G.R. No. 76778 June 6, 1990 FRANCISCO I. CHAVEZ, petitioner, vs. JAIME B.

ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las Pias, respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor. The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows (78 O.G. 5861): EXECUTIVE ORDER No. 73 PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED WHEREAS, the collection of real property taxes is still based on the 1978 revision of property values; WHEREAS, the latest general revision of real property assessments completed in 1984 has rendered the 1978 revised values obsolete; WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue; WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do hereby order: SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations to implement this Executive Order. SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed. SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof inconsistent with this Executive Order are hereby repealed or modified accordingly. SEC. 5. This Executive Order shall take effect immediately. On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of Executive Order No. 73 until June 30, 1987. The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He alleges the following: that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property brought about by the revision of real property values and assessments would necessarily lead to a proportionate increase in real property taxes; that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that the

increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession. The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; that the General Revision of Assessments does not meet the requirements of due process as regards publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an administrative regulation of the Department of Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and unconstitutional as it imposes successive increase of 150% over the 1986 tax. The Office of the Solicitor General argues against the petition. The petition is not impressed with merit. Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar as the revision of the assessments and the effectivity thereof are concerned. It should be emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that: SECTION 1. Real property values as of December 31, 1984 as determined by the local assessors during the latest general revision of assessments shall take effect beginning January 1, 1987 for purposes of real property tax collection. (emphasis supplied) The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree No. 464 which provides, as follows: SEC. 21. General Revision of Assessments. Beginning with the assessor shall make a calendar year 1978, the provincial or city general revision of real property assessments in the province or city to take effect January 1, 1979, and once every five years thereafter: Provided; however, That if property values in a province or city, or in any municipality, have greatly changed since the last general revision, the provincial or city assesor may, with the approval of the Secretary of Finance or upon bis direction, undertake a general revision of assessments in the province or city, or in any municipality before the fifth year from the effectivity of the last general revision. Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the procedure by which a tax assessment may be questioned: SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal. xxx xxx xxx SEC. 34. Action by the Local Board of assessment Appeals. The Local Board of Assessment Appeals shall decide the appeal within one hundred and twenty days from the date of receipt of such appeal. The decision rendered must be based on substantial evidence presented at the

hearing or at least contained in the record and disclosed to the parties or such relevant evidence as a reasonable mind might accept as adequate to support the conclusion. In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoenaduces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the truth without-necessarily adhering to technical rules applicable in judicial proceedings. The Secretary of the Board shall furnish the property owner and the Provincial or City Assessor with a copy each of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the property owner of such fact using the form prescribed for the purpose. The owner or administrator of the property or the assessor who is not satisfied with the decision of the Board of Assessment Appeals, may, within thirty days after receipt of the decision of the local Board, appeal to the Central Board of Assessment Appeals by filing his appeal under oath with the Secretary of the proper provincial or city Board of Assessment Appeals using the prescribed form stating therein the grounds and the reasons for the appeal, and attaching thereto any evidence pertinent to the case. A copy of the appeal should be also furnished the Central Board of Assessment Appeals, through its Chairman, by the appellant. Within ten (10) days from receipt of the appeal, the Secretary of the Board of Assessment Appeals concerned shall forward the same and all papers related thereto, to the Central Board of Assessment Appeals through the Chairman thereof. xxx xxx xxx SEC. 36. Scope of Powers and Functions. The Central Board of Assessment Appeals shall have jurisdiction over appealed assessment cases decided by the Local Board of Assessment Appeals. The said Board shall decide cases brought on appeal within twelve (12) months from the date of receipt, which decision shall become final and executory after the lapse of fifteen (15) days from the date of receipt of a copy of the decision by the appellant. In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals, or upon express authority, the Hearing Commissioner, shall have the power to summon witnesses, administer oaths, take depositions, and issue subpoenas and subpoenas duces tecum. The Central Board of assessment Appeals shall adopt and promulgate rules of procedure relative to the conduct of its business. Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner who doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with the decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals shall become final and executory after the lapse of fifteen days from the date of receipt of the decision. Chavez argues further that the unreasonable increase in real property taxes brought about by Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654). The reliance on these two cases is certainly misplaced because the due process requirement called for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor increase taxes. Indeed, the government recognized the financial burden to the taxpayers that will result from an increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the

increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows: SEC. 5. The increase in real property taxes resulting from the revised real property assessments as provided for under Section 21 of Presidential Decree No. 464, as amended by Presidential Decree No. 1621, shall be collected beginning January 1, 1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the Ministry of Local Government to establish the new systems of tax collection and assessment provided herein and in order to alleviate the condition of the people, including real property owners, as a result of temporary economic difficulties. (emphasis supplied) The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, also finds ample justification in its "whereas' clauses, as follows: WHEREAS, the collection of real property taxes based on the 1984 real property values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus depriving the local government units of an additional source of revenue; WHEREAS, there is an urgent need for local governments to augment their financial resources to meet the rising cost of rendering effective services to the people; (emphasis supplied) xxx xxx xxx The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to be resolved in the present petition. As stated at the outset, the issue here is limited to the constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but an ancillary and supplemental one which, in the nature of things, unless otherwise provided for by legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid down as a general rule that an intervention is limited to the field of litigation open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279). We agree with the observation of the Office of the Solicitor General that without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED. SO ORDERED.

G.R. No. L-17725

February 28, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. MAMBULAO LUMBER COMPANY, ET AL., defendants-appellants. From the decision of the Court of First Instance of Manila (in Civil Case No. 34100) ordering it to pay to plaintiff Republic of the Philippines the sum of P4,802.37 with 6% interest thereon from the date of the filing of the complaint until fully paid, plus costs, defendant Mambulao Lumber Company interposed the present appeal.1 The facts of the case are briefly stated in the decision of the trial court, to wit: . The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause of action, for forest charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability of P587.37, which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for Mambulao Lumber Company, jointly and severally in character, on July 29, 1953, in favor of herein plaintiff; (b) under the second cause of action, both defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint and several liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate to P4,802.37. If the liability of defendants in favor of plaintiff in the amount already mentioned is admitted, then what is the defense interposed by the defendants? The defense presented by the defendants is quite unusual in more ways than one. It appears from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the director of forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of watersheds, denuded areas ... and other public forest lands, which upon investigation, are found needing reforestation or afforestation .... The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. In line with this thought, defendant Mambulao Lumber Company wrote the director of forestry, on February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant requested "that our account with your bureau be credited with all the reforestation charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...". This letter of defendant Mambulao Lumber Company was answered by the director of forestry on March 12, 1957, marked Exh. 2, in which the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no discretion to extend the time for paying the reforestation charges and also explained why not all denuded areas are being reforested. The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it as forest charges.
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We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides: SECTION 1. There shall be collected, in addition to the regular forest charges provided for under Section two hundred and sixty-four of Commonwealth Act Numbered Four Hundred Sixty-six, known as the National

Internal Revenue Code, the amount of fifty centavos on each cubic meter of timber for the first and second groups and forty centavos for the third and fourth groups cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources (commerce), for reforestation and afforestation of watersheds, denuded areas and cogon and open lands within forest reserves, communal forest, national parks, timber lands, sand dunes, and other public forest lands, which upon investigation, are found needing reforestation or afforestation, or needing to be under forest cover for the growing of economic trees for timber, tanning, oils, gums, and other minor forest products or medicinal plants, or for watersheds protection, or for prevention of erosion and floods and preparation of necessary plans and estimate of costs and for reconnaisance survey of public forest lands and for such other expenses as may be deemed necessary for the proper carrying out of the purposes of this Act. All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the sale of barks, medical plants and other products derived from plantations as herein provided shall constitute a fund to be known as Reforestation Fund, to be expended exclusively in carrying out the purposes provided for under this Act. All provincial or city treasurers and their deputies shall act as agents of the Director of Forestry for the collection of the revenues or incomes derived from the provisions of this Act. (Emphasis supplied.) Under this provision, it seems quite clear that the amount collected as reforestation charges from a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon investigation, are found to be needing reforestation or afforestation. Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee's area may or may not be reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code2 is applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this point, the trial court correctly observed: . Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors and debtors of each other. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government, they are in the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to mutual debts. .. And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be the subject of set-off or compensation. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S. 73-74. ) .

