Tax 2 Full Text 1 13 to Be Digested

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FIRST DIVISION[G.R. No. 147188. September 14, 2004]COMMISSIONER OF INTERNAL REEN!E,

petitioner, vs. T"E ESTATE OF #ENIGNO $.TO%A, &R., Repre'e(te) b* Spe+- Co/-)m('tr-tor' Lor(- -p(-( -() M-roL- #-t't-, respondents.

% E C I S I O N%AI%E, &R., C.J .3This Court is called upon to determine in thiscase whether the tax planning scheme adoptedby a corporation constitutes tax easion thatwould !usti"y an assessment o" de"iciency incometax#The petitioner see$s the reersal o" theDecision%&' o" the Court o" (ppeals o" )& *anuary+,,& in C(-.#R# S/ No# 01122 a""irming the )*anuary +,,, Decision%+' o" the Court o" Tax (ppeals 3CT(4 in C#T#(# Case No# 0)+56%)' whichheld that the respondent 7state o" 8enigno /#Toda6 *r# is not liable "or the de"iciency income taxo" Cibeles Insurance Corporation 3CIC4 in the

amount o" /126,226222#++ "or the year &2526 andordered the cancellation and setting aside o" theassessment issued by Commissioner o" InternalReenue 9iwayway Vin:ons-Chato on 2 *anuary&220#The case at bar stemmed "rom a Notice o" (ssessment sent to CIC by the Commissioner o"Internal Reenue "or de"iciency income taxarising "rom an alleged simulated sale o" a &;-storey commercial building $nown as Cibeles8uilding6 situated on two parcels o" land on (yala (enue6 <a$ati City#On + <arch &2526 CIC authori:ed 8enigno /#Toda6 *r#6 /resident and owner o" 22#22&= o" itsissued and outstanding capital stoc$6 to sell the

Cibeles 8uilding and the two parcels o" land onwhich the building stands "or an amount o" notless than /2, million#%>'

On ), (ugust &2526 Toda purportedly sold theproperty "or /&,, million to Ra"ael (# (ltonaga6who6 in turn6 sold the same property on the sameday to Royal <atch Inc# 3R<I4 "or /+,, million#These two transactions were eidenced byDeeds o" (bsolute Sale notari:ed on the sameday by the same notary public# %0'

For the sale o" the property to R<I6 (ltonaga paidcapital gains tax in the amount o" /&, million# %;'

On &; (pril &22,6 CIC "iled its corporate annualincome tax return%1' "or the year &2526 declaring6among other things6 its gain "rom the sale o" realproperty in the amount o" /1061+5#,+&# ("tercrediting withholding taxes o" /+0>6>21#,,6 it paid/+;6)>&6+,1%5' "or its net taxable income o"/10625161+0#On &+ *uly &22,6 Toda sold his entire shares o"stoc$s in CIC to 9e ?un T# Choa "or /&+#0 million6as eidenced by a Deed o" Sale o" Shares o"Stoc$s#%2' Three and a hal" years later6 or on &;*anuary &22>6 Toda died#On +2 <arch &22>6 the 8ureau o" Internal

Reenue 38IR4 sent an assessment notice %&,' anddemand letter to the CIC "or de"iciency incometax "or the year &252 in the amount o"/126,226222#++#The new CIC as$ed "or a reconsideration6asserting that the assessment should be directedagainst the old CIC6 and not against the new CIC6

which is owned by an entirely di""erent set o"stoc$holders@ moreoer6 Toda had underta$en tohold the buyer o" his stoc$holdings and the CIC"ree "rom all tax liabilities "or the "iscal years&251-&252#%&&'

On +1 *anuary &2206 the 7state o" 8enigno /#Toda6 *r#6 represented by special co-administrators 9orna Aapunan and <ario 9u:a8autista6 receied a Notice o" (ssessment%&+' dated 2 *anuary &220 "rom the Commissioner o"Internal Reenue "or de"iciency income tax "or theyear &252 in the amount o" /126,226222#++6computed as "ollowsBIncome Tax &252Net Income per

return/10625161+0#,, (ddB (dditional gain on saleo" real property taxable under ordinary corporate incomebut were substituted withindiidual capital gains3/+,,< &,,<4&,,6,,,6,,,#,,Total Net TaxableIncome/&10625161+0#,,per inestigationTax Due thereo" at

)0= /;&602061,)#109essB /ayment already made&# /er return/+;602061,>#,,+# Thru Capital .ainsTax made by R#(# (ltonaga&,6,,,6,,,#,, );602061,>#,,8alance o" taxdue /+>62226222#10 (ddB 0,=Surcharge&+6>226222#55+0=Surcharge

;6+>26222#2>Total

/ >)61>26222#01 (ddB Interest +,= "rom>&;2,->),2>3#5,54)06)>26222#;0TOT(9 (<T# DE7

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CO997CTI897 /126,226222#++

GGGGGGGGGGGGThe 7state therea"ter "iled a letter o" protest# %&)'

In the letter dated &2 October &2206 %&>' theCommissioner dismissed the protest6 stating that

a "raudulent scheme was deliberatelyperpetuated by the CIC wholly owned andcontrolled by Toda by coering up the additionalgain o" /&,, million6 which resulted in the changein the income structure o" the proceeds o" thesale o" the two parcels o" land and the buildingthereon to an indiidual capital gains6 thuseading the higher corporate income tax rate o")0=#On &0 February &22;6 the 7state "iled a petition"or reiew%&0' with the CT( alleging that theCommissioner erred in holding the 7state liable"or income tax de"iciency@ that the in"erence o""raud o" the sale o" the properties is unreasonableand unsupported@ and that the right o" the

Commissioner to assess CIC had alreadyprescribed#In his (nswer %&;' and (mended (nswer6%&1' theCommissioner argued that the two transactionsactually constituted a single sale o" the propertyby CIC to R<I6 and that (ltonaga was neither thebuyer o" the property "rom CIC nor the seller o"the same property to R<I# The additional gain o"/&,, million 3the di""erence between the secondsimulated sale "or /+,, million and the "irstsimulated sale "or /&,, million4 reali:ed by CICwas taxed at the rate o" only 0= purportedly ascapital gains tax o" (ltonaga6 instead o" at therate o" )0= as corporate income tax o" CIC# Theincome tax return "iled by CIC "or &252 with intent

to eade payment o" the tax was thus "alse or"raudulent# Since such "alsity or "raud wasdiscoered by the 8IR only on 5 <arch &22&6 theassessment issued on 2 *anuary &220 was wellwithin the prescriptie period prescribed bySection ++) 3a4 o" the National Internal ReenueCode o" &25;6 which proides that tax may beassessed within ten years "rom the discoery o"the "alsity or "raud# Hith the sale being taintedwith "raud6 the separate corporate personality o"CIC should be disregarded# Toda6 being theregistered owner o" the 22#22&= shares o" stoc$o" CIC and the bene"icial owner o" the remaining,#,,2= shares registered in the name o" theindiidual directors o" CIC6 should be held liable"or the de"iciency income tax6 especially becausethe gains reali:ed "rom the sale were withdrawnby him as cash adances or paid to him as cashdiidends# Since he is already dead6 his estateshall answer "or his liability#In its decision%&5' o" ) *anuary +,,,6 the CT( heldthat the Commissioner "ailed to proe that CICcommitted "raud to deprie the goernment o" thetaxes due it# It ruled that een assuming that apre-conceied scheme was adopted by CIC6 the

same constituted mere tax aoidance6 and nottax easion# There being no proo" o" "raudulenttransaction6 the applicable period "or the 8IR toassess CIC is that prescribed in Section +,) o"the NIRC o" &25;6 which is three years a"ter thelast day prescribed by law "or the "iling o" thereturn# Thus6 the goernments right to assess

CIC prescribed on &0 (pril &22)# Theassessment issued on 2 *anuary &220 was6there"ore6 no longer alid# The CT( also ruledthat the mere ownership by Toda o" 22#22&= o"the capital stoc$ o" CIC was not in itsel" su""icientground "or piercing the separate corporatepersonality o" CIC# ?ence6 the CT( declared thatthe 7state is not liable "or de"iciency income taxo" /126,226222#++ and6 accordingly6 cancelledand set aside the assessment issued by theCommissioner on 2 *anuary &220#In its motion "or reconsideration6%&2' theCommissioner insisted that the sale o" theproperty owned by CIC was the result o" theconniance between Toda and (ltonaga# She

"urther alleged that the latter was arepresentatie6 dummy6 and a close businessassociate o" the "ormer6 haing held his o""ice in aproperty owned by CIC and deried his salary"rom a "oreign corporation 3(erobin6 Inc#4 dulyowned by Toda "or representation sericesrendered# The CT( denied%+,' the motion "orreconsideration6 prompting the Commissioner to"ile a petition "or reiew%+&' with the Court o" (ppeals#In its challenged Decision o" )& *anuary +,,&6the Court o" (ppeals a""irmed the decision o" theCT(6 reasoning that the CT(6 being moreadantageously situated and haing thenecessary expertise in matters o" taxation6 is

Jbetter situated to determine the correctness6propriety6 and legality o" the income taxassessments assailed by the Toda 7state#K%++'

Ensatis"ied with the decision o" the Court o" (ppeals6 the Commissioner "iled the presentpetition ino$ing the "ollowing groundsBI# T?7 COERT OF (//7(9S 7RR7D IN?O9DIN. T?(T R7S/OND7NT CO<<ITT7DNO FR(ED HIT? INT7NT TO 7V(D7 T?7 T(LON T?7 S(97 OF T?7 /RO/7RTI7S OFCI8797S INSER(NC7 COR/OR(TION#II# T?7 COERT OF (//7(9S 7RR7D IN NOTDISR7.(RDIN. T?7 S7/(R(T7 COR/OR(T7/7RSON(9ITM OF CI8797S INSER(NC7COR/OR(TION#III# T?7 COERT OF (//7(9S 7RR7D IN?O9DIN. T?(T T?7 RI.?T OF /7TITION7RTO (SS7SS R7S/OND7NT FOR D7FICI7NCMINCO<7 T(L FOR T?7 M7(R &252 ?(D/R7SCRI87D#The Commissioner reiterates her arguments inher preious pleadings and insists that the saleby CIC o" the Cibeles property was in conniancewith its dummy Ra"ael (ltonaga6 who was"inancially incapable o" purchasing it# She "urther

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points out that the documents themseles proethe "act o" "raud in that 3&4 the two sales weredone simultaneously on the same date6 ), (ugust &252@ 3+4 the Deed o" (bsolute Salebetween (ltonaga and R<I was notari:ed aheado" the alleged sale between CIC and (ltonaga6with the "ormer registered in the Notarial Register

o" *ocelyn ?# (rre:a /abelana as Doc# 16 /age+,6 8oo$ I6 Series o" &252@ and the latter6 as Doc#No# 26 /age +,6 8oo$ I6 Series o" &2526 o" thesame Notary /ublic@ 3)4 as early as > <ay &2526CIC receied />, million "rom R<I6 and not "rom (ltonaga# The said amount was debited by R<Iin its trial balance as o" ), *une &252 asinestment in Cibeles 8uilding# The substantialportion o" />, million was withdrawn by Todathrough the declaration o" cash diidends to all itsstoc$holders#For its part6 respondent 7state asserts that theCommissioner "ailed to present the income taxreturn o" (ltonaga to proe that the latter is"inancially incapable o" purchasing the Cibeles

property#To resole the grounds raised by theCommissioner6 the "ollowing uestions arepertinentB&# Is this a case o" tax easion or taxaoidance+# ?as the period "or assessment o"de"iciency income tax "or the year &252prescribed and)# Can respondent 7state be held liable "orthe de"iciency income tax o" CIC "or the year&2526 i" anyHe shall discuss these uestions in seriatim.I' t5' - +-'e o6 t- e-'o(or t- -o)-(+e9

Tax avoidance and tax evasion are thetwo most common ways used by taxpayers inescaping "rom taxation# Tax aoidance is the taxsaing deice within the means sanctioned bylaw# This method should be used by the taxpayerin good "aith and at arms length# Tax easion6 onthe other hand6 is a scheme used outside o"those law"ul means and when aailed o"6 itusually sub!ects the taxpayer to "urther oradditional ciil or criminal liabilities# %+)'

Tax easion connotes the integration o"three "actorsB 3&4 the end to be achieed6 i.e., thepayment o" less than that $nown by the taxpayerto be legally due6 or the non-payment o" tax whenit is shown that a tax is due@ 3+4 an accompanyingstate o" mind which is described as being Jeil6K inJbad "aith6K Jwill"ull6Kor Jdeliberate and notaccidentalK@ and 3)4 a course o" action or "ailure o" action which is unlaw"ul#%+>'

(ll these "actors are present in the instantcase# It is signi"icant to note that as early as ><ay &2526 prior to the purported sale o" theCibeles property by CIC to (ltonaga on ), (ugust&2526 CIC receied />, million "rom R<I6%+0' andnot "rom (ltonaga# That />, million was debited

by R<I and re"lected in its trial balance%+;' asJother in# Cibeles 8ldg#K (lso6 as o" )& *uly&2526 another />, million was debited andre"lected in R<Is trial balance as Jother in# Cibeles 8ldg#K This would show that the realbuyer o" the properties was R<I6 and not theintermediary (ltonaga#

The inestigation conducted by the 8IRdisclosed that (ltonaga was a close businessassociate and one o" the many trusted corporateexecuties o" Toda# This in"ormation wasreealed by <r# 8oy /rieto6 the assistantaccountant o" CIC and an old timer in thecompany# %+1' 8ut <r# /rieto did not testi"y on thismatter6 hence6 that in"ormation remains to behearsay and is thus inadmissible in eidence# Itwas not eri"ied either6 since the letter-reuest "or inestigation o" (ltonaga was unsered6%+5' (ltonaga haing le"t "or the Enited States o" (merica in *anuary &22,# Neertheless6 that (ltonaga was a mere conduit "inds support in theadmission o" respondent 7state that the sale to

him was part o" the tax planning scheme o" CIC#That admission is borne by the records# In its<emorandum6 respondent 7state declaredB/etitioner6 howeer6 claims there was a Jchangeo" structureK o" the proceeds o" sale# (dmittedone hundred percent# 8ut isnt this precisely thede"inition o" tax planning Change the structureo" the "unds and pay a lower tax# /recisely6 Sec#>, 3+4 o" the Tax Code exists6 allowing tax "reetrans"ers o" property "or stoc$6 changing thestructure o" the property and the tax to be paid# (s long as it is done legally6 changing thestructure o" a transaction to achiee a lower tax isnot against the law# It is absolutely allowed#Tax planning is by de"inition to reduce6 i" not

eliminate altogether6 a tax# Surely petitioner %sic 'cannot be "aulted "or :-(t(; to re)+e t5e t-6rom <=> to =>#%+2' %Enderscoring supplied'#The scheme resorted to by CIC in ma$ing itappear that there were two sales o" the sub!ectproperties6 i.e#6 "rom CIC to (ltonaga6 and then"rom (ltonaga to R<I cannot be considered alegitimate tax planning# Such scheme is taintedwith "raud#

Fraud in its general sense6 Jis deemed tocomprise anything calculated to deceie6including all acts6 omissions6 and concealmentinoling a breach o" legal or euitable duty6 trustor con"idence !ustly reposed6 resulting in thedamage to another6 or by which an undue andunconscionable adantage is ta$en o" another#K%),'

?ere6 it is obious that the ob!ectie o" thesale to (ltonaga was to reduce the amount o" taxto be paid especially that the trans"er "rom him toR<I would then sub!ect the income to only 0=indiidual capital gains tax6 and not the )0=corporate income tax# (ltonagas sole purpose o" acuiring and trans"erring title o" the sub!ectproperties on the same day was to create a taxshelter# (ltonaga neer controlled the property

3



and did not en!oy the normal bene"its andburdens o" ownership# The sale to him wasmerely a tax ploy6 a sham6 and without businesspurpose and economic substance# Doubtless6the execution o" the two sales was calculated tomislead the 8IR with the end in iew o" reducingthe conseuent income tax liability#

In a nutshell6 the intermediary transaction6i.e#6 the sale o" (ltonaga6 which was promptedmore on the mitigation o" tax liabilities than "orlegitimate business purposes constitutes one o"tax easion#%)&'

.enerally6 a sale or exchange o" assetswill hae an income tax incidence only when it isconsummated#%)+' The incidence o" taxationdepends upon the substance o" a transaction#The tax conseuences arising "rom gains "rom asale o" property are not "inally to be determinedsolely by the means employed to trans"er legaltitle# Rather6 the transaction must be iewed as awhole6 and each step "rom the commencement o" negotiations to the consummation o" the sale is

releant# ( sale by one person cannot betrans"ormed "or tax purposes into a sale byanother by using the latter as a conduit throughwhich to pass title# To permit the true nature o"the transaction to be disguised by mere"ormalisms6 which exist solely to alter taxliabilities6 would seriously impair the e""ectieadministration o" the tax policies o" Congress# %))'

To allow a taxpayer to deny tax liability onthe ground that the sale was made throughanother and distinct entity when it is proed thatthe latter was merely a conduit is to sanction acircumention o" our tax laws# ?ence6 the sale to (ltonaga should be disregarded "or income taxpurposes#%)>' The two sale transactions should be

treated as a single direct sale by CIC to R<I# (ccordingly6 the tax liability o" CIC is

goerned by then Section +> o" the NIRC o"&25;6 as amended 3now +1 3(4 o" the Tax Re"orm (ct o" &22146 which stated as "ollowsBSe+. 24. R-te' o6 t- o( +orpor-to('. ? @-T- o( )ome't+ +orpor-to('./ ( tax is herebyimposed upon the taxable net income receiedduring each taxable year "rom all sources byeery corporation organi:ed in6 or existing underthe laws o" the /hilippines6 and partnerships6 nomatter how created or organi:ed but not includinggeneral pro"essional partnerships6 in accordancewith the "ollowingBTwenty-"ie percent upon the amount by whichthe taxable net income does not exceed onehundred thousand pesos@ andThirty-"ie percent upon the amount by which thetaxable net income exceeds one hundredthousand pesos#CIC is there"ore liable to pay a )0= corporate tax"or its taxable net income in &252# The 0=indiidual capital gains tax proided "or in Section)> 3h4 o" the NIRC o" &25; %)0' 3now ;= underSection +> 3D4 3&4 o" the Tax Re"orm (ct o" &2214

is inapplicable# ?ence6 the assessment "or thede"iciency income tax issued by the 8IR must beupheld#"-' t5e pero) o6 -''e''me(t pre'+rbe)9No# Section +;2 o" the NIRC o" &25; 3nowSection +++ o" the Tax Re"orm (ct o" &2214 readB

Se+. 2B. E+epto(' -' to pero) o6mt-to( o6 -''e''me(t -() +oe+to( o6t-e'./3a4 In the case o" a "alse or "raudulentreturn with intent to eade tax or o" "ailure to "ile areturn6 the tax may be assessed6 or a proceedingin court a"ter the collection o" such tax may bebegun without assessment6 at any time withinten years a"ter the discoery o" the "alsity6 "raudor omissionB $ro)e), That in a "raudassessment which has become "inal andexecutory6 the "act o" "raud shall be !udiciallyta$en cogni:ance o" in the ciil or criminal action"or collection thereo"P #/ut di""erently6 in cases o" 3&4 "raudulent returns@3+4 "alse returns with intent to eade tax@ and 3)4

"ailure to "ile a return6 the period within which toassess tax is ten years "rom discoery o" the"raud6 "alsi"ication or omission6 as the case maybe#It is true that in a uery dated +> (ugust &2526 (ltonaga6 through his counsel6 as$ed the Opiniono" the 8IR on the tax conseuence o" the twosale transactions#%);' Thus6 the 8IR was amplyin"ormed o" the transactions een prior to theexecution o" the necessary documents to e""ectthe trans"er# Subseuently6 the two sales wereopenly made with the execution o" publicdocuments and the declaration o" taxes "or &252#?oweer6 these circumstances do not negate theexistence o" "raud# (s earlier discussed those

two transactions were tainted with "raud# (ndeen assuming arguendo that there was no "raud6we "ind that the income tax return "iled by CIC "orthe year &252 was "alse# It did not re"lect the trueor actual amount gained "rom the sale o" theCibeles property# Obiously6 such was done withintent to eade or reduce tax liability# (s stated aboe6 the prescriptie period toassess the correct taxes in case o" "alse returnsis ten years "rom the discoery o" the "alsity# The"alse return was "iled on &0 (pril &22,6 and the"alsity thereo" was claimed to hae beendiscoered only on 5 <arch &22&#%)1' Theassessment "or the &252 de"iciency income tax o" CIC was issued on 2 *anuary &220# Clearly6 theissuance o" the correct assessment "or de"iciencyincome tax was well within the prescriptieperiod#I' re'po()e(t E't-te -be6or t5e 18 )e6+e(+*(+ome t- o6 Cbee'I('r-(+e Corpor-to(9 ( corporation has a !uridical personality distinctand separate "rom the persons owning orcomposing it# Thus6 the owners or stoc$holders

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o" a corporation may not generally be made toanswer "or the liabilities o" a corporation and iceersa# There are6 howeer6 certain instances inwhich personal liability may arise# It has beenheld in a number o" cases that personal liability o" a corporate director6 trustee6 or o""icer along6albeit not necessarily6 with the corporation may

alidly attach whenB&# ?e assents to the 3a4 patently unlaw"ul act o"the corporation6 3b4 bad "aith or gross negligencein directing its a""airs6 or 3c4 con"lict o" interest6resulting in damages to the corporation6 itsstoc$holders6 or other persons@+# ?e consents to the issuance o" watered downstoc$s or6 haing $nowledge thereo"6 does not"orthwith "ile with the corporate secretary hiswritten ob!ection thereto@)# ?e agrees to hold himsel" personally andsolidarily liable with the corporation@ or ># ?e is made6 by speci"ic proision o" law6 topersonally answer "or his corporate action#%)5'

It is worth noting that when the late Toda sold his

shares o" stoc$ to 9e ?un T# Choa6 he $nowinglyand oluntarily held himsel" personally liable "orall the tax liabilities o" CIC and the buyer "or theyears &2516 &2556 and &252# /aragraph g o" theDeed o" Sale o" Shares o" Stoc$s speci"icallyproidesBg# 7xcept "or transactions occurring in theordinary course o" business6 Cibeles has noliabilities or obligations6 contingent or otherwise6"or taxes6 sums o" money or insurance claimsother than those reported in its audited "inancialstatement as o" December )&6 &2526 attachedhereto as J(nnex 8K and made a part hereo"#The business o" Cibeles has at all times beenconducted in "ull compliance with all applicable

laws6 rules and regulations# SELLER()ert-e' -() -;ree' to 5o) t5e #!DER-() Cbee' 6ree 6rom -(* -() - (+ome t--bte' o6 Cbee' 6or t5e 6'+- *e-r' 187,188 -() 18.%)2' %Enderscoring Supplied'#Hhen the late Toda undertoo$ and agreed Jtohold the 8EM7R and Cibeles "ree "rom any allincome tax liabilities o" Cibeles "or the "iscal years&2516 &2556 and &2526K he thereby oluntarilyheld himsel" personally liable there"or#Respondent estate cannot6 there"ore6 denyliability "or CICs de"iciency income tax "or theyear &252 by ino$ing the separate corporatepersonality o" CIC6 since its obligation arose "romTodas contractual underta$ing6 as contained inthe Deed of Sale of Shares of Stock.

"EREFORE6 in iew o" all the"oregoing6 the petition is hereby .R(NT7D# Thedecision o" the Court o" (ppeals o" )& *anuary+,,& in C(-.#R# S/ No# 01122 is R7V7RS7Dand S7T (SID76 and another one is herebyrendered ordering respondent 7state o" 8enigno/# Toda *r# to pay /126,226222#++ as de"iciencyincome tax o" Cibeles Insurance Corporation "orthe year &2526 plus legal interest "rom & <ay

&22> until the amount is "ully paid#Costs against respondent#

SO OR%ERE%.Quisumbing, Ynares-Santiago, Cario, and

!"cuna, ##., concur .

S7COND DIVISION[G.R. No. 120880. &(e =, 17]FER%INAN% R. MARCOS II, petitioner, vs. CO!RT OF A$$EALS, T"E COMMISSIONEROF T"E #!REA! OF INTERNAL REEN!E-() "ERMINIA %. %E G!MAN, respondents.% E C I S I O NTORRES, &R., J .3In this /etition "or Reiew on Certiorari, .oernment action is once again assailed asprecipitate and un"air6 su""ering the basic and o"tlyimplored reuisites o" due process o" law#Speci"ically6 the petition assails the Decision%i" Q

supportFootnotes'%&'%endi"' o" the Court o" (ppeals datedNoember +26 &22> in C(-.#R# S/ No# )&);)6

where the said court heldBIn iew o" all the "oregoing6 we rule that thede"iciency income tax assessments and estatetax assessment6 are already "inal and3u4nappealable -and- the subseuent ley o" realproperties is a tax remedy resorted to by thegoernment6 sanctioned by Section +&) and +&5o" the National Internal Reenue Code# Thissummary tax remedy is distinct and separate"rom the other tax remedies 3such as *udicialCiil actions and Criminal actions46 and is nota""ected or precluded by the pendency o" anyother tax remedies instituted by the goernment#H?7R7FOR76 premises considered6 !udgment ishereby rendered DIS<ISSIN. the petition "or

certiorari with prayer "or Restraining Order andIn!unction#No pronouncements as to costs#SO ORD7R7D#<ore than seen years since the demise o" thelate Ferdinand 7# <arcos6 the "ormer /resident o" the Republic o" the /hilippines6 the matter o" thesettlement o" his estate6 and its dues to thegoernment in estate taxes6 are still unresoled6the latter issue being now be"ore this Court "orresolution# Speci"ically6 petitioner Ferdinand R#<arcos II6 the eldest son o" the decedent6uestions the actuations o" the respondentCommissioner o" Internal Reenue in assessing6and collecting through the summary remedy o"9ey on Real /roperties6 estate and income taxdelinuencies upon the estate and properties o"his "ather6 despite the pendency o" theproceedings on probate o" the will o" the latepresident6 which is doc$eted as Sp# /roc# No#&,+12 in the Regional Trial Court o" /asig68ranch &0;#/etitioner had "iled with the respondent Court o" (ppeals a /etition "or Certiorari and /rohibitionwith an application "or writ o" preliminary

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in!unction andor temporary restraining order on*une +56 &22)6 see$ing to -I# (nnul and set aside the Notices o" 9ey on realproperty dated February ++6 &22) and <ay +,6&22)6 issued by respondent Commissioner o"Internal Reenue@II# (nnul and set aside the Notices o" Sale dated

<ay +;6 &22)@III# 7n!oin the ?ead Reenue 7xecutie (ssistantDirector II 3Collection Serice46 "rom proceedingwith the (uction o" the real properties coered byNotices o" Sale# ("ter the parties had pleaded their case6 theCourt o" (ppeals rendered its Decision %i" Q

supportFootnotes'%+'%endi"' on Noember +26 &22>6 rulingthat the de"iciency assessments "or estate andincome tax made upon the petitioner and theestate o" the deceased /resident <arcos haealready become "inal and unappealable6 and maythus be en"orced by the summary remedy o"leying upon the properties o" the late /resident6as was done by the respondent Commissioner o"

Internal Reenue#H?7R7FOR76 premises considered !udgmentis hereby rendered DIS<ISSIN. the petition "orCertiorari with prayer "or Restraining Order andIn!unction#No pronouncements as to cost#SO ORD7R7D#Enperturbed6 petitioner is now be"ore us assailingthe alidity o" the appellate courts decision6assigning the "ollowing as errorsB (# R7S/OND7NT COERT <(NIF7ST9M7RR7D IN RE9IN. T?(T T?7 SE<<(RM T(LR7<7DI7S R7SORT7D TO 8M T?7.OV7RN<7NT (R7 NOT (FF7CT7D (ND/R7C9ED7D 8M T?7 /7ND7NCM OF T?7

S/7CI(9 /ROC77DIN. FOR T?7 (99OH(NC7 OF T?7 9(T7 /R7SID7NTS (997.7D HI99# TO T?7 CONTR(RM6 T?IS/RO8(T7 /ROC77DIN. /R7CIS79M /9(C7D (99 /RO/7RTI7S H?IC? FOR< /(RT OFT?7 9(T7 /R7SID7NTS 7ST(T7 INCESTODI( 97.IS OF T?7 /RO8(T7 COERTTO T?7 7LC9ESION OF (99 OT?7R COERTS (ND (D<INISTR(TIV7 (.7NCI7S#8# R7S/OND7NT COERT (R8ITR(RI9M7RR7D IN SH77/IN.9M D7CIDIN. T?(TSINC7 T?7 T(L (SS7SS<7NTS OF/7TITION7R (ND ?IS /(R7NTS ?(D (9R7(DM 87CO<7 FIN(9 (NDEN(//7(9(8976 T?7R7 H(S NO N77D TO.O INTO T?7 <7RITS OF T?7 .ROENDSCIT7D IN T?7 /7TITION# IND7/7ND7NT OFH?7T?7R T?7 T(L (SS7SS<7NTS ?(D (9R7(DM 87CO<7 FIN(96 ?OH7V7R6/7TITION7R ?(S T?7 RI.?T TO E7STIONT?7 EN9(HFE9 <(NN7R (ND <7T?OD INH?IC? T(L CO997CTION IS SOE.?T TO 877NFORC7D 8M R7S/OND7NTSCO<<ISSION7R (ND D7 .EU<(N# T?ES6R7S/OND7NT COERT S?OE9D ?(V7

F(VOR(89M CONSID7R7D T?7 <7RITS OFT?7 FO99OHIN. .ROENDS IN T?7/7TITIONB3&4 The Notices o" 9ey on Real /roperty wereissued beyond the period proided in theReenue <emorandum Circular No# )5-;5#3+4 %a' The numerous pending court cases

uestioning the late /residents ownership orinterests in seeral properties 3both personal andreal4 ma$e the total alue o" his estate6 and theconseuent estate tax due6 incapable o" exactpecuniary determination at this time# Thus6respondents assessment o" the estate tax andtheir issuance o" the Notices o" 9ey and Sale arepremature6 con"iscatory and oppressie#%b' /etitioner6 as one o" the late /residentscompulsory heirs6 was neer noti"ied6 much lesssered with copies o" the Notices o" 9ey6contrary to the mandate o" Section +&) o" theNIRC# (s such6 petitioner was neer gien anopportunity to contest the Notices in iolation o"his right to due process o" law#

C# ON (CCOENT OF T?7 C97(R <7RIT OFT?7 /7TITION6 R7S/OND7NT COERT<(NIF7ST9M 7RR7D IN RE9IN. T?(T IT ?(DNO /OH7R TO .R(NT IN*ENCTIV7 R79I7FTO /7TITION7R# S7CTION +&2 OF T?7 NIRCNOTHIT?ST(NDIN.6 COERTS /OSS7SS T?7/OH7R TO ISSE7 ( HRIT OF /R79I<IN(RMIN*ENCTION TO R7STR(IN R7S/OND7NTSCO<<ISSION7RS (ND D7 .EU<(NS (R8ITR(RM <7T?OD OF CO997CTIN. T?7 (997.7D D7FICI7NCM 7ST(T7 (ND INCO<7T(L7S 8M <7(NS OF 97VM#The "acts as "ound by the appellate court areundisputed6 and are hereby adoptedBOn September +26 &2526 "ormer /resident

Ferdinand <arcos died in ?onolulu6 ?awaii6 ES(#On *une +16 &22,6 a Special Tax (udit Team wascreated to conduct inestigations andexaminations o" the tax liabilities and obligationso" the late president6 as well as that o" his "amily6associates and cronies# Said audit teamconcluded its inestigation with a <emorandumdated *uly +;6 &22&# The inestigation disclosedthat the <arcoses "ailed to "ile a written notice o"the death o" the decedent6 an estate tax returns%sic'6 as well as seeral income tax returnscoering the years &25+ to &25;6 -all in iolationo" the National Internal Reenue Code 3NIRC4#Subseuently6 criminal charges were "iled against<rs# Imelda R# <arcos be"ore the Regional Trialo" ue:on City "or iolations o" Sections 5+6 5)and 5> 3has penali:ed under Sections +0) and+0> in relation to Section +0+- a b4 o" theNational Internal Reenue Code 3NIRC4#The Commissioner o" Internal Reenue therebycaused the preparation and "iling o" the 7stateTax Return "or the estate o" the late president6 theIncome Tax Returns o" the Spouses <arcos "orthe years &250 to &25;6 and the Income TaxReturns o" petitioner Ferdinand 8ongbong

6



<arcos II "or the years &25+ to &250#On *uly +;6 &22&6 the 8IR issued the "ollowingB3&4 De"iciency estate tax assessment no# F(C-+-52-2&-,,+>;> 3against the estate o" the latepresident Ferdinand <arcos in the amount o"/+)6+2)6;,16;)5#,, /esos4@ 3+4 De"iciencyincome tax assessment no# F(C-&-50-2&-,,+>0+

and De"iciency income tax assessment no# F(C-&-5;-2&-,,+>0& 3against the Spouses Ferdinandand Imelda <arcos in the amounts o"/&>2600&#1, and /&5>6,,261)1#>, representingde"iciency income tax "or the years &250 and&25;4@ 3)4 De"iciency income tax assessmentnos# F(C-&-5+-2&-,,+>;, to F(C-&-50-2&-,,+>;) 3against petitioner Ferdinand 8ongbong<arcos II in the amounts o" /+05#1, pesos@/26)5;#>, /esos@ />6)55#), /esos@ and/;6)1;#;, /esos representing his de"iciencyincome taxes "or the years &25+ to &2504#The Commissioner o" Internal Reenue aersthat copies o" the de"iciency estate and incometax assessments were all personally and

constructiely sered on (ugust +;6 &22& andSeptember &+6 &22& upon <rs# Imelda <arcos3through her careta$er <r# <artine:4 at her last$nown address at No# +,> Ortega St#6 San *uan6<#<# 3(nnexes D and 7 o" the /etition4#9i$ewise6 copies o" the de"iciency taxassessments issued against petitioner Ferdinand8ongbong <arcos II were also personally andconstructiely sered upon him 3through hiscareta$er4 on September &+6 &22&6 at his last$nown address at Don <ariano <arcos St# corner /# .uearra St#6 San *uan6 <#<# 3(nnexes * and*-& o" the /etition4# Therea"ter6 Formal (ssessment notices were sered on October +,6&22+6 upon <rs# <arcos co petitioner6 at his

o""ice6 ?ouse o" Representaties6 8atasan/ambansa6 ue:on City# <oreoer6 a notice toTaxpayer initing <rs# <arcos 3or her dulyauthori:ed representatie or counsel46 to acon"erence6 was "urnished the counsel o" <rs#<arcos6 Dean (ntonio Coronel - but to no aail#The de"iciency tax assessments were notprotested administratiely6 by <rs# <arcos andthe other heirs o" the late president6 within ),days "rom serice o" said assessments#On February ++6 &22)6 the 8IR Commissionerissued twenty-two notices o" ley on real propertyagainst certain parcels o" land owned by the<arcoses - to satis"y the alleged estate tax andde"iciency income taxes o" Spouses <arcos#On <ay +,6 &22)6 "our more Notices o" 9ey onreal property were issued "or the purpose o"satis"ying the de"iciency income taxes#On <ay +;6 &22)6 additional "our 3>4 notices o"9ey on real property were again issued# The"oregoing tax remedies were resorted to pursuantto Sections +,0 and +&) o" the National InternalReenue Code 3NIRC4#In response to a letter dated <arch &+6 &22) sentby (tty# 9oreto (ta 3counsel o" herein petitioner4

calling the attention o" the 8IR and reuestingthat they be duly noti"ied o" any action ta$en bythe 8IR a""ecting the interest o" their clientFerdinand 8ongbong <arcos II6 as well as theinterest o" the late president - copies o" thea"oresaid notices were sered on (pril 16 &22)and on *une &,6 &22)6 upon <rs# Imelda <arcos6

the petitioner6 and their counsel o" record6 De8or!a6 <edialdea6 (ta6 8ello6 .uearra andSerapio 9aw O""ice#Notices o" sale at public auction were posted on<ay +;6 &22)6 at the lobby o" the City ?all o"Tacloban City# The public auction "or the sale o"the eleen 3&&4 parcels o" land too$ place on *uly06 &22)# There being no bidder6 the lots weredeclared "or"eited in "aor o" the goernment#On *une +06 &22)6 petitioner Ferdinand8ongbong <arcos II "iled the instant petition "orcertiorari and prohibition under Rule ;0 o" theRules o" Court6 with prayer "or temporaryrestraining order andor writ o" preliminaryin!unction#

It has been repeatedly obsered6 and not withoutmerit6 that the en"orcement o" tax laws and thecollection o" taxes6 is o" paramount importance"or the sustenance o" goernment# Taxes are theli"eblood o" the goernment and should becollected without unnecessary hindrance#?oweer6 such collection should be made inaccordance with law as any arbitrariness willnegate the ery reason "or goernment itsel"# It isthere"ore necessary to reconcile the apparentlycon"licting interests o" the authorities and thetaxpayers so that the real purpose o" taxation6which is the promotion o" the common good6 maybe achieed#%i" QsupportFootnotes'%)'%endi"'

Hhether or not the proper aenues o"

assessment and collection o" the said taxobligations were ta$en by the respondent 8ureauis now the sub!ect o" the Courts inuiry#/etitioner posits that notices o" ley6 notices o"sale6 and subseuent sale o" properties o" thelate /resident <arcos e""ected by the 8IR are nulland oid "or disregarding the establishedprocedure "or the en"orcement o" taxes due uponthe estate o" the deceased# The case o"Domingo s# .arlitos%i" QsupportFootnotes'%>'%endi"' isspeci"ically cited to bolster the argument that theordinary procedure by which to settle claims o"indebtedness against the estate o" a deceased6person6 as in an inheritance 3estate4 tax6 is "or theclaimant to present a claim be"ore the probatecourt so that said court may order theadministrator to pay the amount there"or# Thisremedy is allegedly6 exclusie6 and cannot bee""ected through any other means#/etitioner goes "urther6 submitting that theprobate court is not precluded "rom denying areuest by the goernment "or the immediatepayment o" taxes6 and should order the paymento" the same only within the period "ixed by theprobate court "or the payment o" all the debts o"

7



the decedent# In this regard6 petitioner cites thecase o" Collector o" Internal Reenue s# The (dministratrix o" the 7state o" 7charri 3;1 /hil0,+46 where it was held thatBThe case o" /ineda s# Court o" First Instance o"Tayabas and Collector o" Internal Reenue 30+/hil 5,)46 relied upon by the petitioner-appellant

is good authority on the proposition that the courthaing control oer the administrationproceedings has !urisdiction to entertain the claimpresented by the goernment "or taxes due andto order the administrator to pay the tax should it"ind that the assessment was proper6 and that thetax was legal6 due and collectible# (nd the rulelaid down in that case must be understood inrelation to the case o" Collector o" Customs s#?aygood6 supra#6 as to the procedure to be"ollowed in a gien case by the goernment toe""ectuate the collection o" the tax# Categoricallystated6 where during the pendency o" !udicialadministration oer the estate o" a deceasedperson a claim "or taxes is presented by the

goernment6 the court has the authority to orderpayment by the administrator@ but6 in the sameway that it has authority to order payment orsatis"action6 it also has the negatie authority todeny the same# Hhile there are cases wherecourts are reuired to per"orm certain dutiesmandatory and ministerial in character6 the"unction o" the court in a case o" the presentcharacter is not one o" them@ and here6 the courtcannot be an organism endowed with latitude o" !udgment in one direction6 and conerted into amere mechanical contriance in anotherdirection#On the other hand6 it is argued by the 8IR6 thatthe states authority to collect internal reenue

taxes is paramount# Thus6 the pendency o"probate proceedings oer the estate o" thedeceased does not preclude the assessment andcollection6 through summary remedies6 o" estatetaxes oer the same# (ccording to therespondent6 claims "or payment o" estate andincome taxes due and assessed a"ter the deatho" the decedent need not be presented in the"orm o" a claim against the estate# These canand should be paid immediately# The probatecourt is not the goernment agency to decidewhether an estate is liable "or payment o" estateo" income taxes# Hell-settled is the rule that theprobate court is a court with special and limited !urisdiction#Concededly6 the authority o" the Regional TrialCourt6 sitting6 albeit with limited !urisdiction6 as aprobate court oer estate o" deceased indiidual6is not a tri"ling thing# The courts !urisdiction6once ino$ed6 and made e""ectie6 cannot betreated with indi""erence nor should it be ignoredwith impunity by the ery parties ino$ing itsauthority#In testament to this6 it has been held that it iswithin the !urisdiction o" the probate court to

approe the sale o" properties o" a deceasedperson by his prospectie heirs be"ore "inalad!udication@%i" QsupportFootnotes'%0'%endi"' to determine whoare the heirs o" the decedent@%i" QsupportFootnotes'%;'%endi"' the recognition o" a natural child@%i" QsupportFootnotes'%1'

%endi"' the status o" a woman claiming to be thelegal wi"e o" the decedent@%i" QsupportFootnotes'%5'%endi"' the

legality o" disinheritance o" an heir by the testator@%i" QsupportFootnotes'%2'%endi"' and to pass upon the alidity o"a waier o" hereditary rights#%i" QsupportFootnotes'%&,'%endi"'

