TOPIC- POWERS OF CIR: COMMISSIONER VS. BURROUGH, LTD.

FACTS: Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office located at Makati. Sometime in 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit. It paid the 15% branch profit remittance tax. Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted and not on the amount before profit remittance tax, Burroughs filed a written claim for the refund or tax credit representing alleged overpaid branch profit remittance tax. Thereafter Burroughs filed with the CTA a petition for review for the recovery of the amount. CTA ordered the CIR to grant a tax credit in favour of Burroughs Limited. ISSUE: Whether the tax base upon which the 15% branch profit remittance tax shall be imposed is the amount applied for remittance on the profit actually remitted and not the amount before profit remittance tax? HELD: Yes. Section 24(b)(2)(ii) (Now Section 28(A)(5) states that Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %). In a BIR Ruling dated 1980, the CIR held that the provision should mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " Applying therefore, the aforequoted ruling, the claim of Burrough that it made an overpayment is valid. Commissioner v. CA (G.R. # 119761; 08-29-1996) Facts: RA 7654 was enacted by Congress on June 10, 1993 and took effect July 3, 1993. It amended partly Sec. 142 (c) of the NIRC.

Fortune Tobacco manufactured the following cigarettes brands: Hope, More and Champion. Prior to RA 7654, these 3 brands were considered local brands subjected to an ad valorem tax of 20 to 45%. Applying the amendment and nothing else,) the 3 brands should fall under Sec 142 (c) (2)NIRC and be taxed at 20 to 45%.3.However, onJuly 1, 1993 petitioner Commissioner of Internal Revenue issued Revenue Memorandum Circular37-93which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55%ad valorem tax. Ther classification was before RA 7654 took effect.4. In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brands rate of 55%instead of just 20 to 45% under Sec 142 (c) (2)NIRC.5. There was no notice and hearing. CIR argued that the memo circular was merely an interpretative ruling of the BIR which did not require notice and hearing. Issue: WON RMC 37-93 was valid and enforceable No; lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity of taxation / equal protection since other local cigarettes bearing foreign brands had not been included within the scope of the memo circular. Ratio 1. Contrary to petitioners contention, the memo was not a mere interpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. Promulgated legislative rules must be published.2. On the other hand, interpretative rules only provide guidelines to the law which the administrative agency is in charge of enforcing.3.

BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but legislated under its quasi-legislative authority. :the administrative issuance was not quasi-legislative but quasi-judicial. Due process should still be observed of course but use

CIR V. CA, CTA, & Fortune Tobacco (BIR Rules and Regulations) Facts: CIR, through RMC 37-93, aims to collect deficiencies on ad valorem taxes against Fortune Tobacco following are classification of foreign branded cigarettes, as per RA 7654.Fortune Tobacco raised the issue of the propriety of the assessment to the CTA, which decided against the CIR. CTA was affirmed by CA. ISSUE: Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its effectivity, hearing and filing with the UP Law Center? NO.Ratio Decidendi: 1. When an administrative rule is merely interpretative, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed.2. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. 3. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope

Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.4. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. (Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valoremtax.)5. Hence, without RMC 37-93, the enactment of RA 7654,would have had no new tax rate consequence on private respondent's products.6. Evidently, in order to place "Hope Luxury," "Premium More, "and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued.7. In so doing, the BIR not simply interpreted the law; verily, It legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been ignored. FACTS: PB COM VS CIR. Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00 by applying PBCom's tax credit memos for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby showing no income tax liability in its Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue." The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed beyond the two-year reglementary period. A motion for Reconsideration was denied and the appeal to Court of Appeals was likewise denied. Thus, this appeal to Supreme Court. Issues: a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from two (2) years to ten (10) years is valid. b) Whether or not the petition for tax refund had already prescribed. Ruling:

a. RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive period is invalid. Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency, the law prevails over them. Administrative agencies have no legislative power. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.

b. By implication of the above, claim for refund had already prescribed. Since the petition had been filed beyond the prescriptive period, the same has already prescribed. The fact that the final adjusted return show an excess tax credit does not automatically entitle taxpayer claim for refund without any express intent. WHEREFORE, the petition is hereby DENIED.

FACTS: Cir vs Sony phil.17 nov 2010

Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority. The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS). ISSUES: (1) Is Petitioner liable for deficiency Value Added (2) Was the investigation of its 1998 Final Withholding Tax return valid? Tax?

HELD: (1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the same way, Sony Philippines cannot be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or adverse economic conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years should be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Sony Philippines fiscal year ending March 1998, the same fell outside of the period 1997 and was thus not validly covered by the Letter of Authority.

FITNESS BY DESIGN INC V. CIR

Facts:

Commissioner on Internal Revenue (respondent) assessed Fitness by Design, Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner protested and filed a Petition for Review with Motion to Suspend Collection of Income Tax, before the Court of Tax Appeals and raised prescription as a defense. A preliminary hearing on the issue of prescription was conducted during which petitioners former bookkeeper attested that certified public accountant Leonardo Sablan illegally took custody of petitioners accounting records, invoices, and official receipts and turned them over to the BIR.

Petitioner requested for the issuance of subpoena ad testificandum to Sablan for the hearing and of subpoena duces tecum to the BIR for the production of the Affidavit of the Informer bearing on the assessment in question. In addition, petitioner submitted written interrogatories addressed to Sablan. The CTA denied petitioners motion for Issuance of Subpoenas and disallowed the submission by petitioner of written interrogatories to Sablan. The CTA found that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of violations of internal revenue laws, except when the information is proven to be malicious or false. Petitioner filed a rule 65.

Issue: Did the CTA err in denying the motions for subpoenas and written interrogatories?

Held: The CTA did NOT err. In requesting the issuance of the subpoenas and the submission of written interrogatories, petitioner sought to establish that its accounting records and related documents, invoices, and receipts which were the bases of the assessment against it were illegally obtained. The only issues, however, which

surfaced during the preliminary hearing before the CTA, were whether respondents issuance of assessment against petitioner had prescribed and whether petitioners tax return was false or fraudulent.

Besides, as the CTA held, the subpoenas and answers to the written interrogatories would violate Section 2 of Republic Act No. 2338 as implemented by Section 12 of Finance Department Order No. 46-66. Petitioner claims, however, that it only intended to elicit information on the whereabouts of the documents it needs in order to refute the assessment, and not to disclose the identity of the informer. Petitioners position does not persuade. The interrogatories addressed to Sablan and the revenue officers show that they were intended to confirm petitioners belief that Sablan was the informer.

Lastly, Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioners) consent. Petitioners lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. Section 5 of the Tax Code allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes

BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. OFFICE OF THE OMBUDSMAN, respondent. DECISION DE LEON, JR., J.:

Graft Investigation Officer II Christopher S. Soquilon of the Office of the Ombudsman (OMBUDSMAN, for brevity) received information from an informer-forreward regarding allegedly anomalous grant of tax refunds to Distillera Limtuaco & Co., Inc. (Limtuaco, for brevity) and La Tondea Distilleries, Inc. Upon receipt of the information, Soquilon recommended[1] to then Ombudsman Conrado M. Vasquez that the case be docketed and subsequently assigned to him for investigation.[2] On November 29, 1993, the Ombudsman issued a subpoena duces tecum[3] addressed to Atty. Millard Mansequiao of the Legal Department of the Bureau of Internal Revenue (BIR) ordering him to appear before the Ombudsman and to bring the complete original case dockets of the refunds granted to Limtuaco and La Tondea. The BIR, through Assistant Commissioner for Legal Service Jaime M. Maza, asked that it be excused from complying with the subpoena duces tecum because (a) the Limtuaco case was pending investigation by Graft Investigation Officer II Napoleon S. Baldrias; and (b) the investigation thereof and that of La Tondea was mooted when the Sandiganbayan ruled in People v. Larin[4] that the legal issue was no longer in question since the BIR had ruled that the ad valorem taxes were erroneously paid and could therefore be the proper subject of a claim for tax credit.[5] Without resolving the issues raised by the BIR, the Ombudsman issued another subpoena duces tecum, dated December 9, 1993, addressed to BIR Commissioner Liwayway Vinzons-Chato ordering her to appear before the Ombudsman and to bring the complete original case dockets of the refunds granted to Limtuaco and La Tondea.[6] The BIR moved to vacate the subpoena duces tecum arguing that (a) the second subpoena duces tecum was issued without first resolving the issues raised in its Manifestation and Motion dated December 8, 1993; (b) the documents required to be produced were already submitted to Graft Investigation Officer II Baldrias; (c) the issue of the tax credit of ad valorem taxes has already been resolved as proper by the Sandiganbayan; (d) the subpoena duces tecum partook of the nature of an omnibus subpoena because it did not specifically described the particular documents to be produced; (e) there was no clear showing that the tax case dockets sought to be produced contained evidence material to the inquiry; (f) compliance with the subpoena duces tecum would violate Sec. 269[7] of the National Internal Revenue Code (NLRC) on unlawful divulgence of trade secrets and Sec. 277[8] on procuring

unlawful divulgence of trade secrets; and (g) Limtuaco and La Tondea had the right to rely on the correctness and conclusiveness of the decisions of the Commissioner of Internal Revenue.[9] The Ombudsman denied[10] the Motion to Vacate the Subpoena Duces Tecum, pointing out that the Limtuaco tax refund case then assigned to Baldrias was already referred to the Fact-Finding and Investigation Bureau of the Ombudsman for consolidation with Case No. OMB-0-93-3248. The Ombudsman also claimed that the documents submitted by the BIR to Baldrias were incomplete and not certified. It insisted that the issuance of the subpoena duces tecum was not a fishing expedition considering that the documents required for production were clearly and particularly specified. The BIR moved to reconsider[11] the respondents Order dated February 15, 1994 alleging that (a) the matter subject of the investigation was beyond the scope of the jurisdiction of the Ombudsman; (b) the subpoena duces tecum was not properly issued in accordance with law; and (c) non-compliance thereto was justifiable. The BIR averred it had the exclusive authority whether to grant a tax credit and that the jurisdiction to review the same was lodged with the Court of Tax Appeals and not with the Ombudsman. According to the BIR, for a subpoena duces tecum to be properly issued in accordance with law, there must first be a pending action because the power to issue a subpoena duces tecum is not an independent proceeding. The BIR noted that the Ombudsman issued the assailed subpoena duces tecum based only on the information obtained from an informer-for-reward and the report of Asst. Comm. Imelda L. Reyes. The BIR added that the subpoena duces tecum suffered from a legal infirmity for not specifically describing the documents sought to be produced. Finding no valid reason to reverse its Order dated February 15, 1994, the Ombudsman denied the motion for reconsideration and reiterated its directive to the BIR to produce the documents.[12] Instead of complying, the BIR manifested its intention to elevate the case on certiorari to this Court.[13] The Ombudsman thus ordered Asst. Comm. Maza to show cause why he should not be cited for contempt for contumacious refusal to comply with the subpoena duces tecum.[14] However, before the expiration of the period within which Asst. Comm. Maza was required to file a reply to the show cause order of the Ombudsman, the BIR filed before

this Court the instant Petition for Certiorari, Prohibition and Preliminary Injunction and Temporary Restraining Order.[15] Petitioner BIR insists that the investigative power of the Ombudsman is not unbridled. Particularly on the issue of tax refunds, the BIR maintains that the Ombudsman could validly exercise its power to investigate only when there exists an appropriate case and subject to the limitations provided by law. [16] Petitioner opines that the fact-finding investigation by the Ombudsman is not the proper case as it is only a step preliminary to the filing of recovery actions on the tax refunds granted to Limtuaco and La Tondea. This Court is not persuaded. No less than the 1987 Constitution enjoins that the Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints filed in any form or manner against public officials or employees of the government, or any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and shall, in appropriate case, notify the complainants of the action taken and the result thereof.[17] Clearly, there is no requirement of a pending action before the Ombudsman could wield its investigative power. The Ombudsman could resort to its investigative prerogative on its own[18] or upon a complaint filed in any form or manner. Even when the complaint is verbal or written, unsigned or unverified, the Ombudsman could, on its own, initiate the investigation.[19] Thus There can be no objection to this procedure in the Office of the Ombudsman where anonymous letters suffice to start an investigation because it is provided in the Constitution itself. In the second place, it is apparent that in permitting the filing of complaints in any form and manner, the framers of the Constitution took into account the well-known reticence of the people which keep them from complaining against official wrongdoings. As this Court had occasion to point out, the Office of the Ombudsman is different from other investigatory and prosecutory agencies of the government because those subject to its jurisdiction are public officials who, through official pressure and influence, can quash, delay or dismiss investigations held against them. On the other hand complainants are more often than not poor and simple folk who cannot afford to hire lawyers.[20] The term in an appropriate case has already been clarified by this Court in Almonte v. Vasquez,[21] thus