The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion. (47 Am. Jur. 766-767.) WHEREFORE, the judgment of the trial court appealed from is hereby affirmed in all respects, with costs against the defendant-appellant. So ordered.

G.R. No. L-67649 June 28, 1988 ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents. The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name. The antecedent facts are as follows: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering: (a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled. (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal) The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law: I RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SETOFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. II RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00. III RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law. A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..." We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied) We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx ... [D]ue process of law to be followed in tax proceedings must be established by proof and thegeneral rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied) There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... . We quote the following testimony of the petitioner on cross-examination, to wit: Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this letter? A. I just signed it because I was not able to read the same. It was just sent by mail carrier. Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read the contents of it? A. Yes, sir, as I was in a hurry. Q. After you received that original where did you place it? A. I placed it in the usual place where I place my mails. Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: ... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale." The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property.

Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369). In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555): Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their own neglect. We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny the petition. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed. SO ORDERED.

G.R. No. L-18994

June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents. Office of the Solicitor General and Atty. G. H. Mantolino for petitioner. Benedicto and Martinez for respondents. LABRADOR, J.: This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows: Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960) The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960) The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.
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Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and mayissue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case. The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs.

G.R. No. 159610

June 12, 2008

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CENTRAL LUZON DRUG CORPORATION, respondent. This petition for review on certiorari1 assails the 13 August 2003 Decision2 of the Court of Appeals in CA-G.R. SP No. 70480. The Court of Appeals dismissed the appeal filed by the Commissioner of Internal Revenue (petitioner) questioning the 15 April 2002 Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 6054 ordering petitioner to issue, in favor of Central Luzon Drug Corporation (respondent), a tax credit certificate in the amount of P2,376,805.63, arising from the alleged erroneous interpretation of the term "tax credit" used in Section 4(a) of Republic Act No. (RA) 7432.4 The Facts Respondent is a domestic corporation engaged in the retail of medicines and other pharmaceutical products.5 In 1997, it operated eight drugstores under the business name and style "Mercury Drug."6 Pursuant to the provisions of RA 7432 and Revenue Regulations No. (RR) 2-947 issued by the Bureau of Internal Revenue (BIR), respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines covering the calendar year 1997. The sales discount granted to senior citizens totaled P2,798,508.00. On 15 April 1998, respondent filed its 1997 Corporate Annual Income Tax Return reflecting a nil income tax liability due to net loss incurred from business operations of P2,405,140.00.8 Respondent filed its 1997 Income Tax Return under protest.9 On 19 March 1999, respondent filed with the petitioner a claim for refund or credit of overpaid income tax for the taxable year 1997 in the amount of P2,660,829.00.10 Respondent alleged that the overpaid tax was the result of the wrongful implementation of RA 7432. Respondent treated the 20% sales discount as a deduction from gross sales in compliance with RR 2-94 instead of treating it as a tax credit as provided under Section 4(a) of RA 7432. On 6 April 2000, respondent filed a Petition for Review with the CTA in order to toll the running of the two-year statutory period within which to file a judicial claim. Respondent reasoned that RR 2-94, which is a mere implementing administrative regulation, cannot modify, alter or amend the clear mandate of RA 7432. Consequently, Section 2(i) of RR 2-94 is without force and effect for being inconsistent with the law it seeks to implement.11 In his Answer, petitioner stated that the construction given to a statute by a specialized administrative agency like the BIR is entitled to great respect and should be accorded great weight. When RA 7432 allowed senior citizens' discounts to be claimed as tax credit, it was silent as to the mechanics of availing the same. For clarification, the BIR issued RR 2-94 and defined the term "tax credit" as a deduction from the establishment's gross income and not from its tax liability in order to avoid an absurdity that is not intended by the law. 12 The Ruling of the Court of Tax Appeals On 15 April 2002, the CTA rendered a Decision ordering petitioner to issue a tax credit certificate in the amount ofP2,376,805.63 in favor of respondent. The CTA stated that in a number of analogous cases, it has consistently ruled that the 20% senior citizens' discount should be treated as tax credit instead of a mere deduction from gross income.13 In quoting its previous decisions, the CTA ruled that RR 2-94 engraved a new meaning to the phrase "tax credit" as deductible from gross income which is a deviation from the plain intendment of the law. An administrative regulation must not contravene but should conform to the standards that the law prescribes.14