The piotal uestion the court is tas$ed to resolere"ers to the authority o" the 8ureau o" InternalReenue to collect by the summary remedy o"leying upon6 and sale o" real properties o" thedecedent6 estate tax de"iciencies6 without thecognition and authority o" the court sitting inprobate oer the supposed will o" the deceased#The nature o" the process o" estate tax collectionhas been described as "ollowsBStrictly spea$ing6 the assessment o" aninheritance tax does not directly inole theadministration o" a decedents estate6 although it

may be iewed as an incident to the completesettlement o" an estate6 and6 under somestatutes6 it is made the duty o" the probate courtto ma$e the amount o" the inheritance tax a parto" the "inal decree o" distribution o" the estate# Itis not against the property o" decedent6 nor is it aclaim against the estate as such6 but it is againstthe interest or property right which the heir6legatee6 deisee6 etc#6 has in the property"ormerly held by decedent# Further6 under somestatutes6 it has been held that it is not a suit orcontroersy between the parties6 nor is it anadersary proceeding between the state and theperson who owes the tax on the inheritance#?oweer6 under other statutes it has been held

that the hearing and determination o" the cashalue o" the assets and the determination o" thetax are adersary proceedings# The proceedinghas been held to be necessarily a proceeding inrem#%i" QsupportFootnotes'%&&'%endi"'

In the /hilippine experience6 the en"orcement andcollection o" estate tax6 is executie in character6as the legislature has seen it "it to ascribe thistas$ to the 8ureau o" Internal Reenue# Section) o" the National Internal Reenue Code atteststo thisBSec# )# /owers and duties o" the 8ureau#-Thepowers and duties o" the 8ureau o" InternalReenue shall comprehend the assessment andcollection o" all national internal reenue taxes6"ees6 and charges6 and the en"orcement o" all"or"eitures6 penalties6 and "ines connectedtherewith6 including the execution o" !udgments inall cases decided in its "aor by the Court o" Tax (ppeals and the ordinary courts# Said 8ureaushall also gie e""ect to and administer thesuperisory and police power con"erred to it bythis Code or other laws#Thus6 it was in Vera s# Fernande: %i" QsupportFootnotes'%&+'

%endi"' that the court recogni:ed the liberal treatment

8



o" claims "or taxes charged against the estate o"the decedent# Such taxes6 we said6 wereexempted "rom the application o" the statute o"non-claims6 and this is !usti"ied by the necessityo" goernment "unding6 immortali:ed in themaxim that taxes are the li"eblood o" thegoernment# $ectigalia nervi sunt rei ublicae -

taxes are the sinews o" the state#Taxes assessed against the estate o" adeceased person6 a"ter administration is opened6need not be submitted to the committee onclaims in the ordinary course o" administration# Inthe exercise o" its control oer the administrator6the court may direct the payment o" such taxesupon motion showing that the taxes hae beenassessed against the estate#Such liberal treatment o" internal reenue taxes inthe probate proceedings extends so "ar6 een toallowing the en"orcement o" tax obligationsagainst the heirs o" the decedent6 een a"terdistribution o" the estates properties#Claims "or taxes6 whether assessed be"ore or

a"ter the death o" the deceased6 can be collected"rom the heirs een a"ter the distribution o" theproperties o" the decedent# They are exempted"rom the application o" the statute o" non-claims#The heirs shall be liable there"or6 in proportion totheir share in the inheritance#%i" QsupportFootnotes'%&)'%endi"'

Thus6 the .oernment has two ways o"collecting the taxes in uestion# One6 by goinga"ter all the heirs and collecting "rom each one o"them the amount o" the tax proportionate to theinheritance receied# (nother remedy6 pursuantto the lien created by Section )&0 o" the TaxCode upon all property and rights to propertybelong to the taxpayer "or unpaid income tax6 isby sub!ecting said property o" the estate which is

in the hands o" an heir or trans"eree to thepayment o" the tax due the estate#3Commissioner o" Internal Reenue s# /ineda6+& SCR( &,06 September &06 &2;1#4From the "oregoing6 it is discernible that theapproal o" the court6 sitting in probate6 or as asettlement tribunal oer the deceased is not amandatory reuirement in the collection o" estatetaxes# It cannot there"ore be argued that the Tax8ureau erred in proceeding with the leying andsale o" the properties allegedly owned by the late/resident6 on the ground that it was reuired tosee$ "irst the probate courts sanction# There isnothing in the Tax Code6 and in the pertinentremedial laws that implies the necessity o" theprobate or estate settlement courts approal o"the states claim "or estate taxes6 be"ore thesame can be en"orced and collected#On the contrary6 under Section 51 o" the NIRC6 itis the probate or settlement court which is biddennot to authori:e the executor or !udicialadministrator o" the decedents estate to delierany distributie share to any party interested inthe estate6 unless it is shown a Certi"ication bythe Commissioner o" Internal Reenue that the

estate taxes hae been paid# This proisiondisproes the petitioners contention that it is theprobate court which approes the assessmentand collection o" the estate tax#I" there is any issue as to the alidity o" the 8IRsdecision to assess the estate taxes6 this shouldhae been pursued through the proper

administratie and !udicial aenues proided "orby law#Section ++2 o" the NIRC tells us howBSec# ++2# /rotesting o" assessment#-Hhen theCommissioner o" Internal Reenue or his dulyauthori:ed representatie "inds that proper taxesshould be assessed6 he shall "irst noti"y thetaxpayer o" his "indings# Hithin a period to beprescribed by implementing regulations6 thetaxpayer shall be reuired to respond to saidnotice# I" the taxpayer "ails to respond6 theCommissioner shall issue an assessment basedon his "indings#Such assessment may be protestedadministratiely by "iling a reuest "or

reconsideration or reinestigation in such "ormand manner as may be prescribed byimplementing regulations within 3),4 days "romreceipt o" the assessment@ otherwise6 theassessment shall become "inal andunappealable#I" the protest is denied in whole or in part6 theindiidual6 association or corporation aderselya""ected by the decision on the protest mayappeal to the Court o" Tax (ppeals within thirty3),4 days "rom receipt o" said decision@ otherwise6the decision shall become "inal6 executory anddemandable# 3(s inserted by /#D# &11)4 (part "rom "ailing to "ile the reuired estate taxreturn within the time reuired "or the "iling o" the

same6 petitioner6 and the other heirs neeruestioned the assessments sered upon them6allowing the same to lapse into "inality6 andprompting the 8IR to collect the said taxes byleying upon the properties le"t by /resident<arcos#/etitioner submits6 howeer6 that while theassessment o" taxes may hae been alidlyunderta$en by the .oernment6 collection thereo" may hae been done in iolation o" the law#Thus6 the manner and method in which the latteris en"orced may be uestioned separately6 andirrespectie o" the "inality o" the "ormer6 becausethe .oernment does not hae the unbridleddiscretion to en"orce collection without regard tothe clear proision o" law#%i" QsupportFootnotes'%&>'%endi"'

/etitioner speci"ically points out that applying<emorandum Circular No# )5-;56 implementingSections )&5 and )+> o" the old tax code3Republic (ct 0+,)46 the 8IRs Notices o" 9ey onthe <arcos properties6 were issued beyond theallowed period6 and are there"ore null and oidB###the Notices o" 9ey on Real /roperty 3(nnexes, to NN o" (nnex C o" this /etition4 in satis"actiono" said assessments were still issued by

9



respondents well beyond the period mandated inReenue <emorandum Circular No# )5-;5#These Notices o" 9ey were issued only on ++February &22) and +, <ay &22) when at leastseenteen 3&14 months had already lapsed "romthe last serice o" tax assessment on &+September &22&# (s no notices o" distraint o"

personal property were "irst issued byrespondents6 the latter should hae complied withReenue <emorandum Circular No# )5-;5 andissued these Notices o" 9ey not earlier thanthree 3)4 months nor later than six 3;4 months"rom &+ September &22&# In accordance with theCircular6 respondents only had until &+ <arch&22+ 3the last day o" the sixth month4 withinwhich to issue these Notices o" 9ey# TheNotices o" 9ey6 haing been issued beyond theperiod allowed by law6 are thus oid and o" noe""ect#%i" QsupportFootnotes'%&0'%endi"'

He hold otherwise# The Notices o" 9ey uponreal property were issued within the prescriptieperiod and in accordance with the proisions o"

the present Tax Code# The de"iciency taxassessment6 haing already become "inal6executory6 and demandable6 the same can nowbe collected through the summary remedy o"distraint or ley pursuant to Section +,0 o" theNIRC#The applicable proision in regard to theprescriptie period "or the assessment andcollection o" tax de"iciency in this instance is (rticle ++) o" the NIRC6 which pertinentlyproidesBSec# ++)# 7xceptions as to a period o" limitationo" assessment and collection o" taxes#- 3a4 In thecase o" a "alse or "raudulent return with intent toeade tax or o" a "ailure to "ile a return6 the tax

may be assessed6 or a proceeding in court "or thecollection o" such tax may be begun withoutassessment6 at any time within ten 3&,4 yearsa"ter the discoery o" the "alsity6 "raud6 oromissionB %rovided 6 That6 in a "raud assessmentwhich has become "inal and executory6 the "acto" "raud shall be !udicially ta$en cogni:ance o" inthe ciil or criminal action "or the collectionthereo"#xxx3c4 (ny internal reenue tax which has beenassessed within the period o" limitation aboeprescribed6 may be collected by distraint or leyor by a proceeding in court within three years"ollowing the assessment o" the tax#xxxThe omission to "ile an estate tax return6 and thesubseuent "ailure to contest or appeal theassessment made by the 8IR is "atal to thepetitioners cause6 as under the aboe-citedproision6 in case o" "ailure to "ile a return6 the taxmay be assessed at any time within ten yearsa"ter the omission6 and any tax so assessed maybe collected by ley upon real property withinthree years "ollowing the assessment o" the tax#

Since the estate tax assessment had become"inal and unappealable by the petitioners de"aultas regards protesting the alidity o" the saidassessment6 there is now no reason why the 8IRcannot continue with the collection o" the saidtax# (ny ob!ection against the assessmentshould hae been pursued "ollowing the aenue

paed in Section ++2 o" the NIRC on protests onassessments o" internal reenue taxes#/etitioner "urther argues that the numerouspending court cases uestioning the latepresidents ownership or interests in seeralproperties 3both real and personal4 ma$e the totalalue o" his estate6 and the conseuent estate taxdue6 incapable o" exact pecuniary determinationat this time# Thus6 respondents assessment o"the estate tax and their issuance o" the Notices o" 9ey and sale are premature and oppressie# ?epoints out the pendency o" Sandiganbayan CiilCase Nos# ,,,&-,,)> and ,&>&6 which were "iledby the goernment to uestion the ownership andinterests o" the late /resident in real and personal

properties located within and outside the/hilippines# /etitioner6 howeer6 omits to allegewhether the properties leied upon by the 8IR inthe collection o" estate taxes upon the decedentsestate were among those inoled in the saidcases pending in the Sandiganbayan# Indeed6the court is at a loss as to how these cases arereleant to the matter at issue# The mere "actthat the decedent has pending cases inoling ill-gotten wealth does not a""ect the en"orcement o"tax assessments oer the properties indubitablyincluded in his estate#/etitioner also expresses his reseration as tothe propriety o" the 8IRs total assessment o"/+)6+2+6;,16;)5#,,6 stating that this amount

deiates "rom the "indings o" the Department o"*ustices /anel o" /rosecutors as per itsresolution o" +, September &22&# (llegedly6 thisis clear eidence o" the uncertainty on the part o"the .oernment as to the total alue o" the estateo" the late /resident#This is6 to our mind6 the petitioners last ditche""ort to assail the assessment o" estate taxwhich had already become "inal andunappealable#It is not the Department o" *ustice which is thegoernment agency tas$ed to determine theamount o" taxes due upon the sub!ect estate6 butthe 8ureau o" Internal Reenue%i" QsupportFootnotes'%&;'%endi"'

whose determinations and assessments arepresumed correct and made in good "aith#%i" Q

supportFootnotes'%&1'%endi"' The taxpayer has the duty o"proing otherwise# In the absence o" proo" o" anyirregularities in the per"ormance o" o""icial duties6an assessment will not be disturbed# 7en anassessment based on estimates is rima facie alid and law"ul where it does not appear to haebeen arried at arbitrarily or capriciously# Theburden o" proo" is upon the complaining party toshow clearly that the assessment is erroneous#

10



Failure to present proo" o" error in theassessment will !usti"y the !udicial a""irmance o"said assessment#%i" QsupportFootnotes'%&5'%endi"' In thisinstance6 petitioner has not pointed out one singleproision in the <emorandum o" the Special (uditTeam which gae rise to the uestionedassessment6 which bears a trace o" "alsity#

Indeed6 the petitioners attac$ on the assessmentbears mainly on the alleged improbable andunconscionable amount o" the taxes charged#8ut mere rhetoric cannot supply the basis "or thecharge o" impropriety o" the assessments made#<oreoer6 these ob!ections to the assessmentsshould hae been raised6 considering the ampleremedies a""orded the taxpayer by the Tax Code6with the 8ureau o" Internal Reenue and theCourt o" Tax (ppeals6 as described earlier6 andcannot be raised now ia /etition "or Certiorari 6under the pretext o" grae abuse o" discretion#The course o" action ta$en by the petitionerre"lects his disregard or een repugnance o" theestablished institutions "or goernance in the

scheme o" a well-ordered society# The sub!ecttax assessments haing become "inal6 executoryand en"orceable6 the same can no longer becontested by means o" a disguised protest# Inthe main6 Certiorari may not be used as asubstitute "or a lost appeal or remedy#%i" QsupportFootnotes'%&2'%endi"' This !udicial policy becomesmore pronounced in iew o" the absence o"su""icient attac$ against the actuations o"goernment#On the matter o" su""iciency o" serice o" Noticeso" (ssessment to the petitioner6 we "ind therespondent appellate courts pronouncementssound and resilient to petitioners attac$s#(nent grounds )3b4 and 384 - both

allegingclaiming lac$ o" notice - He "ind6 a"terconsidering the "acts and circumstances6 as wellas eidences6 that there was su""icient6constructie andor actual notice o" assessments6ley and sale6 sent to herein petitioner Ferdinand8ongbong <arcos as well as to his mother<rs# Imelda <arcos#7en i" we are to rule out the notices o"assessments personally gien to the careta$er o"<rs# <arcos at the latters last $nown address6 on (ugust +;6 &22& and September &+6 &22&6 aswell as the notices o" assessment personallygien to the careta$er o" petitioner also at his last$nown address on September &+6 &22& - thesubseuent notices gien therea"ter could nolonger be ignored as they were sent at a timewhen petitioner was already here in the/hilippines6 and at a place where said noticeswould surely be called to petitioners attention6and receied by responsible persons o" su""icientage and discretion#Thus6 on October +,6 &22+6 "ormal assessmentnotices were sered upon <rs# <arcos co thepetitioner6 at his o""ice6 ?ouse o" Representaties68atasan /ambansa6 #C# 3(nnexes (6 (-&6

(-+6 (-)@ pp# +,1-+&,6Comment<emorandum o" OS.4# <oreoer6 anotice to taxpayer dated October 56 &22+ initing<rs# <arcos to a con"erence relatie to her taxliabilities6 was "urnished the counsel o" <rs#<arcos - Dean (ntonio Coronel 3(nnex 86 p#+&&6 ibid4# Therea"ter6 copies o" Notices were

also sered upon <rs# Imelda <arcos6 thepetitioner and their counsel De 8or!a6 <edialdea6 (ta6 8ello6 .uearra and Serapio 9aw O""ice6 on (pril 16 &22) and *une &,6 &22)# Despite all o"these Notices6 petitioner neer li"ted a "inger toprotest the assessments6 3upon which the 9eyand sale o" properties were based46 nor appealedthe same to the Court o" Tax (ppeals#There being su""icient serice o" Notices to hereinpetitioner 3and his mother4 and it appearing thatpetitioner continuously ignored said Noticesdespite seeral opportunities gien him to "ile aprotest and to therea"ter appeal to the Court o"Tax (ppeals6 - the tax assessments sub!ect o"this case6 upon which the ley and sale o"

properties were based6 could no longer becontested 3directly or indirectly4 ia this instantpetition "or certiorari.%i" QsupportFootnotes'%+,'%endi"'

/etitioner argues that all the uestioned Noticeso" 9ey6 howeer6 must be nulli"ied "or haingbeen issued without alidly sering copies thereo" to the petitioner# (s a mandatory heir o" thedecedent6 petitioner aers that he has an interestin the sub!ect estate6 and notices o" ley upon itsproperties should hae been sered upon him#He do not agree# In the case o" notices o" leyissued to satis"y the delinuent estate tax6 thedelinuent taxpayer is the 7state o" the decedent6and not necessarily6 and exclusiely6 thepetitioner as heir o" the deceased# In the same

ein6 in the matter o" income tax delinuency o"the late president and his spouse6 petitioner is notthe taxpayer liable# Thus6 it "ollows that sericeo" notices o" ley in satis"action o" these taxdelinuencies upon the petitioner is not reuiredby law6 as under Section +&) o" the NIRC6 whichpertinently statesBxxx###9ey shall be e""ected by writing upon saidcerti"icate a description o" the property uponwhich ley is made# (t the same time6 writtennotice o" the ley shall be mailed to or seredupon the Register o" Deeds o" the proince or citywhere the property is located and upon thedelinuent taxpayer6 or i" he be absent "rom the/hilippines6 to his agent or the manager o" thebusiness in respect to which the liability arose6 ori" there be none6 to the occupant o" the propertyin uestion#xxxThe "oregoing notwithstanding6 the record showsthat notices o" warrants o" distraint and ley o"sale were "urnished the counsel o" petitioner on (pril 16 &22)6 and *une &,6 &22)6 and thepetitioner himsel" on (pril &+6 &22) at his o""ice at

11



the 8atasang /ambansa#%i" QsupportFootnotes'%+&'%endi"' Hecannot there"ore6 countenance petitionersinsistence that he was denied due process#Hhere there was an opportunity to raiseob!ections to goernment action6 and suchopportunity was disregarded6 "or no !usti"iablereason6 the party claiming oppression then

becomes the oppressor o" the orderly "unctions o" goernment# ?e who comes to court must comewith clean hands# Otherwise6 he not only taintshis name6 but ridicules the ery structure o"established authority#

IN IE "EREOF6 the CourtR7SO9V7D to D7NM the present petition# TheDecision o" the Court o" (ppeals dated Noember +26 &22> is hereby (FFIR<7D in all respects#SO OR%ERE%.

Republic o" the /hilippines

Supreme Court<anila T"IR% %IISION

RE$!#LIC OF T"E

$"ILI$$INES,

/etitioner ,

/ versus /

FER%INAN% R. MARCOS II-() IMEL%A R. MARCOS, Respondents.

G.R. No'.1<0<711<08== $re'e(t3MN(R7S-

S(NTI(.O6 # #6

Chairerson,C?ICO-

N(U(RIO6

V79(SCO6*R#6

N(C?ER(6and

/7R(9T(6 ##. $rom;-te)3 A;'t 4,200

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / // / / / / / / / / / / / / / / /

% E C I S I O N

$ERALTA, J.3

8e"ore this Court is a /etition "or Reiew

on Certiorari %i" QsupportFootnotes'%&'%endi"' under Rule >0 o"the Rules o" Court6 see$ing to set aside the<arch &)6 &221 Decision%i" QsupportFootnotes'%+'%endi"' and (ugust +16 &221 Resolution%i" QsupportFootnotes'%)'%endi"' o"the Court o" (ppeals 3C(4 in C(-.#R# S/ No#>)>0,#

The "acts o" the case are as "ollowsBOn *anuary &&6 &22;6 the RegionalTrial Court 3RTC4 o" /asig City 8ranch &0;6acting as a probate court6 in Special /roceedingNo# &,+126 issued an Order %i" QsupportFootnotes'%>'%endi"' granting letters testamentary in solidum torespondents Ferdinand R# <arcos II and ImeldaTrinidad Romualde:-<arcos as executors o" thelast will and testament o" the late Ferdinand 7#<arcos#

The dispositie portion o" the *anuary &&6&22; Order readsB

H?7R7FOR76 "inding the 9ast Hill and

Testament o" Ferdinand 7dralin <arcos to haebeen duly executed in accordance with law6 thesame is hereby (99OH7D (ND (D<ITT7D TO/RO8(T7#

!po( t5e 6(; o6 - bo() (t5e -mo(t o6$=0,000.00, et etter'te't-me(t-r* be ''e)( solidum to Ime)-

Tr()-) Rom-)e/M-r+o' AN% Fer)(-()Rom-)e M-r+o' II,(-me) ee+tor't5ere(.

/ending the "iling o" saidbond and their oath6Commissioner 9iwaywayVin:ons-Chato o" the8ureau o" InternalReenue is herebyauthori:ed to continueher "unctions as Special (dministrator o" the7state o" Ferdinand

12



7dralin <arcos#

9et NOTIC7 be gien to all$nown heirs andcreditors o" the decedent6and to any other personshaing an interest in theestate "or them to laytheir claim against the7state or "oreer holdtheir peace#

SO ORD7R7D#%i" QsupportFootnotes'%0'

%endi"'

On *anuary &06 &22;6 the petitionerRepublic o" the /hilippines "iled a <otion "or/artial Reconsideration%i" QsupportFootnotes'%;'%endi"' in so "ar

as the *anuary &&6 &22; RTC Order grantedletters testamentary to respondents# On the other hand6 respondent Imelda <arcos "iled her ownmotion "or reconsideration on the ground that thewill is lost and that petitioner has not proen itsexistence and alidity#

On February 06 &22;6 respondentFerdinand <arcos II "iled a Compliance statingthat he already "iled a bond in the amount o"/0,6,,,#,, as directed by the *anuary &&6 &22;

RTC Order and that he too$ his oath as namedexecutor o" the will on *anuary ),6 &22;#

On <arch &)6 &22;6 the RTC issued9etters o" (dministration%i" QsupportFootnotes'%1'%endi"' to 8IRCommissioner 9iwayway Vin:ons-Chato inaccordance with an earlier Order dated

September 26 &22>6 appointing her as Special (dministratrix o" the <arcos 7state#

On (pril &6 &22;6 respondent Ferdinand<arcos II "iled a <otion to Reo$e the 9etters o" (dministration issued by the RTC to 8IRCommissioner Vin:ons-Chato#

On (pril +;6 &22;6 the RTC issued anOrder %i" QsupportFootnotes'%5'%endi"' denying the motion "orpartial reconsideration "iled by petitioner as wellas the motion "or reconsideration "iled byrespondent Imelda <arcos6 the penultimateportion o" which readsB

Ender the Rules6 a decedentstestamentary priilege must be accorded utmostrespect# .uided by this legal precept6 there"ore6in resoling the two 3+4 motions at hand6 theCourt is constrained to D7NM both#

7xamining the argumentspoised by the moants6the Court obsered thatthese are but a mere

rehash o" issues alreadyraised and passed uponby the Court#

One has to reiew thepreious orders issuedby the Court in this case6e#g#6 the orders datedSeptember 26 &22>6Noember +06 &22>6 aswell as October )6 &2206to see that een as "arbac$ then6 the Court hasconsidered the matter o"competency o" theoppositors and o"

13



Commissioner 9iwaywayVin:ons-Chato as haingbeen settled#

It cannot be oerstressed thatthe assailed *anuary &&6&22; Orders o" the Courtwas arried at only a"terextensie considerationo" eery legal "acetaailable on the uestiono" alidity o" the Hill#

H?7R7FOR76 "or lac$ o" merit6 the motion"or reconsideration "iled separately by petitionerRepublic and oppositor Imelda R# <arcos areboth D7NI7D#

SO ORD7R7D#%i" QsupportFootnotes'%2'

%endi"'

On *une ;6 &22;6 petitioner "iled with thisCourt a /etition "or Reiew on Certiorari, underRuled >0 o" the Rules o" Court6 uestioning thea"orementioned RTC Orders granting letterstestamentary to respondents#

On February 06 &2216 the First Diision o"this Court issued a Resolution re"erring thepetition to the C(6 to witB

x x x x

The special ciil action "orcertiorari as well as allthe other pleadings "iledherein are REFERRE%to t5e Cort o6 Appe-'6or +o(')er-to( -()-)H)+-to( o( t5emert' or -(* ot5er-+to( -' t m-* )eem-ppropr-te6 the latterhaing !urisdictionconcurrent with this Courtoer the Case6 and thisCourt haing been cited

to no special andimportant reason "or it tota$e cogni:ance o" saidcase in the "irst instance#%i" QsupportFootnotes'%&,'%endi"' 37mphasis andEnderscoring Supplied4

On <arch &)6 &2216 the C( issued aDecision6%i" QsupportFootnotes'%&&'%endi"' dismissing there"erred petition "or haing ta$en the wrong modeo" appeal6 the pertinent portions o" which readsB

Conseuently6 "or haingta$en the wrong mode o"

appeal6 the presentpetition should bedismissed in accordancewith the same SpremeCort Cr+-r 2/0:5+5 epre''*pro)e' t5-t3

14



4. Erro(eo' Appe-' ? A( -ppe-

t-e( to et5er t5e Spreme Cort or t5eCort o6 Appe-' b* t5e :ro(; or(-ppropr-te mo)e '5- be )'m''e).

IN VI7H OF T?7FOR7.OIN.6 the instantpetition "or reiew ishereby DIS<ISS7D#

SO ORD7R7D#%i" QsupportFootnotes'%&+'%endi"'

/etitioner "iled a <otion "orReconsideration6%i" QsupportFootnotes'%&)'%endi"' which was6howeer denied by the C( in a Resolution %i" Q

supportFootnotes'%&>'%endi"' dated (ugust +16 &221# ?ence6 herein petition6 with petitionerraising the "ollowing assignment o" errors6 to witB I.

T?7 COERT OF (//7(9S.R(V79M 7RR7D INDIS<ISSIN. T?7/7TITION ONT7C?NIC(9 .ROENDSD7S/IT7 T?7SE/R7<7 COERTR7SO9ETION

S/7CIFIC(99MR7F7RRIN. S(ID/7TITION FOR (D7CISION ON T?7<7RITS#

II#

T?7 /RO8(T7 COERT .R(V79M7RR7D IN F(I9IN. TOCONSID7R T?(TR7S/OND7NTSI<79D( R# <(RCOS (ND F7RDIN(ND R#<(RCOS II S?OE9D 87DISE(9IFI7D TO (CT (ND S7RV7 (S7L7CETORS.

III#

T?7 /RO8(T7 COERT .R(V79M7RR7D IN F(I9IN. TOCONSID7R T?(T S(ID

/RIV(T7R7S/OND7NTS ?(V7D7NI7D (NDDISC9(I<7D T?7 V7RM7LIST7NC7 (NDV(9IDITM OF T?7<(RCOS HI99#

15



IV#

T?7 /RO8(T7 COERT .R(V79M

7RR7D IN F(I9IN. TOCONSID7R T?(T ITSORD7R OF *(NE(RM&&6 &22;6 H?IC? (D<ITT7D T?7<(RCOS HI99 TO/RO8(T7 (ND H?IC?DIR7CT7D T?7ISSE(NC7 OF

97TT7RST7ST(<7NT(RM INSO9IDE< TO /RIV(T7R7S/OND7NTS (S7L7CETORS OF S(ID<(RCOS HI996 H(S8(S7D ON T?77VID7NC7 OF T?7R7/E89IC (9ON7#

V#

T?7 /RO8(T7 COERT .R(V79M7RR7D IN F(I9IN. TOCONSID7R T?(T 8OT?/RIV(T7R7S/OND7NTS ?(V7O8STRECT7D T?7TR(NSF7R TO T?7/?I9I//IN7S OF T?7<(RCOS (SS7TS

D7/OSIT7D IN T?7SHISS 8(NAS#%i" Q

supportFootnotes'%&0'%endi"'

In the meantime6 on October 26 +,,+6the RTC6 acting on the pending unresoledmotions be"ore it6 issued an Order %i" QsupportFootnotes'%&;'

%endi"' which readsB

H?7R7FOR76 the Court hereby appointsas Ho(t 'pe+- -)m('tr-tor' o" the estate o"the late Ferdinand 7# <arcos6 the nominee o" theRepublic o" the /hilippines 3the Endersecretary o" the Department o" *ustice whom the Secretary o"*ustice will designate "or this purpose4 and <rs#

Imelda Romualde: <arcos and <r# Ferdinand R#<arcos II6 to sere as such until an executor is"inally appointed#

SO ORD7R7D#

The petition is without merit#

Hhen the assailed Orders granting letterstestamentary in solidum to respondents wereissued by the RTC6 petitioner sought to uestionthem by "iling a petition "or reiew on certiorari under Rule >0 o" the Rules o" Court#

Supreme Court Circular No# +-2,6%i" Q

supportFootnotes'%&1'%endi"' which was then in e""ect6 readsB

+# (ppeals "rom Regional Trial Courts to

the Supreme Court# 7xcept in criminal caseswhere the penalty imposed is li"e imprisonment toreclusion perpetua6 H);me(t' o6 re;o(- tr-+ort' m-* be -ppe-e) to t5e Spreme Corto(* b* petto( 6or ree: o( +ertor-r (-++or)-(+e :t5 Re 4= o6 t5e Re' o6 Cort( re-to( to Se+to( 17 o6 t5e &)+-r* A+t o6 148, as amended6 this being the clearintendment o" the proision o" the Interim Rules

16



that J3a4ppeals to the Supreme Court shall beta$en by petition "or certiorari which shall begoerned by Rule >0 o" the Rules o" Court# 37mphasis and Enderscoring Supplied4

The pertinent portions o" Section &1%i" Q

supportFootnotes'%&5'%endi"' o" the *udiciary (ct o" &2>5

readBThe Supreme Court shall "urther hae exclusie !urisdiction to reiew6 reise6 reerse6 modi"y ora""irm on certiorari as the law or rules o" courtmay proide6 "inal !udgments and decrees o"in"erior courts as herein proided6 in 3&4 (ll cases in which the constitutionality oralidity o" any treaty6 law6 ordinance6 or executieorder or regulation is in uestion@3+4 (ll cases inoling the legality o" any tax6impost6 assessment or toll6 or any penaltyimposed in relation thereto@3)4 (ll cases in which the !urisdiction o" anyin"erior court is in issue@3>4 (ll other cases in which only errors or

uestions o" law are inoledB /roided6 howeer6That i"6 in addition to constitutional6 tax or !urisdictional uestions6 the cases mentioned inthe three next preceding paragraphs also inoleuestions o" "act or mixed uestions o" "act andlaw6 the aggrieed party shall appeal to the Courto" (ppeals@ and the "inal !udgment or decision o"the latter may be reiewed6 reised6 reersed6modi"ied or a""irmed by the Supreme Court onwrit o" certiorari @ and304 Final awards6 !udgments6 decision or orders o" the Commission on 7lections6 Court o" Tax (ppeals6 Court o" Industrial Relations6 the /ublicSerice Commission6 and the Hor$mensCompensation Commission#

( reading o" Supreme Court Circular +-2,6in relation to Section &1 o" the *udiciary (ct o"&2>56 clearly shows that the sub!ect matter o"therein petition6 that is6 the propriety o" grantingletters testamentary to respondents6 do not "allwithin any ground which can be the sub!ect o" adirect appeal to this Court# The C( was thuscorrect in declaring that the Jissues raised bypetitioner do not "all within the puriew o" Section&1 o" the *udiciary (ct o" &2>5 such that theSupreme Court should ta$e cogni:ance o" theinstant case#K%i" QsupportFootnotes'%&2'%endi"'

<oreoer6 the Courtspronouncement in Suare" v. #udge $illarama%i" Q

supportFootnotes'%+,'%endi"' is instructieBSe+to( 4 o6 Cr+-r No. 2/0, ( e66e+t -t t5etme o6 t5e -(te+e)e(t', pro)e' t5-t -(-ppe- t-e( to et5er t5e Spreme Cort ort5e Cort o6 Appe-' b* t5e :ro(; mo)e or(-ppropr-te mo)e '5- be )'m''e)# Thisrule is now incorporated in Section 06 Rule 0; o"the &221 Rules o" Ciil /rocedure#Moreoer, t5e 6(; o6 t5e +-'e )re+t* :t5

t5' Cort r(' -6o o6 t5e )o+tr(e o65er-r+5* o6 +ort'# $r'-(t to t5' )o+tr(e,)re+t re'ort 6rom t5e o:er +ort' to t5eSpreme Cort : (ot be e(tert-(e) (e''t5e -ppropr-te reme)* +-((ot be obt-(e) (t5e o:er trb(-'# This Court is a court o" lastresort6 and must so remain i" it is to satis"actorily

per"orm the "unctions assigned to it by theConstitution and immemorial tradition# T5', -petto( 6or ree: o( +ertor-r -''-(; t5e)e+'o( (o(; bot5 e'to(' o6 6-+t -()-: m't 6r't be bro;5t be6ore t5e Cort o6Appe-'#%i" QsupportFootnotes'%+&'%endi"'

(lso6 in Southern &egros

Develoment 'ank v. Court of !eals,%i" Q

supportFootnotes'%++'%endi"' this Court ruledBIt is

incumbent upon priaterespondent (uaappellants to utili:e thecorrect mode o" appeal o"

the decisions o" trialcourts to the appellatecourts# In the mista$enchoice o" their remedy6they can blame no onebut themseles 3*ocson# 8aguio6 &12 SCR( 00,%&252'@ Mucuanseh DrugCo# # National 9aborEnion6 &,& /hil# >,2%&201'4#

x x x x

$r'-(t to Se+to( 4 o6 Cr+-r No. 2/0,:5+5 pro)e' t5-t J[-]( -ppe- t-e( toet5er t5e Spreme Cort or t5e Cort o6Appe-' b* t5e :ro(; mo)e or (-ppropr-temo)e '5- be )'m''e),J t5e o(* +or'e o6-+to( o6 t5e Cort to :5+5 -( erro(eo'-ppe- ' m-)e ' to )'m'' t5e '-me# T5ere' (o o(;er -(* H't6+-to( 6or -o:(;

tr-('6er' o6 erro(eo' -ppe-' 6rom o(e +ortto -(ot5er 3uesada # Court o" (ppeals6 .#R#No# 2)5;26 Noember &+6 &22,6 First Diision6<inute Resolution4#%i" QsupportFootnotes'%+)'%endi"'

8ased on the "oregoing6 petitioner

cannot deny that the determination o" whether ornot respondents should be disuali"ied to act asexecutors is a uestion o" "act# ?ence6 the proper remedy was to appeal to the C(6 not to thisCourt#

17



/etitioner is adamant6 howeer6 that

notwithstanding the improper remedy6 the C(should not hae dismissed therein petition#/etitioner argues in the wiseB ?oweer6 as can be seen in

the Resolution o"

February 06 &2216 3(nnexJ?K4 this ?onorable Courtdeemed it more proper totransmit the "irst /etition"or Reiew to respondentappellate court "or thereason thatB

This Court haing been citedto no special andimportant reason "or it tota$e cogni:ance o" saidcase in the "irst instance#x x x

It would appear then thateen though this?onorable Courtapparently considers theRepublics petition asdesering to be giendue course6 it deemed itin the best interest o" theparties concerned i" theCourt o" (ppeals would"irst ta$e cogni:ance o"

said case6 therebypresering its stance as acourt o" last resort#

(dditionally6 this ?onorableCourt itsel" plainly statedthat the case underreiew isB

P#R7F7RR7D to the Courto" (ppeals "orconsideration andad!udication on themeritsP# The latterhaing !urisdictionconcurrent with this Courtoer the casePP%i" Q

supportFootnotes'%+>'%endi"'

/etitioners arguments are misplaced# To

stress6 the February 06 &221 Resolution readsB

The special ciil action "orcertiorari as well as allthe other pleadings "iledherein are R7F7RR7Dto the Court o" (ppeals

"or consideration andad!udication on themerits or -(* ot5er-+to( -' t m-* )eem-ppropr-te6 the latterhaing !urisdictionconcurrent with this Courtoer the Case6 and thisCourt haing been citedto no special andimportant reason "or it tota$e cogni:ance o" saidcase in the "irst instance#%i" QsupportFootnotes'%+0'%endi"'

8ased thereon6 this Court agreeswith the ruling o" the C( that said resolution gaethe C( discretion and latitude to decide thepetition as it may deem proper# The resolution isclear that the petition was re"erred to the C( "orconsideration and ad!udication on the merits or any other action as it may deem appropriate#

18



Thus6 no error can be attributed to the C( whenthe action it deemed appropriate was to dismissthe petition "or haing aailed o" an improperremedy# <ore importantly6 the action o" the C(was sanctioned under Section > o" SupremeCourt Circular +-2, which proides that Janappeal ta$en to either the Supreme Court or the

Court o" (ppeals by the wrong mode orinappropriate mode shall be dismissed#K <oreoer6 petitioner mista$enly relies in)riental *edia, +nc. v. Court of !eals6%i" QsupportFootnotes'%+;'%endi"' in which this Court made the"ollowing pronouncementsB I( t5e +-'e -t b-r, t5ere :-' (o r;e(+*or (ee) 6or Ore(t- to re'ort to t5eetr-or)(-r* reme)* o6 certiorari "or when itlearned o" the case and the !udgment against iton *uly +06 &25;6 due to its receipt o" a copy o"the decision by de"ault@ no execution had as yetbeen ordered by the trial court# (sa"orementioned6 Oriental had still the time andthe opportunity to "ile a motion "or

reconsideration6 as was actually done# !po( t5e)e(- o6 t' moto( 6or re+o(')er-to( ( t5e6r't +-'e, or -t t5e -te't po( t5e )e(- o6t' petto( 6or ree6 6rom H);me(t, Ore(t-'5o) 5-e -ppe-e)# Oriental should hae"ollowed the procedure set "orth in the Rules o"Court "or Rules o" procedure are intended to ensure theorderly administration o" !ustice and theprotection o" substantie rights in !udicial andextra!udicial proceedings# It is a mista$e topurpose that substantie law and ad!ectie laware contradictory to each other or6 as has o"tenbeen suggested6 that en"orcement o" proceduralrules should neer be permitted i" it will result in

pre!udice to the substantie rights o" the litigants#This is not exactly true@ the concept is muchmisunderstood# (s a matter o" "act6 the policy o"the courts is to gie e""ect to both $inds o" law6 ascomplementing each other6 in the !ust and speedyresolution o" the dispute between the parties#Obserance o" both substantie rights is euallyguaranteed by due process whateer the sourceo" such rights6 be it the Constitution itsel" or onlya statute or a rule o" court# %i" QsupportFootnotes'%+1'%endi"'

In the case at bar6 as "ound by thisCourt in its February 06 &221 Resolution6 thereinpetition o""ered no important or special reason "or the Court to ta$e cogni:ance o" it at the "irstinstance# /etitioner o""ered no plausible reasonwhy it went straight to this Court when anadeuate and proper remedy was still aailable#

The C( was thus correct that the remedy thatpetitioner should hae aailed o" was to "ile anappeal under Rule &,2 o" the Rules o" Courtwhich statesB

Section &# )rders of udgments from hichaeals taken. A((tere'te) per'o( m-*-ppe- ( 'pe+-pro+ee)(;' "rom anorder or !udgmentrendered by a Court o"First Instance or a*uenile and Domestic

Relations Court6 wheresuch order or !udgmentB

%i" Qsupport9ists'3a4 %endi"'-o:' ordisallows - :@

8ecause o" the preceding discussion6herein petition must necessarily "ail# ?oweer6een i" this Court were to set aside petitionersprocedural lapses6 a care"ul reiew o" the records

o" the case reeal that herein petition is withoutmerit#

(t the crux o" the controersy is adetermination o" whether or not respondents areincompetent to sere as executors o" the will o"Ferdinand <arcos#

)"eata v. %ecson%i" QsupportFootnotes'%+5'%endi"' is instructieB The choice o" his executor is a preciousprerogatie o" a testator6 a necessary

19



concomitant o" his right to dispose o" his propertyin the manner he wishes# It is natural that thetestator should desire to appoint one o" hiscon"idence6 one who can be trusted to carry outhis wishes in the disposal o" the estate# Thecurtailment o" this right may be considered as acurtailment o" the right to dispose# (nd as the

rights granted by will ta$e e""ect "rom the time o"death 3(rticle 1116 Ciil Code o" the /hilippines46the management o" his estate by theadministrator o" his choice should be made assoon as practicable6 when no reasonableob!ection to his assumption o" the trust can beinterposed any longer# It 5-' bee( 5e) t5-t:5e( - : 5-' bee( -)mtte) to prob-te, t 't5e )t* o6 t5e +ort to ''e etter'te't-me(t-r* to t5e per'o( (-me) -'ee+tor po( 5' -pp+-to( 3+) C#*# &,+)4# x x x x

The case o"+n re rlanger/s state6+>+ N#M#S# +>26 also

reiterates the sameprinciple#

The courtshae always respectedthe right to which atestator en!oys todetermine who is mostsuitable to settle histestamentary a""airs6 andhis solemn selection

should not lightly bedisregarded# A6ter t5e-)m''o( o6 - : toprob-te, t5e +ort' :(ot (-me - betteree+tor 6or t5ete't-tor (or )'-6*,b* - H)+- eto, t5e:)o: or 6re() orot5er per'o( 'ee+te)( t5e :, e+ept po('tr+t proo6 o6 t5e't-ttor* ;ro()' o6(+ompete(+*# <atter o" 9elands Hill6 +&2 N#M#

)516 )2)6 &&> N#7# 50>#x x x%i" QsupportFootnotes'%+2'%endi"'

Section &3c46 Rule 15 o" the Rules o"

Court de"ines who are incompetent to sere asexecutors6 to witB

Section &# 0ho are

incometent to serve asexecutors oradministrators. Noperson is competent tosere as executor or

administrator whoB

x x x x

3c4 I' ( t5e op(o( o6 t5e+ort un"it to execute theduties o" trust by reasono" drun$enness6improidence6 or :-(t o6 understanding or(te;rt*6 or by reason o"

