VI. LOCAL TAXESPROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY G.R. No. L-36081, April 24, 1989 FACTS: On December 24, 1969, the City Council of Quezon City adopted Ordinance No. 7997, otherwise known as the Market Code of Quezon City. Section 3 of said ordinance provides that “privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee”. On July 15, 1972, Progressive Development Corporation (Progressive), owner and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against Quezon City on the ground that the supervision fee or license tax imposed by the above-mentioned ordinance is in reality a tax on income which Quezon City may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act. In its Answer, Quezon City, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like Quezon City, are empowered to impose and collect.ISSUE: Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax. RULING: No. The tax imposed in the controverted ordinance constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which Progressive is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable.

VII. REAL PROPERTY TAXESLUNG CENTER OF THE PHILIPPINESv s .QUEZON CITY and CONSTANTINO P. ROSAS G.R. No. 144104 June 29, 2004 FACTS:The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City but the former filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. ISSUE: Whether or not the petitioner’s real properties are exempted from realty tax exemptions. RULING: Even as we find that the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. What is meant by actual,

direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2.

DIGITAL TELECOMMUNICATIONS PHIL., INC. vs. PROVINCE OF PANGASINAN ETC. (G. R. No. 152534/ February 23, 2007) Facts:On Nov 13, 1992, the Province of Pangasinan granted Digitel a provincial franchise under Provincial Ordinance No 18-92 which required the grantee to pay franchise and real property taxes. Thereafter, DIGITEL was granted by Republic Act No. 7678, a legislative franchise authorizing the grantee to install, operate and maintain telecommunications systems, this time, throughout the Philippines. Under its legislative franchise, DIGITEL is liable for the payment of a franchise tax "as may be prescribed by law of all gross receipts of the telephone or other telecommunications businesses transacted under it by the grantee," as well as real property tax "on its real estate, and buildings "exclusive of this franchise." The Province of Pangasinan, in its examination of its record found that petitioner DIGITEL had a franchise tax deficiency for the years 1992-94 further alleging that DIGITEL had never paid any franchise tax to the province since it started its operation in 1992. Accordingly, the Sangguniang Panlalawigan passed Resolution No. 364 on 14 October 1994, categorically directing petitioner DIGITEL to pay the overdue franchise tax otherwise its franchise shall be inoperative. On 16 March 1995, Congress passed Republic Act No. 7925, otherwise known as "The Public Telecommunications Policy Act of the Philippines." Section 23 of this law entitled Equality of Treatment in the Telecommunications Industry, provided for the ipso facto application to any previously granted telecommunications franchises of any advantage, favor, privilege, exemption or immunity granted under existing franchises, or those still to be granted, to be accorded immediately and unconditionally to earlier grantees.The provincial franchise and real property taxes remained unpaid, thus, the Province of Pangasinan filed a complaint for collection of sum of money against Digitel for franchise tax and ad valorem tax based on Sec 137 and 232 of the Local government Code (RA 7160). Digitel argues that under its legislative franchise, the payment of a franchise tax to the Bureau of Internal Revenue (BIR) would be "in lieu of all taxes" on said franchise or the earnings therefrom. It further maintains that its legislative franchise is subject to the immediate and unconditional application of the tax exemption found in the franchises of Globe, Smart and Bell, i.e., in Section 9 (b) of Republic Act No. 7229 and RA 7925. Issues: (1). Is DIGITEL exempt from the payment of provincial franchise tax? (2). If not exempt, are DIGITEL‟s real properties found within the territorial jurisdiction of respondent Province of Pangasinan exempt from the payment of real property taxes by virtue of the phrase "exclusive of this franchise" found in Section 5 of its legislative franchise, Republic Act No. 7678? Ruling: (1). No. The Supreme Court has already resolved this issue in the case of Philippine Long Distance Telephone Company, Inc. v. City of Davao, where it clarified the confusion brought about by the effect of Section 23 of Republic Act No.7925– that the word "exemption" as used in the statute refer‟s or pertain‟s merely to an exemption from regulatory or reporting requirements of the DOTC or the NTC and not to the grantee‟s tax liability. In that case, the Court held that in approving Section 23 of Republic Act No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities; thus, it cannot be considered as having amended petitioner PLDT‟s

franchise so as to entitle it to exemption from the imposition of local franchise taxes. The fact is that the term "exemption" in Sec 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. x x x Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order. Tax exemption are highly disfavored. The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer. R.A. No. 7925 is a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC. The foregoing pronouncement notwithstanding, in view of the passage of Republic Act No. 7716, abolishing the franchise tax imposed on telecommunications companies effective 1 January 1996 and in its place is imposed a 10 percent Value-Added-Tax (VAT), the "in-lieu-of-all-taxes" clause/provision in the legislative franchises of Globe, Smart and Bell, among others, has now become functus officio, made inoperative for lack of a franchise tax. Therefore, taking into consideration the above, from 1 January 1996 petitioner DIGITEL ceased to be liable for national franchise tax and in its stead is imposed a 10% VAT in accordance with Section 108 of the Tax Code.