The CTA also ruled that respondent has properly substantiated its claim for tax credit by documentary evidence. However, based on the examination conducted by the commissioned independent certified public accountant (CPA), there were some material discrepancies due to missing cash slips, lack of senior citizen's ID number, failure to include the cash slips in the summary report and vice versa. Therefore, between the Summary Report presented by respondent and the audited amount presented by the independent CPA, the CTA deemed it proper to consider the lesser of two amounts. The re-computation of the overpaid income tax15 for the year 1997 is as follows: Sales, Net Add: 20% Sales Discount to Senior Citizens Sales, Gross Less: Cost of Sales Merchandise inventory, beg. Purchases Merchandise inventory, end Gross Profit Add: Miscellaneous income Total Income Less: Operating expenses Net Income Less: Income subjected to final tax (Interest Income16) Net Taxable Income Income Tax Due (35%) Less: Tax Credit (Cost of 20% discount as adjusted17) Income Tax Payable Income Tax Actually Paid Income Tax Refundable Aggrieved by the CTA's decision, petitioner elevated the case before the Court of Appeals. The Ruling of the Appellate Court On 13 August 2003, the Court of Appeals affirmed the CTA's decision in toto. The Court of Appeals disagreed with petitioner's contention that the CTA's decision applied a literal interpretation of the law. It reasoned that under the verba legis rule, if the statute is clear, plain, and free from ambiguity, it must be given its literal meaning and applied without interpretation. This principle rests on the presumption that the words used by the legislature in a statute correctly express its intent and preclude the court from construing it differently.18 The Court of Appeals distinguished "tax credit" as an amount subtracted from a taxpayer's total tax liability to arrive at the tax due while a "tax deduction" reduces the taxpayer's taxable income upon which the tax liability is computed. "A credit differs from deduction in that the former is subtracted from tax while the latter is subtracted from income before the tax is computed."19 P 20,905,489.00 168,762,950.00 -27,281,439.00 162,387,000.00 P 17,154,115.00 402,124.00 P 17,556,239.00 16,913,699.00 P 642,540.00 249,172.00 P 393,368.00 P 137,679.00 2,514,484.63 (P 2,376,805.63) 0.00 (P 2,376,805.63) P176,742,607.00 2,798,508.00 P179,541,115.00

The Court of Appeals found no legal basis to support petitioner's opinion that actual payment by the taxpayer or actual receipt by the government of the tax sought to be credited or refunded is a condition sine qua non for the availment of tax credit as enunciated in Section 22920 of the Tax Code. The Court of Appeals stressed that Section 229 of the Tax Code pertains to illegally collected or erroneously paid taxes while RA 7432 is a special law which uses the method of tax credit in the context of just compensation. Further, RA 7432 does not require prior tax payment as a condition for claiming the cost of the sales discount as tax credit. Hence, this petition. The Issues Petitioner raises two issues21 in this Petition: 1. Whether the appellate court erred in holding that respondent may claim the 20% senior citizens' sales discount as a tax credit deductible from future income tax liabilities instead of a mere deduction from gross income or gross sales; and 2. Whether the appellate court erred in holding that respondent is entitled to a refund. The Ruling of the Court The petition lacks merit. The issues presented are not novel. In two similar cases involving the same parties where respondent lodged its claim for tax credit on the senior citizens' discount granted in 199522 and 1996,23 this Court has squarely ruled that the 20% senior citizens' discount required by RA 7432 may be claimed as a tax credit and not merely a tax deduction from gross sales or gross income. Under RA 7432, Congress granted the tax credit benefit to all covered establishments without conditions. The net loss incurred in a taxable year does not preclude the grant of tax credit because by its nature, the tax credit may still be deducted from a future, not a present, tax liability. However, the senior citizens' discount granted as a tax credit cannot be refunded. RA 7432 expressly allows private establishments to claim the amount of discounts they grant to senior citizens as tax credit. Section 4(a) of RA 7432 states: SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following: a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit; (Emphasis supplied) However, RR 2-94 interpreted the tax credit provision of RA 7432 in this wise: Sec. 2. DEFINITIONS. - For purposes of these regulations: xxx i. Tax Credit - refers to the amount representing 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be

deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes. (Emphasis supplied). xxx Sec. 4. Recording/Bookkeeping Requirement for Private Establishments xxx The amount of 20% discount shall be deducted from the gross income for income tax purposesand from gross sales of the business enterprise concerned for purposes of the VAT and other percentage taxes. (Emphasis supplied) Tax credit is defined as a peso-for-peso reduction from a taxpayer's tax liability. It is a direct subtraction from the tax payable to the government. On the other hand, RR 2-94 treated the amount of senior citizens' discount as a tax deduction which is only a subtraction from gross income resulting to a lower taxable income. RR 2-94 treats the senior citizens' discount in the same manner as the allowable deductions provided in Section 34, Chapter VII of the National Internal Revenue Code. RR 2-94 affords merely a fractional reduction in the taxes payable to the government depending on the applicable tax rate. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,24 the Court ruled that petitioner's definition in RR 2-94 of a tax credit is clearly erroneous. To deny the tax credit, despite the plain mandate of the law, is indefensible. In Commissioner of Internal Revenue v. Central Luzon Drug Corporation, the Court declared,"When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount- when claimed shall be treated as a reduction from any tax liability, plain and simple." The Court further stated that the law cannot be amended by a mere regulation because "administrative agencies in issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft additional requirements not contemplated by the legislature." Hence, there being a dichotomy in the law and the revenue regulation, the definition provided in Section 2(i) of RR 2-94 cannot be given effect. The tax credit may still be deducted from a future, not a present, tax liability. In the petition filed before this Court, petitioner alleged that respondent incurred a net loss from its business operations in 1997; hence, it did not pay any income tax. Since no tax payment was made, it follows that no tax credit can also be claimed because tax credits are usually applied against a tax liability.25 In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,26 the Court stressed that prior payment of tax liability is not a pre-condition before a taxable entity can avail of the tax credit. The Court declared, "Where there is no tax liability or where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next taxable year."27 It is irrefutable that under RA 7432, Congress has granted the tax credit benefit to all covered establishments without conditions. Therefore, neither a tax liability nor a prior tax payment is required for the existence or grant of a tax credit.28 The applicable law on this point is clear and without any qualifications.29 Hence, respondent is entitled to claim the amount of P2,376,805.63 as tax credit despite incurring net loss from business operations for the taxable year 1997. The senior citizens' discount may be claimed as a tax credit and not a refund. Section 4(a) of RA 7432 expressly provides that private establishments may claim the cost as a tax credit. A tax credit can only be utilized as payment for future internal revenue tax liabilities of the taxpayer while a tax refund, issued as a check or a warrant, can be encashed. A tax refund can be availed of immediately while a tax credit can only be utilized if the taxpayer has existing or future tax liabilities.

If the words of the law are clear, plain, and free of ambiguity, it must be given its literal meaning and applied without any interpretation. Hence, the senior citizens' discount may be claimed as a tax credit and not as a refund.30 RA 9257 now specifically provides that all covered establishments may claim the senior citizens' discount as tax deduction. On 26 February 2004, RA 9257, otherwise known as the "Expanded Senior Citizens Act of 2003," was signed into law and became effective on 21 March 2004.31 RA 9257 has amended RA 7432. Section 4(a) of RA 9257 reads: "Sec. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following: (a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens; xxx The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided,further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended." (Emphasis supplied) Contrary to the provision in RA 7432 where the senior citizens' discount granted by all covered establishments can be claimed as tax credit, RA 9257 now specifically provides that this discount should be treated as tax deduction. With the effectivity of RA 9257 on 21 March 2004, there is now a new tax treatment for senior citizens' discount granted by all covered establishments. This discount should be considered as a deductible expense from gross income and no longer as tax credit.32 The present case, however, covers the taxable year 1997 and is thus governed by the old law, RA 7432. WHEREFORE, we DENY the petition. We AFFIRM the assailed Decision of the Court of Appeals dated 13 August 2003 in CA-G.R. SP No. 70480. No pronouncement as to costs. SO ORDERED.