+o(+to( o6 -(o66e('e (o(; mor-trpt)e# 37mphasisSupplied4

In the case at bar6 petitioner

anchored its opposition to the grant o" letterstestamentary to respondents6 speci"ically on the"ollowing groundsB 3&4 want o" integrity6 and 3+4coniction o" an o""ense inoling moral

turpitude# /etitioner contends that respondentshae been conicted o" a number o" cases %i" Q

supportFootnotes'%),'%endi"' and6 hence6 should becharacteri:ed as one without integrity6 or at theleast6 with uestionable integrity#%i" QsupportFootnotes'%)&'

%endi"'

The RTC6 howeer6 in its *anuary &&6&22; Order6 made the "ollowing "indingsB

20



?oweer6except "or petitionerRepublics allegation o"want o" integrity on thepart o" Imelda TrinidadRomualde:-<arcos andFerdinand Romualde:

<arco II6 namedexecutors in the last willand testament6 so as torender themJincompetentK to sere asexecutors6 t5e Cort'ee' -t t5' tme, (oe)e(+e o( re+or),or- or )o+me(t-r*, to'b't-(t-te -()'pport t5e '-)-e;-to(# 37mphasisSupplied4

8ased on the "oregoing6 this Court

stresses that an appellate court is disinclined tointer"ere with the action ta$en by the probatecourt in the matter o" remoal o" an executor oradministrator unless positie error or gross abuseo" discretion is shown#%i" QsupportFootnotes'%)+'%endi"' TheRules o" Court gies the lower court the duty anddiscretion to determine whether in its opinion anindiidual is un"it to sere as an executor# Thesu""iciency o" any ground "or remoal should thusbe determined by the said court6 whose

sensibilities are6 in the "irst place6 a""ected by anyact or omission on the part o" the administratornot con"ormable to or in disregard o" the rules o"orders o" the court#%i" QsupportFootnotes'%))'%endi"'

?ence6 in order to reerse the"indings o" the RTC6 this Court must ealuate theeidence presented or alleged by petitioner insupport o" its petition "or disuali"ication#?oweer6 a"ter a painsta$ing reiew o" therecords and eidence on hand6 this Court "indsthat the RTC committed no error or gross abuseo" discretion when it ruled that petitioner "ailed tosubstantiate its allegation#

/etitioner coneniently omits to state

that the two cases against respondent Imelda<arcos hae already been reersed by thisCourt# ?er coniction in Criminal Case No# &1>0)was reersed by this Court in Dans, #r. v. %eole.%i" QsupportFootnotes'%)>'%endi"' 9i$ewise6 her coniction inCriminal Case No# &1>0, was reersed by thisCourt in *arcos v. Sandiganba1an.%i" QsupportFootnotes'%)0'

%endi"' ?ence6 the so-called JconictionsK againstrespondent Imelda <arcos cannot sere as aground "or her disuali"ication to sere as an

executor#

On the other hand6 the eight cases "iledagainst respondent Ferdinand <arcos II inole"our charges "or iolation o" Section >0 3"ailure to"ile income tax returns4 and "our charges "oriolation o" Section 0, 3non-payment o"

de"iciency taxes4 o" the National InternalReenue Code o" &211 3NIRC4#

It is a matter o" record6 that in C(-.#R# CR No# &50;26%i" QsupportFootnotes'%);'%endi"' the C(acuitted respondent Ferdinand <arcos II o" allthe "our charges "or iolation o" Section 0, andsustained his coniction "or all the "our charges"or iolation o" Section >0# It6 howeer6 bears tostress6 that the C( only ordered respondent<arcos II to pay a "ine "or his "ailure to "ile hisincome tax return# <oreoer6 and as admitted bypetitioner6%i" QsupportFootnotes'%)1'%endi"' said decision is stillpending appeal#

There"ore6 since respondent Ferdinand<arcos II has appealed his coniction relating to"our iolations o" Section >0 o" the NIRC6 thesame should not sere as a basis to disuali"yhim to be appointed as an executor o" the will o"his "ather# <ore importantly6 een assumingarguendo that his coniction is later on a""irmed6the same is still insu""icient to disuali"y him asthe J"ailure to "ile an income tax returnK is not acrime inoling moral turpitude#

In $illaber v. Commision on lections, %i" Q

supportFootnotes'%)5'%endi"' this Court heldB

(s to the

meaning o" moralturpitude6 we haeconsistently adopted thede"inition in 8lac$s 9awDictionary as -( -+t o6b-'e(e'', e(e'', or)epr-t* ( t5e pr-te)te' :5+5 - m-(o:e' 5' 6eo: me(, or to 'o+et* ( ;e(er-,+o(tr-r* to t5e-++epte) -()+'tom-r* re o6 r;5t-() )t* bet:ee( m-(-() :om-(, or +o()+t+o(tr-r* to H't+e,5o(e't*, mo)e't*, or;oo) mor-'#

In +n re$in"on, the term moral

21



turpitude is consideredas encompassingeerything which is donecontrary to !ustice6honesty6 or good morals#

x x x x

He6howeer6 clari"ied in DelaTorre vs. Commissionon Elections that (oteer* +rm(- -+t(oe' mor-trpt)e6 and that -'

to :5-t +rme (oe'mor- trpt)e ' 6ort5e Spreme Cort to)eterm(e#%i" QsupportFootnotes'

%)2'%endi"'

<oreoer6 In De #esus-%aras v.$ailocesB%i" QsupportFootnotes'%>,'%endi"'

Indeed6 it is well-settled that embe::lement6"orgery6 robbery6 and swindling are crimes whichdenote moral turpitude and6 -' - ;e(erre,- +rme' o6 :5+5 6r-) ' -( eeme(t -reooe) o( -' (o(; mor- trpt)e 305C#*#S#6 &+,;4#

The J"ailure to "ile an income taxreturnK is not a crime inoling moral turpitude asthe mere omission is already a iolationregardless o" the "raudulent intent or will"ulness o"

the indiidual# This conclusion is supported by theproisions o" the NIRC as well as preious Courtdecisions which show that with regard to the "ilingo" an income tax return6 the NIRC considers threedistinct iolationsB 3&4 a "alse return6 3+4 a"raudulent return with intent to eade tax6 and 3)4"ailure to "ile a return#

The same is illustrated in Section 0&3b4 o"the NIRC which readsB

3b4 (ssessment and payment o" de"iciencytax xxx

In case a per'o( 6-' tom-e -() 6e - retr( or list at the timeprescribed by law6 or m-e' :6* orot5er:'e, 6-'e or6r-)e(t retr( or listx x x# 37mphasisSupplied4

9i$ewise6 in !"nar v. Court of Tax !eals,%i" QsupportFootnotes'%>&'%endi"' this Court obseredB

To our mindswe can dispense withthese controersialarguments on "acts6although we do not denythat the "indings o" "actsby the Court o" Tax (ppeals6 supported asthey are by erysubstantial eidence6carry great weight6 byresorting to a properinterpretation o" Section

))+ o" the NIRC# Hebeliee that the properand reasonableinterpretation o" saidproision should be thatin the three di""erentcases o" @1 6-'e retr(,@2 6r-)e(t retr(:t5 (te(t to e-)e t-,@< 6-re to 6e -retr(6 the tax may be

22



assessed6 or aproceeding in court "orthe collection o" such taxmay be begun withoutassessment6 at any timewithin ten years a"ter thediscoery o" the @1

6-'t*, @2 6r-), -() @<om''o(# Or 't-()t5-t t5e -: '5o) be(terprete) to me-( -'ep-r-to( o6 t5e t5ree)66ere(t 't-to(' o66-'e retr(, 6r-)e(tretr( :t5 (te(t toe-)e t-, -() 6-reto 6e - retr( ''tre(;t5e(e)mme-'r-b* b* t5e-'t porto( o6 t5epro'o( :5+5'e;re;-te' t5e

't-to(' (to t5ree)66ere(t +-''e',(-me*, J6-'t*,JJ6r-)J -()Jom''o(.J[6 K

'pportFoot(ote'][42][e()6] 37mphasis Supplied4

(pplying the "oregoing considerationsto the case at bar6 the "iling o" a J"raudulent returnwith intent to eade taxK is a crime inolingmoral turpitude as it entails will"ulness and"raudulent intent on the part o" the indiidual# Thesame6 howeer6 cannot be said "or J"ailure to "ilea returnK where the mere omission alreadyconstitutes a iolation# Thus6 this Court holds thateen i" the coniction o" respondent <arcos II isa""irmed6 the same not being a crime inolingmoral turpitude cannot sere as a ground "or his

disuali"ication# (nent the third error raised by

petitioner6 the same has no merit#

/etitioner contends that respondentsdenied the existence o" the will6 and are6there"ore6 estoed "rom claiming to be theright"ul executors thereo"# /etitioner "urtherclaims that said actions clearly show thatrespondents lac$ the competence and integrity to

sere as o""icers o" the court#

This Court does not agree with theposture ta$en by petitioner6 and instead6 acceptsthe explanation gien by respondents6 to witB Respondents opposed the petition "or probate not

because they are disclaiming the existence o" thewill6 but because o" certain legal grounds6 to witB3a4 petitioner does not hae the reuisite interestto institute it@ 3b4 the original copy o" the will wasnot attached to the petition "or probate asreuired by the rules@ and 3c4 the Commissionero" the 8ureau o" Internal Reenue is not uali"iedto be appointed as administrator o" the estate# %i" Q

supportFootnotes'%>)'%endi"'

8ased on the "oregoing6 consideringthe nature o" their opposition6 respondents cannotbe held guilty o" estoel as they merely actedwithin their rights when they put in issue legalgrounds in opposing the probate proceedings#<ore importantly6 een i" said grounds were lateron oerruled by the RTC6 said court was still o"opinion that respondents were "it to sere asexecutors notwithstanding their earlier opposition# (gain6 in the absence o" palpable error or grossabuse o" discretion6 this Court will not inter"erewith the RTCs discretion#

(s "or the remaining errors assigned

by petitioner6 the same are bere"t o" merit#

/etitioner contends that respondentshae strongly ob!ected to the trans"er to the/hilippines o" the <arcos assets deposited in theSwiss 8an$s%i" QsupportFootnotes'%>>'%endi"' and thus thesame should sere as a ground "or theirdisuali"ication to act as executors# This Courtdoes not agree# In the "irst place6 the same aremere allegations which6 without proo"6 deserescant consideration# Time and again6 this Courthas stressed that this Court is a court o" law andnot a court o" public opinion# <oreoer6 petitionerhad already raised the same argument in itsmotion "or partial reconsideration be"ore the RTC#

Said court6 howeer6 still did not "ind the same asa su""icient ground to disuali"y respondents# (gain6 in the absence o" palpable error or grossabuse o" discretion6 this Court will not inter"erewith the RTCs discretion#

9astly6 petitioner argues that theassailed RTC Orders were based solely on theirown eidence and that respondents o""ered noeidence to show that they were uali"ied tosere as executors#%i" QsupportFootnotes'%>0'%endi"' It is basic

23



that one who alleges a "act has the burden o"proing it and a mere allegation is not eidence# %i" Q

supportFootnotes'%>;'%endi"' Conseuently6 it was the burdeno" petitioner 3not respondents4 to substantiate thegrounds upon which it claims that respondentsshould be disuali"ied to sere as executors6 andhaing "ailed in doing so6 its petition must

necessarily "ail# "EREFORE6 premises considered6 the

<arch &)6 &221 Decision and (ugust +16 &221Resolution o" the Court o" (ppeals in C(-.#R# S/No# >)>0, are hereby AFFIRME%#

The Regional Trial Court o" /asigCity6 8ranch &0;6 acting as a probate court inSpecial /roceeding No# &,+126 is herebyOR%ERE% to issue letters testamentary6 insolidum, to Imelda Romualde:-<arcos andFerdinand <arcos II#

SO OR%ERE%.

T"IR% %IISION

RAFAEL ARSENIO S.%ION, ( 5' +-p-+t* -'t5e &)+- A)m('tr-toro6 t5e E't-te o6 t5e)e+e-'e) &OSE $.FERNAN%E,

- ersus -

CO!RT OF TA A$$EALS-() COMMISSIONER OFINTERNAL REEN!E, Respondents#

G.R. No.14044 /resentB MN(R7S-S(NTI(.O6#.,

Chairerson, (ESTRI(-<(RTIN7U6C?ICO-N(U(RIO6N(C?ER(6andR7M7S6 ##. /romulgatedB (pril ),6

+,,5 x------------------------------------------------------------------------------------x

%ECISION NAC"!RA, J .3

8e"ore this Court is a /etition "or Reiewon Certiorari %i" QsupportFootnotes'%&'%endi"' under Rule >0 o"the Rules o" Ciil /rocedure see$ing the reersal

o" the Court o" (ppeals 3C(4 Decision %i" Q

supportFootnotes'%+'%endi"' dated (pril ),6 &222 whicha""irmed the Decision%i" QsupportFootnotes'%)'%endi"' o" theCourt o" Tax (ppeals 3CT(4 dated *une &16 &221#%i" QsupportFootnotes'%>'%endi"'

The Facts

On Noember 16 &2516 *ose /# Fernande:3*ose4 died# Therea"ter6 a petition "or the probateo" his will%i" QsupportFootnotes'%0'%endi"' was "iled with 8ranch0& o" the Regional Trial Court 3RTC4 o" <anila3probate court4#%i" QsupportFootnotes'%;'%endi"' The probatecourt then appointed retired Supreme Court*ustice (rsenio /# Di:on 3*ustice Di:on4 andpetitioner6 (tty# Ra"ael (rsenio /# Di:on3petitioner4 as Special and (ssistant Special (dministrator6 respectiely6 o" the 7state o" *ose37state4# In a letter %i" QsupportFootnotes'%1'%endi"' datedOctober &)6 &2556 *ustice Di:on in"ormedrespondent Commissioner o" the 8ureau o"

Internal Reenue 38IR4 o" the specialproceedings "or the 7state#

/etitioner alleged that seeral reuests "orextension o" the period to "ile the reuired estatetax return were granted by the 8IR since theassets o" the estate6 as well as the claims againstit6 had yet to be collated6 determined andidenti"ied# Thus6 in a letter %i" QsupportFootnotes'%5'%endi"' dated<arch &>6 &22,6 *ustice Di:on authori:ed (tty#*esus <# .on:ales 3(tty# .on:ales4 to sign and"ile on behal" o" the 7state the reuired estate taxreturn and to represent the same in securing aCerti"icate o" Tax Clearance# 7entually6 on (pril&16 &22,6 (tty# .on:ales wrote a letter %i" Q

supportFootnotes'%2'%endi"' addressed to the 8IR RegionalDirector "or San /ablo City and "iled the estatetax return%i" QsupportFootnotes'%&,'%endi"' with the same 8IRRegional O""ice6 showing therein a NI9 estate taxliability6 computed as "ollowsB

CO</ET(TION OF T(L Con!ugal Real /roperty 3Sch# &4

/&,65006,+,#,,Con!ugal /ersonal /roperty 3Sch#+4

)6>;,602&#)>Taxable Trans"er 3Sch# )4.ross Con!ugal 7state

&>6)&06;&&#)>9essB Deductions 3Sch# >4

&5165++601;#,;Net Con!ugal

7stateNI9

9essB Share o" Suriing SpouseNI9 #

Net Share in Con!ugal

24



7state NI9 x x xNet Taxable 7state

NI9 #7state Tax Due

NI9 #%i" QsupportFootnotes'%&&'%endi"'

On (pril +16 &22,6 8IR RegionalDirector "or San /ablo City6 Osmundo .# Emaliissued Certi"ication Nos# +,0+%i" QsupportFootnotes'%&+'%endi"' and +,0)%i" QsupportFootnotes'%&)'%endi"' stating that the taxesdue on the trans"er o" real and personalproperties%i" QsupportFootnotes'%&>'%endi"' o" *ose had been"ully paid and said properties may be trans"erredto his heirs# Sometime in (ugust &22,6 *usticeDi:on passed away# Thus6 on October ++6 &22,6the probate court appointed petitioner as theadministrator o" the 7state#%i" QsupportFootnotes'%&0'%endi"'

/etitioner reuested the probate

courts authority to sell seeral properties "ormingpart o" the 7state6 "or the purpose o" paying itscreditors6 namelyB 7uitable 8an$ing Corporation3/&2610;6>+5#)&46 8anue de 9Indochine et# deSue: 3ESW>65+562,0#2, as o" *anuary )&6 &25546<anila 8an$ing Corporation 3/5>6&226&;,#>; aso" February +56 &2524 and State Inestment?ouse6 Inc# 3/;6+5,6,,;#+&4# /etitionermani"ested that <anila 8an$6 a ma!or creditor o"the 7state was not included6 as it did not "ile aclaim with the probate court since it had securityoer seeral real estate properties "orming part o" the 7state#%i" QsupportFootnotes'%&;'%endi"'

?oweer6 on Noember +;6 &22&6 the (ssistant Commissioner "or Collection o" the 8IR6Themistocles <ontalban6 issued 7state Tax (ssessment Notice No# F(S-7-51-2&-,,)+;26%i" QsupportFootnotes'%&1'%endi"' demanding the payment o"/;;621)6250#>, as de"iciency estate tax6 itemi:edas "ollowsB De"iciency 7state Tax- &251

7statetax/)&65;56>&>#>5

+0= surcharge- late "iling162;16&,)#;+

latepayment 162;16&,)#;+

Interest&26&+&6,>5#;5

Compromise-non"iling +06,,,#,,

nonpayment +06,,,#,,

no notice o"death &0#,,

no C/(Certi"icate ),,#,,

Total amount due

collectible / ;;621)6250#>,%i" QsupportFootnotes'%&5' %endi"'

In his letter %i" QsupportFootnotes'%&2'%endi"' datedDecember &+6 &22&6 (tty# .on:ales moed "orthe reconsideration o" the said estate taxassessment# ?oweer6 in her letter %i" QsupportFootnotes'%+,'

%endi"' dated (pril &+6 &22>6 the 8IR Commissionerdenied the reuest and reiterated that the estateis liable "or the payment o" /;;621)6250#>, asde"iciency estate tax# On <ay )6 &22>6 petitionerreceied the letter o" denial# On *une +6 &22>6petitioner "iled a petition "or reiew%i" QsupportFootnotes'%+&'

%endi"' be"ore respondent CT(# Trial on the meritsensued#

(s "ound by the CT(6 the respectie partiespresented the "ollowing pieces o" eidence6 to witB

In the hearings conducted6 petitioner didnot present testimonial eidence but merelydocumentary eidence consisting o" the "ollowingB

Nature o" Document3sic4

7xhibits &# 9etter dated October &)6 &255

"rom (rsenio /# Di:onaddressed

to the Commissioner o"Internal

Reenue in"orming the lattero"

the special proceedings "orthe

25



settlement o" the estate 3p#&+;6

8IRrecords4@

(

+# /etition "or the probate o" the

will and issuance o" letter o"

administration "iled with the

Regional Trial Court 3RTC4 o"

<anila6 doc$eted as Sp# /roc#

No# 51->+25, 3pp# &,1-&,568IR

records4@

8 8-&K

)# /leading entitledCompliance

"iled with the probate Court

submitting the "inal inentory

o" all the properties o" the

deceased 3p# &,;6 8IRrecords4@C

># (ttachment to 7xh# C which

is the detailed and complete

listing o" the properties o"

the deceased 3pp# 52-&,068IR rec#4@ C-&to C-&1

26



0# Claims against the estate "iled

by 7uitable 8an$ing Corp#with

the probate Court in theamount

o" /&2610;6>+5#)& as o"<arch )&6

&2556 together with the (nnexes

to the claim 3pp# ;>-556 8IRrecords4@ D to D-+>

;# Claim "iled by 8anue de 9

Indochine et de Sue: with the

probate Court in the amount

o"

ES W>65+562,0#2, as o"*anuary )&6

&255 3pp# +;+-+;06 8IRrecords4@ 7to 7-)

1# Claim o" the <anila 8an$ing

Corporation 3<8C4 which aso"

Noember 16 &251 amountsto

/;06&056,+)#0>6 butrecomputed

as o" February +56 &252 at a

total amount o"/5>6&226&;,#>;@

27



together with the demandletter

"rom <8Cs lawyer 3pp# &2>-&216

8IRrecords4@

F to F-)

5# Demand letter o" <anila8an$ing

Corporation prepared by (sedillo6

Ramos and (ssociates 9awO""ices

addressed to Fernande:?ermanos6

Inc#6 represented by *ose /#

Fernande:6 as mortgagors6 inthe

total amount o"/+>,6>126;2)#&1

as o" February +56 &252

3pp# &5;-&516 8IRrecords4@. .-&

2# Claim o" State Inestment

?ouse6 Inc# "iled with the

RTC6 8ranch VII o" <anila6

doc$eted as Ciil Case No#

5;-)5022 entitled State

Inestment ?ouse6 Inc#6

/lainti""6 ersus <aritime

28



Company Oerseas6 Inc#andor

*ose /# Fernande:6De"endants6

3pp# +,,-+&06 8IRrecords4@? to ?-&;

&,# 9etter dated <arch &>6 &22,

o" (rsenio /# Di:on addressed

to (tty# *esus <# .on:ales6

3p# &5>6 8IRrecords4@

I

&&# 9etter dated (pril &16 &22,

"rom *#<# .on:alesaddressed

to the Regional Director o"

8IR in San /ablo City

3p# &5)6 8IRrecords4@

*

&+# 7state Tax Return "iled by

the estate o" the late *ose /#

Fernande: through itsauthori:ed

representatie6 (tty# *esus <#

.on:ales6 "or (rsenio /#Di:on6

with attachments 3pp# &11-

29



&5+6

8IRrecords4@

A to A-0

&)# Certi"ied true copy o" the

9etter o" (dministration

issued by RTC <anila68ranch

0&6 in Sp# /roc# No# 51->+25,

appointing (tty# Ra"ael S#

Di:on as *udicial (dministrator

o" the estate o" *ose /#

Fernande:@ 3p# &,+6 CT(

records4

and

9

&># Certi"ication o" /ayment o"

estate taxes Nos# +,0+ and

+,0)6 both dated (pril +16&22,6

issued by the O""ice o" the

Regional Director6 Reenue

Region No# >-C6 San /ablo

City6 with attachments

3pp# &,)-&,>6 CT(records#4#< to <-0

30



Re'po()e(t' [#IR] +o('epre'e(te) o( &(e 2B,1= o(e :t(e'' ( t5eper'o( o6 AbertoE(re, :5o :-' o(eo6 t5e ree(ee-m(er' :5o+o()+te) t5e(e't;-to( o( t5ee't-te t- +-'e o6 t5e-te &o'e $. Fer(-()e.I( t5e +or'e o6 t5e)re+t e-m(-to( o6t5e :t(e'', 5e)e(t6e) t5e 6oo:(;3

Documents

Signatures8IR

Record

&# 7state Tax Return prepared

by

the8IR@

p# &)5

+# Signatures o" <a# (nabella

(buloc and (lberto 7nriue:6

*r# appearing at the lower

/ortion o" 7xh#&@

-do-

)# <emorandum "or the

Commissioner6

dated *uly &26 &22&6 preparedby

reenue examiners6 <a# (nabella (#

(buloc6 (lberto S# 7nriue:and

31



Raymund S# .allardo@Reiewed by

<aximino V#Tagle

pp# &>)-&>>

># Signature o" (lberto S#

7nriue: appearing at the

lower portion on p# + o" 7xh#+@ -do-

0# Signature o" <a# (nabella (#

(buloc appearing at the

lower portion on p# + o" 7xh#+@ -do-

;# Signature o" Raymund S#

.allardo appearing at the

9ower portion on p# + o" 7xh#+@ -do-

1# Signature o" <aximino V#

Tagle also appearing on

p# + o" 7xh#+@

-do-

5# Summary o" reenue

7n"orcement O""icers (udit

Report6 dated *uly &26&22&@ p#&)2

32



2# Signature o" (lberto

7nriue: at the lower

portion o" 7xh#)@

-do-

&,# Signature o" <a# (nabella (#

(buloc at the lower

portion o" 7xh#)@

-do-

&&# Signature o" Raymond S#

.allardo at the lower

portion o" 7xh#)@

-do-

&+# Signature o" <aximino

V# Tagle at the lower

portion o" 7xh#)@

-do-

&)# Demand letter 3F(S-7-51-2&-,,46

signed by the (sst#Commissioner

"or Collection "or theCommissioner

o" Internal Reenue6demanding

33



payment o" the amount o"

/;;621)6250#>,@and

p# &;2

&># (ssessment Notice F(S-7-51-2&-,, pp#&;2-&1,%i" QsupportFootnotes'%++'

%endi"'

The CTA's Ruling

On *une &16 &2216 the CT( denied the saidpetition "or reiew# Citing this Courts ruling in$da. de )2ate v. Court of !eals6%i" QsupportFootnotes'%+)'

%endi"' the CT( opined that the a"orementionedpieces o" eidence introduced by the 8IR wereadmissible in eidence# The CT( ratiocinatedB (lthough the aboe-mentioned

documents were not"ormally o""ered aseidence "or respondent6

considering thatrespondent has beendeclared to hae waiedthe presentation thereo"during the hearing on<arch +,6 &22;6 still theycould be considered aseidence "or respondentsince they were properlyidenti"ied during the

presentation o"respondents witness6whose testimony wasduly recorded as part o"the records o" this case#8esides6 the documentsmar$ed as respondents

exhibits "ormed part o"the 8IR records o" thecase#%i" QsupportFootnotes'%+>'%endi"'

Neertheless6 the CT( did not "ully adopt theassessment made by the 8IR and it came up withits own computation o" the de"iciency estate tax6to witB

Con!ugal Real/roperty/

06,;+6,&;#,,

Con!ugal /ersonal/rop#

))6,+&6222#2)

.ross Con!ugal7state

)56,5>6,&0#2)

9essB

34



Deductions

+;6+0,6,,,#,,

Net Con!ugal7state

/&&65)>6,&0#2)

9essB Share o" SuriingSpouse

062&16,,1#2;

Net Share in Con!ugal7state

/ 062&16,,1#2;

(ddB Capital/araphernal

/roperties />>6;0+65&)#;;

9essBCapital/araphernal

Deductions

>>6;0+65&)#;;

Net Taxable7state

/0,60;265+&#;+

GGGGGGGGGGGG

7state Tax Due / +262)06)>+#21

(ddB +0= Surcharge "or 9ateFiling

16>5)65)0#1>

(ddB /enalties "or-No notice o"death

&0#,,

No C/(certi"icate

),,#,,

Total de"iciency estatetax

/)16>&26>2)#1&

GGGGGGGGGGGGG

35



exclusie o" +,= interest "rom duedate o" its payment until"ull payment thereo"

%Sec# +5) 3b46 Tax Code o" &251'# %i" Q

supportFootnotes'%+0'%endi"'

Thus6 the CT( disposed o" the case in thiswiseB

"EREFORE6 iewed "rom all the"oregoing6 the Court "inds the petitionunmeritorious and denies the same# /etitionerandor the heirs o" *ose /# Fernande: are herebyordered to pay to respondent the amount o"/)16>&26>2)#1& plus +,= interest "rom the duedate o" its payment until "ull payment thereo" as

estate tax liability o" the estate o" *ose /#Fernande: who died on Noember 16 &251#

SO OR%ERE%#%i" QsupportFootnotes'%+;'%endi"'

(ggrieed6 petitioner6 on <arch +6 &2256went to the C( ia a petition "or reiew#%i" QsupportFootnotes'%+1'%endi"'

The CA's Ruling[if support!ine"rea#$e%!ine&[endif& On (pril ),6 &2226 the C( a""irmed theCT(s ruling# (dopting in "ull the CT(s "indings6the C( ruled that the petitioners act o" "iling an

estate tax return with the 8IR and the issuance o" 8IR Certi"ication Nos# +,0+ and +,0) did notdeprie the 8IR Commissioner o" her authority tore-examine or re-assess the said return "iled onbehal" o" the 7state#%i" QsupportFootnotes'%+5'%endi"'

On <ay )&6 &2226 petitioner "iled a <otion"or Reconsideration%i" QsupportFootnotes'%+2'%endi"' which theC( denied in its Resolution%i" QsupportFootnotes'%),'%endi"' dated Noember )6 &222#

?ence6 the instant /etition raising the

"ollowing issuesB %i" Qsupport9ists'&# %endi"'Hhether or not theadmission o" eidence which were not "ormallyo""ered by the respondent 8IR by the Court o" Tax

(ppeals which was subseuently upheld by theCourt o" (ppeals is contrary to the Rules o" Courtand rulings o" this ?onorable Court@ +# Hhether or not the Court o" Tax

(ppeals and theCourt o" (ppealserred inrecogni:ingconsider ing the estate taxreturn prepared and"iled by respondent8IR $nowing that theprobate courtappointed

administrator o" theestate o" *ose /#Fernande: hadpreiously "iled oneas in "act6 8IRCerti"icationClearance Nos#+,0+ and +,0) hadbeen issued in theestates "aor@

)# Hhether or not the Court o" Tax (ppeals and theCourt o" (ppealserred in disallowingthe alid anden"orceable claimso" creditors againstthe estate6 as law"uldeductions despite

clear and conincingeidence thereo"@and

36



># Hhether or not the Court o" Tax (ppeals and theCourt o" (ppealserred in alidatingerroneous doubleimputation o"alues on the ery

same estateproperties in theestate tax return itprepared and "iledwhich e""ectielybloated the estatesassets#%i" QsupportFootnotes'

%)&'%endi"'

The petitioner claims that in as much asthe alid claims o" creditors against the 7stateare in excess o" the gross estate6 no estate taxwas due@ that the lac$ o" a "ormal o""er o"eidence is "atal to 8IRs cause@ that the doctrinelaid down in $da. de )2ate has already been

abandoned in a long line o" cases in which theCourt held that eidence not "ormally o""ered iswithout any weight or alue@ that Section )> o"Rule &)+ o" the Rules on 7idence reuiring a"ormal o""er o" eidence is mandatory incharacter@ that6 while 8IRs witness (lberto7nriue: 3(lberto4 in his testimony be"ore theCT( identi"ied the pieces o" eidencea"orementioned such that the same were mar$ed68IRs "ailure to "ormally o""er said pieces o"eidence and depriing petitioner the opportunityto cross-examine (lberto6 render the sameinadmissible in eidence@ that assumingarguendo that the ruling in $da. de )2ate is stillapplicable6 8IR "ailed to comply with thedoctrines reuisites because the documentsherein remained simply part o" the 8IR recordsand were not duly incorporated in the courtrecords@ that the 8IR "ailed to consider thatalthough the actual payments made to the 7statecreditors were lower than their respectie claims6such were compromise agreements reached longa"ter the 7states liability had been settled by the"iling o" its estate tax return and the issuance o"8IR Certi"ication Nos# +,0+ and +,0)@ and that

the rec$oning date o" the claims against the7state and the settlement o" the estate tax dueshould be at the time the estate tax return was"iled by the !udicial administrator and theissuance o" said 8IR Certi"ications and not at thetime the a"orementioned Compromise (greements were entered into with the 7states

creditors#%i" QsupportFootnotes'%)+'%endi"'

On the other hand6 respondent countersthat the documents6 being part o" the records o"the case and duly identi"ied in a duly recordedtestimony are considered eidence een i" thesame were not "ormally o""ered@ that the "iling o"the estate tax return by the 7state and theissuance o" 8IR Certi"ication Nos# +,0+ and +,0)did not deprie the 8IR o" its authority to examinethe return and assess the estate tax@ and that the"actual "indings o" the CT( as a""irmed by the C(may no longer be reiewed by this Court ia apetition "or reiew#%i" QsupportFootnotes'%))'%endi"'

The ssues

There are two ultimate issues whichreuire resolution in this caseB

First # Hhether or not the CT( and the C(graely erred in allowing the admission o" thepieces o" eidence which were not "ormallyo""ered by the 8IR@ and

Second # Hhether or not the C( erred ina""irming the CT( in the latters determination o"the de"iciency estate tax imposed against the7state#

The Court(s Ruling

The /etition is impressed with merit#

Ender Section 5 o" R( &&+06 the CT( iscategorically described as a court o" record# (scases "iled be"ore it are litigated de novo6 party-litigants shall proe eery minute aspect o" theircases# Indubitably6 no eidentiary alue can begien the pieces o" eidence submitted by the8IR6 as the rules on documentary eidencereuire that these documents must be "ormallyo""ered be"ore the CT(#%i" QsupportFootnotes'%)>'%endi"' /ertinent is Section )>6 Rule &)+ o" the ReisedRules on 7idence which readsB

SEC. <4. )ffer of evidence. The courtshall consider no eidence which has not been"ormally o""ered# The purpose "or which theeidence is o""ered must be speci"ied#

37



The CT( and the C( rely solely onthe case o" $da. de )2ate6 which reiterated thisCourts preious rulings in %eole v. &aat-a%i" Q

supportFootnotes'%)0'%endi"' and %eole v. *ate%i" QsupportFootnotes'

%);'%endi"' on the admission and consideration o"exhibits which were not "ormally o""ered duringthe trial# (lthough in a long line o" cases many o"

which were decided a"ter $da. de )2ate6 we heldthat courts cannot consider eidence which hasnot been "ormally o""ered6%i" QsupportFootnotes'%)1'%endi"' neertheless6 petitioner cannot alidly assumethat the doctrine laid down in $da. de )2ate hasalready been abandoned# Recently6 in 3amos v.Di"on6%i" QsupportFootnotes'%)5'%endi"' this Court6 applying thesaid doctrine6 ruled that the trial court !udgetherein committed no error when he admitted andconsidered the respondents exhibits in theresolution o" the case6 notwithstanding the "actthat the same were not "ormally o""ered# 9i$ewise6in Far ast 'ank 4 Trust Coman1 v.Commissioner of +nternal 3evenue6%i" QsupportFootnotes'

%)2'%endi"' the Court made re"erence to said doctrine

in resoling the issues therein# Indubitably6 thedoctrine laid down in $da. De )2ate still subsistsin this !urisdiction# In $da. de )2ate6 we held thatB

From the "oregoing proision6it is clear that "oreidence to beconsidered6 the samemust be "ormally o""ered#

Corollarily6 the mere "actthat a particulardocument is identi"iedand mar$ed as an exhibitdoes not mean that it hasalready been o""ered aspart o" the eidence o" aparty# In +nteracificTransit, +nc. v. !viles %&5;SCR( )50'6 we had theoccasion to ma$e adistinction betweenidenti"ication o"documentary eidenceand its "ormal o""er as an

exhibit# He said that the"irst is done in the courseo" the trial and isaccompanied by themar$ing o" the eidenceas an exhibit while thesecond is done onlywhen the party rests itscase and not be"ore# (party6 there"ore6 may opt

to "ormally o""er hiseidence i" he belieesthat it will adance hiscause or not to do so atall# In the eent hechooses to do the latter6the trial court is not

authori:ed by the Rulesto consider the same#

?oweer6 in %eole v. &aat-a %&12 SCR( >,)' citing%eole v. *ate %&,)

SCR( >5>'6 :e re-e)t5e 6ore;o(; re -()-o:e) e)e(+e (ot6orm-* o66ere) to be-)mtte) -()+o(')ere) b* t5e tr-+ort pro)e) t5e6oo:(; rereme(t'-re pre'e(t, .3 6r't,t5e '-me m't 5-ebee( )* )e(t6e) b*te'tmo(* )*re+or)e) -(), 'e+o(),t5e '-me m't 5-ebee( (+orpor-te) (t5e re+or)' o6 t5e +-'e#%i" QsupportFootnotes'%>,'%endi"'

From the "oregoing declaration6

howeer6 it is clear that $da. de )2ate is merelyan exception to the general rule# 8eing anexception6 it may be applied only when there isstrict compliance with the reuisites mentionedtherein@ otherwise6 the general rule in Section )>o" Rule &)+ o" the Rules o" Court should preail#

In this case6 we "ind that thesereuirements hae not been satis"ied# Theassailed pieces o" eidence were presented andmar$ed during the trial particularly when (lberto

38



too$ the witness stand# (lberto identi"ied thesepieces o" eidence in his direct testimony#%i" QsupportFootnotes'%>&'%endi"' ?e was also sub!ected to cross-examination and re-cross examination bypetitioner#%i" QsupportFootnotes'%>+'%endi"' 8ut (lbertos accountand the exchanges between (lberto andpetitioner did not su""iciently describe the

contents o" the said pieces o" eidence presentedby the 8IR# In "act6 petitioner sought that the leadexaminer6 one <a# (nabella (# (buloc6 besummoned to testi"y6 inasmuch as (lberto wasincompetent to answer uestions relatie to thewor$ing papers#%i" QsupportFootnotes'%>)'%endi"' The leadexaminer neer testi"ied# <oreoer6 while (lbertos testimony identi"ying the 8IRs eidencewas duly recorded6 the 8IR documentsthemseles were not incorporated in the recordso" the case#

( common "act threads through $da. de)2ate and 3amos that does not exist at all in theinstant case# In the a"orementioned cases6 the

exhibits were mar$ed at the pre-trial proceedingsto warrant the pronouncement that the samewere duly incorporated in the records o" the case#Thus6 we held in 3amosB

In this case6 we "ind and so rule that thesereuirements hae been satis"ied# T5e e5bt'( e'to( :ere pre'e(te) -() m-re))r(; t5e pre/tr- o6 t5e +-'e t5', t5e* 5-ebee( (+orpor-te) (to t5e re+or)'. Further67lpidio himsel" explained the contents o" theseexhibits when he was interrogated byrespondents counsel###

x x x x

8ut what "urther de"eats petitionerscause on this issue isthat respondents exhibits

were mar$ed andadmitted during the pre-trial stage as shown bythe /re-Trial Orderuoted earlier#%i" QsupportFootnotes'%>>'%endi"'

Hhile the CT( is not goerned strict ly bytechnical rules o" eidence6%i" QsupportFootnotes'%>0'%endi"' asrules o" procedure are not ends in themselesand are primarily intended as tools in the

administration o" !ustice6 the presentation o" the8IRs eidence is not a mere proceduraltechnicality which may be disregardedconsidering that it is the only means by which theCT( may ascertain and eri"y the truth o" 8IRsclaims against the 7state#%i" QsupportFootnotes'%>;'%endi"' The8IRs "ailure to "ormally o""er these pieces o"eidence6 despite CT(s directies6 is "atal to itscause#%i" QsupportFootnotes'%>1'%endi"' Such "ailure isaggraated by the "act that not een a singlereason was adanced by the 8IR to !usti"y such"atal omission# This6 we ta$e against the 8IR#

/er the records o" this case6 the 8IR wasdirected to present its eidence%i" QsupportFootnotes'%>5'%endi"'

in the hearing o" February +&6 &22;6 but 8IRscounsel "ailed to appear#%i" QsupportFootnotes'%>2'%endi"' TheCT( denied petitioners motion to consider 8IRspresentation o" eidence as waied6 with awarning to 8IR that such presentation would beconsidered waied i" 8IRs eidence would not bepresented at the next hearing# (gain6 in thehearing o" <arch +,6 &22;6 8IRs counsel "ailedto appear#%i" QsupportFootnotes'%0,'%endi"' Thus6 in itsResolution%i" QsupportFootnotes'%0&'%endi"' dated <arch +&6&22;6 the CT( considered the 8IR to haewaied presentation o" its eidence# In the sameResolution6 the parties were directed to "ile theirrespectie memorandum# /etitioner complied but8IR "ailed to do so#%i" QsupportFootnotes'%0+'%endi"' In all o"

these proceedings6 8IR was duly noti"ied# ?ence6in this case6 we are constrained to apply ourruling in 5eirs of %edro %asag v. %arocha6%i" QsupportFootnotes'%0)'%endi"'

( "ormal o""er

is necessary because !udges are mandated torest their "indings o" "actsand their !udgment onlyand strictly upon theeidence o""ered by theparties at the trial# Its"unction is to enable thetrial !udge to $now thepurpose or purposes "orwhich the proponent ispresenting the eidence#On the other hand6 thisallows opposing partiesto examine the eidenceand ob!ect to itsadmissibility# <oreoer6 it"acilitates reiew as theappellate court will not be

39



reuired to reiewdocuments not preiouslyscrutini:ed by the trialcourt#

Strictadherence to the saidrule is not a triial matter#The Court in Constantinov. Court of !eals ruledthat t5e 6orm- o66er o6o(e' e)e(+e ')eeme) :-e) -6ter

6-(; to 'bmt t:t5( - +o(')er-bepero) o6 tme. Itep-(e) t5-t t5e +ort+-((ot -)mt -( o66ero6 e)e(+e m-)e -6ter- -p'e o6 t5ree @<mo(t5' be+-'e to )o'o :o) J+o()o(e -((e+'-be -t* 6 (ot(o(/+omp-(+e :t5 -+ort or)er :5+5, (e66e+t, :o)e(+or-;e (ee)e'')e-*' -() )er- t5e'pee)* -)m('tr-to(o6 H't+e#

(pplying the

a"orementioned principlein this case6 we "ind thatthe trial court hadreasonable ground toconsider that petitionershad waied their right toma$e a "ormal o""er o"documentary or ob!ecteidence# Despiteseeral extensions o"time to ma$e their "ormal

o""er6 petitioners "ailed tocomply with theircommitment and allowedalmost "ie months tolapse be"ore "inallysubmitting it# $etto(er'6-re to +omp* :t5

t5e re o(-)m''bt* o6e)e(+e ' -(-t5em-to t5e e66+e(t,e66e+te, -()epe)to')'pe('-to( o6 H't+e.