2). The second issue boils down to a dispute between the inherent taxing power of Congress and the delegated authority to tax of the local government borne by the 1987 Constitution. In the afore-quoted case of PLDT v. City of Davao, the Court already sustained the power of Congress to grant exemptions over and above the power of the local government‟s delegated taxing authority notwithstanding the source of such power. The fact that Republic Act No. 7678 was a later piece of legislation can be taken to mean that Congress, knowing fully well that the Local Government Code had already withdrawn exemptions from real property taxes, chose to restore such immunity even to a limited degree. In view of the unequivocal intent of Congress to exempt from real property tax those real properties actually, directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise, respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification. Said exemption, however, merely applies from the time of the effectivity of petitioner DIGITEL‟s legislative franchise and not a moment sooner.

FELS ENERGY INC. VS. PROVINCE OF BATANGAS (G.R. 168557 / 2-16-2007) NAPOCOR VS. LBAA OF BATANGAS (G.R. 170628 16 February 2007)

Facts:NAPOCOR (NPC) entered into a lease contract with Polar Energy, Inc. over diesel engine power barges moored in Batangas providing that NAPOCOR shall be responsible for the payment of all taxes imposed by the National Government to which POLAR may be or become subject to or in relation to the performance of their obligations under the agreement and all real estate taxes and assessments, rates and other charges in respect of the Power Barges. POLAR subsequently assigned its rights under the Agreement to FELS. FELS then received an assessment from the Provincial Assessor of Batangas for real property taxes on the power barges.

NPC acting on behalf of FELS sought reconsideration of the Provincial Assessor‟s assessment to assess real property taxes on the power barges which was denied by the Provincial Assessor. NPC then filed a petition with the LBAA. The LBAA denied the petition. The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges–FELS, a private corporation–is the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not ustify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time. Aggrieved, FELS appealed to the CBAA. The CBAA rendered a decided that the power barges exempt from real property tax. The Provincial Assessor filed an MR which was opposed by FELS and NPC. The CBAA issued a reversed its earlier decision. FELS and NPC filed separates petition for review before the CA. The CA denied the petition of NPC for being prescribed. Subsequently the petition of FELS was denied. Hence, these present petitions.Issues: (1). Are power barges, which are floating and movable, personal properties and therefore, not subject to real property tax?(2). Assuming that power barges are real properties, whether they are exempt fromreal estate tax under Section 234 of the Local Government Code ("LGC")?(3). Assuming that power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law?(4). What is the proper remedy for assailed assessments issued by Assessor‟sOffice and does it prescribe?

Ruling: (1) (2) (3) : Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. POLAR owns the power barges as stipulated in the agreement. It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads: SECTION 234. Exemptions from Real Property Tax.– The following are exempted from payment of the real property tax:x x x(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of power; x x x Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. (5). Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:SECTION 226. Local Board of Assessment Appeals.– Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment,

appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. The last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayer‟s property becomes absolute upon the expiration of the period to appeal. It also bears stressing that the taxpayer‟s failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits.

