every questioned assessment and render a correct and definite decision thereon in
the first instance. This would also deter the Commissioner from unfairly making the taxpayer
grope in the dark and speculate as to which action constitutes the decision appealable to the
tax court. Of greater import, this rule of conduct would meet a pressing need for fair play,
regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57
SCRA 523, 528, [1974]).

There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration
but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the
Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he
denies private respondent's motion for reconsideration and that his action constitutes his final determination
on the disputed assessment, private respondent without needless difficulty would have been able to
determine when his right to appeal accrues and the resulting confusion would have been avoided.

Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in
the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that contained in the letter
of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court
of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA
769 [1984] emphasis supplied). It was likewise stressed that the procedure enunciated is demanded by the
pressing need for fair play, regularity and orderliness in administrative action.

Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action
on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when
private respondent received the summons on the civil suit for collection of deficiency income on December 28,
1978 that the period to appeal commenced to run.
The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the
latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private
respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well
within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.

On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the
husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by satisfactory
uncontradicted testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C.
Cabalquinto, President and General Manager, of petitioner that it is actually and legally the
husbanding agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor
transacted any shipping business, for and in representation, of Yee Fong Hong, Ltd. or its
vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong
Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo or freight in the
Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38,
ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd.
(pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control,
actual or constructive, over the funds representing payment by Philippine shippers for cargo
loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong
Hong, Ltd. any sum of money representing freight incomes of Yee Fong Hong, Ltd. (p. 21,
ibid.; p. 48, ibid); and (5) that the freight payments made for cargo loaded in the Philippines for
foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd.
upon arrival of the goods in the foreign ports. (Rollo, pp. 58-59).

On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's counsel,
opined that respondent corporation being merely a husbanding agent is not liable for the payment of the
income taxes due from the foreign ship owners loading cargoes in the Philippines (Rollo, p. 63; Exhibit "I",
Rollo, pp. 64-66).

Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code
since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd.,
a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the
petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be
physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong
Hong, Ltd." (Rollo, p. 67).

Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court (Industrial
Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al.
(136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of the decisions of the Court
of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not
to be disturbed unless clearly shown to be unsupported by substantial evidence (Commissioner of Internal
Revenue v. Manila Machinery & Supply Company, 135 SCRA 8 [1985]).

A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax Appeals.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court
of Tax Appeals is hereby AFFIRMED.

SO ORDERED.