?aing disposed o" the "oregoing

procedural issue6 we proceed to discuss themerits o" the case#

Ordinarily6 the CT(s "indings6 asa""irmed by the C(6 are entitled to the highestrespect and will not be disturbed on appealunless it is shown that the lower courts committedgross error in the appreciation o" "acts# %i" Q

supportFootnotes'%0>'%endi"' In this case6 howeer6 we "indthe decision o" the C( a""irming that o" the CT(tainted with palpable error#

It is admitted that the claims o" the 7statesa"orementioned creditors hae been condoned# (s a mode o" extinguishing an obligation6%i" Q

supportFootnotes'%00'%endi"' condonation or remission o"debt%i" QsupportFootnotes'%0;'%endi"' is de"ined asB an act o" liberality6 by irtue o" which6

without receiing anyeuialent6 the creditorrenounces theen"orcement o" theobligation6 which isextinguished in itsentirety or in that part or

40



aspect o" the same towhich the remissionre"ers# It is an essentialcharacteristic o"remission that it begratuitous6 that there isno euialent receied

"or the bene"it gien@once such euialentexists6 the nature o" theact changes# It maybecome dation inpayment when thecreditor receies a thingdi""erent "rom thatstipulated@ or noation6when the ob!ect orprincipal conditions o" theobligation should bechanged@ or compromise6when the matterrenounced is in litigation

or dispute and inexchange o" someconcession which thecreditor receies#%i" Q

supportFootnotes'%01'%endi"'

Verily6 the second issue in this caseinoles the construction o" Section 12 %i" Q

supportFootnotes'%05'%endi"' o" the National Internal Reenue

Code%i" QsupportFootnotes'%02'%endi"'

3Tax Code4 whichproides "or the allowable deductions "rom thegross estate o" the decedent# The speci"icuestion is whether the actual claims o" thea"orementioned creditors may be "ully allowed asdeductions "rom the gross estate o" *ose despitethe "act that the said claims were reduced orcondoned through compromise agreementsentered into by the 7state with its creditors#

JClaims against the estate6K as allowabledeductions "rom the gross estate under Section12 o" the Tax Code6 are basically a reproductiono" the deductions allowed under Section 52 3a43&4 3C4 and 374 o" Commonwealth (ct No# >;;

3C( >;;46 otherwise $nown as the NationalInternal Reenue Code o" &2)26 and which wasthe "irst codi"ication o" /hilippine tax laws#/hilippine tax laws were6 in turn6 based on the

"ederal tax laws o" the Enited States# Thus6pursuant to established rules o" statutoryconstruction6 the decisions o" (merican courtsconstruing the "ederal tax code are entitled togreat weight in the interpretation o" our own taxlaws#%i" QsupportFootnotes'%;,'%endi"'

It is noteworthy that een in the Enited

States6 there is some dispute as to whether thedeductible amount "or a claim against the estateis "ixed as o" the decedents death which is thegeneral rule6 or the same should be ad!usted tore"lect post-death deelopments6 such as where

a settlement between the parties results in thereduction o" the amount actually paid#%i" Q

supportFootnotes'%;&'%endi"' On one hand6 the E#S# courtruled that the appropriate deduction is the JalueKthat the claim had at the date o" the decedentsdeath#%i" QsupportFootnotes'%;+'%endi"' (lso6 as held in %rostrav. 7.S.6 %i" QsupportFootnotes'%;)'%endi"' where a lien claimedagainst the estate was certain and en"orceableon the date o" the decedents death6 the "act thatthe claimant subseuently settled "or lesseramount did not preclude the estate "romdeducting the entire amount o" the claim "orestate tax purposes# These pronouncementsessentially con"irm the general principle that post-death deelopments are not material in

determining the amount o" the deduction#

On the other hand6 the InternalReenue Serice 3Serice4 opines that post-death settlement should be ta$en intoconsideration and the claim should be allowed asa deduction only to the extent o" the amountactually paid#%i" QsupportFootnotes'%;>'%endi"' Recogni:ing thedispute6 the Serice released /roposedRegulations in +,,1 mandating that the deductionwould be limited to the actual amount paid#%i" Q

supportFootnotes'%;0'%endi"'

In announcing its agreement with %rostra6%i" Q

supportFootnotes'%;;'%endi"' the E#S# 0th Circuit Court o" (ppeals heldB He are persuaded that the Ninth

Circuits decision###in%rostra correctly applythe +thaca Trust date-o"-death aluation principleto en"orceable claimsagainst the estate# (s weinterpret +thaca Trust 6when the Supreme Courtannounced the date-o"-death aluation principle6it was ma$ing a !udgmentabout the nature o" the"ederal estate taxspeci"ically6 that it is a taximposed on the act o"trans"erring property bywill or intestacy and6because the act on whichthe tax is leied occurs ata discrete time6 i.e.6 theinstance o" death6 the net

41



alue o" the propertytrans"erred should beascertained6 as nearly aspossible6 as o" that time#This analysis supportsbroad application o" thedate-o"-death aluation

rule#%i" QsupportFootnotes'%;1'%endi"'

He express our agreement with the date-o"-death aluation rule6 made pursuant to theruling o" the E#S# Supreme Court in +thaca TrustCo. v. 7nited States#%i" QsupportFootnotes'%;5'%endi"' First # There is no law6 nor do we discern any legislatieintent in our tax laws6 which disregards the date-o"-death aluation principle and particularlyproides that post-death deelopments must beconsidered in determining the net alue o" theestate# It bears emphasis that tax burdens are notto be imposed6 nor presumed to be imposed6beyond what the statute expressly and clearlyimports6 tax statutes being construed strictissimi

uris against the goernment#%i" QsupportFootnotes'%;2'%endi"' (ny doubt on whether a person6 article or actiityis taxable is generally resoled against taxation#%i" Q

supportFootnotes'%1,'%endi"' Second # Such construction "indsreleance and consistency in our Rules onSpecial /roceedings wherein the term claimsreuired to be presented against a decedentsestate is generally construed to mean debts ordemands o" a pecuniary nature which could haebeen en"orced against the deceased in hisli"etime6 or liability contracted by the deceasedbe"ore his death.%i" QsupportFootnotes'%1&'%endi"' There"ore6 theclaims existing at the time o" death are signi"icantto6 and should be made the basis o"6 thedetermination o" allowable deductions#

"EREFORE6 the instant /etition isGRANTE%# (ccordingly6 the assailed Decisiondated (pril ),6 &222 and the Resolution datedNoember )6 &222 o" the Court o" (ppeals in C(-.#R# S#/# No# >;2>1 are REERSE% and SETASI%E# The 8ureau o" Internal Reenuesde"iciency estate tax assessment against the7state o" *ose /# Fernande: is herebyN!LLIFIE%# No costs#

SO OR%ERE%#

Republic o" the /hilippinesS!$REME CO!RT<anilaS7COND DIVISIONG.R. No. 144B=< A;'t 28, 2001#AN OF T"E $"ILI$$INE ISLAN%S, petitioner6s#COMMISSIONER OF INTERNAL REEN!E, respondents#MEN%OA, J .3This is a petition "or reiew on certiorari o" thedecision6 dated (pril &>6 +,,,6 o" the Court o" (ppeals6& a""irming the decision o" the Court o"Tax (ppeals 3which denied petitioner 8an$ o" the

/hilippine Islands claim "or tax re"und "or &25046and the appeals courts resolution6 dated (ugust+&6 +,,,6 denying reconsideration#The "acts are as "ollowsB/rior to its merger with petitioner 8an$ o" the/hilippine Islands 38/I4 on *uly &2506 The Family8an$ and Trust Co# 3F8TC4 earned incomeconsisting o" rentals "rom its leased propertiesand interest "rom its treasury notes "or the period*anuary & to *une ),6 &250# (s reuired by the7xpanded Hithholding Tax Regulation6 thelessees o" F8TC withheld 0 percent o" the rentalincome6 in the amount o" /&&56;,2#&16 while theCentral 8an$6 "rom which the treasury notes werepurchased by F8TC6 withheld /006>0;#;, "rom

the interest earned thereon# Creditablewithholding taxes in the total amount o"/&1>6,;0#11 were remitted to respondentCommissioner o" Internal Reenue#F8TC6 howeer6 su""ered a new loss o" about/;>6,,,6,,,#,, during the period in uestion# Italso had an excess credit o" /+6&>;6,1+#01 "romthe preious year# Thus6 upon its dissolution in&2506 F8TC had a re"undable o" /+6)+,6&)5#)>6representing that years tax credit o" /&1>6,;0#11and the preious years excess credit o"/+6&>;6,1+#01# (s F8TCs successor-in-interest6 petitioner 8/Iclaimed this amount as tax re"und6 butrespondent Commissioner o" Internal Reenuere"unded only the amount o" /+6&>;6,1+#016leaing a balance o" /&1>6,;0#11# (ccordingly6petitioner "iled a petition "or reiew in the Court o"Tax (ppeals on December +26 &2516 see$ing there"und o" the a"oresaid amount#+ ?oweer6 in itsdecision rendered on *uly &26 &22>6 the Court o"Tax (ppeals dismissed petitioners petition "orreiew and denied its claim "or re"und on theground that the claim had already prescribed#) Inits resolution6 dated (ugust >6 &2206 the Court o"

42



Tax (ppeals denied petitioners motion "orreconsideration#>

/etitioner appealed to the Court o" (ppeals6 but6in its decision rendered on (pril &>6 +,,,6 theappeals court a""irmed the decision o" the CT(#0 The appeals court subseuently deniedpetitioners motion "or reconsideration#; ?ence

this petition#The sole issue in this case is whether petitionersclaim is barred by prescription# The resolution o"this uestion reuires determination o" when thetwo-year period o" prescription under X+2+ o" theTax Code started to run# This proision statesB3ecover1 of tax erroneousl1 or illegall1 collected # No suit or proceedings shall be maintained inany court "or the recoery o" any national internalreenue tax herea"ter alleged to hae beenerroneously or illegally assessed or collected6 oro" any penalty claimed to hae been collectedwithout authority6 or o" any sum alleged to haebeen excessie or in any manner wrong"ullycollected6 until a claim "or re"und or credit has

been duly "iled with the Commissioner@ but suchsuit or proceeding may be maintained6 whether or not such tax6 penalty6 or sum has been paidunder protest or duress#In any case6 no such suit or proceeding shall bebegun a"ter the expiration o" two years "rom thedate o" payment o" the tax or penalty regardlesso" any superening cause that may arise a"terpaymentB %rovided, hoever, That theCommissioner may6 een without a written claimthere"or6 re"und or credit any tax6 where on the"ace o" the return upon which payment wasmade6 such payment appears clearly to haebeen erroneously paid#There is no dispute that F8TC ceased operations

on *une ),6 &250 upon its merger with petitioner8/I# The merger was approed by the Securitiesand 7xchange Commission on *uly &6 &250#/etitioner contends6 howeer that its claim "orre"und has yet prescribed because the two-yearprescriptie period commenced to run only a"ter ithad "iled F8TCs Final (d!ustment Return on (pril&0 &25;6 pursuant to X>;3a4 o" the NationalInternal Reenue Code o" &211 3the lawapplicable at the time o" this transaction4 whichproided that Cororation returns# 3a4 3e(uirement # 7erycorporation6 sub!ect to the tax herein imposed6except "oreign corporations not engaged in tradeor business in the /hilippines shall render6 induplicate6 a true and accurate uarterly incometax return and "inal or ad!ustment return inaccordance with the proisions o" Chapter L o"this Title# The return shall be "iled by thepresident6 ice-president6 or other principalo""icer6 and shall be sworn to by such o""icer andby the treasurer or assistant treasurer#On the other hand6 the Court o" Tax (ppeals ruledthat the prescriptie period should be counted"rom *uly )&6 &2506 ), days a"ter the approal by

the S7C o" the plan o" dissolution in iew o" X15o" the Code which proided that 7ery corporation shall6 within thirty days a"terthe adoption by the corporation o" a resolution orplan "or the dissolution o" the corporation or "orthe liuidation o" the whole or any part o" itscapital stoc$6 including corporations which hae

been noti"ied o" the possible inoluntarydissolution by the Securities and 7xchangeCommission6 render a correct return to theCommission o" Internal Reenue6 eri"ied underoath6 setting "orth the terms o" such resolution orplan and such other in"ormation as the <inister o" Finance shall6 by regulations6 prescribe# Thedissoling corporation prior to the issuance o" theCerti"icate o" Dissolution by the Securities and7xchange Commission shall secure a certi"icateo" tax clearance "rom the 8ureau o" InternalReenue which certi"icate shall be submitted tothe Securities and 7xchange Commission#Failure to render the return and secure thecerti"icate o" tax clearance as aboe-mentioned

shall sub!ect the o""icer 3s4 o" the corporationreuired by law to "ile the return under Section>;3a4 o" this Code6 to a "ine o" not less than FieThousand /esos or imprisonment o" not less thantwo years and shall ma$e them liable "or alloutstanding or unpaid tax liabilities o" thedissoling corporation#Its ruling was sustained by the Court o" (ppeals# ("ter due consideration o" the parties arguments6we are o" the opinion that6 in case o" thedissolution o" a corporation6 the period o"prescription should be rec$oned "rom the date o""iling o" the return reuired by X15 o" the TaxCode# (ccordingly6 we hold that petitioners claim"or re"und is barred by prescription#

Fr't# .enerally spea$ing6 it is the Final (d!ustment Return6 in which amounts o" thegross receipts and deductions hae been auditedand ad!usted6 which is re"lectie o" the results o"the operations o" a business enterprise# It is onlywhen the return6 coering the whole year6 is "iledthat the taxpayer will be able to ascertain whether a tax is still due or a re"und can be claimed basedon the ad!usted and audited "igures#1 ?ence6 thisCourt has ruled that at the earliest6 the two-yearprescriptie period "or claiming a re"undcommences to run on the date o" "iling o" thead!usted "inal tax return#5

In the case at bar6 howeer6 the Court o" Tax (ppeals6 applying X15 o" the Tax Code6 heldB8e"ore this Court can be rule on the issue o"prescription6 it is noteworthy to point out thatbased on the "inancial statements o" F8TC andthe independent auditors opinion 37xh# (-1 to(-&146 F8TC operates on a calendar year basis#Its twele 3&+4 months accounting period wasshortened at the time it was merged with 8/I#Thereby6 losing its corporate existence on *uly &6&250 when the (rticles o" <erger was approedby the Security and 7xchange Commission#

43



Thus6 respondent3s4 stand that F8TC operateson a "iscal year basis6 based on its income taxreturn6 holds no ground# Third Court beliees thatF8TC is operating on a calendar year periodbased on the audited "inancial statements andthe opinion thereo"# The "iscal period ending *une),6 &250 on the upper le"t corner o" the income

tax return can be concluded as an error on thepart o" F8TC# It should hae been "or the sixmonth period ending *une ),6 &250# It shouldalso be emphasi:ed that where one corporationsucceeds another both are separate entities andthe income earned by the predecessorcorporation be"ore organi:ation o" its successor isnot income to the successor 3<ertens6 9aw o"Federal Income Taxation6 Vol# 1 S )5#);4#Ruling now on the issue o" prescription6 this Court"inds that the petition "or reiew is "iled out o"time# F8TC6 a"ter the end o" its corporate li"e on*une ),6 &2506 should hae "iled its income taxreturn within thirty days a"ter the cessation o" itsbusiness or thirty days a"ter the approal o" the

(rticles o" <erger# This is bolstered by Sec# 15 o"the tax Code and under Sec# +>> o" ReenueRegulation No# +P2

(s the F8TC did not "ile its uarterly income taxreturns "or the year &2506 there was no need "or itto "ile a Final ad!ustment Return because therewas nothing "or it to ad!ust or to audit# ("ter itceased operations on *une ),6 &2506 its taxableyear was shortened to six months6 "rom *anuary&6 &250 to *une ),6 &250 The situation o" F8TCis precisely what was contemplated under X15 o"the Tax Code# It thus became necessary "orF8TC to "ile its income tax return within ), daysa"ter approal by the S7C o" its plan or resolutiono" dissolution# Indeed6 it would be absurd "or

F8TC to wait until the "i"teenth day o" (pril6 oralmost &, months a"ter it ceased its operations6be"ore "iling its income tax return#Thus6 X>;3a4 o" the Tax Code applies only toinstances in which the corporation remainssubsisting and its business operations arecontinuing# In instances in which the corporationis contemplating dissolution6 X15 o" the Tax Codeapplies# It is a rule o" statutory construction that%w'here there is in the same statute a particularenactment and also a general one which in itsmost comprehensie sense would include what isembraced in the "ormer6 the particular enactmentmust be operatie6 and the general enactmentmust be ta$en to a""ect only such cases within itsgeneral language as are not within the proisionso" the particular enactment#&,

/etitioner argues that to hold6 as the Court o" Tax (ppeals and the Court o" (ppeals do6 that X15applies in case a corporation contemplatesdissolution would lead to absurd results# Itcontends that it is not "easible "or the certi"iedpublic accountants to complete their report andaudited "inancial statements6 which are reuiredto be submitted together with the plan o"

dissolution to the S7C6 within the periodcontemplated by X15# It maintains that6 in turn6the S7C would not hae su""icient time to processthe papers considering that X15 also reuires thesubmission o" a tax clearance certi"icate be"orethe S7C can approe the plan o" dissolution# (s the Court o" Tax (ppeals obsered6 howeer6

petitioner could hae as$ed "or an extension o"time o" "ile its income tax return under X>1 o" theNIRC which proidesBxtension of time to file returns# TheCommissioner o" Internal Reenue may6 inmeritorious cases6 grant a reasonable extensiono" time "or "iling returns o" income 3or "inal andad!ustment returns in the case o" corporations46sub!ect to the proisions o" section "i"ty-one o"this Code#/etitioner "urther argues that the "iling o" a Final (d!ustment Return would "all due on *uly ),6&2506 een be"ore the due date "or "iling theuarterly return# This argument begs theuestion# It assumes that a uarterly return was

reuired when the "act is that6 because its taxableyear was shortened6 the F8TC did not hae to "ilea uarterly return# In "act6 petitioner presented noeidence that the F8TC eer "iled such uarterlyreturn in &250#Finally6 petitioner cites a hypothetical situationwherein the directors o" a corporation wouldconene on *une ),6 +,,, to plan the dissolutiono" the corporation on December )&6 +,,,6 butwould submit the plan "or dissolution earlier withthe S7C6 which6 in turn6 would approe the sameon October &6 +,,,# Following X15 o" the TaxCode6 the corporation would be reuired tosubmit its complete return on October )&6 +,,,6although its actual dissolution would ta$e place

only on December )&6 +,,,#Su""ice it to say that such a situation may li$ewisebe remedied by resort to X>1 o" the Tax Code#The corporation can as$ "or an extension o" timeto "ile a complete income tax return untilDecember )&6 +,,,6 when it would ceaseoperations# This would obiate any di""icultywhich may arise out o" the discrepancies notcoered by X15 o" the Tax Code#In any case6 as held in Commissioner of +nternal3evenue v. Santos6&& Debatable uestions are"or the legislature to decide# The courts do not sitto resole the merits o" con"licting issues#Se+o(). /etitioner contends that what X15reuired was an in"ormation return6 not anincome tax return# It cites Reenue <emorandumCircular No# &>-506 o" then (cting Commissionero" Internal Reenue Ruben 8# (ncheta6 re"erringto an in"ormation return in interpreting 7xecutieOrder No# &,+;6 which amended X15#&+

The contention has no merit# The circular inuestion must be considered merely as anadministratie interpretation o" the law which inno case is binding on the courts#&) The opinion inuestion cannot be gien any e""ect inasmuch as

44



it is contrary to +>> o" Reenue Regulation No# +6as amended6 which was issued by the <inister o"Finance pursuant to the authority to him by X15 o" the Tax Code# This proision statesBS7C# +>># 3eturn of cororations contemlatingdissolution or retiring from business. 8 (llcorporations6 partnership !oint accounts and

associations6 contemplating dissolution or retiring"rom business without "ormal dissolution shall6within ), days a"ter the approal o" suchresolution authori:ing their dissolution6 and withinthe same period a"ter their retirement "rombusiness6 "ile their income tax returns coeringthe pro"it earned or business done by them "romthe beginning o" the year up to the date o" suchdissolution or retirement and pay thecorresponding income tax due thereon upondemand by the Commissioner o" InternalReenue PThis regulation preails oer the memorandumcircular o" the (cting Commissioner o" InternalReenue6 which petitioner ino$es#

Thus6 as reuired by X+>> o" ReenueRegulation No# +6 any corporation contemplatingdissolution must submit tax return on the incomeearned by it "rom the beginning o" the year up tothe date o" its dissolution or retirement and paythe corresponding tax due upon demand by theCommissioner o" Internal Reenue# Nothing inX15 o" the Tax Code limited the return to be "iledby the corporation concerned to a merein"ormation return#It is noteworthy that X15 o" the Tax Code wassubstantially reproduced "irst in X>0 3c46 o" theamendments to the same tax Code6 and later inX0+ 3C4 o" the National Internal Reenue Code o"&221# Through all the re-enactments o" the law6

there has been no change in the authoritygranted to the Secretary 3"ormerly <inister4 o"Finance to reuire corporations to submit suchother in"ormation as he may prescribe# Indeed6Reenue Regulation No# + had been in existenceprior to these amendments# ?ad Congressintended only in"ormation returns6 it would haeexpressly proided so#T5r)# Considering that X15 o" the Tax Code6 inrelation to X+>> o" Reenue Regulation No# +applies to F8TC6 the two-year prescriptie periodshould be counted "rom *uly ),6 &2506 i#e#6 ),days a"ter the approal by the S7C o" its plan "ordissolution# In accordance with X+2+ o" the TaxCode6 *uly ),6 &250 should be considered thedate o" payment by F8TC o" the taxes withheldon the earned income# Conseuently6 the two-year period o" prescription ended on *uly ),6&251# (s petitioners claim "or tax re"und be"orethe Court o" Tax (ppeals was "iled only onDecember +26 &2516 it is clear that the claim isbarred by prescription#H?7R7FOR76 the petition is D7NI7D "or lac$ o"merit#9:hi9.n;t SO ORD7R7D#

T"IR% %IISION

COMMISSIONER OFINTERNAL REEN!E,

/etitioner6

- versus -

#AN OF T"E$"ILI$$INE ISLAN%S,

Respondent#

G.R. No.17840 /resentB MN(R7S-S(NTI(.O6 #.,

Chairperson6C?ICO-N(U(RIO6V79(SCO6*R#6N(C?ER(6

and/7R(9T(,##. /romulgatedB

*uly 16 +,,2x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - -x

D 7 C I S I O N

C?ICO-N(U(RIO6 # #B

This is a /etition "or Reiew assailingthe Decision%i" QsupportFootnotes'%&'%endi"' dated +2 (pril+,,0 and the Resolution dated +, (pril +,,1 o"the Court o" (ppeals in C(-.#R# S/ No# 11;006which annulled and set aside the Decision dated&+ <arch +,,) o" the Court o" Tax (ppeals 3CT(4in CT( Case No# ;+1;6 wherein the CT( held thatrespondent 8an$ o" the /hilippine Islands 38/I4already exercised the irreocable option to carryoer its excess tax credits "or the year &225 tothe succeeding years &222 and +,,, and was6there"ore6 no longer entitled to claim the re"und or

issuance o" a tax credit certi"icate "or the amountthereo"#

On &0 (pril &2226 8/I "iled with the8ureau o" Internal Reenue 38IR4 its "inalad!usted Corporate (nnual Income Tax Return3ITR4 "or the taxable year ending on <1%e+ember 186 showing a taxable income o"/&611)6+);61>0#,, and a total tax due o"$B02,00,4<.00#

45



For the same taxable year &2256 8/I

already made income tax payments "or the "irstthree uarters6 which amounted to$=B<,=47,470.4B#%i" QsupportFootnotes'%+'%endi"' The ban$also receied income in &225 "rom arious thirdpersons6 which6 were already sub!ected to

expanded withholding taxes amounting to$7,B8=,887.0# 8/I additionally acuired "oreigntax credit when it paid the Enited Statesgoernment taxes in the amount o" W&0&6>;1#,,6or the euialent o" $B,10,014.4B6 on theoperations o" "ormers New Mor$ 8ranch# Finally6respondent 8/I had carried oer excess taxcredit "rom the prior year6 &2216 amounting to$=,424,222.00#

Crediting the a"orementionedamounts against the total tax due "rom it at theend o" &2256 8/I computed an oerpayment tothe 8IR o" income taxes in the amount o"$<<,47,101.00# The computation o" 8/I is

reproduced belowB Total Income Taxes

Due/;,+62,,6>2)#,,

9essB Tax CreditsB

/rior years tax credits /026>+>6+++#,, uarterly payments0;)60>16>1,#>; Creditable taxes withheld 16;506551#2,

Foreign tax credit;6&2,6,&>#,, ;);65>1602>#,, ------------------- -------------------Net Tax /ayable

3Re"undable4/3))62>16&,&#,,4

8/I opted to carry oer its &225excess tax credit6 in the amount o"/))62>16&,&#,,6 to the succeeding taxable year

ending <1 %e+ember 1#%i" QsupportFootnotes'%)'%endi"' For &2226 howeer6 respondent 8/I ended up with 3&4a net loss in the amount o" $B1=,742,102.00@ 3+4its still unapplied excess tax credit carried oer"rom &2256 in the amount o" $<<,47,101.00 and3)4 more excess tax credit6 acuired in &2226 inthe sum o" $12,7=,7=0.00# So in &2226 the totalexcess tax credits o" 8/I increased to$4B,22,8=1.006 which it once more opted tocarry oer to the "ollowing taxable year#

For the taxable year ending <1%e+ember 20006 respondent 8/I declared in itsCorporate (nnual ITRB 3&4 ero taxable income@3+4 excess tax credit carried oer "rom &225 and&2226 amounting to $4B,22,8=1.00@ and 3)4een more excess tax credit6 gained in +,,,6 inthe amount o" $2=,207,<.00# This time6 8/I

"ailed to indicate in its ITR its choice o" whether tocarry oer its excess tax credits or to claim there"und o" or issuance o" a tax credit certi"icate "orthe amounts thereo"#

On ) (pril +,,&6 8/I "iled withpetitioner Commissioner o" Internal Reenue3CIR4 an administratie claim "or re"und in theamount o" $<<,47,101.006 representing itsexcess creditable income tax "or &225#

The CIR "ailed to act on the claim "ortax re"und o" 8/I# ?ence6 8/I "iled a /etition "orReiew be"ore the CT(6 doc$eted as CT( CaseNo# ;+1;#

The CT( promulgated its Decision inCT( Case No# ;+1; on &+ <arch +,,)6 rulingtherein that since 8/I had opted to carry oer its&225 excess tax credit to &222 and +,,,6 it wasbarred "rom "iling a claim "or the re"und o" thesame#

The CT( relied on the irrevocabilit1rule laid down in Section 1; o" the NationalInternal Reenue Code 3NIRC4 o" &2216 whichstates that once the taxpayer opts to carry oerand apply its excess income tax to succeedingtaxable years6 its option shall be irreocable "orthat taxable period and no application "or tax

re"und or issuance o" a tax credit shall be allowed"or the same#

The CT( Decision ad!udgedB

( closescrutiny o" the &225income tax return o" %8/I'reeals that it opted tocarry oer its excess taxcredits6 the amountsub!ect o" this claim6 tothe succeeding taxableyear by placing an JxKmar$ on thecorresponding box o"said return 37xhibits (-+ )-a4# For the year&2226 %8/I' againmani"ested its intention tocarry oer to thesucceeding taxableperiod the sub!ect claimtogether with the currentexcess tax credits

46



37xhibit *4# Still unable toapply its prior yearsexcess credits in &222 asit ended up in a net lossposition6 petitioner againcarried oer the saidexcess credits in the year

+,,, 37xhibit A4#

The court

already categoricallyruled in a number o"cases that once theoption to carry-oer andapply the excessuarterly income taxagainst the income taxdue "or the taxableuarters o" thesucceeding taxable yearshas been made6 suchoption shall beconsidered irreocableand no application "orcash re"und or issuanceo" a tax credit certi"icateshall be allowedthere"ore 3/ilipinasTransport Industries s#Commissioner o" InternalReenue6 CT( Case No#;,1)6 dated <arch &6

+,,+@ /ilipinas ?ino6 Inc#s# Commissioner o"Internal Reenue6 CT(Case No# ;,1>6 dated (pril &26 +,,+@ /hilam (sset <anagement6 Inc#s# Commissioner o"Internal Reenue6 CT(Case No# ;+&,6 dated<ay +6 +,,+@ The/hilippine 8an$ingCorporation 3now $nownas .lobal 8usiness8an$6 Inc#4 s#Commissioner o" Internal

Reenue6 CT(Resolution6 CT( CaseNo# ;+5,6 (ugust &;6+,,&# Since %8/I'already exercised theirreocable option tocarry oer its excess taxcredits "or the year &225to the succeeding years&222 and +,,,6 it is6there"ore6 no longer

entitled to claim "or are"und or issuance o" atax credit certi"icate#%i" Q

supportFootnotes'%>'%endi"'

In the end6 the CT( decreedB

IN VI7H OF

(99 T?7 FOR7.OIN.6the instant petition "orreiew is hereby D7NI7D"or lac$ o" merit#%i" Q


8/I "iled a <otion "orReconsideration o" the "oregoing Decision6 butthe CT( denied the same in a Resolution dated )*une +,,)#

8/I "iled an appeal with the Court o" (ppeals6 doc$eted as C(-.#R# S/ No# 11;00#On +2 (pril +,,06 the Court o" (ppeals renderedits Decision6 reersing that o" the CT( andholding that 8/I was entitled to a re"und o" theexcess income tax it paid "or &225#

The Court o" (ppeals conceded that

8/I indeed opted to carry oer its excess taxcredit in &225 to &222 by placing an JxK mar$ onthe corresponding box o" its &225 ITR#Nonetheless6 there was no actual carrying oer o" the excess tax credit6 gien that 8/I su""ered anet loss in &2226 and was not liable "or anyincome tax "or said taxable period6 against whichthe &225 excess tax credit could hae beenapplied#

The Court o" (ppeals added thateen i" Section 1; was to be construed strictlyand literally6 the irrevocabilit1 rule would still notbar 8/I "rom see$ing a tax re"und o" its &225excess tax credit despite preiously opting tocarry oer the same# The phrase J"or that taxableperiodK uali"ied the irreocability o" the option o"8IR to carry oer its &225 excess tax credit toonly the &222 taxable period@ such that6 when the&222 taxable period expired6 the irreocability o"the option o" 8/I to carry oer its excess taxcredit "rom &225 also expired#

The Court o" (ppeals "urtherreasoned that the goernment would be un!ustly

47



enriched should the appellate court hold that theirrevocabilit1 rule barred the claim "or re"und o" ataxpayer6 who preiously opted to carry-oer itsexcess tax credit6 but was not able to use thesame because it su""ered a net loss in thesucceeding year#

Finally6 the appellate court cited '%+-Famil1 Savings 'ank, +nc. v. Court of !eals %i" Q

supportFootnotes'%;'%endi"' wherein this Court held that i" ataxpayer su""ered a net loss in a year6 thus6incurring no tax liability to which the tax credit"rom the preious year could be applied6 therewas no reason "or the 8IR to withhold the taxre"und which right"ully belonged to the taxpayer#%i" QsupportFootnotes'%1'%endi"'

In a Resolution dated +, (pril +,,16

the Court o" (ppeals denied the <otion "orReconsideration o" the CIR#%i" QsupportFootnotes'%5'%endi"'

?ence6 the CIR "iled the instant

/etition "or Reiew6 alleging thatB I

T?7 COERT OF (//7(9S

CO<<ITT7D (R7V7RSI897 7RRORIN ?O9DIN. T?(T T?7JIRR7VOC(8I9ITMRE97K END7R

S7CTION 1; OF T?7T(L COD7 DO7S NOTO/7R(T7 TO 8(R/7TITION7R FRO< (SAIN. FOR ( T(LR7FEND#

II

T?7 COERT OF (//7(9S

CO<<ITT7D .R(V77RROR H?7N ITR7V7RS7D (ND S7T (SID7 T?7 D7CISIONOF T?7 COERT OF T(L (//7(9S (ND ?79DT?(T R7S/OND7NT IS

7NTIT97D TO T?7C9(I<7D T(L R7FEND#

The Court "inds merit in the instant/etition#

The Court o" (ppeals erred in relying

on '%+-Famil1 6 missing signi"icant details thatrendered said case inapplicable to the one at bar#

In '%+-Famil1 6 therein petitioner 8/I-

Family declared in its Corporate (nnual ITR "or&252 excess tax credits o" /&506,,&#,, "rom&255 and /&&+6>2&#,, "rom &2526 totaling/+216>2+#,,# 8/I-Family clearly indicated in thesame ITR that it was carrying oer said excess

tax credits to the "ollowing year# 8ut on &&October &22,6 8/I-Family "iled a claim "or re"undo" its /&&+6>2&#,, tax credit "rom &252# Hhenno action "rom the 8IR was "orthcoming6 8/I-Family "iled its claim with the CT(# The CT(denied the claim "or re"und o" 8/I-Family on theground that6 since the ban$ declared in its &252ITR that it would carry oer its tax credits to the"ollowing year6 it should be presumed to haedone so# In its <otion "or Reconsideration "iledwith the CT(6 8/I-Family submitted its "inalad!usted ITR "or &252 showing that it incurred/0+6>5,6&1)#,, net loss in &22,# Still6 the CT(denied the <otion "or Reconsideration o" 8/I-Family# The Court o" (ppeals li$ewise denied the

appeal o" 8/I-Family and merely a""irmed the !udgment o" the CT(# The Court6 howeer6reersed the CT( and the Court o" (ppeals#

This Court decided to grant the claim

"or re"und o" 8/I-Family a"ter "inding that theban$ had presented su""icient eidence to proethat it incurred a net loss in &22, and6 thus6 hadno tax liability to which its tax credit "rom &252could be applied# The Court stressed in '%+Famil1 that Jthe undisputed "act is that %8/I-Family' su""ered a net loss in &22,@ accordingly6 itincurred no tax liability to which the tax creditcould be applied# Conseuently6 there is noreason "or the 8IR and this Court to withhold the

tax re"und which right"ully belongs to the %8/I-Family'#K It was on the basis o" this "act that theCourt granted the appeal o" 8/I-Family6 brushingaside all procedural and technical ob!ections tothe same through the "ollowing pronouncementsB

Finally6

respondents argue thattax re"unds are in thenature o" tax exemptions

48



and are to be construedstrictissimi uris againstthe claimant# Ender the"acts o" this case6 wehold that %8/I-Family'has established itsclaim# %8/I-Family' may

hae "ailed to strictlycomply with the rules o"procedure@ it may haeeen been negligent#These circumstances6howeer6 should notcompel the Court todisregard this cold6undisputed "actB thatpetitioner su""ered a netloss in &22,6 and that itcould not hae appliedthe amount claimed astax credits#

Substantial

!ustice6 euity and "airplay are on the side o"%8/I-Family'#Technicalities andlegalisms6 howeerexalted6 should not bemisused by thegoernment to $eepmoney not belonging to it

and thereby enrich itsel"at the expense o" its law-abiding citi:ens# I" theState expects itstaxpayers to obsere"airness and honesty inpaying their taxes6 somust it apply the samestandard against itsel" inre"unding excesspayments o" such taxes#Indeed6 the State mustlead by its own exampleo" honor6 dignity anduprightness#%i" QsupportFootnotes'

%2'%endi"'

It is necessary "or this Court6

howeer6 to emphasi:e that '%+-Famil1 inoledtax credit acuired by the ban$ in &2526 which itinitially opted to carry oer to &22,# The

preailing tax law then was the NIRC o6 18=6Section 12%i" QsupportFootnotes'%&,'%endi"' o" which proidedB

Sec# 12#Final !dustment 3eturn. -7ery corporation liable totax under Section +> shall

"ile a "inal ad!ustmentreturn coering the totalnet income "or thepreceding calendar or"iscal year# I" the sum o"the uarterly tax paymentsmade during the saidtaxable year is not eualto the total tax due on theentire taxable net incomeo" that year thecorporation shall eitherB

3a4 /ay

the excess tax still due@ or

3b4 8e

re"unded the excessamount paid6 as the casemay be#

In case the

corporation is entitled to are6() o" the excessestimated uarterlyincome taxes-paid6 there"undable amount shownon its "inal ad!ustmentreturn may be +re)te) against the estimateduarterly income tax

liabilities "or the taxableuarters o" the succeedingtaxable year# 37mphasesours#4

49



8y irtue o" the a"ore-uotedproision6 the taxpayer with excess income taxwas gien the option to either 3&4 re"und theamount@ or 3+4 credit the same to its tax liability"or succeeding taxable periods#

Section 12 o" the NIRC o" &250 was

reproduced as Section 1; o" the NIRC o6 176%i" Q

supportFootnotes'%&&'%endi"' with the addition o" oneimportant sentence6 which laid down theirrevoca)ilit* ruleB

Section 1;#Final !dustment 3eturn#- 7ery corporation liableto tax under Section +>shall "ile a "inalad!ustment returncoering the total netincome "or the precedingcalendar or "iscal year# I"the sum o" the uarterly

tax payments madeduring the said taxableyear is not eual to thetotal tax due on the entiretaxable net income o"that year the corporationshall eitherB

3a4 /ay the

excess tax still due@ or

3b4 8e

re"unded the excessamount paid6 as the casemay be#

In case the

corporation is entitled toa re6() o" the excessestimated uarterlyincome taxes paid6 there"undable amountshown on its "inalad!ustment return may be+re)te) against the

estimated uarterlyincome tax liabilities "orthe taxable uarters o"the succeeding taxableyears# O(+e t5e opto(to +-rr*/oer -() -pp*t5e e+e'' -rter*

(+ome t- -;-('t(+ome t- )e 6or t5et--be -rter' o6 t5e'++ee)(; t--be*e-r' 5-' bee( m-)e,'+5 opto( '5- be+o(')ere) rreo+-be6or t5-t t--be pero)-() (o -pp+-to( 6ort- re6() or ''-(+eo6 - t- +re)t+ert6+-te '5- be-o:e) t5ere6or. 37mphases ours#4

Hhen '%+-Famil1 was decided bythis Court6 it did not yet hae the irrevocabilit1rule to consider# ?ence6 '%+-Famil1 cannot becited as a precedent "or this case#

The "actual bac$ground o" %hilam !sset *anagement, +nc. v. Commissioner of+nternal 3evenue6%i" QsupportFootnotes'%&+'%endi"' cited by theCIR6 is closer to the instant /etition# 8oth inole

tax credits acuired and claims "or re"und "iledmore than a decade a"ter those in '%+-Famil1 6 towhich Section 1; o" the NIRC o" &221 alreadyapply#

The Court6 in %hilam6 recogni:ed thetwo options o""ered by Section 1; o" the NIRC o"&221 to a taxable corporation whose totaluarterly income tax payments in a gien taxableyear exceeds its total income tax due# Theseoptions areB 3&4 "iling "or a tax refund or 3+4aailing o" a tax credit # The Court "urtherexplainedB

The "irst

option is relatiely simple# (ny tax on income that ispaid in excess o" theamount due thegoernment may bere"unded6 proided that ataxpayer properly applies"or the re"und#

50



The second

option wor$s by applyingthe re"undable amount6 asshown on the %Final (d!ustment Return 3F(R4'o" a gien taxable year6

against the estimateduarterly income taxliabilities o" the succeedingtaxable year#

T5e'e t:o opto(' ()er Se+to( 7B -re-ter(-te ( (-tre. T5e +5o+e o6 o(epre+)e' t5e ot5er. Indeed6 in %hiliine 'ankof Communications v. Commissioner of +nternal3evenue6 the Court ruled that a corporation mustsigni"y its intention -- whether to reuest a taxre"und or claim a tax credit -- by mar$ing thecorresponding option box proided in the F(R#Hhile a taxpayer is reuired to mar$ its choice inthe "orm proided by the 8IR6 this reuirement isonly "or the purpose o" "acilitating tax collection#

One cannotget a tax re"und and a taxcredit at the same time "orthe same excess incometaxes paid#%i" QsupportFootnotes'%&)'

%endi"' x x x

The Court categorically declared in%hilam thatB JSe+to( 7B rem-(' +e-r -()(eo+-. O(+e t5e +-rr*/oer opto( 't-e(, -+t-* or +o('tr+te*, t be+ome'rreo+-be.K It mentioned no exception oruali"ication to the irrevocabilit1 rule#

?ence6 the controlling "actor "or theoperation o" the irrevocabilit1 rule is that thetaxpayer chose an option@ and once it hadalready done so6 it could no longer ma$e anotherone# Conseuently6 a"ter the taxpayer opts tocarry-oer its excess tax credit to the "ollowingtaxable period6 the uestion o" whether or not itactually gets to apply said tax credit is irreleant#Section 1; o" the NIRC o" &221 is explicit instating that once the option to carry oer hasbeen made6 Jno application "or tax re"und orissuance o" a tax credit certi"icate shall beallowed there"or#K

The last sentence o" Section 1; o"the NIRC o" &221 readsB JOnce the option tocarry-oer and apply the excess uarterly incometax against income tax due "or the taxableuarters o" the succeeding taxable years hasbeen made6 such option '5- be +o(')ere)rreo+-be 6or t5-t t--be pero) and no

application "or tax re"und or issuance o" a taxcredit certi"icate shall be allowed there"or#K Thephrase J"or that taxable periodK merely identi"iesthe excess income tax6 sub!ect o" the option6 byre"erring to the taxable period when it wasacuired by the taxpayer# In the present case6the excess income tax credit6 which 8/I opted tocarry oer6 was acuired by the said ban$ duringthe taxable year &225# The option o" 8/I to carryoer its &225 excess income tax credit isirreocable@ it cannot later on opt to apply "or are"und o" the ery same &225 excess income taxcredit#

The Court o" (ppeals mista$enly

understood the phrase J"or that taxable periodK asa prescriptie period "or the irrevocabilit1 rule#This would mean that since the tax credit in thiscase was acuired in &2256 and 8/I opted tocarry it oer to &2226 then the irreocability o" theoption to carry oer expired by the end o" &2226leaing 8/I "ree to again ta$e another option asregards its &225 excess income tax credit# Thisconstrual e""ectiely renders nugatory theirrevocabilit1 rule# The eident intent o" thelegislature6 in adding the last sentence to Section1; o" the NIRC o" &2216 is to $eep the taxpayer"rom "lip-"lopping on its options6 and aoidcon"usion and complication as regards saidtaxpayers excess tax credit# The interpretation

o" the Court o" (ppeals only delays the "lip-"lopping to the end o" each succeeding taxableperiod#