ADDITIONAL CASES:COMMISSIONER OF INTERNAL REVENUEv. PHILIPPINE GLOBALCOMMUNICATIONS, INC.499 SCRA 53 (2006), THIRD DIVISION (Carpio Morales,J.)The wordings of the Temporary Restraining Order suspended the implementation of the E-VAT law in its entirety, but not the collection of 10% VAT on service under the National Internal Revenue Code. By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI) constructs, maintains and operates communications system subject to 3% franchise tax under the Tax Code. However, the said provision of the Tax Code on franchise tax was amended by Section 12 of the Expanded Value Added Tax Law (E-VAT Law) which omitted the 3% franchise tax imposed upon a telecommunications company. A Temporary Restraining Order (TRO) was subsequently issued by the Court in the consolidated cases of Tolentino et al. v. Secretary of Finance, et al., “ordering all the respondents to cease and desist from enforcing and/or implementing the E-VAT Law.” By reason of the suspension of the E- VAT Law, PGCI filed a claim for tax refund before Respondent Commission of Internal Revenue (CIR) stating therein that upon the effectivity of the E-VAT Law, it was no longer required to pay the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case against it before the Court of Tax Appeals (CTA). CTA ruled that BIR should refund the 3% to PGCI. ISSUE: Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the TRO suspending the enforcement of the E-VAT Law HELD: Under Section 12 of the E-VAT Law, the 3% franchise tax on “telephone and/or telegraph systems and radio broadcasting stations” to which category PGCI belongs was omitted. Under Section 3 of the E-VAT Law, however, PGCI’s sale of services is subject to VAT, thus, under the E-VAT Law, PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable to pay 10% VAT on sale of services. The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law. The wording of the order leaves no doubt that what was restrained by the TRO was the implementation of the E-VAT law in its entirety. That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to apply in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected in Revenue Memorandum Circular No. 27-94 issued by CIR which directed all internal revenue officers to comply with the following directives, to wit: “3. All VAT and non-VAT persons shall be governed by the provisions of the National Internal Revenue Codep rior to its amendment by Republic Act No. 7716x x

xx 5. All other amendments of the NIRC made by RA 7716 shall be considered ineffective until the Supreme Court has declared otherwise.” With the issuance of the TRO, the enforcement and/or implementation of the entire E-VAT law was stopped. The abolition of the 3% franchise tax on telecommunications companies, and its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus, PGCI’s claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby deprive the government from collecting either the VAT or the franchise tax.

COMMISSIONER OF INTERAL REVENUE v. MANILA ELECTRIC COMPANY535 SCRA 399 (2007), SECOND DIVISION (Carpio-Morales,J )The factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal, unless it is shown that it committed gross error in the appreciation of facts, which did not happen in this case. Manila Electric Company (Meralco) filed its tentative income tax reflecting a refundable amount of P101,897,741. Only P77,931,812 was applied as tax credit. An investigation was conducted showing that Meralco was liable for (1) deficiency income tax in the amount of P2,340,902.52; and (2) deficiency franchise tax in the amount of P2,838,335.84." Later, Meralco filed an amended final corporate Income Tax Return reflecting a refundable amount of P107,649,729 and thus filed a letter-claim for refund or credit representing overpaid income taxes for the years 1987 and 1988. The Commission of Internal Revenue not having acted on its request, Meralco filed a judicial claim for refund or credit with the Court of Tax Appeals. It is gathered that Meralco paid the deficiency franchise tax in the amount of P2,838,335.84. It protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit. After trial, the Court of Tax Appeals found in favour of Meralco being convinced that they proved its entitlement for the refund. The Court of Appeals affirmed the decision. ISSUE: Whether or not the appellate court failed to consider Meralco's failure to substantiate by positive evidence its entitlement to a tax refund or credit HELD: In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. The issue of whether MERALCO adduced sufficient evidence to prove its entitlement to a refund is a question of fact. It bears noting that the tax court and the appellate court found MERALCO's claim for tax refund or credit meritorious on the basis of the testimonial and documentary evidence adduced by the parties. It bears noting too that the Commissioner did not dispute the validity and authenticity of MERALCO's quarterly income tax returns as well as the final adjustment returns for the years 1987 and 1988 and proofs of payment of its tax liabilities. Neither did the Commissioner refute MERALCO's assertion that Commissioner failed to cross-examine its accountant who testified on the returns, and to object to its offer of evidence which included its quarterly and final adjustment returns and proofs of payment of its tax liabilities. It is doctrinal that the factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal, unless it is shown that it committed gross error in the appreciation of facts. Hence, as a matter of practice and principle, this Court will not set aside the conclusion reached by the said court, especially if affirmed by the Court of Appeals as in the present case. For by the nature of its functions, the tax court dedicates itself to the study and consideration of tax problems and necessarily develops expertise thereon, unless there has been an abuse or improvident

exercise of authority on its part. None such is appreciated by this Court, however.