Rather than referring to the form of complaints, therefore, the phrase in an appropriate case in Art. XI, 12 means any case concerning official act or omission which is alleged to be illegal, unjust, improper, or inefficient, The phrase subject to such limitations as may be provided by law refers to such limitations as may be provided by Congress or, in the absence thereof, to such limitations as may be imposed by courts. Plainly, the pendency of an action is not a prerequisite before the Ombudsman can start its own investigation. Petitioner next avers that the determination of granting tax refunds falls within its exclusive expertise and jurisdiction and that its findings could no longer be disturbed by the Ombudsman purportedly through its investigative power as it was a valid exercise of discretion. Petitioner suggests that what respondent should have done was to appeal its decision of granting tax credits to Limtuaco and La Tondea to the Court of Tax Appeals since it is the proper forum to review the decisions of the Commissioner of Internal Revenue. This contention of the BIR is baseless. The power to investigate and to prosecute which was granted by law to the Ombudsman is plenary and unqualified.[22] The Ombudsman Act makes it perfectly clear that the jurisdiction of the Ombudsman encompasses all kinds of malfeasance, misfeasance and nonfeasance that have been committed by any officer or employee xxx during his tenure of office.[23] Concededly, the determination of whether to grant a tax refund falls within the exclusive expertise of the BIR. Nonetheless, when there is a suspicion of even just a tinge of impropriety in the grant of the same, the Ombudsman could rightfully ascertain whether the determination was done in accordance with law and identify the persons who may be held responsible thereto. In that sense, the Ombudsman could not be accused of unlawfully intruding into and intervening with the BIRs exercise of discretion. As correctly posited by the Office of the Solicitor General xxx (T)he Ombudsman undertook the investigation not as an appellate body exercising the power to review decisions or rulings rendered by a subordinate body, with the end view of affirming or reversing the same, but as an investigative agency tasked to discharge the role as protector of the people[24] pursuant to his authority to investigate xxx any act or omission of any public official, employee, office or agency,

when such act or omission appears to be illegal, unjust, improper or inefficient.[25] The OSG insists that the mere finality of petitioners ruling on the subject of tax refund cases is not a legal impediment to the exercise of respondents investigative authority under the Constitution and its Charter (RA 6770) which xxx is so encompassing as to include all kinds of malfeasance, misfeasance and nonfeasance that have been committed by any officer or employee during his tenure of office.[26] Indeed, the clause any [illegal] act or omission of any public official is broad enough to embrace any crime committed by a public official. The law does not qualify the nature of the illegal act or omission of the public official or employee that the Ombudsman may investigate. It does not require that the act or omission be related to or be connected with or arise from the performance of official duty.[27] Petitioner fears that the fact-finding investigation being conducted by respondent would only amount to a general inquisitorial examination on the case dockets with a view to search through them to gather evidence[28] considering that the subpoena duces tecum did not describe with particularity the documents sought to be produced. This Court is unimpressed. We agree with the view taken by the Solicitor General that the assailed subpoena duces tecum indeed particularly and sufficiently described the records to be produced. There is every indication that petitioner knew precisely what records were being referred to as it even suggested that the tax dockets sought to be produced may not contain evidence material to the inquiry and that it has already submitted the same to Baldrias. The records do not show how the production of the subpoenaed documents would necessarily contravene Sec. 269[29] of the National Internal Revenue Code (NIRC) on unlawful divulgence of trade secrets and Sec. 277[30] of the same Code on procuring unlawful divulgence of trade secrets. The documents sought to be produced were only the case dockets of the tax refunds granted to Limtuaco and La Tondea which are public records, and the subpoena duces tecum were directed to the public officials who have the official custody of the said records. We find no valid reason why the trade secrets of Limtuaco and La Tondea would be unnecessarily disclosed if such official records, subject of the subpoena duces tecum, were to be produced by the petitioner BIR to respondent Office of the Ombudsman.

Assuming, for the sake of argument, that the case dockets of the tax refunds which were granted to Limtuaco and La Tondea contain trade secrets, that fact, however, would not justify their non-production before the Ombudsman. As this Court has underscored in Almote v. Vasquez[31] At common law a governmental privilege against disclosure is recognized with respect to state secrets bearing on military, diplomatic and similar matters. This privilege is based upon public interest of such paramount importance as in and of itself transcending the individual interests of a private citizen, even though, as a consequence thereof, the plaintiff cannot enforce his legal rights xxx In the case at bar, there is no claim that military or diplomatic secrets will be disclosed by the production of records pertaining to the personnel of EIB. Indeed, EIIBs function is the gathering and evaluation of intelligence reports and information regarding illegal activities affecting the national economy, such as, but not limited to economic sabotage, smuggling, tax evasion, dollar salting. Consequently, while in cases which involve state secrets it may be sufficient to determine from the circumstances of the case that there is reasonable danger that compulsion of the evidence will expose military maters without compelling production, no similar excuse can be made for a privilege resting on other consideration. Above all, even if the subpoenaed documents are treated as presumptively privileged, this decision would only justify ordering their inspection in camera but not their nonproduction xxx Besides, under the facts of this case, petitioner should not have concerned itself with possibly violating the pertinent provisions of the NLRC on unlawful divulgence or unlawful procurement of trade secrets considering Rule V of the Rules of Procedure of the Office of the Ombudsman[32] which provides that (a) Any person whose testimony or production of documents or other evidence is necessary to determine the truth in any inquiry, hearing, or proceeding being conducted by the Office of the Ombudsman or under its authority in the performance or furtherance or its constitutional functions and statutory objectives, including preliminary investigation, may be granted immunity from criminal prosecution by the Ombudsman, upon such terms and conditions as the Ombudsman may determine, taking into account the pertinent provisions of the Rules of Court xxx

With regard to the manner in which the investigation was conducted, petitioner asserts that the investigation conducted by the Office of the Ombudsman violated due process, inasmuch as it commenced its investigation by issuing the subpoena duces tecum without first furnishing petitioner with a summary of the complaint and requiring it to submit a written answer.[33] The Ombudsman labels this assertion of the BIR as premature maintaining that it is only when the Ombudsman finds reasonable ground to investigate further that it is required to furnish respondent with the summary of the complaint. The Ombudsman insists that in the instant case, it has yet to make that determination. On this score, we rule in favor of petitioner BIR. Records show that immediately upon receipt of the information from an informer-for-reward, Graft Investigator Soquilon, in a Memorandum dated November 26, 1993 addressed to then Ombudsman Conrado M. Vasquez, requested that the case be docketed and assigned to him for a full-blown fact-finding investigation.[34] In his Memorandum, Soquilon averred that he is certain that these refunds can be recovered by reason of the Tanduay precedent xxx and using the power of this Office, we will not only bring back to the government multi-million illegal refunds but, like the Tanduay case, we will be establishing graft and corruption against key BIR officials.[35] In a marginal note dated November 26, 1993,[36] Ombudsman Vasquez approved the docketing of the case and its assignment to Soquilon. Likewise, in the Preliminary Evaluation Sheet[37] of the Office of the Ombudsman, the Fact Finding Investigation Bureau of the Ombudsman was named as complainant against Concerned High Ranking and Key Officials of the Bureau of Internal Revenue who granted multi-million tax refunds to Limtuaco and La Tondea Distilleries for alleged violation of RA 3019. On November 29, 1993 and December 9, 1993 Soquilon issued the assailed subpoena duces tecum requiring the concerned BIR officials to appear before the Ombudsman and to bring with them the complete case dockets of the tax refunds granted to Limtuaco and La Tondea. It is our view and we hold that the procedure taken by the respondent did not comply with the safeguards enumerated in Sec. 26, (2) of RA 6770 or the Ombudsman Act of 1989, which clearly provides that (2) The Office of the Ombudsman shall receive complaints from any source in whatever form concerning an official act or omission. It shall act on the complaint immediately and if it finds the same entirely baseless, it shall dismiss the same and

inform the complainant of such dismissal citing the reasons therefore. If it finds a reasonable, ground to investigate further, it shall first furnish the respondent public officer or employee with a summary of the complaint and require him to submit a written answer within seventy-two hours from receipt hereof. If the answer is found satisfactory, it shall dismiss the case. The procedure which was followed by the respondent likewise contravened the Rules of Procedure of the Office of the Ombudsman,[38] Sec. 4, Rule 11 of which provides that (a) If the complaint is not under oath or is based only on official reports, the investigating officer shall require the complaint or supporting witnesses to execute affidavits to substantiate the complaints. (b) After such affidavits have been secured, the investigating officer shall issue an order, attaching thereto a copy of the affidavits and other supporting documents, directing the respondent to submit, within ten (10) days from receipt thereof, his counter-affidavits and controverting evidence with proof of service thereof on the complainant. The complainant may file reply affidavits within ten (10) days after service of the counter-affidavits xxx It is clear from the initial comments of Soquilon in his Memorandum to Ombudsman Vasquez that he undoubtedly found reasonable grounds to investigate further. In fact, he recommended that the case be docketed immediately and assigned to him for a full-blown fact-finding investigation. Even during that initial stage, Soquilon was convinced that the granting of the tax refunds was so anomalous that he assured Ombudsman Vasquez of the eventual recovery of the tax refunds and the prosecution and conviction of key BIR officials for graft and corruption. We commend the graft investigators of the Office of the Ombudsman in their efforts to cleanse our bureaucracy of scalawags. Sometimes, however, in their zeal and haste to pin down the culprits they tend to circumvent some procedures. In this case, Graft Investigation Officer Soquilon forgot that there are always two (2) sides to an issue and that each party must be given every opportunity to air his grievance or explain his side as the case may be. This is the essence of due process. The law clearly provides that if there is a reasonable ground to investigate further, the investigator of the Office of the Ombudsman shall first furnish the respondent

public officer or employee with a summary of the complaint and require him to submit a written answer within seventy-two (72) hours from receipt thereof. In the instant case, the BIR officials concerned were never furnished by the respondent with a summary of the complaint and were not given the opportunity to submit their counter-affidavits and controverting evidence. Instead, they were summarily ordered to appear before the Ombudsman and to produce the case dockets of the tax refunds granted to Limtuaco and La Tondea. They are aggrieved in that, from the point of view of the respondent, they were already deemed probably guilty of granting anomalous tax refunds. Plainly, respondent Office of the Ombudsman failed to afford petitioner with the basics of due process in conducting its investigation. WHEREFORE, the petition is GRANTED. The respondent Office of the Ombudsman is prohibited and ordered to desist from proceeding with Case No. OMB0-93-3248; and its Orders dated November 29, 1993, December 9, 1993 and February 15, 1994 are hereby ANNULLED and SET ASIDE. SO ORDERED.

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INCG.R. No. 136975. March 31, 2005 Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus ,Hentex receive a subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the certified copies of the respondents Profit and Loss Statement for 1987and 1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987,submitted by the informer, as well as excerpts from the entries certified by Tomas

and Danganan. The case was submitted to the CTA which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR investigators. Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law. Held :Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. Among such powers are those provided in paragraph (b), which provides that Failure to submit required returns, statements, reports and other documents? When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business ,including their gross profit and net profit sales. Such evidence also includes data, record, paper ,document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission .However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in making a

preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer

G.R. No. 96262 March 22, 1999 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. EMBROIDERY AND GARMENTS INDUSTRIES (PHIL.), INC., respondent.