The Court similarly disagrees in thedeclaration o" the Court o" (ppeals that to denythe claim "or re"und o" 8/I6 because o" theirrevocabilit1 rule6 would be tantamount to un!ustenrichment on the part o" the goernment# TheCourt addressed the ery same argument in%hilam6 where it elucidated that there would beno un!ust enrichment in the eent o" denial o" theclaim "or re"und under such circumstances6because there would be no "or"eiture o" anyamount in "aor o" the goernment# The amountbeing claimed as a re"und would remain in theaccount o" the taxpayer until utili:ed insucceeding taxable years6%i" QsupportFootnotes'%&>'%endi"' asproided in Section 1; o" the NIRC o" &221# It isworthy to note that unli$e the option "or re"und o"excess income tax6 which prescribes a"ter twoyears "rom the "iling o" the F(R6 there is noprescriptie period "or the carrying oer o" thesame# There"ore6 the excess income tax credit o" 8/I6 which it acuired in &225 and opted to carry

51



oer6 may be repeatedly carried oer tosucceeding taxable years6 i.e.6 to &2226 +,,,6+,,&6 and so on and so "orth6 until actuallyapplied or credited to a tax liability o" 8/I#

Finally6 while the Court6 in %hilam6was "irm in its position that the choice o" option as

regards the excess income tax shall beirreocable6 it was less rigid in the determinationo" which option the taxpayer actually chose# Itdid not limit itsel" to the indication by the taxpayer o" its option in the ITR#

Thus6 "ailure o" the taxpayer to ma$ean appropriate mar$ing o" its option in the ITRdoes not automatically mean that the taxpayerhas opted "or a tax credit# The Court ratiocinatedin .#R# No# &0;;)1%i" QsupportFootnotes'%&0'%endi"' o" %hilamB

One cannotget a tax re"und and a taxcredit at the same time

"or the same excessincome taxes paid#F-re to ';(6* o(e'(te(to( ( t5e FAR)oe' (ot me-( otr;5tb-rr(; o6 - -)ree't 6or - re6(),'5o) o(e 't +5oo'et5' opto( -ter o(. (tax credit should beconstrued merely as analternatie remedy to atax re"und under Section1;6 sub!ect to prioreri"ication and approal

by respondent#

T5e re-'o( 6or rer(; t5-t - +5o+e bem-)e ( t5e FAR po( t' 6(; ' to e-'e t--)m('tr-to(6 particularly the sel"-assessmentand collection aspects# ( taxpayer that ma$es achoice expresses certainty or pre"erence andthus demonstrates clear diligence# Conersely6 ataxpayer that ma$es no choice expressesuncertainty or lac$ o" pre"erence and hence

shows simple negligence or plain oersight#

x x x x

x x x Despite

the "ailure o" %/hilam' to

ma$e the appropriatemar$ing in the 8IR "orm6the 6(; o6 t' :rtte(+-m e66e+te* 'ere'-' -( epre''o( o6 t'+5o+e to ree't - t-re6()6 instead o" a tax

credit# To assert that any"uture claim "or a taxre"und will be instantlyhindered by a "ailure tosigni"y ones intention inthe F(R is to rendernugatory the clearproision that allows "or atwo-year prescriptieperiod#%i" QsupportFootnotes'%&;'%endi"' 37mphases ours#4

%hilam reeals a meticulous consideration by theCourt o" the eidence submitted by the partiesand the circumstances surrounding thetaxpayers option to carry oer or claim "orre"und# Hhen circumstances show that a choicehas been made by the taxpayer to carry oer theexcess income tax as credit6 it should berespected@ but when indubitable circumstances

clearly show that another choice a tax re"und is in order6 it should be granted# JTechnicalitiesand legalisms6 howeer exalted6 should not bemisused by the goernment to $eep money notbelonging to it and thereby enrich itsel" at theexpense o" its law-abiding citi:ens#K

There"ore6 as to which option thetaxpayer chose is generally a matter o"eidence# It is axiomatic that a claimant has theburden o" proo" to establish the "actual basis o"his or her claim "or tax credit or re"und# Taxre"unds6 li$e tax exemptions6 are construedstrictly against the taxpayer#%i" QsupportFootnotes'%&1'%endi"'

In the /etition at bar6 8/I was

unable to discharge the burden o" proo"necessary "or the grant o" a re"und# 8/Iexpressly indicated in its ITR "or &225 that it wascarrying oer6 instead o" re"unding6 the excessincome tax it paid during the said taxable year#8/I consistently reported the said amount in itsITRs "or &222 and +,,, as credit to be applied toany tax liability the ban$ may incur@ only6 no suchopportunity arose because it su""ered a net loss

52



in &222 and incurred :ero tax liability in +,,,# In.#R# No# &;+,,> o" %hilam6 the Court "oundB

First6 the "act

that it "illed out theportion J/rior Mears7xcess CreditsK in its

&222 F(R means that itcategorically aailed itsel" o" the carry-oer option#In "act6 the line thatprecedes that phrase inthe 8IR "orm clearlystates J9essB TaxCredits/ayments#K Thecontention that it merely"illed out that portionbecause it was areuirement and that tohae done otherwisewould hae beentantamount to "alsi"ying

the F(R is a long shot#

The F(R is

the most reliable"irsthand eidence o"corporate acts pertainingto income taxes# In it are"ound the itemi:ation andsummary o" additions toand deductions "rom

income taxes due#These entries are notwithout rhyme or reason#They are reuired6because they "acilitatethe tax administrationprocess#%i" QsupportFootnotes'%&5'

%endi"'

8/I itsel" neer denied that itsoriginal intention was to carry oer the excessincome tax credit it acuired in &2256 and onlychose to re"und the said amount when it wasunable to apply the same to any tax liability in thesucceeding taxable years# There can be nodoubt that 8/I opted to carry oer its excessincome tax credit "rom &225@ it only subseuentlychanged its mind which it was barred "romdoing by the irrevocabilit1 rule#

The choice by 8/I o" the option tocarry oer its &225 excess income tax credit tosucceeding taxable years6 which it explicitlyindicated in its &225 ITR6 is irreocable6regardless o" whether it was able to actuallyapply the said amount to a tax liability# Thereiteration by 8/I o" the carry oer option in its

ITR "or &222 was already a super"luity6 as "ar asits &225 excess income tax credit wasconcerned6 gien the irreocability o" the initialchoice made by the ban$ to carry oer the saidamount# For the same reason6 the "ailure o" 8/Ito indicate any option in its ITR "or +,,, wasalready immaterial to its &225 excess income taxcredit#

"EREFORE6 the instant /etition "or Reiew o"the Commissioner "or Internal Reenue isGRANTE%# The Decision dated +2 (pril +,,0and the Resolution dated +, (pril +,,1 o" theCourt o" (ppeals in C(-.#R# S/ No# 11;00 areREERSE% and SET ASI%E# The Decision

dated &+ <arch +,,) o" the Court o" Tax (ppealsin CT( Case No# ;+1;6 denying the claim o"respondent 8an$ o" the /hilippine Islands "or there"und o" its &225 excess income tax credits6 isREINSTATE%# No costs#

SO OR%ERE%.

FIRST %IISION

COMMISSIONER OF G.R.No. 14B71INTERNAL REEN!E,

$etto(er,$re'e(t3

C5-rm-(, / er'' /

D(-re'/S-(t-;o,

A'tr-/M-rt(e,

Callejo, Sr.,

and

C5+o/N--ro, ## SEIS!I &!S"I$rom;-te)3$"ILI$$INES, INC.,

Re'po()e(t.&* 21, 200B

// // // // // // // // // // // // // // // // // // // // // //

53



// // // // // // %ECISION

$ANGANI#AN, C#6

8usiness enterprises registered with the /hilippine7xport Uone (uthority 3/7U(4 may choosebetween two "iscal incentie schemesB 3&4 to paya "ie percent pre"erential tax rate on its grossincome and thus be exempt "rom all other taxes@or 3b4 to en!oy an income tax holiday6 in whichcase it is not exempt "rom applicable nationalreenue taxes including the alue-added tax3V(T4# The present respondent6 which aaileditsel" o" the second tax incentie scheme6 hasproen that all its transactions were export sales#?ence6 they should be V(T :ero-rated#

T5e C-'e

8e"ore us is a /etition "or Reiew%i" Q

supportFootnotes'%&'%endi"' under Rule >0 o" the Rules o"Court6 challenging the (ugust &;6 +,,&Decision%i" QsupportFootnotes'%+'%endi"' o" the Court o" (ppeals3C(4 in C(-.R S/ No# ;>;12# The assailedDecision upheld the (pril +;6 +,,& Decision %i" Q

supportFootnotes'%)'%endi"' o" the Court o" Tax (ppeals 3CT(4in CT( Case No# 010&# The C( Decisiondisposed as "ollowsB

JH?7R7FO

R76 premisesconsidered6 the presentpetition "or reiew ishereby D7NI7D DE7COERS7 andaccordingly DIS<ISS7D"or lac$ o" merit# TheDecision dated (pril +;6+,,& o" the Court o" Tax (ppeals in CT( Case No#010& is hereby (FFIR<7D andE/?79D#K%i" QsupportFootnotes'%>'

%endi"'

On the other hand6 the dispositieportion o" the CT( Decision readsB

J"EREFO

RE6 the instant /etition"or Reiew is$ARTIALLD GRANTE%#%/etitioner' is herebyordered to re"und or toissue a Tax CreditCerti"icate in "aor o" the

%Respondent' in theamount o" />6)116&,+#+;representing excessinput taxes paid "or theperiod coering *anuary& to *une ),6 &221#K%i" Q


T5e F-+t' The uncontested%i" QsupportFootnotes'%;'%endi"'

"acts are narrated by the C( as "ollowsB

JRespondentis a domestic corporationduly organi:ed andexisting under and byirtue o" the laws o" the/hilippines with principalo""ice located at theSpecial 7xport/rocessing Uone69aguna Technopar$6

8iYan6 9aguna# It isprincipally engaged in thebusiness o"manu"acturing6 importing6exporting6 buying6 selling6or otherwise dealing in6at wholesale such goodsas strapping bands andother pac$agingmaterials and goods o"similar nature6 and anyand all euipment6materials6 supplies usedor employed in or relatedto the manu"acture o"

such "inished products#

J?aing

registered with the8ureau o" InternalReenue 38IR4 as a

54



alue-added tax 3V(T4taxpayer6 respondent"iled its uarterly returnswith the 8IR6 "or theperiod *anuary & to *une),6 &2216 re"lectingtherein input taxes in the

amount o" />6;)&6&)+#1,paid by it in connectionwith its domesticpurchase o" capitalgoods and serices#Said input taxesremained unutili:ed sincerespondent has notengaged in any businessactiity or transaction "orwhich it may be liable "oroutput tax and "or whichsaid input taxes may becredited#

JOn

Noember &&6 &2256respondent "iled with theOne-Stop-Shop Inter- (gency Tax Credit andDuty Drawbac$ Center o" the Department o"Finance 3C7NT7R-DOF4two 3+4 separateapplications "or tax

creditre"und o" V(T inputtaxes paid "or the period*anuary & to <arch )&6&221 and (pril & to *une),6 &2216 respectiely#There being no action onits application "or taxcreditre"und underSection &&+ 384 o" the&221 National InternalReenue Code 3TaxCode46 as amended6priate respondent "iled6within the two 3+4-yearprescriptie period under

Section ++2 o" saidCode6 a petition "orreiew with the Court o"Tax (ppeals on <arch+;6 &222#

J/etitioner

"iled its (nswer to thepetition asseeratingthatB 3&4 said claim "or taxcreditre"und is sub!ect toadministratie routinaryinestigation by the 8IR@3+4 respondent miserably

"ailed to show that theamount claimed as V(Tinput taxes wereerroneously collected orthat the same wereproperly documented@ 3)4taxes due and collectedare presumed to haebeen made inaccordance with law6hence6 not re"undable@3>4 the burden o" proo" ison the taxpayer toestablish his right to are"und in an action "or tax

re"und# Failure todischarge such duty is"atal to his action@ 304respondent should showthat it complied with theproisions o" Section +,>in relation to Section ++2o" the &221 Tax Code@and 3;4 claims "or re"undare strictly construedagainst the taxpayer as itparta$es o" the nature o"a tax exemption# ?ence6petitioner prayed "or thedenial o" respondents

petition#K%i" QsupportFootnotes'%1'

%endi"'

R(; o6 t5e Cort o6 T- Appe-'

The CT( ruled that respondent wasentitled to the re"und# Hhile the company wasregistered with the /7U( as an eco:one and

was6 as such6 exempt "rom income tax6 it aaileditsel" o" the "iscal incentie under 7xecutie Order No# ++;# It thereby sub!ected itsel" to otherinternal reenue taxes li$e the V(T#%i" QsupportFootnotes'%5'

%endi"' The CT( then "ound that only input taxesamounting to />6)116&,+#+; were dulysubstantiated by inoices and O""icial Receipts6%i" Q

supportFootnotes'%2'%endi"' while those amounting to/+0>6)&)#>) had not been su""iciently proen andwere thus disallowed#%i" QsupportFootnotes'%&,'%endi"'

55



R(; o6 t5e Cort o6 Appe-'

The Court o" (ppeals upheld theDecision o" the CT(# (ccording to the C(6respondent had complied with the procedural andsubstantie reuirements "or a claim by &4submitting receipts6 inoices6 and supporting

papers as eidence@ +4 paying the sub!ect inputtaxes on capital goods@ )4 not applying the inputtaxes against any output tax liability@ and >4 "ilingthe claim within the two-year prescriptie periodunder Section ++2 o" the &221 Tax Code#%i" Q

supportFootnotes'%&&'%endi"'

?ence6 this /etition#%i" QsupportFootnotes'%&+'

%endi"'

T5e I''e

/etitioner raises this sole issue "orour considerationB

JHhether or

not respondent is entitledto the re"und or issuanceo" tax credit certi"icate inthe amount o"/>6)116&,+#+; as allegedunutili:ed input taxespaid on domesticpurchase o" capitalgoods and serices "orthe period coering*anuary & to *une ),6&221#K%i" QsupportFootnotes'%&)'%endi"'

T5e Cort' R(;

The /etition has no merit#

Soe I''e3ntitlement to 3efund

To support the issue raised6 petitioner adances the "ollowing argumentsB JI# The Court o" (ppeals erred in

not holding thatrespondent beingregistered with the/hilippine 7conomicUone (uthority 3/7U(4 as

an %e'co:one %e'xport%e'nterprise6 its businessis not sub!ect to V(Tpursuant to Section +> o" Republic (ct No# 12&; inrelation to Section &,)3now Sec# &,24 o" the Tax

Code6 as amended byR#(# 11&;#

JII# The Court o" (ppeals erred in

not holding that sincerespondent is 7L7</T"rom Value-(dded Tax3V(T46 the capital goodsand serices it purchasedare considered not used

in V(T taxable business6hence6 is not allowed anytax creditre"und on V(Tinput tax preiously paidon such capital goodspursuant to Section>#&,;-& o" ReenueRegulations No# 1-206and o" input taxes paidon serices pursuant toSection >#&,)-& o" thesame regulations#

JIII# The Court o" (ppeals erred in

not holding that taxre"unds being in thenature o" tax exemptionsare construed strictissimi

uris against claimants#K%i" Q

supportFootnotes'%&>'%endi"'

These issues hae preiously beenaddressed by this Court in Commissioner of+nternal 3evenue v. Toshiba +nformation(uiment <%hils.=,%i" QsupportFootnotes'%&0'%endi"' Commissioner of +nternal 3evenue v. Cebu To1oCororation,%i" QsupportFootnotes'%&;'%endi"' andCommissioner of +nternal 3evenue v. Seagate

56



Technolog1 <%hiliines=.%i" QsupportFootnotes'%&1'%endi"'

(n entity registered with the /7U( as

an eco:one%i" QsupportFootnotes'%&5'%endi"' may be coered bythe V(T system# Section +) o" Republic (ct12&;6 as amended6 gies a /7U(-registeredenterprise the option to choose between two

"iscal incentiesB a4 a "ie percent pre"erential taxrate on its gross income under the said law@ or b4an income tax holiday proided under 7xecutieOrder No# ++; or the Omnibus Inestment Codeo" &2516 as amended# I" the entity aails itsel" o"the "ie percent pre"erential tax rate under the"irst scheme6 it is exempt "rom all taxes6 includingthe V(T@%i" QsupportFootnotes'%&2'%endi"' under the second6 it isexempt "rom income taxes "or a number o" years6%i" QsupportFootnotes'%+,'%endi"' but not "rom other nationalinternal reenue taxes li$e the V(T#%i" QsupportFootnotes'%+&'

%endi"'

The C( and CT( "ound thatrespondent had aailed itsel" o" the "iscal

incentie o" an income tax holiday under7xecutie Order No# ++;# This Court respectsthat "actual "inding# (bsent a su""icient showingo" error6 "indings o" the CT( as a""irmed by the C(are deemed conclusie#%i" QsupportFootnotes'%++'%endi"' <oreoer6 a perusal o" the pleadings andsupporting documents be"ore us indicates thatwhen it registered as a V(T-entity -- a "actadmitted by the parties -- respondent intended toaail itsel" o" the income tax holiday#%i" QsupportFootnotes'

%+)'%endi"' Verily6 being a uestion o" "act6 the type o""iscal incentie chosen cannot be a sub!ect o" this/etition6 which should raise only uestions o" law#

8y aailing itsel" o" the income tax

holiday6 respondent became sub!ect to the V(T#It correctly registered as a V(T taxpayer6 becauseits transactions were not V(T-exempt#

Notably6 while an eco:one isgeographically within the /hilippines6 it is deemeda separate customs territory%i" QsupportFootnotes'%+>'%endi"' and is regarded in law as "oreign soil#%i" QsupportFootnotes'

%+0'%endi"' Sales by suppliers "rom outside theborders o" the eco:one to this separate customsterritory are deemed as exports%i" QsupportFootnotes'%+;'%endi"'

and treated as export sales#%i" QsupportFootnotes'%+1'%endi"' These sales are :ero-rated or sub!ect to a taxrate o" :ero percent#%i" QsupportFootnotes'%+5'%endi"'

Notwithstanding the "act that its

purchases should hae been :ero-rated6respondent was able to proe that it had paidinput taxes in the amount o" />6)116&,+#+;# TheCT( "ound6 and the C( a""irmed6 that this amountwas substantially supported by inoices andO""icial Receipts@%i" QsupportFootnotes'%+2'%endi"' and petitioner has not challenged the computation# (ccordingly6this Court upholds the "indings o" the CT( and theC(#

On the other hand6 since &,, percent

o" the products o" respondent are exported6 %i" Q

supportFootnotes'%),'%endi"' all its transactions are deemedexport sales and are thus V(T :ero-rated# It hasbeen shown that respondent has no output taxwith which it could o""set its paid input tax#%i" Q

supportFootnotes'%)&'%endi"'

Since the sub!ect input tax itpaid "or its domestic purchases o" capital goodsand serices remained unutili:ed6 it can claim are"und "or the input V(T preiously charged by itssuppliers#%i" QsupportFootnotes'%)+'%endi"' The amount o"/>6)116&,+#+; is excess input taxes that !usti"y are"und#

H?7R7FOR76 the /etition isD&+D and the assailed Decision !FF+3*D.No costs6 as petitioner is a goernment agency# SO ORD7R7D#

SECON% %IISION

COMMISSIONEROF INTERNALREEN!E,/etitioner6

- ersus -

SOND$"ILI$$INES,INC.,Respondent#

G.R. No. 178B7 /resentB C(R/IO6 # #6Chairerson697ON(RDO-D7C(STRO6 Z

/7R(9T(6 (8(D6 and

<7NDOU(6 ##.

/romulgatedBNoember &16 +,&,

L---------------------------------------------------------------------------------------L % E C I S I O N MEN%OA, J .3

This petition "or reiew on certiorari

see$s to set aside the <ay &16 +,,1 Decisionand the *uly 06 +,,1 Resolution o" the Court o"Tax (ppeals 7n 8anc%i" QsupportFootnotes'%&'%endi"' <CT!-'=, in C#T#(# 78 No# 2,6 a""irming the October+;6 +,,> Decision o" the CT(-First Diision%i" Q

supportFootnotes'%+'%endi"' which6 in turn6 partially grantedthe petition "or reiew o" respondent Sony/hilippines6 Inc# <Son1=# The CT(-First Diision

57



decision cancelled the de"iciency assessmentissued by petitioner Commissioner o" InternalReenue <C+3= against Sony "or Value (dded Tax<$!T= but upheld the de"iciency assessment "orexpanded withholding tax <0T= in the amount o" /&6,)06512#1, and the penalties "or lateremittance o" internal reenue taxes in the

amount o" /&6+;26 02)#2,#%i" QsupportFootnotes'%)'%endi"'

T"E FACTSB

On Noember +>6 &2256 the CIRissued 9etter o" (uthority No# ,,,,&21)> <>)!9?@AB= authori:ing certain reenue o""icers toexamine Sonys boo$s o" accounts and otheraccounting records regarding reenue taxes "orPt5e pero) 17 -() (er6e) pror *e-r'.Q On December ;6 &2226 a preliminary assessment"or &221 de"iciency taxes and penalties wasissued by the CIR which Sony protested# Therea"ter6 acting on the protest6 the CIR issued"inal assessment notices6 the "ormal letter o"

demand and the details o" discrepancies#%i" QsupportFootnotes'%>'%endi"' Said details o" the de"iciencytaxes and penalties "or late remittance o" internalreenue taxes are as "ollowsB

%EFICIENCD AL!E /A%%E% TA @AT

@A''e''me(t No. ST/AT/7/0124/2000

8asic Tax Due

(ddB /enalties

Interest up to )-)&-+,,,

Compromise

De"iciency V(T Due

%EFICIENCD E$AN%E% IT""OL%ING TA @ET

@A''e''me(t No. ST/ET/7/012=/2000

8asic Tax Due

(ddB /enalties


Compromise

De"iciency 7HT Due

%EFICIENCD OF AT ON RODALTD $ADMENTS

@A''e''me(t No. ST/LR1/7/012B/2000

8asic Tax Due

(ddB /enalties

Surcharge


Compromise

/enalties Due

LATE REMITTANCE OF FINAL IT""OL%ING TA

@A''e''me(t No. ST/LR2/7/0127/2000

8asic Tax Due

(ddB /enalties

Surcharge


Compromise

/enalties Due

LATE REMITTANCE OF INCOME $ADMENTS

@A''e''me(t No. ST/LR</7/0128/2000

8asic Tax Due

(ddB /enalties

+0 = Surcharge


Compromise

/enalties Due

GRAN% TOTAL

Sony sought re-ealuation o" thea"orementioned assessment by "iling a protest onFebruary +6 +,,,# Sony submitted releantdocuments in support o" its protest on the &; th o"that same month#%i" QsupportFootnotes'%;'%endi"'

On October +>6 +,,,6 within ), days

a"ter the lapse o" &5, days "rom submission o"the said supporting documents to the CIR6 Sony"iled a petition "or reiew be"ore the CT(#%i" QsupportFootnotes'%1'%endi"'

("ter trial6 the CT(-First Diision

disallowed the de"iciency V(T assessment

58



because the subsidi:ed adertising expense paidby Sony which was duly coered by a V(Tinoice resulted in an input V(T credit# (s regardsthe 7HT6 the CT(-First Diision maintained thede"iciency 7HT assessment on Sonys motorehicles and on pro"essional "ees paid to generalpro"essional partnerships# It also assessed the

amounts paid to sales agents as commissionswith "ie percent 30=4 7HT pursuant to Section&3g4 o" Reenue Regulations No# ;-50# The CT(-First Diision6 howeer6 disallowed the 7HTassessment on rental expense since it "ound thatthe total rental deposit o" /&,60+)65+&#22 wasincurred "rom *anuary to <arch &225 which wasagain beyond the coerage o" 9O( &21)>#7xcept "or the compromise penalties6 the CT(-First Diision also upheld the penalties "or thelate payment o" V(T on royalties6 "or lateremittance o" "inal withholding tax on royalty as o" December &221 and "or the late remittance o"7HT by some o" Sonys branches# %i" QsupportFootnotes'%5'

%endi"' In sum6 the CT(-First Diision partly granted

Sonys petition by cancelling the de"iciency V(Tassessment but upheld a modi"ied de"iciency7HT assessment as well as the penalties# Thus6the dispositie portion readsB

H?7R7FOR

76 the petition "or reiewis hereby /(RTI(99M.R(NT7D# Respondentis ORD7R7D toC(NC79 andHIT?DR(H thede"iciency assessment"or alue-added tax "or&221 "or lac$ o" merit#

?oweer6 the de"iciencyassessments "orexpanded withholding taxand penalties "or lateremittance o" internalreenue taxes areE/?79D#

(ccordingly6petitioner is DIR7CT7Dto /(M the respondent

the de"iciency expandedwithholding tax in theamount o" /&6,)06512#1,and the "ollowingpenalties "or lateremittance o" internalreenue taxes in the sumo" /&6+;2602)#2,B

%i" Qsupport9ists'&# %endi"'V(T onRoyalty / >+26+>+#,1%i" Qsupport9ists'+# %endi"'Hithholding Tax onRoyalty 5)&6>+5#+,%i" Qsupport9ists')# %endi"'7HT o" /etitioners8ranches 562+)#;)

TotalP 1,269,593.90

/lus +,= delinuency interest "rom

*anuary &16 +,,, until"ully paid pursuant toSection +>23C43)4 o" the&221 Tax Code#

SO

ORD7R7D#%i" QsupportFootnotes'%2'

%endi"'

The CIR sought a reconsideration o"

the aboe decision and submitted the "ollowinggrounds in support thereo"B %i" Qsupport9ists'(# %endi"'The ?onorable Courtcommitted reersible error in holding thatpetitioner is not liable "or the de"iciency V(T in the

amount o" /&&6&>&6,&>#>&@ %i" Qsupport9ists'8# %endi"'The ?onorable courtcommitted reersible error in holding that thecommission expense in the amount o"/+652>6121#,, should be sub!ected to 0=withholding tax instead o" the &,= tax rate@ %i" Qsupport9ists'C# %endi"'The ?onorable Courtcommitted a reersible error in holding that thewithholding tax assessment with respect to the0= withholding tax on rental deposit in theamount o" /&,60+)65+&#22 should be cancelled@and %i" Qsupport9ists'D# %endi"'The ?onorable Courtcommitted reersible error in holding that theremittance o" "inal withholding tax on royaltiescoering the period *anuary to <arch &225 was"iled on time#%i" QsupportFootnotes'%&,'%endi"'

On (pril +56 +,,06 the CT(-First

Diision denied the motion "or reconsideration#En"a:ed6 the CIR "iled a petition "or reiew withthe CT(-78 raising identical issuesB

59



%i" Qsupport9ists'&# %endi"'Hhether or notrespondent 3Sony4 is liable "or the de"iciency V(T in the amount o" /&&6&>&6,&>#>&@ %i" Qsupport9ists'+# %endi"'Hhether or not thecommission expense in the amount o"

/+652>6121#,, should be sub!ected to &,=withholding tax instead o" the 0= tax rate@ %i" Qsupport9ists')# %endi"'Hhether or not thewithholding assessment with respect to the 0=withholding tax on rental deposit in the amount o"/&,60+)65+&#22 is proper@ and %i" Qsupport9ists'># %endi"'Hhether or not theremittance o" "inal withholding tax on royaltiescoering the period *anuary to <arch &225 was"iled outside o" time#%i" QsupportFootnotes'%&&'%endi"'

Finding no cogent reason to reerse

the decision o" the CT(-First Diision6 the CT(-

78 dismissed CIRs petition on <ay &16 +,,1#CIRs motion "or reconsideration was denied bythe CT(-78 on *uly 06 +,,1#

The CIR is now be"ore this Court iathis petition "or reiew relying on the ery samegrounds it raised be"ore the CT(-First Diisionand the CT(-78# The said grounds arereproduced belowB

GRO!N%SFOR T"E ALLOANCEOF T"E $ETITION

I

T"E CTA EN#ANC ERRE% INR!LING T"ATRES$ON%ENT IS NOTLIA#LE FOR%EFICIENCD AT INT"E AMO!NT OF$"$11,141,014.41.

II

AS TORES$ON%ENTS%EFICIENCDE$AN%E%

IT""OL%ING TA INT"E AMO!NT OF$"$1,2,4B2.723

%i" Qsupport9ists'A. %endi"'T"E CTA EN #ANCERRE% IN R!LING T"AT T"E COMMISSIONE$ENSE IN T"E AMO!NT OF$"$2,84,77.00 S"O!L% #E S!#&ECTE%TO A IT""OL%ING TA OF => INSTEA% OFT"E 10> TA RATE. %i" Qsupport9ists'#. %endi"'T"E CTA EN #ANCERRE% IN R!LING T"AT T"E ASSESSMENTIT" RES$ECT TO T"E => IT""OL%INGTA ON RENTAL %E$OSIT IN T"E AMO!NTOF $"$10,=2<,821. IS NOT $RO$ER.

III

T"E CTA EN#ANC ERRE% INR!LING T"AT T"EFINAL IT""OL%INGTA ON RODALTIESCOERING T"E$ERIO% &AN!ARD TOMARC" 18 ASFILE% ON TIME.[6 K

'pportFoot(ote'][12][e()6]

Epon "iling o" Sonys comment6 the

Court ordered the CIR to "ile its reply thereto# TheCIR subseuently "iled a mani"estation in"ormingthe Court that it would no longer "ile a reply# Thus6on December )6 +,,56 the Court resoled to giedue course to the petition and to decide the caseon the basis o" the pleadings "iled#%i" QsupportFootnotes'%&)'

%endi"'

The Court "inds no merit in the

petition#

The CIR insists that 9O( &21)>6although it states Jthe period &221 and uneri"iedprior years6K should be understood to mean the"iscal year ending in <arch )&6 &225#%i" QsupportFootnotes'

%&>'%endi"' The Court cannot agree#

8ased on Section &) o" the TaxCode6 a 9etter o" (uthority or 9O( is the authoritygien to the appropriate reenue o""icer assignedto per"orm assessment "unctions# It empowers or

60



enables said reenue o""icer to examine theboo$s o" account and other accounting records o" a taxpayer "or the purpose o" collecting thecorrect amount o" tax#%i" QsupportFootnotes'%&0'%endi"' Theery proision o" the Tax Code that the CIR relieson is uneuiocal with regard to its power to grantauthority to examine and assess a taxpayer#

S7C# ;#$o:er o6 t5eComm''o(er to M-eA''e''me(t' -()$re'+rbe A))to(-Rereme(t' 6or T-A)m('tr-to( -()E(6or+eme(t. ?

3(47xamination o" Returns andDetermination o" tax Due# ("ter a return has been"iled as reuired underthe proisions o" thisCode6 the Commissioneror his duly authori:edrepresentatie m-*-t5ore t5ee-m(-to( o6 -(*t-p-*er -() t5e-''e''me(t o6 t5e+orre+t -mo(t o6 t-3 %rovided 6 hoever 6 That

"ailure to "ile a returnshall not preent theCommissioner "rom-t5or(; t5ee-m(-to( o6 -(*t-p-*er. x x x%7mphases supplied'

Clearly6 there must be a grant o"

authority be"ore any reenue o""icer can conduct

an examination or assessment# 7uallyimportant is that the reenue o""icer so authori:edmust not go beyond the authority gien# In theabsence o" such an authority6 the assessment orexamination is a nullity#

(s earlier stated6 9O( &21)> coeredJthe period &221 and uneri"ied prior years#K Forsaid reason6 the CIR acting through its reenueo""icers went beyond the scope o" their authoritybecause the de"iciency V(T assessment they

arried at was based on records "rom *anuary to<arch &225 or using the "iscal year which endedin <arch )&6 &225# (s pointed out by the CT(-First Diision in its (pril +56 +,,0 Resolution6 theCIR $new which period should be coered by theinestigation# Thus6 i" CIR wanted or intended theinestigation to include the year &2256 it should

hae done so by including it in the 9O( or issuinganother 9O(#

Epon reiew6 the CT(-78 eenadded that the coerage o" 9O( &21)>6particularly the phrase Jand uneri"ied prioryears6K iolated Section C o" Reenue<emorandum Order No# >)-2, dated September+,6 &22,6 the pertinent portion o" which readsB )# ( 9etter o" (uthority should coer -

t--be pero) (ote+ee)(; o(et--be *e-r # Thepractice o" issuing

9(s coering audito" Juneri"ied prioryears is herebyprohibited# I" theaudit o" a taxpayershall include morethan one taxableperiod6 the otherperiods or yearsshall be speci"icallyindicated in the9(#%i" QsupportFootnotes'%&;'

%endi"' %7mphasissupplied'

On this point alone6 the de"iciency

V(T assessment should hae been disallowed#8e that as it may6 the CIRs argument6 that Sonysadertising expense could not be considered asan input V(T credit because the same waseentually reimbursed by Sony InternationalSingapore <S+S=, is also erroneous#

The CIR contends that since Sonysadertising expense was reimbursed by SIS6 the

"ormer neer incurred any adertising expense# (s a result6 Sony is not entitled to a tax credit# (tmost6 the CIR continues6 the said adertisingexpense should be "or the account o" SIS6 andnot Sony#%i" QsupportFootnotes'%&1'%endi"'

The Court is not persuaded# (s aptly

"ound by the CT(-First Diision and later a""irmedby the CT(-786 Sonys de"iciency V(Tassessment stemmed "rom the CIRs

61



disallowance o" the input V(T credits that shouldhae been reali:ed "rom the adertising expenseo" the latter#%i" QsupportFootnotes'%&5'%endi"' It is eident underSection &&,%i" QsupportFootnotes'%&2'%endi"' o" the &221 TaxCode that an adertising expense duly coeredby a V(T inoice is a legitimate businessexpense# This is con"irmed by no less than CIRs

own witness6 Reenue O""icer (ntonio (luuin#%i" Q

supportFootnotes'%+,'%endi"' There is also no denying thatSony incurred adertising expense# (luuintesti"ied that adertising companies issuedinoices in the name o" Sony and the latter paid"or the same#%i" QsupportFootnotes'%+&'%endi"' Indubitably6 Sonyincurred and paid "or adertising expenseserices# Hhere the money came "rom is another matter all together but will de"initely not changesaid "act#

The CIR "urther argues that Sonyitsel" admitted that the reimbursement "rom SISwas income and6 thus6 taxable# In support o" this6the CIR cited a portion o" Sonys protest "iled

be"ore itB

The "act thatdue to aderse economicconditions6 Sony-Singapore has granted toour client a subsidyeuialent to the lattersadertising expenses willnot a""ect the alidity o"the input taxes "rom suchexpenses# Thus6 at themost6 this is an additionalincome o" our clientsub!ect to income tax#

He submit "urther thatour client is not sub!ect toV(T on the subsidyincome as this was notderied "rom the sale o"goods or serices#%i" Q

supportFootnotes'%++'%endi"'

Inso"ar as the aboe-mentioned

subsidy may be considered as income and6

there"ore6 sub!ect to income tax6 the Courtagrees# ?oweer6 the Court does not agree thatthe same subsidy should be sub!ect to the &,=V(T# To begin with6 the said subsidy termed bythe CIR as reimbursement was not eenexclusiely earmar$ed "or Sonys adertisingexpense "or it was but an assistance or aid iniew o" Sonys dire or aderse economicconditions6 and was only Jeuialent to thelatters 3Sonys4 adertising expenses#K

Section &,; o" the Tax Code explains when V(Tmay be imposed or exacted# ThusB

S7C# &,;#-e/-))e) T- o(S-e o6 Goo)' or

$roperte'. ?