Ungab vs. Cusi Jr. (GR L-41919-25, 30 May 1980)Facts: In July 1974, the BIR Examiner examined the income tax returns filed by Quirico P. Ungab for the calendar year ending 31 December 1973. In the course of his examination, the examiner discovered that Ungab failed to report his income derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent Ungab a “Notice of Taxpayer” informing him that there is due from him the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting Ungab to an informal conference where Ungab, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. Upon receipt of the notice, Ungab wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. The examiner, however, was fully convinced that Ungab had filed a fraudulent income tax return so that he submitted a “Fraud Referral Report,” to the Tax Fraud Unit of the BIR. After examining the records of the case, the Special Investigation Division of the BIR found sufficient proof that Ungab is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. In a second indorsement to the Chief of the Prosecution Division, dated 12 December 1974, the Commissioner approved Ungab’s prosecution. The State Prosecutor Jesus Acebes, who had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the NIRC, as amended, and other related laws, in Administrative Order 116 dated 5 December 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed 6 informations against Ungab with the CFI Davao City. On 16 September 1975, Ungab filed a motion to quash the informations upon the grounds that: (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR Examiner. However, the trial court denied the motion on 22 October 1975. Ungab filed a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the informations filed in Criminal Cases 1960 to 1965 of the CFI Davao. The Supreme Court dismissed the petition, and set aside the temporary restraining order issued; with costs against Ungab.Issue: Whether an assessment of deficiency tax is necessarily before a criminal prosecution relating to violations of the Tax Code may be had.Held: What is involved herein is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. An assessment of the deficiency tax due is not necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime. A petition for

reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of the taxpayer against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the NIRC.

A FINAL DECISION OR INACTION OF THE CIR ON A DISPUTEDASSESSMENT IS APPEALABLE TO THE CTA.Facts: FCC, engaged in the business of processing of imported fresh frozen sardines and mackerel, filed a protest of the Formal Letter of Demand with attached Final Assessment Notice for deficiencies in the amount of approximately P67.6MM for the year 1999.When the CIR issued its Final Decision on Disputed Assessment denying the same, FCC filed a motion for reconsideration questioning the FDDA. The CIR subsequently issued a Preliminary Collection Letter and, thereafter, a Final Notice before Seizure. The petitionfor review as well as the motion for reconsideration was denied by the CTA. Held: Petition is dismissed. A final decision or inaction of the CIR on a disputed assessment is appealable to the CTA. It is thus relevant to determine from the text of the Decision whether the order or decision has attained a character of finality. Where the wordings of the ruling signify a final determination on petitioner’s tax deficiencies and there being a clear instruction for petitioner to file an appeal and not a motion for reconsideration, then the matter is ripe for judicial review. Fishwealth Canning Corporation vs. Commissioner of Internal Revenue, CTA EB No. 223 dated July 5, 2007.

FAILURE TO APPEAL TO THE COURT OF TAX APPEALS (“CTA”) WITHIN 30 DAYS FROM RECEIPT OF THE DENIAL OF AN ADMINISTRATIVE PROTEST WILL RENDER THE ASSESSMENTS FINAL AND EXECUTORY.A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. Fishwealth Canning Corporation v. Commissioner of Internal Revenue, G.R. No. 179343 dated January 21, 2010.

WHERE THE WORDINGS OF THE COMMISSIONER OF INTERNALREVENUE’S (“CIR”) FORMAL LETTER OF DEMAND INDICATES HIS FINAL DETERMINATION OF THE ISSUE, THEN IT COULD BE THE BASIS OF AN APPEAL TO THE CTA.Facts: Taxpayer duly protested a Pre-Assessment Notice (PAN) it received from the BIR.Subsequently, the BIR issued a Formal Letter of Demand with Assessment Notices to the taxpayer. The demand letter states: “This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.” Instead of filing a protest on the assessment, the taxpayer filed a petition for review with the CTA. The BIR filed a motion to dismiss on the ground that the taxpayer failed to exhaust administrative remedies by filing a protest on the assessment.Held: The court held that the case is an exception to the rule on exhaustion of administrative remedies on the ground that the BIR is in estoppel. The court said that the taxpayer cannot be blamed for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the CIR on the matter. The court reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. The court thus concluded that the CIR is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. Allied Banking Corp. v. Commissioner of Internal Revenue, G.R. No. 175097 dated February 5, 2010.