PARDO, J.: The case is an appeal via certiorari from a decision of the Court of Appeals 1 affirming that of the Court of Tax Appeals 2 absolving respondent from liability for deficiency income tax and advance sales tax in the amounts of P2,756,241.68, and P3,500,798.47, respectively, for the years 1959 to 1961. The facts may be related as follows: On September 21, 1964, on the basis of a sworn report of an informer, the Courts of First Instance of Manila and Bulacan issued search warrants for the seizure of certain documents from the offices of respondent Embroidery and Garments Industries (Phil.), Inc. in Manila and Valenzuela, Bulacan. Armed with the warrants, agents of the AntiTechnical Smuggling Unit, Bureau of Internal Revenue, seized various business records and documents from respondent's offices. On January 4, 1966, petitioner assessed respondent the sum of P436,846.44, inclusive of 75% surcharge and penalty as advance sales tax for the years 1959 to 1961 and, on March 23, 1966, assessed deficiency income tax in the sum of P4,799,641.95, inclusive of 50% surcharge and 1/2% monthly interest for the years 1960 and 1961.

Respondent protested the assessments, and on December 9,1970, petitioner issued to respondent a revised assessment requiring the latter to pay the amount of P2,756,241.68, inclusive of 50% surcharge and 1/2% monthly interest as deficiency income tax for the years 1959 to 1961. On December 22, 1970, petitioner required respondent to pay P3,500,798.47, as advance sales tax and 75% surcharge corresponding to the same years. On January 7, 1971, respondent filed with the Bureau of Internal Revenue a protest disputing the revised assessments and requesting further investigation. On the same date, petitioner denied the protest. On January 20, 1971, respondent requested petitioner to reconsider the denial of its protest. On January 29, 1971, petitioner granted the request upon respondent's execution of a waiver of the statute of limitations. On September 14, 1971, petitioner denied respondent's protest on the disputed assessments. On October 14, 1971 , respondent filed with the Court of Tax Appeals a petition for review of the disputed tax assessments. On March 29, 1972, respondent filed its answer to the petition praying for its dismissal. On January 15, 1990, the Court of Tax Appeals rendered decision finding respondent not liable for deficiency income tax and advance sales tax assessed against it, and accordingly, reversed the BIR decision. In its decision, the Court of Tax Appeals held that the assessments were doubtful validity as they were based on the incompetent evidence consisting of an informant's report and the sworn statement of the disgruntled former general manager of respondent that in the years in question respondent sold all its dollar quotas to local Chinese textile traders at an overprice or premium on the dollar value of textile importation of 80% for suiting materials and 70.% for women's clothing materials and faked its invoices to reduce its costs of importation. On the other hand, respondent adduced evidence consisting of official records of the Bureau of Customs that its tax-free importation's had been re-exported to their suppliers in accordance with the Embroidery Law and cleared by the Bureau of Customs. The tax court ruled that the assessments must be based on actual facts and proved by

competent evidence, not imposed based on unverified information supplied by an informant, or disputed presumptions. On June 13, 1990, petitioner filed with the Court of Appeals a petition for review of the decision of the Court of Tax Appeals. 3 On November 9, 1990, the Court of Appeals promulgated its decision affirming the appealed decision of the tax court. 4 On December 4, 1990, petitioner filed a motion for reconsideration of the Court of Appeals' decision. On February 7, 1991, the Court of Appeals denied the motion. 5 On March 18, 1991, within, the extended time granted, petitioner filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals. 6 In the petition, the Commissioner of Internal Revenue submits that the Court of Appeals erred: (1) in not holding that respondent is liable for deficiency income tax and advance sales tax in view of its failure to declare its income realized for the years 1959 to 1961 from the sales of its dollar quota to local Chinese textile dealers at a premium of 70% to 80% of the dollar value, which dollar quota rights were allocated by the Central Bank of the Philippines to enable respondent to import tax-free textile raw materials to be manufactured into finished products for re-export pursuant to the provisions of the Embroidery Law (R. A. No. 3137), and (2) in not holding that the imposition of 50% surcharge for fraud was legal and justified. 7 The issues raised are clearly factual and must be resolved on the basis of the evidence adduced before the tax court. The case tarried too long in the tax court. In the meantime, the star witness had died, and the needed originals of documentary evidence could no longer be located.

What is more, it is a, fundamental rule that on appeal via certiorari from a decision of the Court of Appeals to the Supreme Court may raise only questions of law, which must be distinctly set forth. 8 Findings of fact of the Court of Appeals and even of the tax court are final, binding or conclusive on the parties 9 and upon this Court, 10 which will not be reviewed 11 or disturbed on appeal unless these findings are not supported by evidence, 12 with certain well recognized exceptions, such as (1) when the conclusion is grounded entirely on speculations 13, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial courts; 14 (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.15 This case does not come within any of the exceptions. WHEREFORE, the Court hereby AFFIRMS the appealed decision of the Court of Appeals in CA-G.R. SP No. 20813.

FACTS: Cir vs Aquafresh 20 oct 2010 Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and paid the corresponding CGT and DST due on the sale. However, the BIR assessed Aquafresh Seafoods based on its conclusion that the lots were classified as commercial and not residential as claimed by the taxpayer. Aquafresh Seafoods defense was that there was already a pre-defined zonal value for the said lots and thus the BIR could not reclassify the same to be commercial lots. ISSUE:

Is the requirement (under Section 6 of the Tax Code) of consultation with competent appraisers both from the public and private sectors in determining fair market value applicable in this case? HELD: YES. The BIRs position that the requirement of consultation with appraisers is mandatory only when formulating or making changes in the schedule of zonal values is wrong. The Court held that the BIRs act of classifying the subject properties involved a re-classification and revision of the prescribed zonal values. It was likewise added that the application of the rule of assigning zonal values based on the predominant use of property only applies when the property is located in an area or zone where the properties are not yet classified and their zonal values are not yet determined. If a determination has already been made, the BIR has no discretion as regards its classification and/or valuation.

G.R. No. 130430 December 13, 1999 REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue (BIR), petitioner, vs. SALUD V. HIZON, respondent. The facts are as follows: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax

deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional Director in Pampanga. Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by 221 2 of the National Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection, the trial court, on August 28, 1997, granted the motion and dismissed the complaint. Hence, this petition. Petitioner raises the following issues: 3 I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT THE APPROVAL OF THE COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL INTERNAL REVENUE CODE. II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT HAD ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS. First. In sustaining respondent's contention that petitioner's complaint was filed without the authority of the BIR Commissioner, the trial court stated: 4 There is no question that the National Internal Revenue Code explicitly provides that in the matter of filing cases in Court, civil or criminal, for the collection of taxes, etc., the approval of the commissioner must first be secured. . . . [A]n action will not prosper in the absence of the commissioner's approval. Thus, in the instant case, the absence of the approval of the commissioner in the institution of the action is fatal to the cause of the plaintiff . . . . The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then Commissioner Liwayway Chato. Sec. 221 of the NIRC provides: Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings instituted in behalf of the Government

under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the Bureau of Internal Revenue deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of the Commissioner. (Emphasis supplied) To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in pertinent portions: The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the Legal Branches of Revenues Regions: xxx xxx xxx II. Civil Cases 1. Complaints for collection on cases falling within the jurisdiction of the Region . . . . In all the abovementioned cases, the Regional Director is authorized to sign all pleadings filed in connection therewith which, otherwise, requires the signature of the Commissioner. xxx xxx xxx Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law. However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It held:

[M]emorand[a], circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such memorand[a] and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. . . . 5 This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and have the force of law. 6 The governing statutory provision in this case is 4(d) of the NIRC which provides: Specific provisions to be contained in regulations. The regulations of the Bureau of Internal Revenue shall, among other things, contain provisions specifying, prescribing, or defining: xxx xxx xxx (d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings. RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate. As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax deficiency: Provided,however, that assessment issued by the

Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases. Second. With regard to the issue that the case filed by petitioner for the collection of respondent's tax deficiency is barred by prescription, 223(c) of the NIRC provides: Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years 7 following the assessment of the tax. The running of the three-year prescriptive period is suspended 8 for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which the tax is being assessed or collected; provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.

Petitioner argues that, in accordance with this provision, respondent's request for reinvestigation of her tax deficiency assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government could still file a case for tax collection. 9 The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. 11 The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner's agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under 223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable. Nonetheless, it is contended that the running of the prescriptive period under 223(c) was suspended when the BIR timely served the warrants of distraint and levy on respondent on January 12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates Inc., v. Court of Appeals. 14 Because of the suspension, it is argued that the BIR could still avail of the other remedy under 223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997. Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the

summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the running of the statute of limitations. Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the warrants of distraint and levy were served on respondent on January 12, 1989 and then when respondent made her request for reinvestigation of the tax deficiency assessment on November 3, 1992, the three-year prescriptive period must have commenced running again sometime after the service of the warrants of distraint and levy. Petitioner, however, does not state when or why this took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised this point before the lower court apparently as an alternative theory, which, however, is untenable. For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner served on respondent, as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has passed since then, as held inAdvertising Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of Internal Revenue, 18 the enforcement of tax collection through summary proceedings may be carried out beyond the statutory period considering that such remedy was seasonably availed of. WHEREFORE, the petition is DENIED.

Republic vs. Hizon REPUBLIC 320 GR No. 130430, December 13, 1999

vs. SCRA

HIZON 574

"A request for reconsideration of the tax assessment does not effectively suspend the running of the prescriptive period if the same is filed after the assessment had become final and un appealable." FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by Sec. 221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's objection, the trial court granted the motion and dismissed the complaint. BIR on the other hand contends that respondent's request for reinvestigation of her tax deficiency assessment on November 1992 effectively suspended the running of the period of prescription. ISSUE: Has the action for collection of the tax prescribed?

HELD: Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223(c). Although the Commissioner acted on

her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable. The appellate jurisdiction of the CTA limitedt o c a s e s C I R o n m a t t e r s r e l a t i n g assessments or refunds. is t o not

The second part of the Provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue The wording of the provision is clear and simple. It gives the CTA the j u r i s d i c t i o n t o d e t e r m i n e i f t h e w a r r a n t o f distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected Thus, the CTA may act on a petition to invalidate and annul the distraint orders of the CIR or declaring several waivers executed by thet a xp a ye r a s n u l l a n d vo i d , t h u s i n va l i d a t i n g t h e assessments issued by the BIR.

PNOC vs. CA BIR requested PNOC to settle its liability for taxes on the interest earned by its money placements with PNB and which PNB did not withhold. PNOC wrote BIR and made an offer to compromise its tax liability ,estimated at P304M against NAPOCORs pending claim for tax refund. CIR accepted the compromise .Private respondent Savellano was paid the informer's reward in the total amount of 14M representing15% of tax collected by the BIR from PNOC and PNB.But private respondent Savellano, demandd from BIR the payment of the balance of his informer's rewarda n d s o u g h t reconsideration of CIRs decision to c o mp r o mi s e t h e t a x l i a b i l i t y o f P NO C.