G.R. No. 181371

March 2, 2011

CENTRAL LUZON DRUG CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. Factual Antecedents Petitioner is a duly registered corporation engaged in the retail of medicines and other pharmaceutical products.2It operates 22 drugstores located in Central Luzon under the business name and style of "Mercury Drug."3 On April 13, 2005, petitioner filed with respondent Commissioner of Internal Revenue (CIR) a request for the issuance of a tax credit certificate in the amount of P32,170,409, representing the 20% sales discounts allegedly granted to senior citizens for the year 2002.4 On April 14, 2005, petitioner filed with the Court of Tax Appeals (CTA) a Petition for Review5 which was docketed as CTA Case No. 7206 and raffled to the First Division of the CTA. On July 23, 2007, the First Division of the CTA rendered a Decision6 denying petitioners claim for insufficiency of evidence. The pertinent portion of the Decision reads: Under petitioners Annual ITR and audited financial statements, it had gross sales amounting to P674,877,125.00. However, the Court cannot ascertain from the documents submitted by petitioner such as Schedule of Sales (net), Schedule of Prepaid Tax-OSCA, and Special Record Books for the year 2002, whether its gross sales ofP674,877,125.00 included its gross sales to senior citizens of P26,681,354.59. The Schedule of Prepaid TaxOSCA, taken from the Special Record Books, showed its daily sales to qualified senior citizens and the corresponding twenty percent (20%) discount granted by each of the twenty-two branches of petitioner. Meanwhile, the Schedule of Sales showed only its total monthly sales without indicating which portion therein were sales to senior citizens. Petitioner should have presented its daily net sales as reflected in the general ledger, cash receipt books, sales book or any other document whereby the Court can trace or verify that petitioners gross sales of P674,877,125.00 for the year 2002 included its gross sales to senior citizens for the same year. In sum, though the twenty percent (20%) sales discounts granted to senior citizens on their purchase of medicines should be treated as a tax credit and petitioner was able to substantiate the same, the instant petition will not prosper for petitioners failure to show that its gross sales to senior citizens were declared as part of its taxable income. IN VIEW OF THE FOREGOING, the subject Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED.7 Aggrieved, petitioner moved for reconsideration8 but the First Division of the CTA denied the same in a Resolution9 dated September 12, 2007. On October 3, 2007, petitioner filed a Motion for Extension of Time to File Petition for Review on Certiorari10 with the CTA En Banc. On October 19, 2007, petitioner filed with the CTA En Banc a Petition for Review,11 docketed as CTA En BancCase No. 316. On December 4, 2007, the CTA En Banc resolved to deny due course, and accordingly, dismissed the Petition for Review for failure of petitioner to attach a Verification, a Certification of Non-Forum Shopping, as well as a Special Power of Attorney and a Secretarys Certificate, authorizing petitioners counsel to file the Petition for Review.12