Republic Act (R.A.) No. 9238 classified pawnshops as Other Non-bank Financial Intermediaries, hence already exempt from VAT.With the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997. Since the imposition of VAT on pawnshops, which are non-bank financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner Tambunting Pawnshop is not liable for VAT for the tax year 1999.On the issue of liability for documentary stamp tax (DST) on petitioner’s pawn tickets, the Court held that DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto; pledge is among these privileges, the exercise of which is subject to DST. Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No. 179085,January 21, 2010

CIR v. BPIG.R. No. 178490 July 7, 2009Chico-Nazario, J.Doctrine:1. The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.2. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice, a tax refund, is in order, it should be granted. As to which option the taxpayer chose is generally a matter of evidence.“Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”Facts:In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over the excess tax credits from the previous years of 1997, 1998 and 1999. However, BPI failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund of or issuance of a tax credit certificate.BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund. The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a Petition for Review before the CTA, whom denied the claim.The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over and apply its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable period and no application for tax refund or issuance of a tax credit shall be allowed for the same.The Court of Appeals reversed the CTA decision stating that there was no actual carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been applied.The Court of Appeals further stated that even if Section 76 was to be construed strictly and literally, the irrevocability rule would still not bar BPI from seeking a tax refund of its 1998 excess tax credit despite previously opting to carry over the same. The phrase “for that taxable period” qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to only the 1999 taxable period; such that, when the 1999 taxable period expired, the irrevocability of the option of BPI to carry over its excess tax credit from 1998 also expired.Issue:1. What is the period captured by the irrevocability rule?2. Whether or not the taxpayer’s failure to mark the option chosen is fatal to whatever claim

Held:1. The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.2. No. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration (Philam Asset Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14 December 2005). When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. Therefore, as to which option the taxpayer chose is generally a matter of evidence.“Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”

1997 TAX REFORM ACT CANNOT BE APPLIEDRETROACTIVELY; WRITTEN CLAIM ISCONDITION PRECEDENT TO FILING A PETITIONFOR REVIEW PRIOR THERETOUnder Section 230 of the old Tax Code, an actual written claim for refund is required. Amended income tax return filed on June 17, 1997 cannot be considered as a written claim. Section 204(c) of the 1997 NIRC (RA 8424, the 1997 Tax Reform Act), provides in pertinent part: “That a return filed showing an overpayment shall be considered as a written claim for credit or refund”, can only operate prospectively. The new Tax Code became effective only on January 1, 1998. Tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. CIR vs. BPI, G.R. No. 134062, April 17, 2007.

STATUTORY TAXPAYER IS PROPER PARTY TO CLAIM FOR REFUND OF INDIRECT TAXES; INDIRECT TAX EXEMPTION MUST BE CLEARLY GRANTED; 15-DAY APPEAL PERIOD TO CTA ENBANC IS JURISDICTIONAL; SERVICE TO COUNSEL OF RECORD BINDS PETITIONERPetitioner Silkair, a Singapore-based international air carrier, sought a refund of excise tax paid by Petron Corporation as manufacturer, which shifted the burden of the tax to purchaser Silkair. The CTA Division denied against the claim since it was not the taxpayer. On September 12, 2005, a new counsel entered appearance without the withdrawal of the original counsel. Its original counsel of record received on October 3, 2005 a copy of the September 22, 2005 Resolution of the CTA Division denying its motion for reconsideration of the decision. On October 13, 2005, the original counsel withdrew its appearance with conformity of petitioner and the new counsel requested for an official copy of the Resolution. On October 14, 2005, the new counsel received a copy of the Resolution and requested on October 28, 2005 an extension of time to file petition. The Court En Banc gave it until November 14, 2005. Upon request, another extension until November 24, 2005 was granted and on November 17, 2005, Silkair filed its petition. By Resolution of May 19, 2006, the CTA En Banc dismissed the petition for being filed out of time notwithstanding the grant of extension. On petition for certiorari, the

Supreme Court affirmed the dismissal, ruling that where no notice of withdrawal or substitution of counsel has been shown, notice to counsel of record is notice to the client citing Section 26, Rule 138 of the Rules of Court on the requirements for withdrawal of counsel.held: The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even he shifts the burden thereof to another. Under Section 130(A)(2) of the NIRC, it is the manufacturer or producer who is subject to excise tax. Thus, Petron Corporation, not Silkair, is the statutory taxpayer entitled to claim a refund based on Section 135 of the NIRC, which exempts from excise tax petroleum products sold to exempt entities under international agreements and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the purchase price. There is no indirect tax exemption under the Air Transport Agreement in the absence of clear showing of legislative intent. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer. Silkair (Singapore) PTE, Ltd. vs. CIR, G.R. No. 173594, Feb. 6, 2008.