Wh i l e t h e a f o r e s a i d Mo t i o n f o r R e c o n s i d e r a t i o n wa s s t i l l pending with the BIR, private respondent Savellano filed a Petition for Review with the CTA, Alleging that CIR acted with grave abuse of discretion in entering into a compromise agreement that resulted in "a gross and unconscionable diminution" of his reward.P r i v a t e r e s p o n d e n t S a v e l l a n o p r a y e d f o r t h e e n f o r c e m e nt and collection of the total taxassessment against taxpay e r P N O C a n d / o r withholding agent PNB; and the payment to him by CIR of the 15% informer's reward on the total taxc o l l e c t e d . T h e C T A r u l e d t h a t t h e c o m p r o m i s e a g r e e m e n t b e t w e e n B I R a n d P N B a n d P N O C i s without force, and ruled that Private respondent be paid the balance of the informers reward .PNB assailed the decision of CTA on ground that the BIR demand letter should be considered as a new assessment against PNB. As a new assessment, it gave rise to a new dispute and controversy solely between the BIR and PNB that should be administratively settled or adjudicated Held: (ang haba ng case) I Jurisdiction of the CTA A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB. The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is that the BIR demand letter, dated 16 January 1991,53 should be considered as a new assessment against PNB. As a new assessment, it gave rise to a new dispute and controversy solely between the BIR and PNB that should be administratively settled or adjudicated, as provided in P.D. No. 242.

This argument is without merit. The issuance by the BIR of the demand letter, dated 16 January 1991, was merely a development in the continuing effort of the BIR to collect the tax assessed against PNOC and PNB way back in 1986. BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax liability. The BIR subsequently sent another letter, dated 08 October 1986, to PNB, as withholding agent, demanding payment of the tax it had failed to withhold on the interest earnings and/or yields from PNOC's money placements. PNOC wrote the BIR three succeeding letters offering to compromise its tax liability; PNB, on the other hand, did not act on the demand letter it received, dated 08 October 1986. The BIR and PNOC eventually reached a compromise agreement on 22 June 1987. Private respondent Savellano questioned the validity of the compromise agreement because the reduced amount of tax collected from PNOC, by virtue of the compromise agreement, also proportionately reduced his informer's reward. Private respondent Savellano then requested the BIR Commissioner to review and reconsider the compromise agreement. Acting on the request of private respondent Savellano, the new BIR Commissioner declared the compromise agreement to be without basis and issued the demand letter, dated 16 January 1991, against PNB, as the withholding agent for PNOC. It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not stand alone as a new assessment. It should always be considered in the factual context summarized above. In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax assessment first issued in 1986 and its eventual settlement through a compromise agreement. In addition, the computation of the deficiency withholding tax was based on the figures from the 1986 assessments against PNOC and PNB, and BIR no longer conducted a new audit or investigation of either PNOC and PNB before it issued the demand letter on 16 January 1991. These constant references to past events and circumstances demonstrate that the demand letter, dated 16 January 1991, was not a new assessment, but rather, the latest action taken by the BIR to collect on the tax assessments issued against PNOC and PNB in 1986.

PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. We see it differently as the said demand letter presented the resolution by BIR Commissioner Ong of the previous controversy involving the compromise of the 1986 tax assessments. BIR Commissioner Ong explicitly declared therein that the compromise agreement was without legal basis, and requested PNB, as the withholding agent, to pay the amount of withholding tax still due. B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125. Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment, then, there could be no basis for PNB's claim that any dispute arising from the new assessment should only be between BIR and PNB. Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessment against PNB. The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on the following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals: SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; . . . (Underscoring ours.) In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then BIR Commissioner Tan to enter into a compromise agreement with

PNOC and to reject his claim for additional informer's reward. He submitted before the CTA questions of law involving the interpretation and application of (1) E.O. No. 44, and its implementing rules and regulations, which authorized the BIR Commissioner to compromise delinquent accounts and disputed assessments pending as of 31 December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward equivalent to 15% of the actual amount recovered or collected by the BIR.54 These should undoubtedly be considered as matters arising from the NIRC and other laws being administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125. PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency withholding tax assessment by virtue of P.D. No. 242. Provisions on jurisdiction of P.D. No. 242 read: SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies solely between or among the departments, bureaus, offices, agencies, and instrumentalities of the National Government, including government-owned or controlled corporations, but excluding constitutional offices or agencies, arising from the interpretation and application of statutes, contracts or agreements, shall henceforth be administratively settled or adjudicated as provided hereinafter; Provided, That this shall not apply to cases already pending in court at the time of the effectivity of this decree. SECTION 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled corporations and entities, in consonance with Section 83 of the Revised Administrative Code. His ruling or determination of the question in each case shall be conclusive and binding upon all the parties concerned. SECTION 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and settled or adjudicated by: (a) The Solicitor General, with respect to disputes or claims controversies between or among the departments, bureaus, offices and other agencies of the National Government;

(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or among government-owned or controlled corporations or entities being served by the Office of the Government Corporate Counsel; and (c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under the categories mentioned in paragraphs (a) and (b). The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed Section 7(1) of Rep. Act No. 1125,55 based on the pronouncement of this Court in Development Bank of the Philippines v. Court of Appeals, et al., 56] quoted below: The Court expresses its entire agreement with the conclusion of the Court of Appeals and the basic premises thereof that there is an "irreconcilable repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and hence, that the later enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over the earlier. In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep. Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB contends that P.D. No. 242 should be deemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate jurisdiction of the CTA over decisions of the BIR Commissioner.57 After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this Court finds itself in disagreement with the pronouncement made in Development Bank of the Philippines v. Court of Appeals, et al.,58and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et al.,59 for the guidelines in determining the relation between the two statutes in question, to wit: The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of later date clearly reveals an intention on the part of the law making power to abrogate the prior law, this intention must be given effect; but there must always be a sufficient revelation of this intention, and it has

become an unbending rule of statutory construction that the intention to repeal a former law will not be imputed to the Legislature when it appears that the two statutes, or provisions, with reference to which the question arises bear to each other the relation of general to special. (Underscoring ours.) When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a general law, while the other is a special law, then repeal by implication is not the primary rule applicable. The following rule should principally govern instead: Specific legislation upon a particular subject is not affected by a general law upon the same subject unless it clearly appears that the provisions of the two laws are so repugnant that the legislators must have intended by the later to modify or repeal the earlier legislation. The special act and the general law must stand together, the one as the law of the particular subject and the other as the general law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.) Where there are two acts or provisions, one of which is special and particular, and certainly includes the matter in question, and the other general, which, if standing alone, would include the same matter and thus conflict with the special act or provision, the special must be taken as intended to constitute an exception to the general act or provision, especially when such general and special acts or provisions are contemporaneous, as the Legislature is not to be presumed to have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)60 It has, thus, become an established rule of statutory construction that between a general law and a special law, the special law prevails Generalia specialibus non derogant.61 Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies. It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the

Revised Administrative Code of the Philippines.62 On the other hand, Rep. Act No. 1125 is a special law63 dealing with a specific subject matter the creation of the CTA, which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies enumerated therein. Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law is no longer significant. Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present dispute would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims and controversies solely between or among departments, bureaus, offices, agencies, and instrumentalities of the National Government, including constitutional offices or agencies, as well as government-owned and controlled corporations, shall be administratively settled or adjudicated. While the BIR is obviously a government bureau, and both PNOC and PNB are government-owned and controlled corporations, respondent Savellano is a private citizen. His standing in the controversy could not be lightly brushed aside. It was private respondent Savellano who gave the BIR the information that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the compromise agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review. In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court upheld the jurisdiction of the Court of Industrial Relations over the ordinary courts and justified its decision in the following manner: We are unprepared to break away from the teaching in the cases just adverted to. To draw a tenuous jurisdictional line is to undermine stability in labor litigations. A piecemeal resort to one court and another gives rise to multiplicity

of suits. To force the employees to shuttle from one court to another to secure full redress is a situation gravely prejudicial. The time to be lost, effort wasted, anxiety augmented, additional expense incurred these are considerations which weigh heavily against split jurisdiction. Indeed, it is more in keeping with orderly administration of justice that all the causes of action here "be cognizable and heard by only one court: the Court of Industrial Relations." The same justification is used in the present case to reject DOJ's jurisdiction over the BIR and PNB, to the exclusion of the other parties. The rights of all four parties in CTA Case No. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the withholding agent; and private respondent Savellano, the informer claiming his reward; arose from the same factual background and were so closely interrelated, that a pronouncement as to one would definitely have repercussions on the others. The ends of justice were best served when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. The CTA, which had assumed jurisdiction over all the parties to the controversy, could render a comprehensive resolution of the issues raised and grant complete relief to the parties. II Validity of the Compromise Agreement A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account or a disputed assessment as of 31 December 1985. PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249 declaring the compromise agreement between BIR and PNOC without force and effect. PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its implementing rules and regulations, and should be binding upon the parties thereto. E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to compromise any disputed assessment or delinquent account pending as of 31 December 1985, upon the payment of an amount equal to 30% of the basic tax

assessed; in which case, the corresponding interests and penalties shall be condoned. E.O. No. 44 took effect on 04 September 1986 and remained effective until 31 March 1987. The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 1786, as follows: a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who failed to pay the same within the time prescribed for its payment arising from (1) a self assessed tax, whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has become final and executory. Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such return was due, and in availing of the compromise, a tax return shall be filed as a basis for computing the amount of compromise to be paid. b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31, 1985 under any of the following categories: 1) if the same is administratively protested within thirty (30) days from the date the taxpayer received the assessment, or 2.) if the decision of the BIR on the taxpayer's administrative protest is appealed by the taxpayer before an appropriate court. PNOC's tax liability could not be considered a delinquent account since (1) it was not self-assessed, because the BIR conducted an investigation and assessment of PNOC and PNB after obtaining information regarding the non-withholding of tax from private respondent Savellano; and (2) the demand letter, issued against it on 08 August 1986, could not have been a deficiency assessment that became final and executory by 31 December 1985. The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-assessed tax, and is, therefore, a delinquent account as of 31 December 1985,

qualifying for a compromise under E.O. No. 44. It anchors its argument on the declaration made by this Court in Tupaz v. Ulep,65 that internal revenue taxes are selfassessing. It is not denied herein that the self-assessing system governs Philippine internal revenue taxes. The dissenting opinion itself defines self-assessed tax as, "a tax that the taxpayer himself assesses or computes and pays to the taxing authority." Clearly, such a system imposes upon the taxpayer the obligation to conduct an assessment of himself so he could determine and declare the amount to be used as tax basis, any deductions therefrom, and finally, the tax due. E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase "whether or not a tax return was filed" only refers to the compliance by the taxpayer with the obligation to file a return on the dates specified by law, but it does not do away with the requisite that the tax must be self-assessed in order for the taxpayer to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-86 expressly commands, and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who has not previously filed any return, the duty to conduct self-assessment by filing a tax return that would be used as the basis for computing the amount of compromise to be paid. Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-assessment, discovers or becomes aware that he had failed to pay a tax due on or before 31 December 1985, regardless of whether he had previously filed a return to reflect such tax; voluntarily comes forward and admits to the BIR his tax liability; and applies for a compromise thereof. In case the taxpayer has not previously filed any return, he must fill out such a return reflecting therein his own declaration of the taxable amount and computation of the tax due. The compromise payment shall be computed based on the amount reflected in the tax return submitted by the taxpayer himself. Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-assessment in this case. There is no showing that in the absence of the tax assessment issued by the BIR against them, that PNOC and/or PNB would have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as of 15 November 1986, and would have offered to compromise the same. In fact, both

PNOC and PNB were conspicuously silent about their tax liabilities until they were assessed thereon. Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had already been overtaken by the BIR's conduct of its audit and investigation and subsequent issuance of the assessments, dated 08 August 1986 and 08 October 1986, against PNOC and PNB, respectively. The said tax assessments, uncontested and undisputed, presented the results of the BIR audit and investigation and the computation of the total amount of tax liabilities of PNOC and PNB. They should be controlling in this case, and should not be so easily and conveniently ignored and set aside. It would be a contradiction to claim that the tax liabilities of PNOC and PNB are self-assessed and, at the same time, BIR-assessed; when it is clear and simple that it had been the BIR that conducted the assessment and determined the tax liabilities of PNOC and PNB. That the BIR-assessed tax liability should be differentiated from a self-assessed one, is supported by the provisions of RR No. 17-86 on the basis for computing the amount of compromise payment. Note that where tax liabilities are self-assessed, the compromise payment shall be computed based on the tax return filed by the taxpayer.66 On the other hand, where the BIR already issued an assessment, the compromise payment shall be computed based on the tax due on the assessment notice.67 For instances where the BIR had already issued an assessment against the taxpayer, the tax liability could still be compromised under E.O. No. 44 only if: (1) the assessment had been final and executory on or before 31 December 1985 and, therefore, considered a delinquent account as of said date;68 or (2) the assessment had been disputed or protested on or before 31 December 1985.69 RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does mention different types of assessments that may be compromised under said statute (i.e., jeopardy assessments, arbitrary assessments, and tax assessments of doubtful validity). RMO No. 39-86 may not have expressly stated any qualification for these particular types of assessments; nonetheless, E.O. No. 44 specifically refers only to assessments that were delinquent or disputed as of 31 December 1985.