Petitioner sought reconsideration,13 arguing that the Petition for Review was sufficient in form because the Verification and Certification of Non-Forum Shopping was already attached to the Motion for Extension of Time to File Petition for Review on Certiorari. Petitioner submitted a Secretarys Certificate to show that Mr. Jacinto J. Concepcion was authorized by petitioner to sign the Verification attached to the Motion for Extension of Time to File Petition for Review on Certiorari. On January 17, 2008, the CTA En Banc denied reconsideration. It said: The Court resolves to deny the Motion for Reconsideration. The Verification and Certification of Non-Forum Shopping dated October 2, 2007 attached to petitioners Motion for Extension of Time cannot replace the Verification and Certification of Non-Forum Shopping required to be attached to the Petition for Review as this would contravene the very purpose for which it is required. It is well to note that in the Verification and Certification of Non-Forum Shopping dated October 2, 2007, the affiant declared under oath, among others, that he has read the contents of the Petition and that they are true and correct of his own knowledge and belief; and that petitioner has not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency and that there is no such action or proceeding pending in the Supreme Court, the Court of Appeals, or any other tribunal or agency. For this reason, the same cannot be used in the Petition for Review dated October 18, 2007 as the affiant could not have read the Petition as it was not yet prepared at the time he executed the Verification and Certification of Non-Forum Shopping on October 2, 2007. It may not be amiss to stress that verification is required to secure an assurance that the allegations of the petition have been made in good faith, or are true and correct and not merely speculative. Moreover, the subsequent filing of a Secretarys Certificate serves no purpose as the instant Petition is not verified and does not contain a Certification of Non-Forum Shopping required by Section 2 of Rule 6 of the Revised Rules of the Court of Tax Appeals. As the Supreme Court has said: "[o]bedience to the requirements of procedural rules is needed if we are to expect fair results therefrom, and utter disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction. Time and again, the Supreme Court has strictly enforced the requirement of verification and certification of non-forum shopping under the Rules of Court." As a final note, the Court finds it necessary to reiterate that under prevailing procedural rules and jurisprudence, non-compliance with these requirements is a sufficient ground for the dismissal of the petition. WHEREFORE, the Motion for Reconsideration is hereby DENIED for lack of merit. SO ORDERED.14 This prompted petitioner to file before us a Petition for Review on Certiorari15 under Rule 45 of the Rules of Court to set aside the Resolutions16 dated December 4, 2007 and January 17, 2008 of the CTA En Banc. In response, comments17 were filed by the respondent and the Office of the Solicitor General (OSG), as counsel for respondent. However, instead of filing a reply to the comments, petitioner filed a Motion to Withdraw, praying that the case be dismissed without prejudice. According to petitioner, the amount of tax credit being claimed for 2002 would just be included in its future claims for issuance of a tax credit certificate since the said amount was carried over to its 2003 Income Tax Return (ITR).18 The OSG does not oppose the Motion to Withdraw. However, citing Section 2,19 Rule 17 of the Rules of Court, the OSG argues that the withdrawal of the instant case is no longer a matter of right on the part of petitioner, but is discretionary upon the Court.20 The OSG also calls attention to the failure of Mr. Jacinto J. Conception, the person who signed the Verification and Certification of Non-forum Shopping, to exhibit before the notary public a valid Identification Card.21 The OSG insists that such failure renders the instant Petition defective.22 Thus, it should be dismissed with prejudice.23

Our Ruling We grant the Motion to Withdraw. Section 1, Rule 13 of the Internal Rules of the Supreme Court24 provides that "[a] case shall be deemed submitted for decision or resolution upon the filing of the last pleading, brief, or memorandum that the Court or its Rules require." In the instant case, records show that on August 19, 2009,25 we resolved to require petitioner to file a reply. Instead of complying, petitioner opted to file a motion to withdraw. Clearly, by requiring petitioner to file its Reply, the Court has not yet deemed the case submitted for decision or resolution. Thus, we resolve to grant petitioners Motion to Withdraw. However, we agree with the OSG that the dismissal of the instant case should be with prejudice. By withdrawing the appeal, petitioner is deemed to have accepted the decision of the CTA. And since the CTA had already denied petitioners request for the issuance of a tax credit certificate in the amount of P32,170,409 for insufficiency of evidence, it may no longer be included in petitioners future claims. Petitioner cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new claim. To reiterate, "an appellant who withdraws his appeal x x x must face the consequence of his withdrawal, such as the decision of the court a quo becoming final and executory."26 WHEREFORE, the Motion to Withdraw is hereby GRANTED. The Petition for Review is hereby DISMISSED and the case is hereby declared CLOSED and TERMINATED. No further pleadings or motions shall be entertained herein. Let an entry of judgment in this case be made in due course. SO ORDERED.