3(4 Rate and

8ase o" Tax# Thereshall be leied6 assessedand collected on eerysale6 barter or exchangeo" goods or properties6alue-added taxeuialent to ten percent

3&,=4 o" the gross sellingprice or gross alue inmoney o" the goods orproperties sold6 barteredor exchanged6 such taxto be paid by the seller or trans"eror#

Thus6 there must be a sale6 barter orexchange o" goods or properties be"ore any V(Tmay be leied# Certainly6 there was no such sale6barter or exchange in the subsidy gien by SIS toSony# It was but a dole out by SIS and not inpayment "or goods or properties sold6 bartered orexchanged by Sony#

In the case o" C+3 v. Court of !eals <C!=6%i" QsupportFootnotes'%+)'%endi"' the Court hadthe occasion to rule that serices rendered "or a"ee een on reimbursement-on-cost basis onlyand without reali:ing pro"it are also sub!ect toV(T# The case6 howeer6 is not applicable to thepresent case# In that case6 CO<(S7RCOrendered serice to its a""iliates and6 in turn6 thea""iliates paid the "ormer reimbursement-on-cost

which means that it was paid the cost or expensethat it incurred although without pro"it# This is nottrue in the present case# Sony did not render anyserice to SIS at all# The serices rendered bythe adertising companies6 paid "or by Sonyusing SIS dole-out6 were "or Sony and not SIS#SIS !ust gae assistance to Sony in the amounteuialent to the latters adertising expense butneer receied any goods6 properties or serice"rom Sony#

62



Regarding the de"iciency 7HTassessment6 more particularly Sonyscommission expense6 the CIR insists that saidde"iciency 7HT assessment is sub!ect to the tenpercent 3&,=4 rate instead o" the "ie percent30=4 citing Reenue Regulation No# +-25 dated (pril &16 &225#%i" QsupportFootnotes'%+>'%endi"' The said

reenue regulation proides that the &,= rate isapplied when the recipient o" the commissionincome is a natural person# (ccording to the CIR6Sonys schedule o" Selling6 .eneral and (dministratie expenses shows the commissionexpense as Jcommissiondealer salesmanincentie6K emphasi:ing the word salesman#

On the other hand6 the application o"the "ie percent 30=4 rate by the CT(-FirstDiision is based on Section &3g4 o" ReenueRegulations No# ;-50 which proidesB

3g4 (mountspaid to certain 8ro$ers

and (gents# On grosspayments to customs6insurance6 real estateand commercial bro$ersand agents o"pro"essional entertainers "ie per centum 30=4#%i" Q

supportFootnotes'%+0'%endi"'

In denying the ery same argument

o" the CIR in its motion "or reconsideration6 theCT(-First Diision6 heldB

x x x6commission expense isindeed sub!ect to &,=withholding tax butpayments made to bro$er is sub!ect to 0=withholding tax pursuantto Section &3g4 o"Reenue RegulationsNo# ;-50# Hhile thecommission expense inthe schedule o" Selling6

.eneral and (dministratie expensessubmitted by petitioner3S/I4 to the 8IR iscaptioned asJcommissiondealersalesman incentieK thesame does not !usti"y theautomatic imposition o""lat &,= rate# (s itemi:ed

by petitioner6 suchexpense is composed o"JCommission 7xpenseKin the amount o"/&,6+,,#,, and [8ro$erDealer o" /+652>6121#,,#%i" QsupportFootnotes'%+;'%endi"'

The Court agrees with the CT(-78

when it a""irmed the CT(-First Diision decision# Indeed6 the applicable rule is ReenueRegulations No# ;-506 as amended byReenue Regulations No# &+-2>6 which was theapplicable rule during the sub!ect period o"examination and assessment as speci"ied in the9O(# Reenue Regulations No# +-256 cited bythe CIR6 was only adopted in (pril &225 and6

there"ore6 cannot be applied in the present case# 8esides6 the withholding tax on bro$ers andagents was only increased to &,= much later orby the end o" *uly +,,& under ReenueRegulations No# ;-+,,&#%i" QsupportFootnotes'%+1'%endi"' Entilthen6 the rate was only 0=#

The Court also a""irms the "indings o"both the CT(-First Diision and the CT(-78 onthe de"iciency 7HT assessment on the rentaldeposit# (ccording to their "indings6 Sony incurredthe sub!ect rental deposit in the amount o"/&,60+)65+&#22 only "rom *anuary to <arch&225# (s stated earlier6 in the absence o" theappropriate 9O( speci"ying the coerage6 the

CIRs de"iciency 7HT assessment "rom *anuaryto <arch &2256 is not alid and must bedisallowed#

Finally6 the Court now proceeds tothe third ground relied upon by the CIR#

The CIR initially assessed Sony to beliable "or penalties "or belated remittance o" itsFHT on royalties 3i4 as o" December &221@ and3ii4 "or the period "rom *anuary to <arch &225# (gain6 the Court agrees with the CT(-FirstDiision when it upheld the CIR with respect tothe royalties "or December &221 but cancelledthat "rom *anuary to <arch &225#

The CIR insists that under Section)%i" QsupportFootnotes'%+5'%endi"' o" Reenue Regulations No# 0-5+ and Sections +#01#> and +#053(43+43a4%i" QsupportFootnotes'%+2'%endi"' o" Reenue Regulations No# +-256 Sony should also be made liable "orthe FHT on royalties "rom *anuary to <arch o"&225# (t the same time6 it downplays thereleance o" the <anu"acturing 9icense (greement 3<9(4 between Sony and Sony-*apan6 particularly in the payment o" royalties#

63



The aboe reenue regulations

proide the manner o" withholding remittance aswell as the payment o" "inal tax on royalty# 8asedon the same6 Sony is reuired to deduct andwithhold "inal taxes on royalty payments when theroyalty is paid or is payable# ("ter which6 the

corresponding return and remittance must bemade within &, days a"ter the end o" each month#The uestion now is when does the royaltybecome payable

Ender (rticle L304 o" the <9(between Sony and Sony-*apan6 the "ollowingterms o" royalty payments were agreed uponB

304Hithin two3+4 months "ollowingeach semi-annual periodending *une ), andDecember )&6 the9IC7NS77 shall "urnish

to the 9IC7NSOR astatement6 certi"ied by ano""icer o" the 9IC7NS776showing uantities o" the<OD79S sold6 leased orotherwise disposed o" bythe 9IC7NS77 duringsuch respectie semi-annual period andamount o" royalty duepursuant this (RTIC97 Lthere"ore6 and the9IC7NS77 shall pay theroyalty hereunder to the9IC7NSOR concurrently

with the "urnishing o" theaboe statement#%i" QsupportFootnotes'%),'%endi"'

Hithal6 Sony was to pay Sony-*apan

royalty within two 3+4 months a"ter eery semi-annual period which ends in *une ), andDecember )&# ?oweer6 the CT(-First Diision"ound that there was accrual o" royalty by the endo" December &221 as well as by the end o" *une

&225# .ien this6 the FHTs should hae beenpaid or remitted by Sony to the CIR on *anuary&,6 &225 and *uly &,6 &225# Thus6 it was correct"or the CT(-First Diision and the CT(-78 inruling that the FHT "or the royalty "rom *anuaryto <arch &225 was seasonably "iled# (lthough theroyalty "rom *anuary to <arch &225 was wellwithin the semi-annual period ending *une ),6which meant that the royalty may be payable until (ugust &225 pursuant to the <9(6 the FHT "or

said royalty had to be paid on or be"ore *uly &,6&225 or &, days "rom its accrual at the end o"*une &225# Thus6 when Sony remitted the sameon *uly 56 &2256 it was not yet late#

In iew o" the "oregoing6 the Court"inds no reason to disturb the "indings o" the CT(-

78# "EREFORE6 the petition is %ENIE%. SO OR%ERE%#

Republic o" the /hilippinesS!$REME CO!RT<anilaT?IRD DIVISIONG.R. No. 14B84 &* 28, 200BCOMMISSIONER OF INTERNAL REEN!E, petitioner6

s#MAGSADSAD LINES, INC., #ALIAGNAIGATION, INC., FIM LIMITE% OF T"EMAR%EN GRO!$ @" -() NATIONAL%EELO$MENT COM$AND, respondents#D 7 C I S I O NTINGA, J.3The issue in this present petition is whether thesale by the National Deelopment Company3NDC4 o" "ie 304 o" its essels to the priaterespondents is sub!ect to alue-added tax 3V(T4under the National Internal Reenue Code o"&25; 3Tax Code4 then preailing at the time o" thesale# The Court o" Tax (ppeals 3CT(4 and theCourt o" (ppeals commonly ruled that the sale is

not sub!ect to V(T# He a""irm6 though on a moreuneuiocal rationale than that utili:ed by therulings under reiew# The "act that the sale wasnot in the course o" the trade or business o" NDCis su""icient in itsel" to declare the sale as outsidethe coerage o" V(T#The "acts are culled primarily "rom the ruling o"the CT(#/ursuant to a goernment program o"priati:ation6 NDC decided to sell to priateenterprise all o" its shares in its wholly-ownedsubsidiary the National <arine Corporation3N<C4# The NDC decided to sell in one lot itsN<C shares and "ie 304 o" its ships6 which are)61,, DHT Tween-Dec$er6 Aloec$ner typeessels#& The essels were constructed "or theNDC between &25& and &25>6 then initiallyleased to 9u:on Steedoring Company6 also itswholly-owned subsidiary# Subseuently6 theessels were trans"erred and leased6 on abareboat basis6 to the N<C#+

The N<C shares and the essels were o""ered"or public bidding# (mong the stipulated termsand conditions "or the public auction was that thewinning bidder was to pay a alue added tax o"

64



&,= on the alue o" the essels#) On ) *une&2556 priate respondent <agsaysay 9ines6 Inc#3<agsaysay 9ines4 o""ered to buy the shares andthe essels "or /&;56,,,6,,,#,,# The bid wasmade by <agsaysay 9ines6 purportedly "or a newcompany still to be "ormed composed o" itsel"68aliwag Naigation6 Inc#6 and FI< 9imited o" the

<arden .roup based in ?ong$ong 3collectiely6priate respondents4#> The bid was approed bythe Committee on /riati:ation6 and a Notice o" (ward dated & *uly &255 was issued to<agsaysay 9ines#On +5 September &2556 the implementingContract o" Sale was executed between NDC6 onone hand6 and <agsaysay 9ines6 8aliwagNaigation6 and FI< 9imited6 on the other#/aragraph &&#,+ o" the contract stipulated that%'alue-added tax6 i" any6 shall be "or the accounto" the /ERC?(S7R#0 /er arrangement6 anirreocable con"irmed 9etter o" Credit preiously"iled as bidders bond was accepted by NDC assecurity "or the payment o" V(T6 i" any# 8y this

time6 a "ormal reuest "or a ruling on whether ornot the sale o" the essels was sub!ect to V(Thad already been "iled with the 8ureau o" InternalReenue 38IR4 by the law "irm o" Sycip Sala:ar?ernande: .atmaitan6 presumably in behal" o"priate respondents# Thus6 the parties agreedthat should no "aorable ruling be receied "romthe 8IR6 NDC was authori:ed to draw on the9etter o" Credit upon written demand the amountneeded "or the payment o" the V(T on thestipulated due date6 +, December &255#;

In *anuary o" &2526 priate respondents throughcounsel receied V(T Ruling No# 0;5-55 dated&> December &255 "rom the 8IR6 holding that thesale o" the essels was sub!ect to the &,= V(T#

The ruling cited the "act that NDC was a V(T-registered enterprise6 and thus its transactionsincident to its normal V(T registered actiity o"leasing out personal property including sale o" itsown assets that are moable6 tangible ob!ectswhich are appropriable or trans"erable are sub!ectto the &,= %V(T'#1

/riate respondents moed "or thereconsideration o" V(T Ruling No# 0;5-556 as wellas V(T Ruling No# )20-55 3dated &5 (ugust&25546 which made a similar ruling on the sale o"the same essels in response to an inuiry "romthe Chairman o" the Senate 8lue RibbonCommittee# Their motion was denied when the8IR issued V(T Ruling Nos# ,,1-52 dated +>February &2526 reiterating the earlier V(T rulings# (t this point6 NDC drew on the 9etter o" Credit topay "or the V(T6 and the amount o"/&06&+,6,,,#,, in taxes was paid on &; <arch&252#On &, (pril &2526 priate respondents "iled an (ppeal and /etition "or Re"und with the CT(6"ollowed by a Supplemental /etition "or Reiewon &> *uly &252# They prayed "or the reersal o"V(T Rulings No# )20-556 0;5-55 and ,,1-526 as

well as the re"und o" the V(T payment madeamounting to /&06&+,6,,,#,,#5 TheCommissioner o" Internal Reenue 3CIR4opposed the petition6 "irst arguing that priaterespondents were not the real parties in interestas they were not the trans"erors or sellers ascontemplated in Sections 22 and &,, o" the then

Tax Code# The CIR also suarely de"ended theV(T rulings holding the sale o" the essels liable"or V(T6 especially citing Section ) o" ReenueRegulation No# 0-51 3R#R# No# 0-5146 whichproided that %V(T' is imposed on any sale ortransactions [deemed sale o" taxable goods3including capital goods6 irrespectie o" the dateo" acuisition4# The CIR argued that the sale o"the essels were among those transactionsdeemed sale6 as enumerated in Section > o"R#R# No# 0-51# It seems that the CIR particularlyemphasi:ed Section >3743i4 o" the Regulation6which classi"ied change o" ownership o"business as a circumstance that gae rise to atransaction deemed sale#

In a Decision dated +1 (pril &22+6 the CT(re!ected the CIRs arguments and granted thepetition#2 The CT( ruled that the sale o" a esselwas an isolated transaction6 not done in theordinary course o" NDCs business6 and was thusnot sub!ect to V(T6 which under Section 22 o" theTax Code6 was applied only to sales ( t5e+or'e o6 tr-)e or b'(e''# The CT( "urtherheld that the sale o" the essels could not bedeemed sale6 and thus sub!ect to V(T6 as thetransaction did not "all under the enumeration o"transactions deemed sale as listed either inSection &,,3b4 o" the Tax Code6 or Section > o"R#R# No# 0-51# Finally6 the CT( ruled that anycase o" doubt should be resoled in "aor o"

priate respondents since Section 22 o" the TaxCode which implemented V(T is not anexemption proision6 but a classi"ication proisionwhich warranted the resolution o" doubts in "aoro" the taxpayer#The CIR appealed the CT( Decision to the Courto" (ppeals6&, which on && <arch &2216 rendereda Decision reersing the CT(#&& Hhile theappellate court agreed that the sale was anisolated transaction6 not made in the course o"NDCs regular trade or business6 it nonetheless"ound that the transaction "ell within theclassi"ication o" those deemed sale under R#R#No# 0-516 since the sale o" the essels togetherwith the N<C shares brought about a change o"ownership in N<C# The Court o" (ppeals alsoapplied the principle goerning tax exemptionsthat such should be strictly construed against thetaxpayer6 and liberally in "aor o" thegoernment#&+

?oweer6 the Court o" (ppeals reersed itsel"upon reconsidering the case6 through aResolution dated 0 February +,,&#&) This time6the appellate court ruled that the change o"ownership o" business as contemplated in R#R#

65



No# 0-51 must be a conseuence o" theretirement "rom or cessation o" business by theowner o" the goods6 as proided "or in Section&,, o" the Tax Code# The Court o" (ppeals alsoagreed with the CT( that the classi"ication o"transactions deemed sale was a classi"icationstatute6 and not an exemption statute6 thus

warranting the resolution o" any doubt in "aor o"the taxpayer#&>

To the mind o" the Court6 the arguments raised inthe present petition hae already beenadeuately discussed and re"uted in the rulingsassailed be"ore us# 7idently6 the petition shouldbe denied# Met the Court "inds that Section 22 o"the Tax Code is su""icient reason "or upholdingthe re"und o" V(T payments6 and the subseuentdisuisitions by the lower courts on theapplicability o" Section &,, o" the Tax Code andSection > o" R#R# No# 0-51 are ultimatelyirreleant# ( brie" reiteration o" the basic principlesgoerning V(T is in order# V(T is ultimately a tax

on consumption6 een though it is assessed onmany leels o" transactions on the basis o" a"ixed percentage#&0 It is the end user o" consumer goods or serices which ultimately shoulders thetax6 as the liability there"rom is passed on to theend users by the proiders o" these goods orserices&; who in turn may credit their own V(Tliability 3or input V(T4 "rom the V(T paymentsthey receie "rom the "inal consumer 3or outputV(T4#&1 The "inal purchase by the end consumerrepresents the "inal lin$ in a production chain thatitsel" inoles seeral transactions and seeralacts o" consumption# The V(T system assures"iscal adeuacy through the collection o" taxes oneery leel o" consumption6&5 yet assuages the

manu"acturers or proiders o" goods and sericesby enabling them to pass on their respectie V(Tliabilities to the next lin$ o" the chain until "inallythe end consumer shoulders the entire taxliability#Met V(T is not a singular-minded tax on eerytransactional leel# Its assessment bears directreleance to the taxpayers role or lin$ in theproduction chain# ?ence6 as a""irmed by Section22 o" the Tax Code and its subseuentincarnations6&2 the tax is leied only on the sale6barter or exchange o" goods or serices bypersons who engage in such actiities6 ( t5e+or'e o6 tr-)e or b'(e''# Thesetransactions outside the course o" trade orbusiness may inariably contribute to theproduction chain6 but they do so only as a mattero" accident or incident# (s the sales o" goods orserices do not occur within the course o" tradeor business6 the proiders o" such goods orserices would hardly6 i" at all6 hae theopportunity to appropriately credit any V(Tliability as against their own accumulated V(Tcollections since the accumulation o" output V(Tarises in the "irst place only through the ordinary

course o" trade or business#That the sale o" the essels was not in theordinary course o" trade or business o" NDC wasappreciated by both the CT( and the Court o" (ppeals6 the latter doing so een in its "irstdecision which it eentually reconsidered#+, Hecite with approal the CT(s explanation on this

pointBIn Imper- . Coe+tor o6 I(ter(- Ree(e6.#R# No# 9-12+>6 September ),6 &200 321 /hil#22+46 the term carrying on business does notmean the per"ormance o" a single disconnectedact6 but means conducting6 prosecuting andcontinuing business by per"orming progressielyall the acts normally incident thereo"@ while)o(; b'(e'' coneys the idea o" businessbeing done6 not "rom time to time6 but all the time#%*# (ranas6 E/D(T7D N(TION(9 INT7RN(9R7V7NE7 COD7 3HIT? (NNOT(TIONS46 p#;,5-2 3&2554'# Cor'e o6 b'(e'' is what isusually done in the management o" trade orbusiness# %I)m . ee' R''e6 22 So# 1;&6

1;>6 &)0 <iss# ;06 cited in Hords /hrases6 Vol#&,6 3&25>4'#Hhat is clear there"ore6 based on the a"orecited !urisprudence6 is that course o" business ordoing business connotes regularity o" actiity# Inthe instant case6 the sale was an isolatedtransaction# The sale which was inoluntary andmade pursuant to the declared policy o".oernment "or priati:ation could no longer berepeated or carried on with regularity# It should beemphasi:ed that the normal V(T-registeredactiity o" NDC is leasing personal property#+&

This "inding is con"irmed by the Reised Charter ++

o" the NDC which bears no indication that theNDC was created "or the primary purpose o"

selling real property#+)

The conclusion that the sale was not in thecourse o" trade or business6 which the CIR doesnot dispute be"ore this Court6+> should haede"initiely settled the matter# (ny sale6 barter orexchange o" goods or serices (ot ( t5e +or'eo6 tr-)e or b'(e'' is not sub!ect to V(T#Section &,, o" the Tax Code6 which isimplemented by Section >3743i4 o" R#R# No# 0-51now relied upon by the CIR6 is captioned Value-added tax on sale o" goods6 and it expresslystates that %t'here shall be leied6 assessed andcollected on eery sale6 barter or exchange o"goods6 a alue added tax x x x# Section &,,should be read in light o" Section 226 which laysdown the general rule on which persons are liable"or V(T in the "irst place and on what transactioni" at all# It may een be noted that Section 22 isthe ery "irst proision in Title IV o" the Tax Code6the Title that coers V(T in the law# 8e"ore anyportion o" Section &,,6 or the rest o" the law "orthat matter6 may be applied in order to sub!ect atransaction to V(T6 it must "irst be satis"ied thatthe taxpayer and transaction inoled is liable "orV(T in the "irst place under Section 22#

66



It would hae been a di""erent matter i" Section&,, purported to de"ine the phrase in the courseo" trade or business as expressed in Section 22#I" that were so6 re"erence to Section &,, wouldhae been necessary as a means o" ascertainingwhether the sale o" the essels was in thecourse o" trade or business6 and thus sub!ect to

V(T# 8ut that is not the case# Hhat Section &,,and Section >3743i4 o" R#R# No# 0-51 elaborate onis not the meaning o" in the course o" trade orbusiness6 but instead the identi"ication o" thetransactions which may be deemed as sale# Itwould become necessary to ascertain whetherunder those two proisions the transaction maybe deemed a sale6 only i" it is settled that thetransaction occurred in the course o" trade orbusiness in the "irst place# I" the transactiontranspired outside the course o" trade orbusiness6 it would be irreleant "or the purpose o" determining V(T liability whether the transactionmay be deemed sale6 since it anyway is notsub!ect to V(T#

(ccordingly6 the Court rules that gien theundisputed "inding that the transaction in uestionwas not made in the course o" trade or businesso" the seller6 NDC that is6 the sale is not sub!ectto V(T pursuant to Section 22 o" the Tax Code6no matter how the said sale may hew to thosetransactions deemed sale as de"ined underSection &,,#In any eent6 een i" Section &,, or Section > o"R#R# No# 0-51 were to "ind application in thiscase6 the Court "inds the discussions o""ered onthis point by the CT( and the Court o" (ppeals 3inits subseuent Resolution4 essentially correct#Section > 3743i4 o" R#R# No# 0-51 does classi"y asamong the transactions deemed sale those

inoling change o" ownership o" business#?oweer6 Section >374 o" R#R# No# 0-516re"lecting Section &,, o" the Tax Code6 clari"iesthat such change o" ownership is only anattending circumstance to retirement "rom orcessation o" business%6 ' with respect to all goodson hand %as' o" the date o" such retirement orcessation#+0 Indeed6 Section >374 o" R#R# No# 0-51 expressly characteri:es the change o"ownership o" business as only a circumstancethat attends those transactions deemed sale6which are otherwise stated in the same section#+;

H?7R7FOR76 the petition is D7NI7D# No costs#SO ORD7R7D#

SECON% %IISION

EONMO#IL$ETROLE!M AN%C"EMICA

G.R.No.1800

%i" Qsupport<isalignedRows'

%end

L"OL%INGS, INC. ?$"ILI$$INE#RANC"6

/etitioner6

- ersus-

COMMISSIONER OF

INTERNALREEN!E6

Respondent#

/resentB C(R/IO6 # #6Chairerson6N(C?ER(6/7R(9T(6 (8(D6and<7NDOU(6##.

if suor t>ine'r eak&e

>ineE endifE /romulgatedB

*anuar y &26+,&&

i" '

x---------------------------------------------------------------------------------------- x % E C I S I O N

MEN%OA, J .3

This is a petition "or reiew oncertiorari under Rule >0 "iled by petitioner7xxonmobil /etroleum and Chemical ?oldings6Inc# - /hilippine 8ranch <xxon= to set aside theSeptember 16 +,,1 Decision%i" QsupportFootnotes'%&'%endi"'

o" the Court o" Tax (ppeals 7n 8anc <CT!-n'anc= in CT( 7#8# No# +,>6 and itsNoember +16 +,,1 Resolution%i" QsupportFootnotes'%+'%endi"' denying petitioners motion "or reconsideration#

T"E FACTS

/etitioner 7xxon is a "oreign corporationduly organi:ed and existing under the laws o" theState o" Delaware6 Enited States o" (merica#%i" Q

supportFootnotes'%)'%endi"' It is authori:ed to do business inthe /hilippines through its /hilippine 8ranch6 withprincipal o""ice address at the &1F The OrientSuare6 7merald (enue6 Ortigas Center6 /asigCity#%i" QsupportFootnotes'%>'%endi"'

67



7xxon is engaged in the business o" selling

petroleum products to domestic and internationalcarriers#%i" QsupportFootnotes'%0'%endi"' In pursuit o" itsbusiness6 7xxon purchased "rom Caltex/hilippines6 Inc# 3Caltex 4 and /etron Corporation3%etron4 *et (-& "uel and other petroleum

products6 the excise taxes on which were paid "or and remitted by both Caltex and /etron# %i" Q

supportFootnotes'%;'%endi"' Said taxes6 howeer6 werepassed on to 7xxon which ultimately shoulderedthe excise taxes on the "uel and petroleumproducts#%i" QsupportFootnotes'%1'%endi"'

From Noember +,,& to *une +,,+6

7xxon sold a total o" +56;)065>& liters o" *et (-&"uel to international carriers6 "ree o" excise taxesamounting to /hp&,06,2)60);#>1#%i" QsupportFootnotes'%5'

%endi"' On arious dates6 it "iled administratieclaims "or re"und with the 8ureau o" InternalReenue 3'+3 4 amounting to /hp&,06,2)60);#>1#%i" QsupportFootnotes'%2'%endi"'

On October ),6 +,,)6 7xxon "iled a petition

"or reiew with the CT(%i" QsupportFootnotes'%&,'%endi"' claiming a re"und or tax credit in the amount o"/hp&,06,2)60);#>16 representing the amount o"excise taxes paid on *et (-& "uel and otherpetroleum products it sold to international carriers"rom Noember +,,& to *une +,,+# %i" QsupportFootnotes'

%&&'%endi"'

7xxon and the Commissioner o" Internal

Reenue 3C+3 4 "iled their *oint Stipulation o"Facts and Issues on *une +>6 +,,>6 presenting atotal o" "ourteen 3&>4 issues "or resolution# %i" Q

supportFootnotes'%&+'%endi"'

During 7xxons preparation o" eidence6

the CIR "iled a motion dated *anuary +56 +,,0 to"irst resole the issue o" whether or not 7xxonwas the proper party to as$ "or a re"und# %i" Q

supportFootnotes'%&)'%endi"' 7xxon "iled its opposition to themotion on <arch &06 +,,0#

On *uly +16 +,,06 the CT( First Diisionissued a resolution%i" QsupportFootnotes'%&>'%endi"' sustainingthe CIRs position and dismissing 7xxons claim"or re"und# 7xxon "iled a motion "orreconsideration6 but this was denied on *uly +16+,,;#%i" QsupportFootnotes'%&0'%endi"'

7xxon "iled a petition "or reiew%i" Q

supportFootnotes'%&;'%endi"' with the CT( 7n 8anc assailingthe *uly +16 +,,0 Resolution o" the CT( FirstDiision which dismissed the petition "or reiew6and the *uly +16 +,,; Resolution%i" QsupportFootnotes'%&1'

%endi"' which a""irmed the said ruling#

R!LING OF T"E CO!RT OF TA A$$EALSEN #ANC

In its Decision dated September 16 +,,16the CT( 7n 8anc dismissed the petition "orreiew and a""irmed the two resolutions o" theFirst Diision dated *uly +16 +,,0 and *uly +16+,,;# 7xxon "iled a motion "or reconsideration6

but it was denied on Noember +16 +,,1# Citing Sections &), 3(43+4%i" Q

supportFootnotes'%&5'%endi"' and +,> 3C4 in relation toSection &)0 3a4%i" QsupportFootnotes'%&2'%endi"' o" the NationalInternal Reenue Code o" &221 3&+3C 46 the CT(ruled that in consonance with its ruling in seeralcases6%i" QsupportFootnotes'%+,'%endi"' only the taxpayer or themanu"acturer o" the petroleum products sold hasthe legal personality to claim the re"und o" excisetaxes paid on petroleum products sold tointernational carriers#%i" QsupportFootnotes'%+&'%endi"'

The CT( stated that Section &),3(43+4 ma$es the manu"acturer or producer o" thepetroleum products directly liable "or the paymento" excise taxes#%i" QsupportFootnotes'%++'%endi"' There"ore6 it"ollows that the manu"acturer or producer is thetaxpayer#%i" QsupportFootnotes'%+)'%endi"'

This determination o" the identity o" the

taxpayer designated by law is piotal as the NIRCproides that it is only the taxpayer who Jhas thelegal personality to as$ "or a re"und in case o"erroneous payment o" taxes#K%i" QsupportFootnotes'%+>'%endi"'

Further6 the excise tax imposed on

manu"acturers upon the remoal o" petroleum

products by oil companies is an indirect tax6 or atax which is primarily paid by persons who canshi"t the burden upon someone else#%i" QsupportFootnotes'

%+0'%endi"' The CT( cited the cases o" %hiliine !cet1lene Co., +nc. v. Commissioner of +nternal3evenue6%i" QsupportFootnotes'%+;'%endi"' Contex Cororationv. Commissioner of +nternal 3evenue6%i" QsupportFootnotes'%+1'%endi"' and Commissioner of +nternal3evenue v. %hiliine >ong Distance TelehoneComan1 6%i" QsupportFootnotes'%+5'%endi"' and explained thatwith indirect taxes6 Jalthough the burden o" anindirect tax can be shi"ted or passed on to thepurchaser o" the goods6 the liability "or theindirect tax remains with the manu"acturer#K %i" Q

supportFootnotes'%+2'%endi"' <oreoer6 Jthe manu"acturer hasthe option whether or not to shi"t the burden o"the tax to the purchaser# Hhen shi"ted6 theamount added by the manu"acturer becomes apart o" the price6 there"ore6 the purchaser doesnot really pay the tax er se but only the price o"the commodity#K%i" QsupportFootnotes'%),'%endi"'

.oing by such logic6 the CT( concluded

that a re"und o" erroneously paid or illegallyreceied tax can only be made in "aor o" the

68



taxpayer6 pursuant to Section +,>3C4 o" theNIRC#%i" QsupportFootnotes'%)&'%endi"' (s categorically ruled inthe Cebu %ortland Cement if suortFootnotesE [+& endifE andContex if suortFootnotesE [++& endifE cases6 in the case o"indirect taxes6 it is the manu"acturer o" the goodswho is entitled to claim any re"und thereo"# %i" Q

supportFootnotes'%)>'%endi"' There"ore6 it "ollows that the

indirect taxes paid by the manu"acturers orproducers o" the goods cannot be re"unded to thepurchasers o" the goods because the purchasersare not the taxpayers#%i" QsupportFootnotes'%)0'%endi"'

The CT( also emphasi:ed that tax re"unds

are in the nature o" tax exemptions and are6 thus6regarded as in derogation o" soereign authorityand construed strictissimi uris against the personor entity claiming the exemption# %i" QsupportFootnotes'%);'

%endi"'

Finally6 the CT( disregarded 7xxons

argument that Jin e""ectiely holding that onlypetroleum products purchased directly "rom the

manu"acturers or producers are exempt "romexcise taxes6 the First Diision o" %the CT('sanctioned a uniersal amendment o" existingbilateral agreements which the /hilippines haewith other countries6 in iolation o" the basicprinciple o" [ acta sunt servanda. K%i" QsupportFootnotes'%)1'

%endi"' The CT( explained that the "indings o" "act o"the First Diision 3that when 7xxon sold the *et (-& "uel to international carriers6 it did so "ree o" tax4negated any iolation o" the exemption "romexcise tax o" the petroleum products sold tointernational carriers# Second6 the right o"international carriers to ino$e the exemptiongranted under Section &)03a4 o" the NIRC wasneither a""ected nor restricted in any way by the

ruling o" the First Diision# (t the point o" sale6 theinternational carriers were "ree to ino$e theexemption "rom excise taxes o" the petroleumproducts sold to them# 9astly6 the lawma$ingbody was presumed to hae enacted a later lawwith the $nowledge o" all other laws inoling thesame sub!ect matter#%i" QsupportFootnotes'%)5'%endi"'

T"E ISS!ES

/etitioner now raises the "ollowing issuesin its petition "or reiewB I. "ET"ER T"E ASSAILE% %ECISION AN%RESOL!TION ERRONEO!SLD $RO"I#ITE%$ETITIONER, AS T"E %ISTRI#!TOR AN%EN%OR OF $ETROLE!M $RO%!CTS TOINTERNATIONAL CARRIERS REGISTERE% INFOREIGN CO!NTRIES "IC" "AEEISTING #ILATERAL AGREEMENTS IT"T"E $"ILI$$INES, FROM CLAIMING AREF!N% OF T"E ECISE TAES $AI%T"EREON AN%

II.

"ET"ER T"E ASSAILE% %ECISIONSERRE% IN AFFIRMING T"E %ISMISSAL OF$ETITIONERS CLAIM FOR REF!N% #ASE%ON RES$ON%ENTS PMOTION TO RESOLE

FIRST T"E ISS!E OF "ET"ER OR NOT T"E$ETITIONER IS T"E $RO$ER $ARTD T"ATMAD AS FOR A REF!N%,Q SINCE SAI%MOTION IS ESSENTIALLD A MOTION TO%ISMISS, "IC" S"O!L% "AE #EEN%ENIE% O!TRIG"T #D T"E CO!RT OF TAA$$EALS FOR "AING #EEN FILE% O!T OFTIME.

RULIN !" T#$ C!URT

I. !n re%&ondent'% ()ot*on tore%ol+e r%t t-e *%%e o/ -et-eror not t-e &et*t*oner *% t-e&ro&er &art t-at )a a% /or are/nd.

For a logical resolution o" the issues6

the court will tac$le "irst the issue o" whether ornot the CT( erred in granting respondents*otion to 3esolve First the +ssue of 0hether or&ot the %etitioner is the %roer %art1 that ma1

!sk for a 3efund.%i" QsupportFootnotes'%)2'%endi"' In saidmotion6 the CIR prayed that the CT( FirstDiision resole ahead o" the other stipulatedissues the sole issue o" whether petitioner wasthe proper party to as$ "or a re"und# %i" QsupportFootnotes'

%>,'%endi"'

69



7xxon opines that the CIRs motion isessentially a motion to dismiss "iled out o" time6 %i" Q

supportFootnotes'%>&'%endi"' as it was "iled after petitionerbegan presenting eidence%i" QsupportFootnotes'%>+'%endi"' more than a year a"ter the "iling o" the (nswer#%i" QsupportFootnotes'%>)'%endi"' 8y praying that 7xxon bedeclared as not the proper party to as$ "or a

re"und6 the CIR as$ed "or the dismissal o" thepetition6 as the grant o" the <otion to Resolewould bring trial to a close#%i" QsupportFootnotes'%>>'%endi"'

<oreoer6 7xxon states that the

motion should hae also complied with the three-day notice and ten-day hearing rules proided inRule &0 o" the Rules o" Court#%i" QsupportFootnotes'%>0'%endi"' Since the CIR "ailed to set its motion "or anyhearing be"ore the " iling o" the (nswer6 the motionshould hae been considered a mere scrap o"paper#%i" QsupportFootnotes'%>;'%endi"'

Finally6 citing *aruhom v.

Commission on lections and Dimaoro6%i" Q

supportFootnotes'%>1'%endi"' 7xxon argues that a de"endantwho desires a preliminary hearing on special anda""irmatie de"enses must "ile a motion to thate""ect at the time o" "iling o" his answer#%i" Q

supportFootnotes'%>5'%endi"'

The CIR6 on the other hand6 counters

that it did not "ile a motion to dismiss# %i" QsupportFootnotes'

%>2'%endi"' Instead6 the grounds "or dismissal o" thecase were pleaded as special and a""irmatiede"enses in its (nswer "iled on December &06+,,)#%i" QsupportFootnotes'%0,'%endi"' There"ore6 the issue o"Jwhether or not petitioner is the proper party toclaim "or a tax re"und o" the excise taxesallegedly passed on by Caltex and /etronK was

included as one o" the issues in the *ointStipulation o" Facts and Issues dated *une +>6+,,> signed by petitioner and respondent#%i" Q

supportFootnotes'%0&'%endi"'

The CIR now argues that nothing in

the Rules reuires the preliminary hearing to beheld be"ore the " iling o" an (nswer#%i" QsupportFootnotes'%0+'

%endi"' ?oweer6 a preliminary hearing cannot beheld be"ore the " iling o" the (nswer preciselybecause any ground raised as an a""irmatiede"ense is pleaded in the (nswer itsel"# %i" Q

supportFootnotes'%0)'%endi"'

Further6 the CIR contends that the

case cited by petitioner6 *aruhom v. Comelec 6%i" QsupportFootnotes'%0>'%endi"' does not apply here# In the saidcase6 a motion to dismiss was "iled a"ter the "ilingo" the answer#%i" QsupportFootnotes'%00'%endi"' (nd6 the saidmotion to dismiss was

"ound to be a "riolous motion designed topreent the early termination o" the proceedingsin the election case therein#%i" QsupportFootnotes'%0;'%endi"' ?ere6 the <otion to Resole was "iled not to delay

the disposition o" the case6 but rather6 to expediteproceedings#%i" QsupportFootnotes'%01'%endi"'

Rule &;6 Section ; o" the &221 Rules

o" Ciil /rocedure proidesB SEC. B. -leading grounds as affirmative

defenses. - I" no motion to dismiss has been"iled6 any o" the grounds "or dismissal proided"or in this Rule may be pleaded as an a""irmatiede"ense in the answer6 and in the discretion o" thecourt6 a preliminary hearing may be had thereonas i" a motion to dismiss had been "iled#

Thedismissal o" thecomplaint under thissection shall be withoutpre!udice to theprosecution in the sameor separate action o" acounterclaim pleaded in

the answer#3Enderscoring supplied#4

This case is a clear cut application o"

the aboe proision# The CIR did not "ile a motionto dismiss# Thus6 he pleaded the grounds "ordismissal as a""irmatie de"enses in its (nswerand therea"ter prayed "or the conduct o" apreliminary hearing to determine whetherpetitioner was the proper party to apply "or the

re"und o" excise taxes paid#

The determination o" this uestionwas the $eystone on which the entire case wasleaning# I" 7xxon was not the proper party toapply "or the re"und o" excise taxes paid6 then itwould be useless to proceed with the case# Itwould not ma$e any sense to proceed to try acase when petitioner had no standing to pursueit#

In the case o" California and

5aaiian Sugar Coman1 v. %ioneer +nsuranceand Suret1 Cororation6%i" QsupportFootnotes'%05'%endi"' theCourt held thatB Considering that there was only one uestion6which may een be deemed to be the erytouchstone o" the whole case6 the trial court hadno cogent reason to deny the <otion "or/reliminary ?earing# Indeed6 it committed graeabuse o" discretion when it denied a preliminary

70



hearing on a simple issue o" "act that could haepossibly settled the entire case# Verily6 where apreliminary hearing appears to su""ice6 there is noreason to go on to trial# One reason why doc$etso" trial courts are clogged is the unreasonablere"usal to use a process or procedure6 li$e amotion to dismiss6 which is designed to

abbreiate the resolution o" a case#%i" QsupportFootnotes'%02'

%endi"' 3Enderscoring supplied#4

II. !n -et-er &et*t*oner, a% t-ed*%tr*tor and +endor o/

&etrole) &rodt% to*nternat*onal arr*er% re*%tered*n /ore*n ontr*e% -*- -a+ee*%t*n *lateral aree)ent%*t- t-e P-*l*&&*ne%, an la*) are/nd o/ t-e e*%e tae% &a*dt-ereon

This brings us now to the substantie issueo" whether 7xxon6 as the distributor and endoro" petroleum products to international carriersregistered in "oreign countries which hae

existing bilateral agreements with the /hilippines6is the proper party to claim a tax re"und "or theexcise taxes paid by the manu"acturers6 Caltexand /etron6 and passed on to it as part o" thepurchase price#

7xxon argues that haing paid theexcise taxes on the petroleum products sold tointernational carriers6 it is a real party in interestconsistent with the rules and !urisprudence#%i" Q

supportFootnotes'%;,'%endi"'

It reasons out that the sub!ect o" the

exemption is neither the seller nor the buyer o"the petroleum products6 but the productsthemseles6 so long as they are sold tointernational carriers "or use in international "lightoperations6 or to exempt entities coered by taxtreaties6 conentions and other internationalagreements "or their use or consumption6 amongother conditions#%i" QsupportFootnotes'%;&'%endi"'

Thus6 as the exemption granted under

Section &)0 attaches to the petroleum products

and not to the seller6 the exemption will applyregardless o" whether the same were sold by itsmanu"acturer or its distributor "or two reasons# %i" Q

supportFootnotes'%;+'%endi"' First 6 Section &)0 does notreuire that to be exempt "rom excise tax6 theproducts should be sold by the manu"acturer orproducer#%i" QsupportFootnotes'%;)'%endi"' Second 6 the

legislatie intent was precisely to ma$e Section&)0 independent "rom Sections &+2 and &), o"the NIRC6%i" QsupportFootnotes'%;>'%endi"' stemming "rom the"act that unli$e other products sub!ect to excisetax6 petroleum products o" this nature haebecome sub!ect to pre"erential tax treatment byirtue o" either speci"ic international agreementsor simply o" international reciprocity#%i" QsupportFootnotes'

%;0'%endi"'

Respondent CIR6 on the other hand6 posits

that 7xxon is not the proper party to see$ are"und o" excise taxes paid on the petroleumproducts#%i" QsupportFootnotes'%;;'%endi"' In so arguing6 theCIR states that excise taxes are indirect taxes6

the liability "or payment o" which "alls on oneperson6 but the burden o" payment may beshi"ted to another#%i" QsupportFootnotes'%;1'%endi"' ?ere6 thesellers o" the petroleum products or *et (-& "uelsub!ect to excise tax are /etron and Caltex6 while7xxon was the buyer to whom the burden o"paying excise tax was shi"ted#%i" QsupportFootnotes'%;5'%endi"' Hhile the impact or burden o" taxation "alls on7xxon6 as the tax is shi"ted to it as part o" thepurchase price6 the persons statutorily liable topay the tax are /etron and Caltex#%i" QsupportFootnotes'%;2'

%endi"' (s 7xxon is not the taxpayer primarily liableto pay6 and not exempted "rom paying6 excise tax6it is not the proper party to claim "or the re"und o"excise taxes paid#%i" QsupportFootnotes'%1,'%endi"'

The excise tax, hen assed on to the

urchaser, becomes art of the urchase rice.

71



7xcise taxes are imposed under Title VI o"the NIRC# They apply to speci"ic goodsmanu"actured or produced in the /hilippines "ordomestic sale or consumption or "or any otherdisposition6 and to those that are imported# %i" Q

supportFootnotes'%1&'%endi"' In e""ect6 these taxes areimposed when two conditions concurB first 6 that

the articles sub!ect to tax belong to any o" thecategories o" goods enumerated in Title VI o" theNIRC@ and second 6 that said articles are "ordomestic sale or consumption6 excluding thosethat are actually exported#%i" QsupportFootnotes'%1+'%endi"'

There are6 howeer6 certain exemptions to

the coerage o" excise taxes6 such as petroleumproducts sold to international carriers and exemptentities or agencies# Section &)0 o" the NIRCproidesB

SEC. 1<=. $etroem $ro)+t' So) toI(ter(-to(- C-rrer' -() Eempt E(tte' orA;e(+e'. / /etroleum products sold to the

"ollowing are exempt "rom excise taxB3a4 International carriers o" /hilippine or "oreignregistry on their use or consumption outside the/hilippinesB /roided6 That the petroleumproducts sold to these international carriers shallbe stored in a bonded storage tan$ and may bedisposed o" only in accordance with the rules andregulations to be prescribed by the Secretary o"Finance6 upon recommendation o" theCommissioner@

3b4 7xemptentities or agenciescoered by tax treaties6conentions and otherinternational

agreements "or their useo" consumptionB/roided6 howeer6 Thatthe country o" said"oreign internationalcarrier or exemptentities or agenciesexempts "rom similartaxes petroleumproducts sold to/hilippine carriers6entities or agencies@ and

3c4 7ntitieswhich are by law exempt"rom direct and indirecttaxes# 3Enderscoringsupplied#4

Thus6 under Section &)06 petroleum

products sold to international carriers o" "oreignregistry on their use or consumption outside the/hilippines are exempt "rom excise tax6 proidedthat the petroleum products sold to suchinternational carriers shall be stored in a bonded

storage tan$ and may be disposed o" only inaccordance with the rules and regulations to beprescribed by the Secretary o" Finance6 uponrecommendation o" the Commissioner#%i" QsupportFootnotes'%1)'%endi"'

The con"usion here stems "rom the "act

that excise taxes are o" the nature o" indirecttaxes6 the liability "or payment o" which may "allon a person other than he who actually bears theburden o" the tax#

In Commissioner of +nternal 3evenue v.%hiliine >ong Distance Telehone Coman1 6%i" QsupportFootnotes'%1>'%endi"' the Court discussed the nature

o" indirect taxes as "ollowsB

%I'ndirect taxes are those that aredemanded6 in the "irst instance6 "rom6 or are paidby6 one person to someone else# Stated elsewise6indirect taxes are taxes wherein the liability "orthe payment o" the tax "alls on one person but theburden thereo" can be shi"ted or passed on toanother person6 such as when the tax is imposedupon goods be"ore reaching the consumer whoultimately pays "or it# Hhen the seller passes onthe tax to his buyer6 he6 in e""ect6 shi"ts the taxburden6 not the liability to pay it6 to the purchaser6as part o" the goods sold or serices rendered#

(ccordingly6 the party liable "or the tax canshi"t the burden to another6 as part o" thepurchase price o" the goods or serices# (lthoughthe manu"acturerseller is the one who isstatutorily liable "or the tax6 it is the buyer whoactually shoulders or bears the burden o" the tax6albeit not in the nature o" a tax6 but part o" thepurchase price or the cost o" the goods orserices sold#

72



!s etitioner is not the statutor1 taxa1er, it is not entitled to claim a refund of excise taxes aid.

The uestion we are "aced with now is6 i"the party statutorily liable "or the tax is di""erent"rom the party who bears the burden o" such tax6who is entitled to claim a re"und o" the tax paid

Sections &+2 and &), o" the NIRC proideB SEC. 12. Goo)' 'bHe+t to E+'e T-e'. -7xcise taxes apply to goods manu"actured orproduced in the /hilippines "or domestic sales orconsumption or "or any other disposition and tothings imported# The excise tax imposed hereinshall be in addition to the alue-added taximposed under Title IV#

For purposeso" this Title6 excise taxesherein imposed andbased on weight orolume capacity or any

other physical unit o"measurement shall bere"erred to as speci"ictax and an excise taxherein imposed andbased on selling price or other speci"ied alue o"the good shall bere"erred to as adalorem tax#

SEC. 1<0. F(; o6 Retr( -() $-*me(t o6E+'e T- o( %ome't+ $ro)+t'. /

A/ -ersons!ia)le to File a Return,Filing of Return onRemoval and -a*ment of Ta0. 1

@1 $er'o(' L-be to Fe - Retr(. - ver1 erson liable to a1 excise tax imosed underthis Title shall "ile a separate return "or each

place o" production setting "orth6 among othersthe description and uantity or olume o"products to be remoed6 the applicable tax baseand the amount o" tax due thereonB /roided6howeer6 That in the case o" indigenouspetroleum6 natural gas or liue"ied natural gas6the excise tax shall be paid by the "irst buyer6purchaser or trans"eree "or local sale6 barter ortrans"er6 while the excise tax on exportedproducts shall be paid by the owner6 lessee6concessionaire or operator o" the mining claim#

Shoulddomestic products beremoed "rom the placeo" production without thepayment o" the tax6 theowner or person haingpossession thereo" shall

be liable "or the tax duethereon#

@2 Tme 6or F(; o6 Retr( -() $-*me(t o6t5e T-. - Enless otherwise speci"ically allowed6the return shall be filed and the excise tax aidb1 the manufacturer or roducer before removalof domestic roducts from lace of roduction6 /roided6 That the tax excise on locallymanu"actured petroleum products and indigenouspetroleumleied under Sections &>5 and &0&3(4

3>46 respectiely6 o" this Title shall be paid withinten 3&,4 days "rom the date o" remoal o" suchproducts "or the period "rom *anuary &6 &225 to*une ),6 &225@ within "ie 304 days "rom the dateo" remoal o" such products "or the period "rom*uly &6 &225 to December )&6 &225@ and6 be"oreremoal "rom the place o" production o" suchproducts "rom *anuary &6 &222 and therea"terB/roided6 "urther6 That the excise tax onnonmetallic mineral or mineral products6 or uarryresources shall be due and payable uponremoal o" such products "rom the locality wheremined or extracted6 but with respect to the excisetax on locally produced or extracted metallicmineral or mineral products6 the person liable

shall "ile a return and pay the tax within "i"teen3&04 days a"ter the end o" the calendar uarterwhen such products were remoed sub!ect tosuch conditions as may be prescribed by rulesand regulations to be promulgated by theSecretary o" Finance6 upon recommendation o"the Commissioner# For this purpose6 the taxpayer shall "ile a bond in an amount whichapproximates the amount o" excise tax due onthe remoals "or the said uarter# The "oregoingrules notwithstanding6 "or imported mineral ormineral products6 whether metallic or nonmetallic6the excise tax due thereon shall be paid be"oretheir remoal "rom customs custody#x x x

3Italics and underscoring supplied#4

73



(s early as the &2;,s6 this Court has ruled

that the proper party to uestion6 or to see$ are"und o"6 an indirect tax6 is the statutorytaxpayer6 or the person on whom the tax isimposed by law and who paid the same6 een i"he shi"ts the burden thereo" to another#%i" Q


In %hiliine !cet1lene Co., +nc. v.Commissioner of +nternal 3evenue6%i" QsupportFootnotes'

%1;'%endi"' the Court held that the sales tax is imposedon the manu"acturer or producer and not on thepurchaser6 Jexcept probably in a ery remote andinconseuential sense#K%i" QsupportFootnotes'%11'%endi"' Discussing the Jpassing onK o" the sales tax tothe purchaser6 the Court therein cited *usticeOlier Hendell ?olmes opinion in >ashs%roducts v. 7nited States%i" QsupportFootnotes'%15'%endi"' wherein he saidB

JThe phrase [passed the tax on isinaccurate6 as obiously the tax is laid andremains on the manu"acturer and on him alone#The purchaser does not really pay the tax# ?epays or may pay the seller more "or the goodsbecause o" the sellers obligation6 but that is all#x x x The price is the sum total paid "or thegoods# The amount added because o" the tax ispaid to get the goods and "or nothing else#There"ore it is part o" the price x x x#K%i" Q


/roceeding "rom this discussion6 the Court

went on to stateB

It may indeed be that theeconomic burden o" the tax "inally "alls on thepurchaser@ when it does the tax becomes a parto" the price which the purchaser must pay# It doesnot matter that an additional amount is billed astax to the purchaser# x x x The e""ect is still thesame6 namely6 that the purchaser does not paythe tax# ?e pays or may pay the seller more "orthe goods because o" the sellers obligation6 butthat is all and the amount added because o" thetax is paid to get the goods and "or nothing else#

8ut the tax burden may not eenbe shi"ted to the purchaser at all# ( decision toabsorb the burden o" the tax is largely a matter o" economics# Then it can no longer be contendedthat a sales tax is a tax on the purchaser#%i" Q

supportFootnotes'%5,'%endi"'

The aboe case was cited in the later case

o" Cebu %ortland Cement Coman1 v. Collector<no Commissioner= of +nternal 3evenue6%i" QsupportFootnotes'%5&'%endi"' where the Court ruled that asthe sales tax is imposed upon the manu"actureror producer and not on the purchaser6 Jit is

petitioner and not its customers6 who may as$ "ora re"und o" whateer amount it is entitled "or thepercentage or sales taxes it paid be"ore theamendment o" section +>; o" the Tax Code#K%i" Q

supportFootnotes'%5+'%endi"'

The %hiliine !cet1lene case was also

cited in the "irst Silkair <Singaore= %te, >td. v.Commissioner of +nternal 3evenue%i" QsupportFootnotes'%5)'

%endi"' case6 where the Court held that the properparty to uestion6 or to see$ a re"und o"6 anindirect tax is the statutory taxpayer6 the personon whom the tax is imposed by law and who paidthe same een i" he shi"ts the burden thereo" toanother#%i" QsupportFootnotes'%5>'%endi"'

In the Silkair cases6%i" QsupportFootnotes'%50'%endi"'

petitioner Sil$air 3Singapore4 /te6 9td# 3Silkair 46"iled with the 8IR a written application "or there"und o" excise taxes it claimed to hae paid onits purchase o" !et "uel "rom /etron# (s the 8IRdid not act on the application6 Sil$air "iled a

/etition "or Reiew be"ore the CT(#

In both cases6 the CIR argued that theexcise tax on petroleum products is the directliability o" the manu"acturerproducer6 and whenadded to the cost o" the goods sold to the buyer6it is no longer a tax but part o" the price which thebuyer has to pay to obtain the article#

In the "irst Silkair case6 the Court ruledB

T5e properp-rt* to e'to(, or'ee - re6() o6, -(()re+t t- ' t5e't-ttor* t-p-*er, t5eper'o( o( :5om t5et- ' mpo'e) b* -:-() :5o p-) t5e

'-me ee( 6 5e '56t't5e br)e( t5ereo6 to-(ot5er. Section &),3(4 3+4 o" the NIRCproides that %u'nlessotherwise speci"icallyallowed6 the return shallbe "iled and the excisetax paid by themanu"acturer orproducer be"ore remoal

74



o" domestic products"rom place o"production# Thus6/etron Corporation6 notSil$air6 is the statutorytaxpayer which isentitled to claim a re"und

based on Section &)0 o" the NIRC o" &221 and (rticle >3+4 o" the (irTransport (greementbetween R/ andSingapore#

Ee( 6$etro( Corpor-to(p-''e) o( to S-rt5e br)e( o6 t5e t-,

t5e -))to(- -mo(tbe) to S-r 6or Het6e ' (ot - t- btp-rt o6 t5e pr+e :5+5S-r 5-) to p-* -' -pr+5-'er. %i" QsupportFootnotes' %5;'%endi"' 37mphasis andunderscoring supplied#4

Citing the aboe case6 the second Silkair case was promulgated a "ew months a"ter the"irst6 and statedB

The issue presented is not noel# In asimilar case inoling the same parties6 this Courthas categorically ruled that the proper party touestion6 or see$ a re"und o" an indirect tax is thestatutory taxpayer6 the person on whom the tax isimposed by law and who paid the same een i"he shi"ts the burden thereo" to another# TheCourt added that een i" /etron Corporationpassed on to Sil$air the burden o" the tax6 theadditional amount billed to Sil$air "or !et "uel is(ot - t- bt p-rt o6 t5e pr+e which Sil$air hadto pay as a purchaser#%i" QsupportFootnotes'%51'%endi"'

The CT( 7n 8anc6 thus6 held thatB

The determination o" who is the taxpayerplays a piotal role in claims "or re"und becausethe same law proides that it is only the taxpayerwho has the legal personality to as$ "or a re"undin case o" erroneous payment o" taxes# Section+,> 3C4 o" the &221 NIRC6 %proides' in part6 as"ollowsB

S$C. 204. t-or*t o/ t-eCo))*%%*oner to Co)&ro)*%e,ate, and Re/nd or Cred*t Tae%. T-e Co))*%%*oner )a

xxx xxx xxx

%i" Qsupport9ists'3C4 %endi"'Cre)t orre6() t-e' erro(eo'* or e;-* re+ee) or penalties imposed without authority6 re"und thealue o" internal reenue stamps when they arereturned in good condition by the purchaser6 and6in his discretion6 redeem or change unusedstamps that hae been rendered un"it "or use andre"und their alue upon proo" o" destruction# Nocredit or re"und o" taxes or penalties shall beallowed (e'' t5e t-p-*er 6e' ( :rt(;

:t5 t5e Comm''o(er - +-m 6or +re)t orre6() within two 3+4 years a"ter the payment o"the tax or penaltyB /roided6 howeer6 That areturn showing an oerpayment shall beconsidered as a written claim "or credit or re"und#

xxx xxx xxx

37mphasis shown supplied by theCT(#4%i" QsupportFootnotes'%55'%endi"'

There"ore6 as 7xxon is not the party

statutorily liable "or payment o" excise taxesunder Section &),6 in relation to Section &+2 o"the NIRC6 it is not the proper party to claim a

re"und o" any taxes erroneously paid# There is no unilateral amendment of existingbilateral agreements of the %hiliines ith othercountries.

7xxon also argues that in e""ectielyholding that only petroleum products purchaseddirectly "rom the manu"acturers or producers areexempt "rom excise taxes6 the CT( 7n 8ancsanctioned a unilateral amendment o" existingbilateral agreements which the /hilippines haswith other countries6 in iolation o" the basicinternational law principle o" acta sunt servanda#%i" QsupportFootnotes'%52'%endi"' The Court does not agree#

(s correctly held by the CT( 7n8ancB

One "inal point6 petitioners argument Jthatin e""ectiely holding that only petroleum productspurchased directly "rom the manu"acturers or

75



producers are exempt "rom excise taxes6 the FirstDiision o" this Court sanctioned a unilateralamendment o" existing bilateral agreementswhich the /hilippines hae 3sic4 with othercountries6 in iolation o" the basic internationalprinciple o" J acta sunt servandaK is misplaced#First6 the "indings o" "act o" the First Diision o"

this Court that Jwhen petitioner sold the *et (-&"uel to international carriers6 it did so "ree o" taxKnegates any iolation o" the exemption "romexcise tax o" the petroleum products sold tointernational carriers inso"ar as this case isconcerned# Secondly6 the right o" internationalcarriers to ino$e the exemption granted underSection &)0 3a4 o" the &221 NIRC has neitherbeen a""ected nor restricted in any way by theruling o" the First Diision o" this Court# (t thepoint o" sale6 the international carriers are "ree toino$e the exemption "rom excise taxes o" thepetroleum products sold to them# 9astly6 the law-ma$ing body is presumed to hae enacted a later law with the $nowledge o" all other laws inoling

the same sub!ect matter#K%i" QsupportFootnotes'%2,'%endi"' 3Enderscoring supplied#4 "EREFORE6 the petition is D7NI7D#

SO OR%ERE%#

Republic o" the /hilippinesS!$REME CO!RT<anilaFIRST DIVISION

G.R. No. 12=<== M-r+5 <0, 2000COMMISSIONER OF INTERNAL REEN!E, petitioner6s#CO!RT OF A$$EALS -() COMMONEALT"MANAGEMENT AN% SERICESCOR$ORATION, respondents#$AR%O, J.2Hhat is be"ore the Court is a petition "or reiewon certiorari o" the decision o" the Court o" (ppeals6& reersing that o" the Court o" Tax (ppeals6+ which a""irmed with modi"ication thedecision o" the Commissioner o" InternalReenue ruling that Commonwealth <anagementand Serices Corporation6 is liable "or alueadded tax "or serices to clients during taxableyear &255#Commonwealth <anagement and SericesCorporation 3CO<(S7RCO6 "or breity46 is acorporation duly organi:ed and existing under thelaws o" the /hilippines# It is an a""iliate o"/hilippine (merican 9i"e Insurance Co#3/hilamli"e46 organi:ed by the letter to per"ormcollection6 consultatie and other technicalserices6 including "unctioning as an internal

auditor6 o" /hilamli"e and its othera""iliates#9:hi9.n;t On *anuary +>6 &22+6 the 8ureau o" InternalReenue 38IR4 issued an assessment to priaterespondent CO<(S7RCO "or de"iciency alue-added tax 3V(T4 amounting to /)0&650&#,&6 "ortaxable year &2556 computed as "ollowsB

Taxable salereceipt

&,= tax due thereon

+0= surcharge

+,= interest er annum

Compromise penalty "or late payment

TOT(9 (<OENT DE7 (ND CO997CTI897

CO<(S7RCOs annual corporate income taxreturn ending December )&6 &255 indicated a net loss in its oerations in the amount o" /;6,11#,,#On February &,6 &22+6 CO<(S7RCO "iled withthe 8IR6 a letter-protest ob!ecting to the latters"inding o" de"iciency V(T# On (ugust +,6 &22+6the Commissioner o" Internal Reenue sent acollection letter to CO<(S7RCO demandingpayment o" the de"iciency V(T#On September +26 &22+6 CO<(S7RCO "iled withthe Court o" Tax (ppeals> a petition "or reiewcontesting the Commissioners assessment#CO<(S7RCO asserted that the serices itrendered to /hilamli"e and its a""iliates6 relating tocollections6 consultatie and other technical

assistance6 including "unctioning as an internalauditor6 were on a no-pro"it6 reimbursement-o"-cost-only basis# It aerred that it was notengaged in the business o" proiding serices to/hilamli"e and its a""iliates# CO<(S7RCO wasestablished to ensure operational orderliness andadministratie e""iciency o" /hilamli"e and itsa""iliates6 and not in the sale o" serices#CO<(S7RCO stressed that it was not pro"it-motiated6 thus not engaged in business# In "act6it did not generate pro"it but su""ered a net loss intaxable year &255# CO<(S7RCO aerred thatsince it was not engaged in business6 it was notliable to pay V(T#On *une ++6 &2206 the Court o" Tax (ppeals

rendered decision in "aor o" the Commissionero" Internal Reenue6 the dispositie portion o"which readsBH?7R7FOR76 the decision o" the Commissioner o" Internal Reenue assessing petitionerde"iciency alue-added tax "or the taxable year&255 is (FFIR<7D with slight modi"ications# (ccordingly6 petitioner is ordered to payrespondent Commissioner o" Internal Reenuethe amount o" /))065)&#,& inclusie o" the +0=

76



surcharge and interest plus +,= interest "rom*anuary +>6 &22+ until "ully paid pursuant toSection +>5 and +>2 o" the Tax Code#The compromise penalty o" /&;6,,,#,, imposedby the respondent in her assessment letter shallnot be included in the payment as there was nocompromise agreement entered into between

petitioner and respondent with respect to thealue-added tax de"iciency#0

On *uly +;6 &2206 respondent "iled with the Courto" (ppeals6 a petition "or reiew o" the decision o"the Court o" (ppeals# ("ter due proceedings6 on <ay &)6 &22;6 theCourt o" (ppeals rendered decision reersing thato" the Court o" Tax (ppeals6 the dispositieportion o" which readsBH?7R7FOR76 in iew o" the "oregoing6 !udgmentis hereby rendered R7V7RSIN. and S7TTIN. (SID7 the uestioned Decision promulgated on++ *une &220# The assessment "or de"iciencyalue-added tax "or the taxable year &255inclusie o" surcharge6 interest and penalty

charges are ordered C(NC7997D "or lac$ o"legal and "actual basis# ;

The Court o" (ppeals anchored its decision onthe ratiocination in another tax case inoling thesame parties61 where it was held thatCO<(S7RCO was not liable to pay "ixed andcontractors tax "or serices rendered to/hilamli"e and its a""iliates# The Court o" (ppeals6in that case6 reasoned that CO<(S7RCO wasnot engaged in business o" proiding serices to/hilamli"e and its a""iliates# In the same manner6the Court o" (ppeals held that CO<(S7RCOwas not liable to pay V(T "or it was not engagedin the business o" selling serices#On *uly &;6 &22;6 the Commissioner o" Internal

Reenue "iled with this Court a petition "or reiewon certiorari assailing the decision o" the Court o" (ppeals#On (ugust 16 &22;6 we reuired respondentCO<(S7RCO to "ile comment on the petition6and on September +;6 &22;6 CO<(S7RCOcomplied with the resolution#5

He gie due course to the petition# (t issue in this case is whether CO<(S7RCOwas engaged in the sale o" serices6 and thusliable to pay V(T thereon#/etitioner aers that to engage in business andto engage in the sale o" serices are twodi""erent things# /etitioner maintains that theserices rendered by CO<(S7RCO to /hilamli"eand its a""iliates6 "or a "ee or consideration6 aresub!ect to V(T# V(T is a tax on the alue addedby the per"ormance o" the serice# It is immaterialwhether pro"it is deried "rom rendering theserice#He agree with the Commissioner#Sec# 22 o" the National Internal Reenue Code o" &25;6 as amended by 7xecutie Order 37# O#4No# +1) in &2556 proides thatBSec# 22# %ersons liable# (ny person who6 in

the course o" trade or business6 sells6 barters orexchanges goods6 renders serices6 or engagesin similar transactions and any person who6imports goods shall be sub!ect to the alue-addedtax 3V(T4 imposed in Sections &,, to &,+ o" thisCode# 2

CO<(S7RCO contends that the term in the

course o" trade or business reuires that thebusiness is carried on with a iew to pro"it orlielihood# It aers that the actiities o" the entitymust be pro"it-oriented# CO<(S7RCO submitsthat it is not motiated by pro"it6 as de"ined by itsprimary purpose in the articles o" incorporation6stating that it is operating only onreimbursement-o"-cost basis6 without any pro"it#/riate respondent argues that pro"it motie ismaterial in ascertaining who to tax "or purposeso" determining liability "or V(T#He disagree#On <ay +56 &22>6 Congress enacted Republic (ct No# 11&;6 the 7xpanded V(T 9aw 37V(T46amending among other sections6 Section 22 o"

the Tax Code# On *anuary &6 &2256 Republic (ct5>+>6 the National Internal Reenue Code o"&2216 too$ e""ect# The amended law proidesthatBSec# &,0# %ersons >iable# (ny person who6 inthe course o" trade or business6 sells6 barters6exchanges6 leases goods or properties6 rendersserices6 and any person who imports goodsshall be sub!ect to the alue-added tax 3V(T4imposed in Sections &,; and &,5 o" this Code#The alue-added tax is an indirect tax and theamount o" tax may be shi"ted or passed on to thebuyer6 trans"eree or lessee o" the goods6properties or serices# This rule shall li$ewiseapply to existing sale or lease o" goods6

properties or serices at the time o" the e""ectiityo" Republic (ct No# 11&;#The phrase in the course o" trade or businessmeans the regular conduct or pursuit o" acommercial or an economic actiity6 includingtransactions incidental thereto6 by any personregardless o" whether or not the person engagedtherein is a nonstoc$6 nonpro"it organi:ation3irrespectie o" the disposition o" its net incomeand whether or not it sells exclusiely tomembers o" their guests46 or goernment entity#The rule o" regularity6 to the contrarynotwithstanding6 serices as de"ined in this Coderendered in the /hilippines by nonresident "oreignpersons shall be considered as being rendered inthe course o" trade or business#Contrary to CO<(S7RCOs contention theaboe proision clari"ies that een a non-stock 6non-rofit 6 organi:ation or goernment entity6 isliable to pay V(T on the sale o" goods orserices# V(T is a tax on transactions6 imposed ateery stage o" the distribution process on thesale6 barter6 exchange o" goods or property6 andon the per"ormance o" serices6 een in theabsence o" pro"it attributable thereto# The term in

77



the course o" trade or business reuires theregular conduct or pursuit o" a commercial or aneconomic actiity regardless o" whether or not theentity is pro"it-oriented#The de"inition o" the term in the course o" tradeor business present law applies to alltransactions een to those made prior to its

enactment# 7xecutie Order No# +1) stated thatany person who6 in the course o" trade orbusiness6 sells6 barters or exchanges goods andserices6 was already liable to pay V(T# Thepresent law merely stresses that een anonstoc$6 nonpro"it organi:ation or goernmententity is liable to pay V(T "or the sale o" goodsand serices#Sec# &,5 o" the National Internal Reenue Codeo" &221 &, de"ines the phrase sale o" serices asthe per"ormance o" all $inds o" serices "orothers "or a "ee6 remuneration or consideration#It includes the supply o" technical adice6assistance or serices rendered in connectionwith technical management or administration o"

any scienti"ic6 industrial or commercialunderta$ing or pro!ect# &&

On February 06 &2256 the Commissioner o"Internal Reenue issued 8IR Ruling No# ,&,-25&+ emphasi:ing that a domestic corporation thatproided technical6 research6 management andtechnical assistance to its a""iliated companiesand receied payments on a reimbursement-o"-cost basis6 without any intention o" reali:ing pro"it6was sub!ect to V(T on serices rendered# In "act6een i" such corporation was organi:ed withoutany intention reali:ing pro"it6 any income or pro"itgenerated by the entity in the conduct o" itsactiities was sub!ect to income tax#?ence6 it is immaterial whether the primary

purpose o" a corporation indicates that it receiespayments "or serices rendered to its a""iliates ona reimbursement-on-cost basis only6 withoutreali:ing pro"it6 "or purposes o" determiningliability "or V(T on serices rendered# (s long asthe entity proides serice "or a "ee6 remunerationor consideration6 then the serice rendered issub!ect to V(T#9aGGi9 (t any rate6 it is a rule that because taxes are theli"eblood o" the nation6 statutes that allowexemptions are construed strictly against thegrantee and liberally in "aor o" the goernment#Otherwise stated6 any exemption "rom thepayment o" a tax must be clearly stated in thelanguage o" the law@ it cannot be merely impliedthere"rom# &) In the case o" V(T6 Section &,26Republic (ct 5>+> clearly enumerates thetransactions exempted "rom V(T# The sericesrendered by CO<(S7RCO do not "all within theexemptions#8oth the Commissioner o" Internal Reenue andthe Court o" Tax (ppeals correctly ruled that theserices rendered by CO<(S7RCO to /hilamli"eand its a""iliates are sub!ect to V(T# (s pointed outby the Commissioner6 the per"ormance o" all

$inds o" serices "or others "or a "ee6remuneration or consideration is considered assale o" serices sub!ect to V(T# (s thegoernment agency charged with theen"orcement o" the law6 the opinion o" theCommissioner o" Internal Reenue6 in theabsence o" any showing that it is plainly wrong6 is

entitled to great weight#&>

(lso6 it has been thelong standing policy and practice o" this Court torespect the conclusions o" uasi-!udicialagencies6 such as the Court o" Tax (ppealswhich6 by the nature o" its "unctions6 is dedicatedexclusiely to the study and consideration o" taxcases and has necessarily deeloped anexpertise on the sub!ect6 unless there has beenan abuse or improident exercise o" its authority#&0

There is no merit to respondents contention thatthe Court o" (ppeals decision in C(-.#R# No#)>,>+6 declaring the CO<(S7RCO as notengaged in business and not liable "or thepayment o" "ixed and percentage taxes6 binds

petitioner# The issue in C(-.#R# No# )>,>+ isdi""erent "rom the present case6 which inolesCO<(S7RCOs liability "or V(T# (s hereto"orestated6 eery person who sells6 barters6 orexchanges goods and serices6 in the course o"trade or business6 as de"ined by law6 is sub!ect toV(T#H?7R7FOR76 the Court .R(NTS the petitionand R7V7RS7S the decision o" the Court o" (ppeals in C(-.#R# S/ No# )12),# The Courthereby R7INST(T7S the decision o" the Court o"Tax (ppeals in C# T# (# Case No# >50)#No costs#SO ORD7R7D#

Republic o" the /hilippinesSupreme Court<anila SECON% %IISION

COMMISSIONER OFINTERNAL

G.R. No. 18<=0=

REEN!E,

/etitioner6 /resentB

C(R/IO6 #.,Chairerson,

- ersus - 8RION6

D79 C(STI99O6

78



(8(D6 and

SM $RIME"OL%INGS, INC.

/7R7U6 ##.

-() FIRST ASIAREALTD

%EELO$MENTCOR$ORATION,

/romulgatedB

Respondents# February +;6+,&,

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x % E C I S I O N %EL CASTILLO, J.2

Hhen the intent o" the law is notapparent as worded6 or when the application o"the law would lead to absurdity or in!ustice6legislatie history is all important# In such cases6courts may ta$e !udicial notice o" the origin andhistory o" the law6%i" QsupportFootnotes'%&'%endi"' thedeliberations during the enactment6%i" QsupportFootnotes'%+'

%endi"' as well as prior laws on the same sub!ectmatter %i" QsupportFootnotes'%)'%endi"' to ascertain the trueintent or spirit o" the law#

This /etition "or Reiew on Certiorari under Rule >0 o" the Rules o" Court6 in relation toRepublic (ct 3R(4 No# 2+5+6%i" QsupportFootnotes'%>'%endi"' see$s to set aside the (pril ),6 +,,5 Decision%i" Q

supportFootnotes'%0'%endi"' and the *une +>6 +,,5Resolution%i" QsupportFootnotes'%;'%endi"' o" the Court o" Tax

(ppeals 3CT(4#Factual Antecedents

Respondents S< /rime ?oldings6Inc# 3S< /rime4 and First (sia RealtyDeelopment Corporation 3First (sia4 aredomestic corporations duly organi:ed andexisting under the laws o" the Republic o" the/hilippines# 8oth are engaged in the business o"operating cinema houses6 among others#%i" Q


CT! Case &o. @H@?

On September +;6 +,,)6 the 8ureau

o" Internal Reenue 38IR4 sent S< /rime a/reliminary (ssessment Notice 3/(N4 "or alueadded tax 3V(T4 de"iciency on cinema tic$et salesin the amount o" /&&26+1;6,>1#>, "or taxableyear +,,,#%i" QsupportFootnotes'%5'%endi"' In response6 S</rime "iled a letter-protest dated December &06+,,)#%i" QsupportFootnotes'%2'%endi"'

On December &+6 +,,)6 the 8IR sent

S< /rime a Formal 9etter o" Demand "or thealleged V(T de"iciency6 which the latter protested

in a letter dated *anuary &>6 +,,>#%i" QsupportFootnotes'%&,'

%endi"'

On September ;6 +,,>6 the 8IR

denied the protest "iled by S< /rime and orderedit to pay the V(T de"iciency "or taxable year +,,,in the amount o" /&+>6,)0651>#&+#%i" QsupportFootnotes'%&&'

%endi"'

On October &06 +,,>6 S< /rime "iled

a /etition "or Reiew be"ore the CT( doc$eted asCT( Case No# 1,12#%i" QsupportFootnotes'%&+'%endi"'

CT! Case &o. @HIJ

On <ay &06 +,,+6 the 8IR sent First (sia a /(N "or V(T de"iciency oncinema tic$et sales "or taxable year &222 in thetotal amount o" /)065+)6;5,#2)#%i" QsupportFootnotes'%&)'

%endi"' First (sia protested the /(N in a letter dated*uly 26 +,,+#%i" QsupportFootnotes'%&>'%endi"'

Subseuently6 the 8IR issued aFormal 9etter o" Demand "or the alleged V(Tde"iciency which was protested by First (sia in aletter dated December &+6 +,,+#%i" QsupportFootnotes'%&0'

%endi"'

On September ;6 +,,>6 the 8IR

rendered a Decision denying the protest andordering First (sia to pay the amount o"/)065+)6;5,#2) "or V(T de"iciency "or taxableyear &222#%i" QsupportFootnotes'%&;'%endi"'

(ccordingly6 on October +,6 +,,>6

First (sia "iled a /etition "or Reiew be"ore theCT(6 doc$eted as CT( Case No# 1,50#%i" Q

supportFootnotes'%&1'%endi"'

CT! Case &o. @999

On (pril &;6 +,,>6 the 8IR sent a/(N to First (sia "or V(T de"iciency on cinematic$et sales "or taxable year +,,, in the amounto" /)065>,6520#15# First (sia protested the /(Nthrough a letter dated (pril ++6 +,,># %i" QsupportFootnotes'

%&5'%endi"'

Therea"ter6 the 8IR issued a Formal

9etter o" Demand "or alleged V(T de"iciency#%i" QsupportFootnotes'%&2'%endi"' First (sia protested the same ina letter dated *uly 26 +,,>#%i" QsupportFootnotes'%+,'%endi"'

On October 06 +,,>6 the 8IR denied

the protest and ordered First (sia to pay the V(Tde"iciency in the amount o" /)065>,6520#15 "ortaxable year +,,,#%i" QsupportFootnotes'%+&'%endi"'

This prompted First (sia to "ile a

/etition "or Reiew be"ore the CT( on December&;6 +,,># The case was doc$eted as CT( CaseNo# 1&&&#%i" QsupportFootnotes'%++'%endi"'

79



CT! Case &o. @K@K 3e6 !ssessment &otice &o. HHI-HK

( /(N "or V(T de"iciency on cinematic$et sales "or the taxable year +,,+ in the total

amount o" /)+65,+62&+#+& was issued againstFirst (sia by the 8IR# In response6 First (sia "ileda protest-letter dated Noember &&6 +,,># The8IR then sent a Formal 9etter o" Demand6 whichwas protested by First (sia on December &>6+,,>#%i" QsupportFootnotes'%+)'%endi"'

3e6 !ssessment &otice &o. HHA-HA

( /(N "or V(T de"iciency on cinematic$et sales in the total amount o" /+56&2;6)1;#>;"or the taxable year +,,) was issued by the 8IRagainst First (sia# In a letter dated September+)6 +,,>6 First (sia protested the /(N# ( Formal9etter o" Demand was therea"ter issued by the

8IR to First (sia6 which the latter protestedthrough a letter dated Noember &&6 +,,># %i" QsupportFootnotes'%+>'%endi"'

On <ay &&6 +,,06 the 8IR rendered aDecision denying the protests# It ordered First (sia to pay the amounts o" /))6;&,6+,+#2& and/+5602,65+;#0, "or V(T de"iciency "or taxableyears +,,+ and +,,)6 respectiely#%i" QsupportFootnotes'%+0'

%endi"'

Thus6 on *une ++6 +,,06 First (sia"iled a /etition "or Reiew be"ore the CT(6doc$eted as CT( Case No# 1+1+# %i" QsupportFootnotes'%+;'

%endi"'

Consolidated %etitions

The Commissioner o" InternalReenue 3CIR4 "iled his (nswers to the /etitions"iled by S< /rime and First (sia#%i" QsupportFootnotes'%+1'

%endi"'

On *uly &6 +,,06 S< /rime "iled a

<otion to Consolidate CT( Case Nos# 1,506 1&&&and 1+1+ with CT( Case No# 1,12 on thegrounds that the issues raised therein areidentical and that S< /rime is a ma!orityshareholder o" First (sia# The motion wasgranted#%i" QsupportFootnotes'%+5'%endi"'

Epon submission o" the parties

respectie memoranda6 the consolidated caseswere submitted "or decision on the sole issue o"whether gross receipts deried "rom admissiontic$ets by cinematheater operators or proprietorsare sub!ect to V(T#%i" QsupportFootnotes'%+2'%endi"'

Ruling of the CTA First Division

On September ++6 +,,;6 the FirstDiision o" the CT( rendered a Decision grantingthe /etition "or Reiew# Resorting to thelanguage used and the legislatie history o" thelaw6 it ruled that the actiity o" showingcinematographic "ilms is not a serice coered byV(T under the National Internal Reenue Code

3NIRC4 o" &2216 as amended6 but an actiitysub!ect to amusement tax under R( 1&;,6otherwise $nown as the 9ocal .oernment Code39.C4 o" &22&# Citing ?ouse *oint ResolutionNo# &)6 entitled L#oint 3esolution xressing theTrue +ntent of Congress ith 3esect to the%revailing Tax 3egime in the Theater and >ocalFilm +ndustr1 Consistent ith the States %olic1 to5ave a $iable, Sustainable and CometitiveTheater and Film +ndustr1 as )ne of its %artnersin &ational Develoment,M %i" QsupportFootnotes'%),'%endi"' theCT( First Diision held that the ?ouse o"Representaties resoled that there should onlybe one business tax applicable to theaters andmoie houses6 which is the ),= amusement tax

imposed by cities and proinces under the 9.Co" &22&# Further6 it held that consistent with theStates policy to hae a iable6 sustainable andcompetitie theater and "ilm industry6 the nationalgoernment should be precluded "rom imposingits own business tax in addition to that alreadyimposed and collected by local goernment units#The CT( First Diision li$ewise "ound thatReenue <emorandum Circular 3R<C4 No# +5-+,,&6 which imposes V(T on gross receipts "romadmission to cinema houses6 cannot be gien"orce and e""ect because it "ailed to comply withthe procedural due process "or tax issuancesunder R<C No# +,-5;#%i" QsupportFootnotes'%)&'%endi"' Thus6it disposed o" the case as "ollowsB

IN IE OF ALL T"E FOREGOING6 this Courthereby GRANTS the /etitions "or Reiew#Respondents Decisions denying petitionersprotests against de"iciency alue-added taxes arehereby 3$3SD. (ccordingly6 (ssessmentNotices Nos# VT-,,-,,,,256 VT-22-,,,,016 VT-,,-,,,&++6 ,,)-,) and ,,5-,+ are OR%ERE%cancelled and set aside# SO OR%ERE%#%i" QsupportFootnotes'%)+'%endi"'

(ggrieed6 the CIR moed "or

reconsideration which was denied by the FirstDiision in its Resolution dated December &>6+,,;#%i" QsupportFootnotes'%))'%endi"'

Ruling of the CTA En "anc

Thus6 the CIR appealed to the CT(n 'anc.%i" QsupportFootnotes'%)>'%endi"' The case wasdoc$eted as CT( 78 No# +>># %i" QsupportFootnotes'%)0'%endi"' The CT( n 'anc howeer denied%i" QsupportFootnotes'%);'

%endi"' the /etition "or Reiew and dismissed%i" Q

supportFootnotes'%)1'%endi"' as well petitioners <otion "or

80



Reconsideration#The CT( n 'anc held that Section

&,5 o" the NIRC actually sets "orth an exhaustieenumeration o" what serices are intended to besub!ect to V(T# (nd since the showing orexhibition o" motion pictures6 "ilms or moies bycinema operators or proprietors is not among the

enumerated actiities contemplated in the phraseJsale or exchange o" serices6K then grossreceipts deried by cinema theater operators orproprietors "rom admission tic$ets in showingmotion pictures6 "ilm or moie are not sub!ect toV(T# It reiterated that the exhibition or showing o" motion pictures6 "ilms6 or moies is insteadsub!ect to amusement tax under the 9.C o"&22&# (s regards the alidity o" R<C No# +5-+,,&6 the CT(n 'anc agreed with its FirstDiision that the same cannot be gien "orce ande""ect "or "ailure to comply with R<C No# +,-5;# I''e

?ence6 the present recourse6 wherepetitioner alleges that the CT( n 'anc seriouslyerredB %i" Qsupport9ists'3&4 %endi"'Innot "indingholding that the gross receipts deriedby operatorsproprietors o" cinema houses "romadmission tic$ets %are' sub!ect to the &,= V(TbecauseB %i" Qsupport9ists'3a4 %endi"'T?7 7L?I8ITIONOF <OVI7S 8M CIN7<(O/7R(TORS/RO/RI7TORS TO T?7 /(MIN./E89IC IS ( S(97 OF S7RVIC7@

%i" Qsupport9ists'3b4 %endi"'EN97SS7L7</T7D 8M 9(H6 (99 S(97S OFS7RVIC7S (R7 7L/R7SS9M SE8*7CT TO V(TEND7R S7CTION &,5 OF T?7 NIRC OF &221@ %i" Qsupport9ists'3c4 %endi"'S7CTION &,5 OFT?7 NIRC OF &221 IS ( C97(R /ROVISIONOF 9(H (ND T?7 (//9IC(TION OF RE97SOF ST(TETORM CONSTRECTION (ND7LTRINSIC (IDS IS ENH(RR(NT7D@ %i" Qsupport9ists'3d4 %endi"'.R(NTIN.HIT?OET CONC7DIN. T?(T RE97S OFCONSTRECTION (R7 (//9IC(897 ?7R7IN6STI99 T?7 ?ONOR(897 COERT7RRON7OES9M (//9I7D T?7 S(<7 (ND/RO<E9.(T7D D(N.7ROES /R7C7D7NTS@ %i" Qsupport9ists'3e4 %endi"'T?7R7 IS NOV(9ID6 7LISTIN. /ROVISION OF 9(H7L7</TIN. R7S/OND7NTS S7RVIC7SFRO< T?7 V(T I</OS7D END7R S7CTION&,5 OF T?7 NIRC OF &221@ %i" Qsupport9ists'3"4 %endi"'E7STIONS ON

T?7 HISDO< OF T?7 9(H (R7 NOT /RO/7RISSE7S TO 87 TRI7D 8M T?7 ?ONOR(897COERT@ and %i" Qsupport9ists'3g4 %endi"'R7S/OND7NTSH7R7 T(L7D 8(S7D ON T?7 /ROVISION OFS7CTION &,5 OF T?7 NIRC#

%i" Qsupport9ists'3+4 %endi"'Inruling that the enumeration in Section &,5 o" theNIRC o" &221 is exhaustie in coerage@ %i" Qsupport9ists'3)4 %endi"'Inmisconstruing the NIRC o" &221 to conclude thatthe showing o" motion pictures is merely sub!ectto the amusement tax imposed by the 9ocal.oernment Code@ and 3>4 In inalidating Reenue

<emorandum Circular3R<C4 No#

+5-+,,&#%i" QsupportFootnotes'%)5'

%endi"'

Simply put6 the issue in this case is

whether the gross receipts deried by operatorsor proprietors o" cinematheater houses "romadmission tic$ets are sub!ect to V(T# -etitioner(s Arguments

/etitioner argues that the

enumeration o" serices sub!ect to V(T in Section&,5 o" the NIRC is not exhaustie because itcoers all sales o" serices unless exempted bylaw# ?e claims that the CT( erred in applying therules on statutory construction and in usingextrinsic aids in interpreting Section &,5 becausethe proision is clear and unambiguous# Thus6 hemaintains that the exhibition o" moies by cinemaoperators or proprietors to the paying public6being a sale o" serice6 is sub!ect to V(T# Respondents( Arguments

Respondents6 on the other hand6argue that a plain reading o" Section &,5 o" theNIRC o" &221 shows that the gross receipts o"proprietors or operators o" cinemastheatersderied "rom public admission are not among theserices sub!ect to V(T# Respondents insist thatgross receipts "rom cinematheater admissiontic$ets were neer intended to be sub!ect to anytax imposed by the national goernment# (ccording to them6 the absence o" gross receipts

81



"rom cinematheater admission tic$ets "rom thelist o" serices which are sub!ect to the nationalamusement tax under Section &+0 o" the NIRC o" &221 rein"orces this legislatie intent#Respondents also highlight the "act that R<C No#+5-+,,& on which the de"iciency assessmentswere based is an unpublished administratie

ruling# Or R(;

The petition is bere"t o" merit#

The enumeration of services subect to $!Tunder Section 9HI of the &+3C is not exhaustive

Section &,5 o" the NIRC o" the &221readsB

S7C# &,5# Value-added Tax on Sale o"

Serices and Ese or 9ease o" /roperties#

3(4 Rate and 8ase o" Tax# Thereshall be leied6 assessed and collected6 a alue-added tax euialent to ten percent 3&,=4 o"gross receipts deried "rom the sale or exchangeo" serices6 including the use or lease o"properties#

The phrase P'-e or e+5-(;e o6'er+e'Q means the per"ormance o" all $inds o"serices in the /hilippines "or others "or a "ee6remuneration or consideration6 (+)(; thoseper"ormed or rendered by construction andserice contractors@ stoc$6 real estate6commercial6 customs and immigration bro$ers@

lessors o" property6 whether personal or real@warehousing serices@ e''or' or )'trbtor' o6 +(em-to;r-p5+ 6m' persons engaged inmilling6 processing6 manu"acturing or repac$inggoods "or others@ proprietors6 operators or$eepers o" hotels6 motels6 rest houses6 pensionhouses6 inns6 resorts@ proprietors or operators o"restaurants6 re"reshment parlors6 ca"es and othereating places6 including clubs and caterers@dealers in securities@ lending inestors@transportation contractors on their transport o"goods or cargoes6 including persons whotransport goods or cargoes "or hire and otherdomestic common carriers by land6 air and waterrelatie to their transport o" goods or cargoes@serices o" "ranchise grantees o" telephone andtelegraph6 radio and teleision broadcasting andall other "ranchise grantees except those underSection &&2 o" this Code@ serices o" ban$s6 non-ban$ "inancial intermediaries and "inancecompanies@ and non-li"e insurance companies3except their crop insurances46 including surety6"idelity6 indemnity and bonding companies@ and'm-r 'er+e' regardless o" whether or not theper"ormance thereo" calls "or the exercise or use

o" the physical or mental "aculties# The phraseJsale or exchange o" sericesK '5- e:'e(+)e3

3&4 The lease or the use o" or the rightor priilege to use any copyright6 patent6 designor model6 plan6 secret "ormula or process6

goodwill6 trademar$6 trade brand or other li$eproperty or right@

x x x x

@7 T5e e-'e o6 moto(p+tre 6m', 6m',t-pe' -() )'+' -()

354 The lease or the use o" or the right to use radio6teleision6 satellitetransmission and cableteleision time#

x x x x 37mphasis supplied4

( cursory reading o" the "oregoing

proision clearly shows that the enumeration o"the Jsale or exchange o" sericesK sub!ect to V(Tis not exhaustie# The words6 Jincluding6K Jsimilar

serices6K and Jshall li$ewise include6K indicatethat the enumeration is by way o" example only#%i" QsupportFootnotes'%)2'%endi"'

(mong those included in the

enumeration is the Jlease o" motion picture "ilms6"ilms6 tapes and discs#K This6 howeer6 is not thesame as the showing or exhibition o" motionpictures or "ilms# (s pointed out by the CT( n'anc6

82



J7xhibitionK in 8lac$s 9aw Dictionaryis de"ined as JTo show ordisplay# x x x To produceanything in public so thatit may be ta$en intopossessionK 3;th ed#6 p#01)4# Hhile the word

JleaseK is de"ined as Jacontract by which oneowning such propertygrants to another theright to possess6 use anden!oy it on speci"iedperiod o" time inexchange "or periodicpayment o" a stipulatedprice6 re"erred to as rent38lac$s 9aw Dictionary6;th ed#6 p# 5524# x x x %i" Q

supportFootnotes'%>,'%endi"'

Since the actiity o" showing motion

pictures6 "ilms or moies by cinema theateroperators or proprietors is not included in theenumeration6 it is incumbent upon the court to thedetermine whether such actiity "alls under thephrase Jsimilar serices#K The intent o" thelegislature must there"ore be ascertained#

The legislature never intended oeratorsor rorietors of cinemaNtheater houses to becovered b1 $!T

Ender the NIRC o" &2)26%i" QsupportFootnotes'

%>&'%endi"' the national goernment imposedamusement tax on proprietors6 lessees6 oroperators o" theaters6 cinematographs6 concerthalls6 circuses6 boxing exhibitions6 and otherplaces o" amusement6 including coc$pits6 racetrac$s6 and cabaret#%i" QsupportFootnotes'%>+'%endi"' In the caseo" theaters or cinematographs6 the taxes were"irst deducted6 withheld6 and paid by theproprietors6 lessees6 or operators o" suchtheaters or cinematographs be"ore the grossreceipts were diided between the proprietors6lessees6 or operators o" the theaters or

cinematographs and the distributors o" thecinematographic "ilms# Section &&%i" QsupportFootnotes'%>)'

%endi"' o" the 9ocal Tax Code6 %i" QsupportFootnotes'%>>'%endi"' howeer6 amended this proision by trans"erringthe power to impose amusement tax %i" QsupportFootnotes'

%>0'%endi"' on admission "rom theaters6cinematographs6 concert halls6 circuses and other places o" amusements exclusiely to the localgoernment# Thus6 when the NIRC o" &211%i" Q

supportFootnotes'%>;'%endi"' was enacted6 the national

goernment imposed amusement tax only onproprietors6 lessees or operators o" cabarets6 dayand night clubs6 *ai-(lai and race trac$s#%i" Q

supportFootnotes'%>1'%endi"'

On *anuary &6 &2556 the V(T 9aw%i" Q

supportFootnotes'%>5'%endi"' was promulgated# It amended

certain proisions o" the NIRC o" &211 byimposing a multi-stage V(T to replace the tax onoriginal and subseuent sales tax andpercentage tax on certain serices# It imposedV(T on sales o" serices under Section &,+thereo"6 which proidesB

S7CTION&,+# Value-added taxon sale o" serices# 3a4Rate and base o" tax# There shall be leied6assessed and collected6a alue-added taxeuialent to &,=

percent o" gross receiptsderied by any personengaged in the sale o"serices# The phraseJsale o" sericesK meansthe per"ormance o" all$inds o" serices "orothers "or a "ee6remuneration orconsideration6 includingthose per"ormed orrendered by constructionand serice contractors@stoc$6 real estate6commercial6 customs and

immigration bro$ers@lessors o" personalproperty@ e''or' or)'trbtor' o6+(em-to;r-p5+ 6m' persons engaged inmilling6 processing6manu"acturing orrepac$ing goods "orothers@ and similarserices regardless o"whether or not theper"ormance thereo" calls"or the exercise or use o"the physical or mental"acultiesB /roided Thatthe "ollowing sericesper"ormed in the/hilippines by V(T-registered persons shallbe sub!ect to ,=B

83



3&4/rocessingmanu"acturing orrepac$ing goods "or other persons doing businessoutside the /hilippineswhich goods aresubseuently exported6 xx x

x x x x

J.rossreceiptsK means the totalamount o" money or itseuialent representingthe contract price6compensation or serice"ee6 including the amountcharged "or materialssupplied with theserices and deposits oradance paymentsactually or constructielyreceied during thetaxable uarter "or theserice per"ormed or to

be per"ormed "or anotherperson6 excluding alue-added tax#

3b4Determination o" the tax# 3&4 Tax billed as aseparate item in theinoice# I" the tax isbilled as a separate itemin the inoice6 the tax

shall be based on thegross receipts6 excludingthe tax#

3+4 Taxnot billed separately or is

billed erroneously in theinoice# I" the tax isnot billed separately or isbilled erroneously in theinoice6 the tax shall bedetermined by multiplyingthe gross receipts3including the amountintended to coer the taxor the tax billederroneously4 by &&&#37mphasis supplied4

/ersons sub!ect to amusement tax under theNIRC o" &2116 as amended6 howeer6 wereexempted "rom the coerage o" V(T#%i" QsupportFootnotes'

%>2'%endi"'

On February &26 &2556 then

Commissioner 8ienenido (# Tan6 *r# issuedR<C 5-556 which clari"ied that the power toimpose amusement tax on gross receipts deried"rom admission tic$ets was exclusie with thelocal goernment units and that only the grossreceipts o" amusement places deried "romsources other than "rom admission tic$ets weresub!ect to amusement tax under the NIRC o"&2116 as amended# /ertinent portions o" R<C 5-55 readB

Ender the9ocal Tax Code 3/#D#+)&6 as amended46 the !urisdiction to leyamusement tax on grossreceipts arising "rom

84



admission to places o"amusement has beentrans"erred to the localgoernments to theexclusion o" the nationalgoernment#

x x x x

Since thepromulgation o" the 9ocalTax Code which too$e""ect on *une +56 &21)none o" the amendatorylaws which amended theNational InternalReenue Code6 includingthe alue added tax law

under 7xecutie OrderNo# +1)6 has amendedthe proisions o" Section&& o" the 9ocal Tax Code# (ccordingly6 the sole !urisdiction "or collectiono" amusement tax onadmission receipts inplaces o" amusementrests exclusiely on thelocal goernment6 to theexclusion o" the nationalgoernment# Since the8ureau o" InternalReenue is an agency o"

the national goernment6then it "ollows that it hasno legal mandate to leyamusement tax onadmission receipts in thesaid places o"amusement#

Consideringthe "oregoing legalbac$ground6 theproisions under Section&+) o" the NationalInternal Reenue Codeas renumbered by7xecutie Order No# +1)3Sec# ++56 old NIRC4pertaining to amusementtaxes on places o"amusement shall beimplemented inaccordance with 8IRRE9IN.6 datedDecember >6 &21) and

8IR RE9IN. NO# +)&-5;dated Noember 06 &25;to witB

Jx x x (ccordingly6 o(* t5e

;ro'' re+ept' o6 t5e-m'eme(t p-+e')ere) 6rom 'or+e'ot5er t5-( 6rom-)m''o( t+et' '5-be 'bHe+t to -m'eme(t t-pre'+rbe) ()erSe+to( 228 o6 t5e T-Co)e, -' -me()e) 3nowSection &+)6 NIRC6 asamended by 7#O# +1)4#T5e t- o( ;ro''re+ept' )ere) 6rom-)m''o( t+et' '5-be ee) -() +oe+te)b* t5e +t* ;oer(me(tpr'-(t to Se+to( 2<o6 $re')e(t- %e+reeNo. 2<1, -' -me()e) Q or b* t5epro(+- ;oer(me(t,pr'-(t to Se+to( 11o6 $.%. 2<1, ot5er:'e(o:( -' t5e Lo+- T-

85



Co)e# 37mphasissupplied4

On October &,6 &22&6 the 9.C o"

&22& was passed into law# The local goernmentretained the power to impose amusement tax onproprietors6 lessees6 or operators o" theaters6cinemas6 concert halls6 circuses6 boxing stadia6and other places o" amusement at a rate o" notmore than thirty percent 3),=4 o" the grossreceipts "rom admission "ees under Section &>,thereo"#%i" QsupportFootnotes'%0,'%endi"' In the case o" theatersor cinemas6 the tax shall "irst be deducted andwithheld by their proprietors6 lessees6 oroperators and paid to the local goernmentbe"ore the gross receipts are diided betweensaid proprietors6 lessees6 or operators and the

distributors o" the cinematographic "ilms#?oweer6 the proision in the 9ocal Tax Codeexpressly excluding the national goernment "romcollecting tax "rom the proprietors6 lessees6 oroperators o" theaters6 cinematographs6 concerthalls6 circuses and other places o" amusementswas no longer included#

In &22>6 R( 11&; restructured theV(T system by widening its tax base andenhancing its administration# Three years later6R( 11&; was amended by R( 5+>&# Shortlytherea"ter6 the NIRC o" &221%i" QsupportFootnotes'%0&'%endi"' was signed into law# Seeral amendments%i" Q

supportFootnotes'%0+'%endi"' were made to expand the

coerage o" V(T# ?oweer6 none pertain tocinematheater operators or proprietors# (tpresent6 only lessors or distributors o"cinematographic "ilms are sub!ect to V(T# Hhilepersons sub!ect to amusement tax%i" QsupportFootnotes'%0)'

%endi"' under the NIRC o" &221 are exempt "rom thecoerage o" V(T#%i" QsupportFootnotes'%0>'%endi"'

8ased on the "oregoing6 the "ollowing"acts can be establishedB %i" Qsupport9ists'3&4 %endi"'?istorically6the actiity o" showing motion pictures6 "ilms ormoies by cinematheater operators orproprietors has always been considered as a"orm o" entertainment sub!ect to amusement tax#

%i" Qsupport9ists'3+4 %endi"'/rior to the9ocal Tax Code6 all "orms o" amusement tax wereimposed by the national goernment# %i" Qsupport9ists'3)4 %endi"'Hhen the9ocal Tax Code was enacted6 amusement tax onadmission tic$ets "rom theaters6 cinematographs6concert halls6 circuses and other places o"amusements were trans"erred to the local

goernment# %i" Qsupport9ists'3>4 %endi"'Ender theNIRC o" &2116 the national goernment imposedamusement tax only on proprietors6 lessees oroperators o" cabarets6 day and night clubs6 *ai- (lai and race trac$s#

%i" Qsupport9ists'304 %endi"'The V(T lawwas enacted to replace the tax on original andsubseuent sales tax and percentage tax oncertain serices#%i" Qsupport9ists'3;4 %endi"'Hhen the V(Tlaw was implemented6 it exempted personssub!ect to amusement tax under the NIRC "romthe coerage o" V(T#

%i" Qsupport9ists'314 %endi"'Hhen the9ocal Tax Code was repealed by the 9.C o"&22&6 the local goernment continued to imposeamusement tax on admission tic$ets "romtheaters6 cinematographs6 concert halls6 circuses

and other places o" amusements# %i" Qsupport9ists'354 %endi"'(mendmentsto the V(T law hae been consistent in exemptingpersons sub!ect to amusement tax under theNIRC "rom the coerage o" V(T# %i" Qsupport9ists'324 %endi"'Only lessorsor distributors o" cinematographic "ilms areincluded in the coerage o" V(T#

These reeal the legislatie intent notto impose V(T on persons already coered by theamusement tax# This holds true een in the caseo" cinematheater operators taxed under the 9.C

o" &22& precisely because the V(T law wasintended to replace the percentage tax on certainserices# The mere "act that they are taxed bythe local goernment unit and not by the nationalgoernment is immaterial# The 9ocal Tax Code6 intrans"erring the power to tax gross receiptsderied by cinematheater operators or proprietor"rom admission tic$ets to the local goernment6did not intend to treat cinematheater houses as aseparate class# No distinction must6 there"ore6be made between the places o" amusementtaxed by the national goernment and thosetaxed by the local goernment#

To hold otherwise would impose anunreasonable burden on cinematheater housesoperators or proprietors6 who would be paying anadditional &,=%i" QsupportFootnotes'%00'%endi"' V(T on top o"the ),= amusement tax imposed by Section &>,o" the 9.C o" &22&6 or a total o" >,= tax# Suchimposition would result in in!ustice6 as personstaxed under the NIRC o" &221 would be in abetter position than those taxed under the 9.C o" &22&# He need not belabor that a literalapplication o" a law must be re!ected i" it will

86



operate un!ustly or lead to absurd results# %i" Q

supportFootnotes'%0;'%endi"' Thus6 we are coninced that thelegislature neer intended to includecinematheater operators or proprietors in thecoerage o" V(T#

On this point6 it is aroos to uote the

case o" 3oxas v. Court of Tax !eals,%i" Q

supportFootnotes'%01'%endi"' to witB

The power o" taxation is sometimescalled also the power todestroy# There"ore6 itshould be exercised withcaution to minimi:e in!uryto the proprietary rightso" a taxpayer# It must beexercised "airly6 euallyand uni"ormly6 lest the taxcollector $ill the Jhen thatlays the golden egg#K

(nd6 in order to maintainthe general publics trustand con"idence in the.oernment this powermust be used !ustly andnot treacherously#

The reeal of the >ocal Tax Code b1 the >OC of9??9 is not a legal basis for the imosition of $!T

/etitioner6 in issuing the assessmentnotices "or de"iciency V(T against respondents6ratiocinated thatB

8asically6 itwas ac$nowledged that acinematheater operatorwas then sub!ect toamusement tax underSection +;, o"Commonwealth (ct No#>;;6 otherwise $nown asthe National Internal

Reenue Code o" &2)26computed on the amountpaid "or admission# Hiththe enactment o" the9ocal Tax Code under/residential Decree 3/D4No# +)&6 dated *une +56&21)6 the power o"imposing taxes on grossreceipts "rom admission

o" persons tocinematheater and other places o" amusementhad6 therea"ter6 beentrans"erred to theproincial goernment6 tothe exclusion o" the

national or municipalgoernment 3Sections && &)6 9ocal Tax Code4#?oweer6 the saidproision containing theexclusie power o" theproincial goernment toimpose amusement tax6had also been repealedandor deleted byRepublic (ct 3R(4 No#1&;,6 otherwise $nownas the 9ocal .oernmentCode o" &22&6 enactedinto law on October &,6

&22&# (ccordingly6 t5ee(-+tme(t o6 RA No.71B0, t5', em(-t(;t5e 't-ttor*pro5bto( o( t5e(-to(- ;oer(me(t tompo'e b'(e'' t- o(;ro'' re+ept' 6rom-)m''o( o6 per'o('to p-+e' o6-m'eme(t, e) t5e:-* to t5e -)mpo'to( o6 t5e ATpr'-(t to Se+to( 102@(o: Se+to( 108 o6

t5e o) T- Co)e, -'-me()e) b* t5eEp-()e) AT L-: @RANo. 771B -() :5+5:-' mpeme(te)be;(((; &-(-r* 1,1B#%i" QsupportFootnotes'%05'%endi"' 37mphasis supplied4

He disagree#

The repeal o" the 9ocal Tax Code by

the 9.C o" &22& is not a legal basis "or theimposition o" V(T on the gross receipts o"cinematheater operators or proprietors deried"rom admission tic$ets# The remoal o" theprohibition under the 9ocal Tax Code did notgrant nor restore to the national goernment thepower to impose amusement tax oncinematheater operators or proprietors# Neither

87



did it expand the coerage o" V(T# Since theimposition o" a tax is a burden on the taxpayer6 itcannot be presumed nor can it be extended byimplication# ( law will not be construed asimposing a tax unless it does so clearly6expressly6 and unambiguously#%i" QsupportFootnotes'%02'%endi"' (s it is6 the power to impose amusement tax on

cinematheater operators or proprietors remainswith the local goernment# 3evenue *emorandum Circular &o. KI-KHH9 isinvalid

Considering that there is no proisiono" law imposing V(T on the gross receipts o"cinematheater operators or proprietors deried"rom admission tic$ets6 R<C No# +5-+,,& whichimposes V(T on the gross receipts "romadmission to cinema houses must be struc$down# He cannot oeremphasi:e that R<Cs

must not oerride6 supplant6 or modi"y the law6but must remain consistent and in harmony with6the law they see$ to apply and implement# %i" Q

supportFootnotes'%;,'%endi"'

In iew o" the "oregoing6 there is no

need to discuss whether R<C No# +5-+,,&complied with the procedural due process "or taxissuances as prescribed under R<C No# +,-5;# 3ule on tax exemtion does not al1

<oreoer6 contrary to the iew o"petitioner6 respondents need not proe their

entitlement to an exemption "rom the coerage o"V(T# The rule that tax exemptions should beconstrued strictly against the taxpayerpresupposes that the taxpayer is clearly sub!ectto the tax being leied against him#%i" QsupportFootnotes'%;&'

%endi"' The reason is obiousB it is both illogical andimpractical to determine who are exemptedwithout "irst determining who are coered by theproision#%i" QsupportFootnotes'%;+'%endi"' Thus6 unless astatute imposes a tax clearly6 expressly andunambiguously6 what applies is the eually well-settled rule that the imposition o" a tax cannot bepresumed#%i" QsupportFootnotes'%;)'%endi"' In "act6 in case o"doubt6 tax laws must be construed strictly againstthe goernment and in "aor o" the taxpayer#%i" Q

supportFootnotes'%;>'%endi"'

"EREFORE6 the /etition is hereby %ENIE%. The assailed (pril ),6 +,,5 Decision o" the Courto" Tax (ppeals n 'anc holding that grossreceipts deried by respondents "rom admissiontic$ets in showing motion pictures6 "ilms ormoies are not sub!ect to alue-added tax underSection &,5 o" the National Internal ReenueCode o" &2216 as amended6 and its *une +>6+,,5 Resolution denying the motion "orreconsideration are AFFIRME%#

SO OR%ERE%.

Republic o" the /hilippinesS!$REME CO!RT<anilaT?IRD DIVISION G.R. No. 1074<4 O+tober 10, 17

88



CITI#AN, N.A., petitioner6s#CO!RT OF A$$EALS -() COMMISSIONEROF INTERNAL REEN!E, respondents# $ANGANI#AN, J.2The law reuires a lessee to withhold and remit to

the 8ureau o" Internal Reenue 38IR4 "ie percent30=4 o" the rental due the lessor6 by way o"adance payment o" the latters income taxliability# Is the lessor entitled to a re"und o" suchwithheld amount a"ter it is determined that thelessor was not6 in "act6 liable "or any income taxat all because its annual operation resulted in anet loss as shown in its income tax return "iled atthe end o" the taxable yearThis is the uestion raised in this petition "orreiew on certiorari o" the Court o" (ppeals 1 Decision 2 promulgated on <ay +16 &22+ andResolution < promulgated on October +16 &22+ inC(-.#R# No# S/-+;0006 reersing the decision o"the Court o" Tax (ppeals which allowed the tax

re"und#The FactsThe "acts6 as "ound by Respondent Court6 areundisputed# 4

From the pleadings and supporting papers onhand6 it can be gathered that Citiban$ N#(#/hilippine 8ranch 3CITI8(NA4 is a "oreigncorporation doing business in the /hilippines# In&212 and &25,6 its tenants withheld and paid tothe 8ureau o" Internal Reenue the "ollowingtaxes on rents due to Citiban$6 pursuant toSection &3c4 o" the 7xpanded Hithholding TaxRegulations 38IR Reenue Regulations No# &)-156 as amended46 to witB&212

First uarter /;,6;2,#21Second uarter ;26521#,5Third uarter ;26&;,#52Fourth uarter 1,6&;,#0;/+1,6&;,#0;&25,First uarter /156)1,#++Second uarter ;26,>2#)1Third uarter 126&)2#;,Fourth uarter 1+6+1,#&,/+2565+2#+2On (pril &06 &25,6 Citiban$ "iled its corporateincome tax returns "or the year ended December)&6 &212 37xh# 7B46 showing a net loss o"/1>650>62&;#,, and its tax credits totalled/;6+01615,#,,6 een without including theamounts withheld on rental income under the7xpanded Hithholding Tax System6 the same nothaing been utili:ed or applied "or the reason thatthe years operation resulted in a loss# 37xh# 7-& 7-+4# The taxes thus withheld by the tenants"rom rentals paid to Citiban$ in &212 were notincluded as tax credits although a rental income

amounting to /1612;65&&#,, was included in itsincome declared "or the year ended December)&6 &212 37xhs# 7-) 7->4#For the year ended December )&6 &25,6Citiban$s corporate income tax returns 37xh#7C46 "iled on (pril &06 &25&6 showed a net losso" /116,1&612,#,, "or income tax purposes# Its

aailable tax credit 3re"undable4 at the end o"&25, amounting to /&&60)+6500#,, 37xh# 8C-& 8C-+4 was not utili:ed or applied# The saidaailable tax credits did not include the amountswithheld by Citiban$s tenants "rom rentalpayments in &25, but the rental payments "or thatyear were declared as part o" its gross incomeincluded in its annual income tax returns 37xh#8C-)4#On October )&6 &25&6 Citiban$ submitted its claim"or re"und o" the a"oresaid amounts o"/+1,6&;,#0; and /+2565+26 respectiely6 or atotal o" /0;56252#50@ and on October &+6 &25&"iled a petition "or reiew with the Court o" Tax (ppeals concerning sub!ect claim "or tax re"und6

doc$eted as CT( Case No# ))15# =

On (ugust ),6 &25&6 the Court o" Tax (ppealsad!udged Citiban$s entitlement to the tax re"undsought "or6 representing the 0= tax withheld andpaid on Citiban$s rental income "or &212 and&25,# # # #In its decision B granting a re"und to petitioner6 7 the Court o" Tax (ppeals re!ected RespondentCommissioners argument that the claim was notseasonably "iledBH?7R7FOR76 respondent is hereby ordered togrant the re"und o" the amount sought by thepetitioner# No costs#Not satis"ied6 the Commissioner appealed to theCourt o" (ppeals# In due course6 Respondent

Court issued the assailed Decision andResolution6 ruling that the "ie percent taxwithheld by tenants "rom the rental income o"Citiban$ "or the years &212 and &25, was inaccordance with Section &3c4 o" the 7xpandedHithholding Tax Regulations 38IR ReenueRegulation No# &)-156 as amended4 and did notinole illegally or erroneously collected taxes#The dispositie portion o" the Decision readsB 8

H?7R7FOR76 the appealed !udgment o" (ugust),6 &22&6 ad!udging Citiban$6 N#(#6 /hilippine8ranch6 entitled to a tax re"undcredit in theamount o" /0;26252#506 representing the 0=withheld tax on Citiban$s rental income "or thetaxable years &212 and &25, is herebyR7V7RS7D# No pronouncement as to costs#Respondent Court denied the motion "orreconsideration o" the petitioner-ban$ in theassailed Resolution6 the dispositie portion o"which readsB

H?7R7FOR76 "or want o" merit6 the motion "orreconsideration6 dated *une &26 &22+6 o"respondent Citiban$6 N#(# is hereby D7NI7D#SO ORD7R7D#?ence6 this petition under Rule >0 o" the Rules o"

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Court#The +ssuesThe appellate court ruled that it was not enough"or petitioner to show its lac$ o" income taxliability against which the "ie percent withholdingtax could be credited# /etitioner should hae alsoshown that the withholding tax was illegally or

erroneously collected and remitted by thetenants# On the other hand6 petitioner countersthat Respondent Court "ailed to grasp two"undamental concepts in the present income taxsystem6 namelyB 3&4 the yearly computation o" thecorporate income tax and 3+4 the nature o" thecreditable withholding tax#In the main6 petitioner thus raises the "ollowingissuesB 3&4 For creditable withholding tax to bere"undable6 when should the illegality or error inits assessment or collection be rec$onedB at thetime o" withholding or at the end o" the taxableyear 3+4 Hhere the income tax returns show thatno income tax is payable to the goernment6 is acreditable withholding tax6 as contradistinguished

"rom a final tax6 re"undable 3or creditable4 at theend o" the taxable yearThe Court/s 3uling The petition is meritorious#First +ssueB Determination of the +llegalit1 or rror in !ssessment or CollectionTax re"unds are allowed under Section +), o" theNational Internal Reenue CodeBSec# +),# 3ecover1 of tax erroneousl1 or illegall1 collected # No suit or proceeding shall bemaintained in any court "or the recoery o" anynational internal reenue tax herea"ter alleged tohae been erroneously or illegally assessed orcollected6 or o" any penalty claimed to hae beencollected without authority or o" any sum alleged

to hae been excessie or in any mannerwrong"ully collected6 until a claim "or re"und orcredit has been duly "iled with the Commissioner@but such suit or proceeding may be maintained6whether or not such tax6 penalty6 or sum hasbeen paid under protest or duress#In any case6 no such suit or proceeding shall bebegun a"ter the expiration o" two years "rom thedate o" payment o" the tax or penalty regardlesso" any superening cause that may arise a"terpaymentB %rovided, hoever 6 That theCommissioner may6 een without a written claimthere"or6 re"und or credit any tax6 where on the"ace o" the return upon which payment wasmade6 such payment appears clearly to haebeen erroneously paid#/etitioner maintains that it is entitled to a re"undo" the "ie percent creditable withholding tax in&212 and &25,6 since its operations resulted in anet loss and thus did not hae any income taxliability "or such years# Respondent Court re"usedto allow the claim "or re"und "or the reason thatthe taxes were not illegally or erroneouslycollectedB 10

It is decisiely clear that the instant claim "or tax

re"und under scrutiny does not inole illegally orerroneously collected taxes# It inoles the 0=tax withheld by tenants "rom the rental income o"Citiban$ "or the years &212 and &25,6 inaccordance with Section &3c4 o" the 7xpandedHithholding Tax Regulations 38IR ReenueRegulation No# &)-15 as amended4 # # #

It is thus eident that the tenants or lessee o"Citiban$ were reuired by law to withhold and payto 8IR 0= o" their rental and6 there"ore6 suchwithholding taxes were not illegally or erroneouslycollected# It was the burden o" Citiban$ to proethat the taxes it as$ed to be re"unded wereillegally or erroneously collected@ an onus

robandi Citiban$ utterly "ailed to discharge#He disagree with the Court o" (ppeals# In seeralcases6 we hae already ruled that income taxesremitted partially on a periodic or uarterly basisshould be credited or re"unded to the taxpayer onthe basis o" the taxpayers "inal ad!usted returns6nor on such periodic or uarterly basis# 11 Forinstance6 in the recent case o" Commissioner of

+nternal 3evenue vs# %hiliine !merican >ife+nsurance Co#6 12 the Court heldB# # # Hhen applied to taxpayers "iling income taxreturns on a uarterly basis6 the date o" paymentmentioned in Section +2+ 3now Section +),4must be deemed to be uali"ied by Sections ;5and ;2 o" the present Tax Code # # #It may be obsered that although uarterly taxesdue are reuired to be paid within ;, days "romthe close o" each uarter6 the "act that the amountshall be deducted "rom the tax due "or thesucceeding uarter shows that until a "inalad!ustment return shall hae been "iled6 the taxespaid in the preceding uarters are merely partialtaxes due "rom a corporation# Neither amount can

sere as the "inal "igure to uanti"y what is duethe goernment nor what should be re"unded tothe corporation#This interpretation may be gleaned "rom the lastparagraph o" Section ;2 o" the Tax Code whichproides that the re"undable amount6 in case are"und is due a corporation6 is that amount whichis shown on its "inal ad!ustment return and not onits uarterly returns#xxx xxx xxxClearly the prescriptie period o" two yearsshould commence to run only "rom the time thatthe re"und is ascertained6 which can only bedetermined a"ter a "inal ad!ustment return isaccomplished# /riate respondent being acorporation6 Section +2+ 3now Section +),4cannot sere as the sole basis "or determiningthe two-year prescriptie period "or re"unds# # # #In the present case6 there is no uestion that thetaxes were withheld in accordance with Section&3c46 Re# Reg# No# &)-15# In that sense6 it can besaid that they were withheld legally by thetenants# ?oweer6 the annual income tax returnso" petitioner-ban$ "or tax years &212 and &25,undisputedly re"lected the net losses it su""ered#

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The uestion arisesB whether the taxes withheldremained legal and correct at the end o" eachtaxable year# He hold in the negatie#The withholding tax system was deised "or twomain reasonsB first 6 to proide the taxpayer aconenient manner to meet his probable incometax liability@ and second 6 to ensure the collection

o" the income tax which could otherwise be lostor substantially reduced through "ailure to "ile thecorresponding returns# 1< To these6 a third reasonmay be addedB to improe the goernments cash"low# Ender Section 0) a-" o" the tax code whichwas in e""ect at the time this case ripened6withholding o" tax at source was mandated incases o"B 3a4 tax "ree coenant bonds6 3b4payments o" interest6 diidends6 rents6 royalties6salaries6 wages6 premiums6 annuities6compensations6 remunerations6 emoluments6 orother "ixed or determinable annual6 periodical6 orcasual gains6 pro"its and income6 and capitalgains o" non-resident aliens and "oreigncorporations@ 3c4 diidends "rom a domestic

corporation and royalties receied by residentindiiduals and corporation@ 3d4 certain diidends@3e4 interest on ban$ deposit@ and 3"4 other items o" income payable to resident indiiduals orcorporations# Section 0)-" was amended by/residential Decree No# &)0&6 delegating to theSecretary o" Finance the power to reuire thewithholding o" a tax6 as "ollowsBSec# &# Section 0) 3"4 o" the National InternalReenue Code o" &221 is hereby amended toread as "ollowsB3"4 The Secretary o" Finance may6 uponrecommendation o" the Commissioner o" InternalReenue6 reuire also the withholding o" a tax onthe same items o" income payable to persons

3natural or !uridical4 residing in the /hilippines bythe same persons mentioned in paragraph 3b4 3&4o" this Section at the rate o" not less than +-&+=but not more than )0= thereo" which shall becredited against the income tax liability o" thetaxpayer "or the taxable year#/ursuant to said /#D# No# &)0& and inaccordance with Section > in relation to Section)+; 14 o" the National Internal Reenue Code6 theCommissioner promulgated on September 16&2156 Reenue Regulations No# &)-15 toimplement the withholding o" creditable incometaxes "rom certain types o" income# Re# Reg# No#&)-15 reuires that a certain percentage o"income be deducted and withheld by a payor6who is constituted as the withholding agent6 andpaid to the reenue district o""icer or 8IRcollection agent# Section & o" this reenueregulation proidesBSec# &# +ncome a1ments subect to ithholdingtax and rates rescribed therein# 7xcept asherein otherwise proided6 there shall be withhelda creditable income tax at the rates hereinspeci"ied "or each class o" payee "rom the"ollowing items o" income payments to persons

residing in the /hilippinesB3a4 xxx xxx xxx3b4 xxx xxx xxx3c4 3entals# Hhen the gross rental or otherpayment reuired to be made as a condition tothe continued use or possession o" property6whether real or personal6 to which the payor or

obligor has not ta$en or is not ta$ing title or inwhich he has no euity6 exceeds "ie hundredpesos 3/0,,#,,4 "ie er centum 30=4#xxx xxx xxxEnder this system6 income is iewed as a "low 1= and is measured oer a period o" time $nown asan accounting period# (n accounting periodcoers twele months6 subdiided into "our eualsegments $nown as uarters# Income reali:edwithin the taxpayers annual accounting period3"iscal or calendar year4 becomes the basis "orthe computation o" the gross income and the taxliability# 1B

The same basic principles apply under thepreailing tax laws# Ender the present tax code6

the types o" income sub!ect to withholding tax inSection 0)6 now Section 0,6 is simpli"ied intothree categoriesB 3a4 withholding o" "inal tax oncertain incomes@ 3b4 withholding o" creditable taxat source@ and 3c4 tax "ree coenant bonds# (ccordingly6 the withheld amounts euialent to"ie percent o" the gross rental are remitted to the8IR and are considered creditable withholdingtaxes under Section 0)-"6 i #e#6 creditable againstincome tax liability "or that year# The taxeswithheld6 as ruled in Oibbs vs# Commissioner of+nternal 3evenue6 17 are in the nature o" paymentby a taxpayer in order to extinguish his possibletax obligation# They are installments on theannual tax which may be due at the end o" the

taxable year# 18

In this case6 petitioners lessees withheld andremitted to the 8IR the amounts now claimed astax re"unds# That they were withheld and remittedpursuant to Re# Reg# No# &)-15 does notderogate "rom the "act that they were merelypartial payments o" probable taxes# 9i$e thecorporate uarterly income tax6 creditablewithholding taxes are sub!ect to ad!ustment upondetermination o" the correct income tax liabilitya"ter the "iling o" the corporate income tax return6as at the end o" the taxable year# This "inaldetermination o" the corporate income tax liabilityis proided in Section ;26 NIRCBSec# ;2# Final (d!ustment Return# 7erycorporation liable to tax under Section +> shall"ile a "inal ad!ustment return coering the totaltaxable income "or the preceding calendar or"iscal year# I" the sum o" the uarterly taxpayments made during the said taxable year isnot eual to the total tax due on the entire taxablenet income o" that year the corporation shalleitherB3a4 /ay the excess tax still due@ or 3b4 8e re"unded the excess amount paid6 as the

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case may be#In case the corporation is entitled to a re"und o"the excess estimated uarterly income taxespaid6 the re"undable amount shown on its "inalad!ustment return may be credited against theestimated uarterly income tax liabilities "or thetaxable uarters o" the succeeding taxable year#

The taxes thus withheld and remitted are rovisional in nature# 1 He repeatB "ie per cento" the rental income withheld and remitted to the8IR pursuant to Re# Reg# No# &)-15 is6 unli$ethe withholding o" "inal taxes on passie incomes6a creditable withholding tax@ that is6 creditableagainst income tax liability i" any6 "or that taxableyear#In Commissioner of +nternal 3evenue vs# T*PSales, +nc #6 20 this Court ruled that the paymentso" uarterly income taxes 3per Section ;56 NIRC4should be considered mere installments o" theannual tax due# These uarterly tax payments6which are computed based on the cumulatie"igures o" gross receipts and deductions in order

to arrie at a net taxable income6 should betreated as adances or portions o" the annualincome tax due6 to be ad!usted at the end o" thecalendar or "iscal year# The same holds true inthe case o" the withholding o" creditable tax atsource# Hithholding taxes are deposits whichare sub!ect to ad!ustments at the proper timewhen the complete tax liability is determined#In this case6 the payments o" the withholdingtaxes "or &212 and &25, were creditable to theincome tax liability6 i" any6 o" petitioner-ban$6determined a"ter the "iling o" the corporateincome tax returns on (pril &06 &25, and (pril &06&25&# (s petitioner posted net losses in its &212and &25, returns6 it was not liable "or any income

taxes# Conseuently and clearly6 the taxeswithheld during the course o" the taxable year6while collected legally under the a"oresaidreenue regulation6 became untenable and too$on the nature o" erroneously collected taxes atthe end o" the taxable year#Second +ssueB )nus of Disuting a Claim for3efund In general6 there is no disagreement that aclaimant has the burden o" proo" to establish the"actual basis o" his or her claim "or tax credit orre"und# 21 Tax re"unds6 li$e tax exemptions6 areconstrued strictly against the taxpayer# Themechanics o" a tax re"unds proided in Re# Reg#No# &)-15BSec# 5# Claims for tax credit or refund # Claims"or tax credit or re"und o" income tax deductedand withheld on income payments shall be giendue course only when it is shown on the returnthat the income payment receied was declaredas part o" the gross income and the "act o"withholding is established by a copy o" thestatement6 duly issued by the payor to the payee38IR Form No# &1>)-(4 showing the amount paidand the amount o" tax withheld there"rom#

( re"und claimant is reuired to proe theinclusion o" the income payments which were thebasis o" the withholding taxes and the "act o"withholding# ?oweer6 detailed proo" o" thetruth"ulness o" each and eery item in the incometax return is nor reuired# That "unction is lodgedin the commissioner o" internal reenue by the

NIRC which reuires the commissioner to assessinternal reenue taxes within three years a"ter thelast day prescribed by law "or the "iling o" thereturn# 22 In San Carlos *illing Co#6 +nc # vs#Commissioner of +nternal 3evenue6 2< the Courtheld that the internal reenue branch o"goernment must inestigate and con"irm theclaims "or tax re"und or credit be"ore taxpayersmay aail themseles o" this option# The grant o"a re"und is "ounded on the assumption that thetax return is alid@ that is6 the "acts stated thereinare true and correct# 24 In "act6 een withoutpetitioners tax claim6 the commissioner canproceed to examine the boo$s6 records o" thepetitioner-ban$6 or any data which may be

releant or material in accordance with Section&; o" the present NIRC#In the case in hand6 Respondent Commissionerexamined petitioners income tax returns andpresumably "ound no "alse declaration in them6because he did not allege any such "alsedeclaration be"ore Respondent Court and theCourt o" Tax (ppeals 3CT(4# In the CT(6Respondent Commissioners re"usal to re"undwas based on the argument that the claim "iledon October )&6 &25& was time-barred# It bearsstressing that this issue was not raised in theappeal be"ore us# The issue o" operational losseswas not raised until the appeal be"oreRespondent Court was "iled on February 06 &22+#

8y such time6 at least a decade had alreadypassed since the pertinent boo$s and accountingrecords o" petitioner-ban$ were closed# Section+)0 o" the Tax Code reuires the preseration o"the boo$s o" account and records only "or aperiod beginning "rom the last entry in each boo$until the last day prescribed by Section +,)#Section +,) proides that internal reenue taxesshall be assessed within three years a"ter the lastday prescribed by law "or the "iling o" the return6and no proceeding in Court without anassessment "or the collection o" such taxes shallbegin a"ter the expiration o" such period# Toexpect petitioner to hae its boo$ and records onhand during the appeal was obiouslyunreasonable and iolatie o" Section +)0 inrelation to Section +,) o" the Tax Code#In addition6 the Tax Code has placed seeralsa"ety measures to preent "alsi"ication o" incometax returns which the Court recogni:ed inCommissioner vs# T*P Sales, +nc #B 2=

Furthermore6 Section )+& 3now Section +)+4 o"the National Internal Reenue Code reuires thatthe boo$s o" accounts o" companies or personswith gross uarterly sales or earnings exceeding

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Twenty Fie Thousand /esos 3/+06,,,#,,4 beaudited and examined yearly by an independentCerti"ied /ublic (ccountant and their income taxreturns be accompanied by certi"ied balancesheets6 pro"it and loss statements6 scheduleslisting income producing properties and thecorresponding incomes there"rom and other

related statements#It is generally recogni:ed that be"ore anaccountant can ma$e a certi"ication on the"inancial statements or render an auditorsopinion6 an audit o" the boo$s o" accounts has tobe conducted in accordance with generallyaccepted auditing standards#Since the audit6 as reuired by Section )+& 3nowSection +)+4 o" the Tax Code is to be conductedyearly6 then it is the Final (d!ustment Return6where the "igures o" the gross receipts anddeductions hae been audited and ad!usted6 thatis truly re"lectie o" the results o" the operations o" a business enterprise# Thus6 it is only when the (d!ustment Return coering the whole year is

"iled that the taxpayer would $now whether a taxis still due or a re"und can be claimed based onthe ad!usted and audited "igures#There"ore6 the alleged irregularity in the declaredoperational losses is a matter which must beproen by competent eidence# In resisting theclaims o" petitioner6 Respondent Commissionerset up the de"ense o" the legality o" the collectiono" the creditable withholding tax as well asprescription6 instead o" presenting an assessmento" the proper tax liability o" the petitioner# This "actleads us to the conclusion that the income taxreturns were accepted as accurate and regular bythe 8IR# ("ter this case was "iled6 the Commissioner

clari"ied on *une +16 &22>6 the onus robandi o" ataxpayer claiming re"und o" oerpaid withholdingtaxes6 inter alia6 in Reenue Regulation No# &+-2>6 Section &,BSec# &,# Claim "or Tax Credit or Re"und#3a4 Claims "or Tax Credit or Re"und o" income taxdeducted and withheld on income payments shallbe gien due course only when it is shown on thereturn that the income payment receied hasbeen declared as part o" the gross income andthe "act o" withholding is established by a copy o"

excess credit arose6 proided6 howeer6 hesubmits with his income tax return a copy o" hisincome tax return "or the a"oresaid preioustaxable period showing the amount o" hisa"orementioned excess withholding tax credits#I" the taxpayer6 in lieu o" the a"oresaid automaticapplication o" his excess credit6 wants a cash

re"und or a tax credit certi"icate "or use inpayment o" his other national internal taxliabilities6 he shall ma$e a written reuestthere"or# Epon "iling o" his reuest6 the taxpayersincome tax return showing the excess expandedwithholding tax credits shall be examined# Theexcess expanded withholding tax6 i" any6 shalldetermined and re"undedcredited to thetaxpayer-applicant# The re"undedcredit shall bemade within a period o" sixty 3;,4 days "rom dateo" the taxpayers reuest proided6 howeer6 thatthe taxpayer-applicant submitted "or audit all hispertinent accounting records and that thea"oresaid records established the eracity o" hisclaim "or a re"undcredit o" his excess expanded

withholding tax credits#/rior to Re# Reg# &+-2>6 the reuisites "or are"und wereB 3&4 the income tax return "or thepreious year must show that income payment3rental in this case4 was reported as part o" thegross income@ and 3+4 the withholding taxstatement o" the withholding tax agent must showthat payment o" the creditable withholding taxwas made# ?oweer6 een without this regulation6the commissioner may inspect the boo$s o" thetaxpayer and reassess a taxpayer "or de"iciencytax payments under Sections 16 NICR# He stressthat what was reuired under Re# Reg# &+-2>was only a submission o" records but theeri"ication o" the tax return remained the "unction

o" the commissioner#Horth emphasi:ing are these uncontested "actsB3&4 the amounts withheld were actually remittedto the 8IR and 3+4 the "inal ad!usted returns which the 8IR did not uestion showed that6"or &212 and &25,6 no income taxes "rompetitioner were due# ?ence6 under the principle o" solutio indebiti proided in (rt# +&0>6 Ciil Code62B the 8IR receied something when there %was'no right to demand it6 and thus the obligation toreturn arises 27 ?eaily militating against

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