E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are harmonized and consistent with each other. Accordingly, this Court finds that the different types of assessments mentioned in RMO No. 39-86 would still have to qualify as delinquent accounts or disputed assessments as of 31 Dcember 1985, so that they could be compromised under E.O. No. 44. The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the interest earnings and/or yields from PNOC's money placements with PNB from 15 October 1984 to 15 October 1986. This demand letter could be regarded as the first assessment notice against PNOC. Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31 December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an assessment that could have been disputed or protested on or before 31 December 1985, having been issued on a later date. Given that PNOC's tax liability did not constitute a delinquent account or a disputed assessment as of 31 December 1985, then it could not be compromised under E.O. No. 44. The assessment against PNOC, instead, was more appropriately covered by Revenue Memorandum Circular (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availment of the tax amnesty under E.O. No. 4170 and compromise payments on delinquent accounts and disputed assessments under E.O. No. 44. The third paragraph of RMC No. 31-86 reads: [T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle their tax liabilities by way of compromise under Section 246 of the Tax Code as amended by paying 30% of the basic assessment excluding surcharge, interest, penalties and other increments thereto. The above-quoted paragraph supports the position that only assessments that were disputed or that were final and executory by 31 December 1985 could be the subject of a compromise under E.O. No. 44. Assessments issued between 01 January to 21 August 1986 could still be compromised by payment of 30% of the basic tax assessed,

not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, as amended. Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority to compromise the payment of any internal revenue tax under the following circumstances: (1) there exists a reasonable doubt as to the validity of the claim against the taxpayer; or (2) the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.71 There are substantial differences in circumstances under which compromises may be granted under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44. Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44, neither of them has alleged, much less, has presented any evidence to prove that it may compromise its tax liability under Section 246 of the NIRC of 1977, as amended. B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44. Before proceeding any further, this Court reconsiders the conclusion made by BIR Commissioner Ong in his demand letter, dated 16 January 1991, that the compromise settlement executed between the BIR and PNOC was without legal basis because withholding taxes were not actually taxes that could be compromised, but a penalty for PNB's failure to withhold and for which it was made personally liable. E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather than a mere agent.72 RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for a compromise settlement of his withholding tax liability under E.O. No. 44. A withholding agent, in such a situation, may compromise the withholding tax assessment against him precisely because he is being held directly accountable for the tax.73 RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the withholding agent who withheld the tax but failed to remit the amount to the Government. A withholding agent in the latter situation is the one disqualified from

applying for a compromise settlement because he is being made accountable as an agent, who held funds in trust for the Government.74 Both situations, however, involve withholding agents. The right to compromise under these provisions should have been claimed by PNB, the withholding agent for PNOC. The BIR held PNB personally accountable for its failure to withhold the tax on the interest earnings and/or yields from PNOC's money placements with PNB. The BIR sent a demand letter, dated 08 October 1986, addressed directly to PNB, for payment of the withholding tax assessed against it, but PNB failed to take any action on the said demand letter. Yet, all the offers to compromise the withholding tax assessment came from PNOC and PNOC did not claim that it made the offers to compromise on behalf of PNB. Moreover, the general requirement of E.O. No. 44 still applies to withholding agents that the withholding tax liability must either be a delinquent account or a disputed assessment as of 31 December 1985 to qualify for compromise settlement. The demand letter against PNB, which also served as its assessment notice, had been issued on 08 October 1986 or two months later than PNOC's. PNB's withholding tax liability could not be considered a delinquent account or a disputed assessment, as defined under RR No. 17-86, for the same reasons that PNOC's tax liability did not constitute as such. The tax liability of PNB, therefore, was also not eligible for compromise settlement under E.O. No. 44. C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for compromise was filed beyond the deadline. Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised under E.O. No. 44, this Court still deems it necessary to discuss the finding of the CTA that the compromise agreement had been filed beyond the effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto that paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity of E.O. No. 44. Paragraph 2 of RMO No. 39-86 provides that: 2. Period for availment. Filing of application for compromise settlement under the said law shall be effective only until March 31, 1987. Applications filed on or

before this date shall be valid even if the payment or payments of the compromise amount shall be made after the said date, subject, however, to the provisions of Executive Order No. 44 and its implementing Revenue Regulations No. 17-86. It is well-settled in this jurisdiction that administrative authorities are vested with the power to make rules and regulations because it is impracticable for the lawmakers to provide general regulations for various and varying details of management. The interpretation given to a rule or regulation by those charged with its execution is entitled to the greatest weight by the court construing such rule or regulation, and such interpretation will be followed unless it appears to be clearly unreasonable or arbitrary.75 RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or arbitrary. It does not unduly expand the coverage of E.O. No. 44 by merely providing that applications for compromise filed until 31 March 1987 are still valid, even if payment of the compromised amount is made on a later date. It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically granted upon mere filing of the application by the taxpayer. Irrefutably, the applications would still have to be processed by the BIR to determine compliance with the requirements of E.O. No. 44. As it is uncontested that a taxpayer could still file an application for compromise on 31 March 1987, the very last day of effectivity of E.O. No. 44, it would be unreasonable to expect the BIR to process and approve the taxpayer's application within the same date considering the volume of applications filed and pending approval, plus the other matters the BIR personnel would also have to attend to. Thus, RMO No. 39-86 merely assures the taxpayers that their applications would still be processed and could be approved on a later date. Payment, of course, shall be made by the taxpayer only after his application had been approved and the compromised amount had been determined. Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be addressed is whether PNOC had been able to submit an application for compromise on or before 31 March 1987 in compliance thereof. Although the compromise agreement was executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to compromise its

tax liability, and that the said letter should be considered as PNOC's application for compromise settlement. A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the terms of its proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No. 44; and instead, made the following offer: (2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against the tax refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPC totaling P335,259,450.21, which tax refunds/credits are actually receivable accounts of our Company from NPC.76 PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, in its letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so that the offer to set-off such claim against PNOC's tax liability was premature. Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against a claim for tax refund/credit. Compromise under E.O. No. 44 may be availed of only in the following circumstances: SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a compromise any delinquent account or disputed assessment which has been due as of December 31, 1985, by paying an amount equal to thirty percent (30%) of the basic tax assessed. SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise, the amount offered as compromise in complete settlement of the delinquent account shall be paid immediately in cash or manager's certified check. Deferred or staggered payments of compromise amounts over P50,000 may be considered on a case to case basis in accordance with the extant regulations of

the Bureau upon approval of the Commissioner of Internal Revenue, his Deputy or Assistant as delineated in their respective jurisdictions. If the Compromise amount is not paid as required herein, the compromise agreement is automatically nullified and the delinquent account reverted to the original amount plus the statutory increments, which shall be collected thru the summary and/or judicial processes provided by law. E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by paying the compromise amount equivalent to 30% of the basic tax. It also benefits the Government by making collection of delinquent accounts and disputed assessments simpler, easier, and faster. Payment of the compromise amount must be made immediately, in cash or in manager's check. Although deferred or staggered payments may be allowed on a case-to-case basis, the mode of payment remains unchanged, and must still be made either in cash or in manager's check. PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would not guarantee collection. First of all, BIR's collection was contingent on whether the claim for tax refund/credit of NAPOCOR would be subsequently granted. Second, collection could not be made immediately and would have to wait until the resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no proof, other than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account receivable of PNOC. A possible dispute between NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only delay collection by the BIR even further. It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in accordance with the terms and circumstances prescribed by E.O. No. 44 and its implementing rules and regulations, by stating that: Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our preparedness to settle the subject tax assessment liability by payment of the compromise amount ofP91,003,129.89, representing thirty percent (30%) of the basic tax assessment of P303,343,766.29, in accordance with E.O. No. 44 and its implementing BIR Revenue Memorandum Order No. 3986.80

PNOC claimed in the same letter that it had previously requested for a compromise under the terms of E.O. No. 44, but this Court could not find evidence of such previous request. There are stark and substantial differences in the terms of PNOC's offer to compromise in its earlier letters, dated 25 September 1986 and 14 October 1986 (setoff of the entire amount of its tax liability against the claim for tax refund/credit of NAPOCOR), to those in its letter, dated 09 June 1987 (payment of the compromise amount representing 30% of the basic tax assessed against it), making it difficult for this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's offer to compromise in its earlier letters. This Court likewise cannot give credence to PNOC's allegation that beginning 25 September 1986, the date of its first letter to the BIR, there were continuing negotiations between PNOC and BIR that culminated in the compromise agreement on 22 June 1987. Aside from the exchange of letters recounted in the preceding paragraphs, both PNOC and PNB failed to present any other proof of the supposed negotiations. After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is no other evidence of subsequent communication between PNOC and the BIR. It was only after almost seven months, or on 09 June 1987, that PNOC again wrote a letter to the BIR, this time offering to pay the compromise amount of 30% of the basic tax assessed against. This letter was already filed beyond 31 March 1987, after the lapse of the effectivity of E.O. No. 44 and the deadline for filing applications for compromise under the said statute. Evidence of meetings between PNOC and the BIR, or any other form of communication, wherein the parties presented their offer and counter-offer to the other, would have been very valuable in explaining and supporting BIR Commissioner Tan's decision to accept PNOC's third offer to compromise after denying the previous two. The absence of such evidence herein negates PNOC's claim of actual negotiations with the BIR. Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as delinquent accounts or disputed assessments as of 31 December 1985, the application for compromise filed by PNOC on 09 June 1987, and accepted by then BIR

Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, the expiration date of the effectivity of E.O. No. 44 and the deadline for filing of applications for compromise under RMO No. 39-86. D. The BIR Commissioner's discretionary authority to enter into a compromise agreement is not absolute and the CTA may inquire into allegations of abuse thereof. The foregoing discussion supports the CTA's conclusion that the compromise agreement between PNOC and the BIR was indeed without legal basis. Despite this lack of legal support for the execution of the said compromise agreement, PNB argues that the CTA still had no jurisdiction to review and set aside the compromise agreement. It contends that the authority to compromise is purely discretionary on the BIR Commissioner and the courts cannot interfere with his exercise thereof. It is generally true that purely administrative and discretionary functions may not be interfered with by the courts; but when the exercise of such functions by the administrative officer is tainted by a failure to abide by the command of the law, then it is incumbent on the courts to set matters right, with this Court having the last say on the matter.81 The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a compromise was brought under the scrutiny of the CTA amidst allegations of "grave abuse of discretion and/or whimsical exercise of jurisdiction."82 The discretionary power of the BIR Commissioner to enter into compromises cannot be superior over the power of judicial review by the courts. The discretionary authority to compromise granted to the BIR Commissioner is never meant to be absolute, uncontrolled and unrestrained. No such unlimited power may be validly granted to any officer of the government, except perhaps in cases of national emergency.83 In this case, the BIR Commissioner's authority to compromise, whether under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can only be exercised under certain circumstances specifically identified in said statutes. The BIR Commissioner would have to exercise his discretion within the parameters set by the law, and in case he abuses his discretion, the CTA may correct such abuse if the matter is appealed to them.84

Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his authority to enter into a compromise specially granted by E.O. No. 44. Since this Court has already made a determination that the compromise agreement did not qualify under E.O. No. 44, BIR Commissioner Tan's decision to agree to the compromise should have been reviewed in the light of the general authority granted to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of 1977, as amended. Then again, petitioners PNOC and PNB failed to allege, much less present evidence, that BIR Commissioner Tan acted in accordance with Section 246 of the NIRC of 1977, as amended, when he entered into the compromise agreement with PNOC. E. The CTA may set aside a compromise agreement that is contrary to law and public policy. PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement entered into in good faith. It relies on the decision of this Court in Republic v. Sandiganbayan85 that a compromise agreement cannot be set aside merely because it is too one-sided. A compromise agreement should be respected by the courts as the res judicata between the parties thereto. This Court, though, finds that there are substantial differences in the factual background of Republic v. Sandiganbayan and the present case. The compromise agreement executed between the Presidential Commission on Good Government (PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was judicially approved by the Sandiganbayan. The Sandiganbayan had ample opportunity to examine the validity of the compromise agreement since two years elapsed from the time the agreement was executed up to the time it was judicially approved. This Court even stated in the said case that, "We are not dealing with the usual compromise agreement perfunctorily submitted to a court and approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed before the respondent court. There could be no deception or misrepresentation foisted on either the PCGG or the Sandiganbayan."86 In addition, the new PCGG Chairman originally prayed for the re-negotiation of the compromise agreement so that it could be more just, fair, and equitable, an action considered by this Court as an implied admission that the agreement was not contrary

to law, public policy or morals nor was there any circumstance which had vitiated consent.87 The above-mentioned circumstances strongly supported the validity of the compromise agreement in Republic v. Sandiganbayan, which was why this Court refused to set it aside. Unfortunately for the petitioners in the present case, the same cannot be said herein. The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise agreement, ruled that: We are unable to accept petitioner's submissions. Its formulation of the issues on CIR and CTA's lack of jurisdiction to disturb a compromise agreement presupposes a compromise agreement validly entered into by the CIR and not, when as in this case, it was indubitably shown that the supposed compromise agreement is without legal support. In case of arbitrary or capricious exercise by the Commissioner or if the proceedings were fatally defective, the compromise can be attacked and reversed through the judicial process (Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of decision) .88 Although the general rule is that compromises are to be favored, and that compromises entered into in good faith cannot be set aside,89 this rule is not without qualification. A court may still reject a compromise or settlement when it is repugnant to law, morals, good customs, public order, or public policy.90 The compromise agreement between the BIR and PNOC was contrary to law having been entered into by BIR Commissioner Tan in excess or in abuse of the authority granted to him by legislation. E.O. No. 44 and the NIRC of 1977, as amended, had identified the situations wherein the BIR Commissioner may compromise tax liabilities, and none of these situations existed in this case. The compromise, moreover, was contrary to public policy. The primary duty of the BIR is to collect taxes, since taxes are the lifeblood of the Government and their prompt and certain availability are imperious needs.91 In the present case, however, BIR Commissioner Tan, by entering into the compromise agreement that was bereft of any

legal basis, would have caused the Government to lose almost P300 million in tax revenues and would have deprived the Government of much needed monetary resources. Allegations of good faith and previous execution of the terms of the compromise agreement on the part of PNOC would not be enough for this Court to disregard the demands of law and public policy. Compromise may be the favored method to settle disputes, but when it involves taxes, it may be subject to closer scrutiny by the courts. A compromise agreement involving taxes would affect not just the taxpayer and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues collected. F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents. The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the compromise agreement, dated 22 June 1987, after finding that the said compromise agreement was without legal basis. When he took over from his predecessor, there was still a pending motion for reconsideration of the said compromise agreement, filed by private respondent Savellano on 24 March 1988. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not comply with E.O. No. 44 and its implementing rules and regulations. It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,92 that an administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given. It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led to Commissioner Ong's revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a revocation was only proper considering that the former BIR Commissioner's decision to approve the said compromise agreement was based on

the erroneous construction of the law (i.e., E.O. No. 44 and its implementing rules and regulations) and should not give rise to any vested right on PNOC.93 Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents94 because: . . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L41480, April 30, 1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).95 III Finality of the Tax Assessment A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for the first time on appeal and should not be given due course.

PNB, in another effort to block the collection of the deficiency withholding tax, this time raises doubts as to the validity of the deficiency withholding tax assessment issued against it on 16 January 1991. It submits that the BIR failed to comply with the notice requirements set forth in RR No. 12-85.96 Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue raised by PNB only before this Court. Such a question has not been ventilated before the lower courts. For an appellate tribunal to consider a legal question, it should have been raised in the court below.97 If raised earlier, the matter would have been seriously delved into by the CTA and the Court of Appeals.98 B. The assessment against PNB had become final and unappealable, and therefore, enforceable. The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the assessment against PNB, dated 16 January 1991, since PNB failed to protest said assessment within the 30-day prescribed period. This Court, though, finds that the significant BIR assessment, as far as this case is concerned, should be the one issued by the BIR against PNB on 08 October 1986. The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the interest earnings and/or yields from PNOC's money placements with the bank. It had 30 days from receipt to protest the BIR's assessment. 99 PNB, however, did not take any action as to the said assessment so that upon the lapse of the period to protest, the withholding tax assessment against it, dated 8 October 1986, became final and unappealable, and could no longer be disputed.100 The courts may therefore order the enforcement of this assessment. It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in issue in the instant case. If the compromise agreement is valid, it would effectively bar the BIR from enforcing the assessment and collecting the assessed tax; on the other hand, if the compromise agreement is void, then the courts can order the BIR to enforce the assessment and collect the assessed tax. As has been previously discussed by this Court, the BIR demand letter, dated 16 January 1991, is not a new assessment against PNB. It only demanded from PNB the payment of the balance of the withholding tax assessed against it on 08 October

1986. The same demand letter also has no substantial effect or impact on the resolution of the present case. It is already unnecessary and superfluous, having been issued by the BIR when CTA Case No. 4249 was already pending before the CTA. At best, the demand letter, dated 16 January 1991, constitute a useful reference for the courts in computing the balance of PNB's tax liability, after applying as partial payment thereon the amount previously received by the BIR from PNOC pursuant to the compromise agreement. IV Prescription A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered waived. The dissenting opinion takes the position that the right of the BIR to assess and collect income tax on the interest earnings and/or yields from PNOC's money placements with PNB, particularly for taxable year 1985, had already prescribed, based on Section 268 of the NIRC of 1977, as amended. Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for the assessment and collection of internal revenue taxes, which begins to run after the last day prescribed for filing of the return.101 The dissenting opinion points out that more than four years have elapsed from 25 January 1986 (the last day prescribed by law for PNB to file its withholding tax return for the fourth quarter of 1985) to 16 January 1991 (the date when the alleged final assessment of PNB's tax liability was issued). The issue of prescription, however, was brought up only in the dissenting opinion and was never raised by PNOC and PNB in the proceedings before the BIR nor in any of their pleadings submitted to the CTA and the Court of Appeals. Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and objections not pleaded, and reads: SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed

waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the parties for the same cause, or that the action is barred by prior judgment or by the statute of limitations, the court shall dismiss the claim. The general rule enunciated in the above-quoted provision governs the present case, that is, the defense of prescription, not pleaded in a motion to dismiss or in the answer, is deemed waived. The exception in same provision cannot be applied herein because the pleadings and the evidence on record do not sufficiently show that the action is barred by prescription. It has been consistently held in earlier tax cases that the defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidences submitted by the parties were not sufficient to support a finding by this Court on the matter.102 In Querol v. Collector of Internal Revenue,103 this Court pronounced that prescription, being a matter of defense, imposes the burden on the taxpayer to prove that the full period of the limitation has expired; and this requires him to positively establish the date when the period started running and when the same was fully accomplished. In making its conclusion that the assessment and collection in this case had prescribed, the dissenting opinion took liberties to assume the following facts even in the absence of allegations and evidences to the effect that: (1) PNB filed returns for its withholding tax obligations for taxable year 1985; (2) PNB reported in the said returns the interest earnings of PNOC's money placements with the bank; and (3) that the returns were filed on or before the prescribed date, which was 25 January 1986. It is not safe to adopt the first and second assumptions in this case considering that Section 269 of the NIRC of 1977, as amended, provides for a different period of limitation for assessment and collection of taxes in case of false or fraudulent return or for failure to file a return. In such cases, the BIR is given 10 years after discovery of the falsity, fraud, or omission within which to make an assessment.104 It is also not safe to accept the third assumption since there can be a possibility that PNB filed the withholding tax return later than the prescribed date, in which case,

following the dictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptive period shall be counted from the date the return was actually filed.105 PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would have been the best evidence to prove actual filing, the date of filing and the contents thereof. These facts are relevant in determining which prescriptive period should apply, and when such prescriptive period should begin to run and when it had lapsed. Yet, the pleadings did not refer to any return, and no return was made part of the records of the present case. This Court could not make a proper ruling on the matter of prescription on the mere basis of assumptions; such an issue should have been properly raised, argued, and supported by evidences submitted by the parties themselves before the BIR and the courts below. B. Granting that this Court can take cognizance of the defense of prescription, this Court finds that the assessment of the withholding tax liability against PNOC and collection of the tax assessed were done within the prescriptive period. Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it finds that the assessment against PNB for its withholding tax liability for taxable year 1985 and the collection of the tax assessed therein were accomplished within the prescribed periods for assessment and collection under the NIRC of 1977, as amended. If this Court adopts the assumption made by the dissenting opinion that PNB filed its withholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR had until 24 January 1989 to assess PNB. The original assessment against PNB was issued as early as 08 October 1986, well-within the three-year prescriptive period for making the assessment as prescribed by the following provisions of the NIRC of 1977, as amended: SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period

SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes. (c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another. Section 268 requires that assessment be made within three years from the last day prescribed by law for the filing of the return. Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed period provided in Section 268, the BIR has three years, counted from the date of the assessment, to collect the tax assessed either by distraint, levy or court action. Therefore, when an assessment is timely issued in accordance with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax assessed, reckoned from the date of the assessment. In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for.106 The present case is unique, however, because the Petition for Review was filed by private respondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. The prayer in the Amended Petition for Review of private respondent Savellano reads:

WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise agreement of June 22, 1987 be reviewed and declared null and void, and that this Court directs: a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay in a joint and several capacity, the total tax liability of P387,987,785.73, plus interests from 31 October 1986; and b) respondent Commissioner to pay unto petitioner, as informer's reward, 15% of the tax liability collected under clause (a) hereof. Other equitable reliefs for.107 (Underscoring ours.) under the premises are likewise prayed

Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed by the informer and not the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case as a judicial action for collection. In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said tax was terminated. Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.108 Just as in the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 this Court declares herein that the pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of

the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However, since this Court already finds that the compromise agreement is without force and effect and hereby orders the enforcement of the assessment against PNB, then, any issue or controversy arising from the premature garnishment of PNB's account and collection of the tax by the BIR has become moot and academic at this point. V Additional Informer's Reward Private respondent Savellano is entitled to additional informer's reward since the BIR had already collected the full amount of the tax assessment against PNB. PNOC insists that private respondent Savellano is not entitled to additional informer's reward because there was no voluntary payment of the withholding tax liability. PNOC, however, fails to state any legal basis for its argument.

Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected.111 The provision was clear and uncomplicated an informer was entitled to a reward of 15% of the total amount actually recovered or collected by the BIR based on his information. The provision did not make any distinction as to the manner the tax liability was collected whether it was through voluntary payment by the taxpayer or through garnishment of the taxpayer's property. Applicable herein is another well-known maxim in statutory construction Ubi lex non distinguit nec nos distinguere debemos when the law does not distinguish, we should not distinguish.112 Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice against the demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73, and credited the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines. The Treasurer of the Republic, in turn, already issued a journal voucher transferring P294,958,450.73 to the account of the BIR. Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of garnishment over PNB's deposit with the Central Bank, then private respondent Savellano should be awarded 15% thereof as reward since the said collection could still be traced to the information he had given. WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No. 112800, respectively, are hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in CTA Case No. 4249, with modifications, to wit: (1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for being contrary to law and public policy, and is without force and effect; (2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation; (3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable. The BIR Commissioner is ordered to enforce

the said assessment and collect the amount ofP294,958,450.73, the balance of tax assessed after crediting the previous payment made by PNOC pursuant to the compromise agreement, dated 22 June 1987; and (4) Private respondent Savellano shall be paid the remainder of his informer's reward, equivalent to 15% of the deficiency withholding tax ordered collected herein, or P 44,243,767.61. SO ORDERED.

People of the Philippines vs Sandiganbayan and Bienvenido Tan, Jr. 2005 august 16 Taxation Abatement Defined In July 1987, Commissioner of Internal Revenue (CIR) Bienvenido Tan, Jr. issued an assessment against San Miguel Corporation (SMC) demanding payment of P342 million in taxes. SMC filed a request for reinvestigation. Tan granted the request and eventually he reduced the tax liability to P302 million. But in October 1987, without any word from SMC, Tan referred the case to the Legal Service Division of the BIR. Various BIR officials reviewed the case and they recommended that SMCs tax liability be reduced to P22 million (a significant reduction from the original P342 million). The reduction was justified by the BIR officials on the ground that the tax examiners had made some errors in computing SMCs tax liability. So SMC was demanded to pay P22 million but then SMC asked for a compromise of P10 million. Again, the matter was referred to various BIR officials who agreed and recommended to Tan that he should accept the compromise offer. Tan accepted the P10 million compromise offer. This resulted to a criminal case against Tan for violation of the Anti-Graft and Corrupt Practices Act. Allegedly, his act of accepting the P10 million compromise offer caused undue injury to the government and it gave SMC unwarranted benefits due to the significantly reduced tax liability. The Sandiganbayan originally convicted Tan but it reversed its own decision upon motion of Tan. ISSUE: Whether or not Tan should have been convicted of the crime charged.

HELD: No. It was found by the Sandiganbayan that there was an improper computation in the tax liability of SMC. The error basically imposed tax on top of another tax which if allowed would be unfair to the taxpayer. It was therefore proper to have the tax be reduced from P302 million to P22 million. But is it proper for Tan to accept the P10 million compromise by SMC? Tan is well within his power to accept the P10 million compromise offer. This is actually abatement (not compromise as termed by SMC). Tan is actually prudent to accept the P10 million offer so as to avoid a protracted and costly litigation. Abatement is the diminution or decrease in the amount of tax imposed. It refers to the act of eliminating or nullifying; of lessening or moderating. To abate is to nullify or reduce in value or amount. The CIR has the power to abate or cancel the whole or any unpaid portion of a tax liability, inclusive of increments, if its assessment is excessive or erroneous, or if the administration costs involved do not justify the collection of the amount due. No mutual concessions need be made, because an excessive or erroneous tax is not compromised; it is abated or canceled. Only correct taxes should be paid. Further, Tan cannot be said to have acted in bad faith. He acted upon concurrence and recommendation of the various BIR officials.

TOPIC - Assessment: CIR VS. HON GONZALES- 13 10 2010 Assessment; validity of assessment notice; lack of control number. The formality of a control number in the assessment notice is not a requirement for its validity; rather the contents thereof should inform the taxpayer of the declaration of deficiency tax against the taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under section 228 of the National Internal Revenue Code. Commissioner of Internal Revenue vs Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation (represented by Luis M. Camus and Lino D. Mendoza), G.R. No. 177279, October 13, 2010.

COMMISSIONER OF INTERNAL REVENUE CORPORATION - Disputed Assessment

vs.

ENRON

SUBIC

POWER

FACTS: The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of the assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations for the assessment but must also justify their applicability to the factual milieu of the assessment. ISSUE: Is the disputed assessment valid? HELD: NO. The assessment is not valid. Although the revenue examiners discussed their findings with Respondents representative during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioners Annex G, were not sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and not merely notified as was the requirement before) in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The use of the word shall indicates the mandatory nature of the requirement. CIR VS. PASCOR REALTYGR NO.178697, June 29,1999 FACTS:It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner JoseU. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and EmmanuelM. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988.The said examination resulted in a recommendation for the issuance of an assessment inthe amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987,respectively.On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of

Justice against the PRDC, its President Rogelio A. Dio, and itsTreasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. ISSUE:(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. HELD:1.No. Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the National internal Revenue Code[10(NIRC), which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment .2.No. Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment .Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. Said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return .This fact need not be proven by an assessment. CIR vs Reyes and Reyes vs CIR GR Nos. 159694, 163581 Facts: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of the decedent received a final estate tax assessment notice

and a demand letter, both dated April 22, 1998, for t h e a m o u n t o f P 1 4 , 9 1 2 , 2 0 5 . 4 7 , i n c l u s i ve o f s u r c h a r g e a n d i n t e r e s t . T h e CI R i s s u e d a p r e l i mi n a r yc o l l e c t i o n l e t t e r t o Re ye s , f o l l o we d b y a F i n a l No t i c e B e f o r e S e i z u r e . S u b s e q u e n t l y, a W a r r a n t o f Distraint and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement of P1,000,000.00. The CIR rejected Reyess offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. Issue: WON the assessment in this case can be used as a basis for the perfection of a tax compromise against the. Ruling: NO. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the assessment itself would be invalid. Being invalid, the assessment cannot be in turn be used as a basis for the perfection of a tax compromise. Hence, it is premature to declare the c o mp r o m i s e o n t h e t a x l i a b i l i t y o f t h e e s t a t e p e r f e c t e d a n d consummated considering that the tax assessment is void. While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the

basis of tax assessments against them.7Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality

Philippine Journalists Inc. v CIRG.R No. 162852December 15, 2004 Facts :The Revenue District Office of the BIR issued a letter of a u t h o r i t y f o r the examination of petitioner Philippine Journalists books of accounts. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty. Then, petitioner, through itsC o m p t r o l l e r , L o r e n z a To l e n t i n o , e xe c u t e d a wa i ve r o f s t a t u t e o f l i mi t ationsp u r s u a n t t o S e c . 2 2 3 a n d S e c . 2 2 4 a n d c o n s e n t e d t o t h e a s s e s s m e n t a n d collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224a n d o t h e r r e l e v a n t p r o v i s i o n s o f t h e N I R C , u n t i l t h e c o m p l e t i o n o f t h e investigation.Petitioner had a deficiency of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. A Final Notice Before Seizure wass e n t t o t h e p e t i t i o n e r b u t t h e l a t t e r m e r e l y q u e s t i o n e d t h e a m o u n t o f t h e deficiency and how the same was arrived .A Warrant of Distrait/Levy was received by petitioner for the deficiency. P e t i t i o n e r f i l e d a P e t i t i o n f o r R e vi e w wi t h t h e C T A , c o n t e n d i n g t h a t n o assessment was received by him; that the warrant of distraint/levy was issued p r e ma t u r e l y ; a n d t h a t t h e a s s e s s me n t wa s ma d e b e yo n d t h e 3 - ye a r p e r i o d . Regarding the assessment, the CTA ruled that the assessment was sufficiently proven by the receipts of the Post Master. As to the premature distrait/levy and the assessment made beyond the 3-year period, the CTA ruled in favor of thep e t i t i o n e r . Th e wa i ve r o f s t a t u t e o f l i m i t a t i o n s b y t h e p e t i t i o n e r wa s i n va l i d which resulted in the lapse of the 3 year period for assessment. Consequently, the petition was granted, declaring the order for payment of deficiency

tax null and void. Th e CI R f i l e d a m o t i o n f o r r e c o n s i d e r a t i o n b u t t h e s a me wa s d e n i e d . Undaunted, the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA, stating that the waiver of limitations was valid and that the assessment notices was final and executor. Hence, this appeal. Issue : Whether or not the waiver of limitations was invalid, maki n g t h e assessment beyond the 3 year period? Held: Yes, the court ruled that the waiver of limitation was invalid, making the assessment beyond the allowable period of 3 years. Th e wa i ve r of thes t a t u t e o f l i m i t a t i o n s i s n o t a w a i v e r o f t h e r i g h t t o i n v o k e t h e d e f e n s e o f prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of t a xe s . T h u s , t h e l a w o n p r e s c r i p t i o n , b e i n g a r e me d i a l m e a s u r e , s h o uld bel i b e r a l l y c o n s t r u e d i n o r d e r t o a f f o r d s u c h p r o t e c t i o n . A s a c o r o l l a r y , t h e exceptions to the law on prescription should perforce be strictly construed. COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATIONWaiver of the Statute of Limitations

FACTS: CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the Statute of Limitations was executed on December 2001. The CTA issued a Resolution

cancelling the assessment notices issued against Petitioner for having been issued beyond the prescriptive period as the waiver purportedly failed to (a) have the valid officer execute the same (i.e., only the Assistant Commissioner signed it and not the CIR); (b) the date of acceptance was not indicated; (c) the fact of receipt by the taxpayer was not indicated in the original copy. ISSUE: Has the CIRs right to assess prescribed?

HELD: YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no notarized written authority in favor of the signatory for the company; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c) the fact of the receipt of the copy was not indicated in the original waivers. Neither can it be said that by merely executing the waiver the taxpayer is already estopped from disputing an action by the CIR beyond the statutory 3-year period since the exception under the Suyoc case (i.e., when the delays were due to taxpayers acts) does not apply. Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by authorized officer of taxpayer and BIR; (iv) notarized; (v) fact of receipt must be indicated in the copies

G.R. No. 115712 February 25, 1999 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and CARNATION PHILIPPINES, INC. (now merged with Nestle Phils, Inc.), respondent.

PURISIMA, J.: Before the Court is an appeal from the decision of the Court of Appeals 1 dated May 31, 1994, which affirmed in toto the decision of the Court of Tax Appeals 2 dated January 26, 1993, the dispositive portion of which reads: WHEREFORE, the Court, finds the assessments for allegedly deficient income and sales taxes for petitioner's fiscal year ending September 30, 1981 covered by Demand Letter NO. FAS-1B-81-87 and Assessment Notices Nos. FAS-1-81-87-005824, FAS-4-81-87-005825 and FAS-4-8187-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to be NULL AND VOID for having been issued beyond the five-year prescriptive period provided by law. 3 The undisputed facts of the case as recited in the Decision (Annex "A") of the Court of Appeals, are: 4 On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax Return for taxable year ending September 30, 1981; and its Manufacturers/Producers Percentage Tax Return for the quarter ending September 30, 1981. 5 On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Jaime O. Lardizabal, signed three separate "waivers of the Statute of Limitations Under the National Internal Revenue Code" wherein it: . waives the running of the prescriptive period provided for in sections 318 and 319 and other related provisions of the National Internal Revenue Code and consents to the assessment and collection of the taxes which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the period of limitations fixed by said sections 318 and 319 and other relevant provisions of the National Internal Revenue Code, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent

waiver, as the case may be). However, the taxpayer (petitioner herein) does not waive any prescription already accrued in its favor. The waivers were not signed by the BIR Commissioner or any of his agents. On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and FAS-4-8187-005826. In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof. On September 30, 1987, Carnation filed a supplemental protest. These protests were denied by the BIR Commissioner in a letter dated March 15, 1988. Whereupon, Carnation appealed to the CTA. On January 26, 1993, the CTA issued the questioned order, the dispositive portion of which reads: WHEREFORE, the Court finds the assessments for allegedly deficient income and sales taxes for petitioner's fiscal year ending September 30, 1981 covered by Demand Letter No. FAS-1B-81-87 and assessment Notices No. FAS-1-81-87-005824, FAS-481-87-005825, and FAS-4-81-87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to be NULL AND VOID for having been issued beyond the five-year prescriptive period provided by law. The pivot of inquiry here is whether or not the three (3) waivers signed by the private respondent are valid and binding 6 as to toll the running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments.

Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then applicable reads: Sec 318. Period of Limitations upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. 7 (emphasis ours) The decision of the Court of Appeals affirming what the Court of Tax Appeals decided, established that subject assessments of July 29, 1987 were issued outside the statutory prescriptive period. Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982 8 and November 20, 1981, 9 respectively. In accordance with the above-quoted provision of law, private respondent's 1981 income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively. 10 However, Carnation's income and sales taxes were assessed only on July 29, 1987, beyond the five-year prescriptive period. 11 Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver. 12 Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit: Sec. 319. Exceptions as to period of limitation of assessment and collection of taxes. (a) . . .

(b) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreement in writing made before the expiration of the period previously agreed upon. The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus: We cannot go along with the petitioner's theory. Section 319 of the Tax code earlier quoted is clear and explicit that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required by law. We agree with the CTA in holding "these "waivers" to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of Internal Revenue)." The ruling of the Supreme Court in Collector of Internal Revenue vs. Solano 13 is in point, thus: The only agreement that could have suspended the running of the prescriptive period the collection of the tax in question is, as correctly pointed out by the Court of Tax Appeals, a written agreement between Solano and the Collector, entered into before the expiration of the of the five-year prescriptive period, extending the limitation prescribed by law. For sure, no such written agreement concerning the said three waivers exists between the petitioner and private respondent Carnation. 14 Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the Court of Appeals. In fact, there is every reason to leave undisturbed the said

conclusions, having in mind the precept that all doubts as to the correctness of such conclusions will be resolved in favor of the Court of Appeals. 15 Besides being a reiteration of the holding of the Court of Tax Appeals, such decision should be accorded respect. Thus, the Court held in Philippine Refining Co. vs. Court of Appeals, 16 that the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 17 This point becomes more evident in the case under consideration where the findings and conclusions of bath the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of discretion. Indeed, we find the decision of the latter affirming that of the former free from any palpable error. 18 What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General, representing the Commissioner of Internal Revenue, admitted that subject waivers executed by Carnation were "for end in consideration of the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement. WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs.

RIZAL COMMERCIAL BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE- Waiver of the Statute of Limitations

ISSUE: Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the Statute of Limitations, is consider estopped from questioning the validity of the said waiver (on the basis that the CIR did not sign it) with respect to the other covered but unsettled assessments? HELD: YES. RCBC is considered estopped through its partial payment of the revised assessments within the extended period provided in the said waivers. Thus, it had impliedly admitted the validity of the said waivers. Had it believed that the waiver was invalid and that the period to assess had effectively prescribed, RCBC could have refused to make any payment based on any assessment against it. Petitioner is questioning the validity of the waivers estopped from

RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely attested to by Sixto Esquivias, then Coordinator for the CIR, and that he failed to indicate acceptance or agreement of the CIR, as required under Section 223 (b) of the 1977 Tax Code.28 RCBC further argues that the principle of estoppel cannot be applied against it because its payment of the other tax assessments does not signify a clear intention on its part to give up its right to question the validity of the waivers.29 The Court disagrees. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood.30

Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBCs subsequent action effectively belies its insistence that the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds dear.31

BPI vs. CIR 2005 case 139736 Facts: Petitioner BPI, sold $500,000 in 1985 to the Central Bank for the total amount of $1,000,000.O n O c t o b e r 1 9 8 9 , t h e BIR assessed BPI for tax d e f i c i e n c y o f d o c u me n t a r y t a x o n i t s aforementioned sales of foreign bills of exchange. BPI filed and protested the assessment on1989 through its counsel. BPI did not receive any immediate reply to its protest. On 1992BIR issued a warrant of Distraint and/or Levy against the petitioner. The warrant was served on 1992 but never heard anything from the BIR until the 1997 when the reconsideration was denied. BPI filed a petition for Review with the CTA and raised prescription as a defense. It alleged that the right to collect must be done within 3 years only, but the BIR waited more than 7years to deny the protest. BIR reiterated its position and remained silent as regards the issue on prescription .CTA rendered the decision in favor BIR stating that the action has not prescribed but the sale of foreign currency is not subject to documentary stamp tax. Further the assessment was order for cancellation because the transaction between BPI and the Central Bank was tax exempt. Th e C A s u s t a i n e d t h e f i n d i n g o f t h e CA T t h a t th e a c t i o n

h a s n o t ye t p r e s c r i b e d , b u t i t adopted the position of the BIR that the sale of foreign currency was not tax exempt. Issue : Whether or not the right of the BIR to collect from BPI the a l l e g e d d e f i c i e n c y o n documentary stamp tax had prescribed? Held: The Supreme Court ruled that the action for collection had already prescribed. The period to collect the deficiency is limited to 3 years as provided by Section 203 of the Tax Code. The statute of limitation on collection may be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Sections 223 and 224 of the Tax Code as amended. The purpose of the limitation is to protect the taxpayer form the prolonged and unreasonable assessment and investigation by the BIR

BPI VS CIR 2008 CASE 174942 REQUEST FOR RE-INVESTIGATION NOTGRANTED DOES NOT TOLL PRESCRIPTIVEPERIOD; INVALID AND LAPSED WAIVER OFPRESCRIPTION Under Section 320 of the 1977 NIRC, the law then applicable, the period of prescription for assessment and collection is 3 years. The CIR had 3years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. For BPIs protest letters dated 20 April and 8 May 1989 to toll the prescriptive period for collection, the request for reinvestigation should have been granted. There is nothing to show that such request was granted. Neither did the waiver of prescription effective until 31 December 1994suspend the prescriptive period is invalid. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO 20-90.At any rates, more than 8 years elapsed since expiry of the waiver before the BIR attempted to collect. Bank of the Philippine Islands (Formerly Far East Bank and Trust Company vs. CIR , G.R. No. 174942, March 7, 2008. See also BPI v. CIR ,CTA Case No. 7397, April 9, 2008

PROCESS OF ASSESSMENT: PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL REVENUE GR. No. 155541. January 27, 2004 Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedents tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIRs claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedents death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable. Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate. (2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable. Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may

have been remiss in his legal obligation to inform respondent of the decedents death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. (2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondents claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.

Commissioner of Internal Revenue vs Azucena Reyes january 27 2006 Taxation Contents of a Formal Assessment Notice In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estates liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment. ISSUE: Whether or not the formal assessment notice is valid.

HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the laws passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy.

COMMISSIONER OF INTERNAL REVENUE, vs. DOMINADOR MENGUITO. [G.R. No. 167560. September17, 2008.] Facts: Through a letter dated July 28, 1997, Spouses Dominador Menguito and Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that they have under declared sales totaling P48,721,555.96. This was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein respondent]that in the investigation of his 1991, 1992 and 1993 income, business and withholding tax case, it was found out that there is still due from him the total sum of P34,193,041.55 as deficiency income and percentage tax. The assessment of notices subject of the instant petition were issued. These were protested by Ms. Jeanne Menguito, through a letter. BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a reinvestigation or reconsideration cannot be given due course by the mere submission of an uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the amendment issued is still valid and enforceable. Respondent filed the present case, praying for the cancellation and withdrawal of the deficiency income tax and percentage tax assessments on account of prescription, whimsical factual lfindings, violation of procedural due process on the issuance of assessment notices, erroneous address of notices and multiple credit/investigation by the petitioner of respondent's books of accounts and other related records for the same tax year. Instead of filing an Answer, petitioner moved to dismiss the instant petition on July 1, 1999, on the ground of lack of

jurisdiction. According to petitioner, the assessment had long become final and executory when respondent failed to comply with the letter. Issue/ Held: W/N there was a valid formal assessment notice- NO Ratio: It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer ,applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer. A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an "informal" conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice

UNGAB vs. CUSI 97 SCRA 877 GR No. L-41919-24 May 30, 1980 "An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax." FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take

cognizance of the case in view of his pending protest against the assessment made by the BIR examiner. The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the information filed. ISSUE: Is the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest against the tax assessment tenable? HELD: No. The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. 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.

TAX REMEDIES PROPER: Commissioner of Internal Revenue vs Philippine Global Communication, Inc. on December 29, 2012 Taxation Tax Collection Prescriptive Period Reconsideration vs Reinvestigation In April 1991, Philippine Global Communication, Inc. (PGCI) filed its annual income tax return (ITR) for the taxable year 1990. A tax audit was subsequently conducted by the Bureau of Internal Revenue (BIR) and eventually a final assessment notice (FAN) was timely issued in April 1994. The FAN demanded PGCI to pay P118 million in deficiency taxes inclusive of surcharge and interest. PGCI was able to file a protest within the reglementary period. PGCI however refused to produce additional evidence. In October 2002, eight years after the FAN was issued, the Commissioner of Internal Revenue (CIR) issued a final decision denying theprotest filed by PGCI. PGCI then filed a petition for review with the Court of Tax Appeals (CTA). The CIR filed its answer in January 2003. The CTA ruled that the CIR can no longer collect because it is already barred by prescription. The CIR argued that theprescriptive period has been extended because PGCI asked for a reinvestigation. ISSUE: Whether or not the CIR is barred by prescription. HELD: Yes. Under the law, the CIR has 3 years from the issuance of the FAN to make its collection. The FAN was issued in April 1994 and so the CIR has until April 1997 to make a collection. Within that period, the CIR never issued a warrant of distraint/levy. Its earliest collection effort was only when it filed an answer to the appeal filed by PGCI. CIRs answer was filed in January 2003 which was way beyond the three year prescriptive period to collect the assessed taxes. The CIR cannot invoke that the protest filed by PGCI is in effect a request for reinvestigation. Under the law, a request for reinvestigation shall toll the running of the prescriptive period to collect. However in the case at bar, the protest filed by PGCI is not a request for reinvestigation but rather it was a request for reconsideration. And in such case, it did not suspend the prescriptive period. The protest is a request for reconsideration because PGCI did not adduce additional evidence or documents. PGCI merely sought the CIR to review the existing records on file.

ALLIED BANKING CORPORATION vs. COMMISSIONER REVENUE- Formal Letter of Demand on Tax Assessment

OF

INTERNAL

FACTS: Allied Banking Corporation received a PAN from the BIR which it timely disputed. In response, the BIR issued a Formal Letter of Demand with Assessment Notices. Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA. The CTA dismissed the Petition stating that it is neither the assessment nor the formal demand letter itself that is appealable before it but instead it should be the decision of the CIR on the disputed assessment ISSUES: Can the Formal Letter of Demand be construed as the final decision of the CIR appealable to the CTA under Republic Act 9282?

HELD: YES. This is considered an exception to the general rule on exhaustion of administrative remedies since the CIR is considered estopped from claiming the same principle applies in its case. The tenor of the demand letter is clear that the CIR had already made a final decision and that the remedy of the Petitioner was to appeal the same within 30 days of receipt. This can be gleaned from the use of the terms final decision and appeal which were deemed unequivocal language pointing to the finality of the decision. While the Court cited the rules relative to (a) protesting the FAN and not the PAN and (b) counting the 30 day period to appeal to the CTA from receipt of the decision of the CIR and not issuance of the assessment, this particular case was deemed a clear exception in view of the CIRs own actions.

CIR V WYETH SUACO LABORATORIES, INC.202 SCRA 1 25(September 30, 1991) Facts: On December 19, 1974, Wyeth Suaco received notice of assessment from the BIR for its failure to remit withholding tax at source for the 4th quarter of 1973 on accrued royalties, remuneration for technical services paid abroad and cash dividends, including the deduction of nondeductible raw materials from its reports. The company, thru its tax consultant, SVG & co., sent BIR two letters dated January 17, 1975and February 8, 1975 protesting the assessment and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. Also, there were letters from the company to the BIR to such effect. On September 12, 1975 , the CIR offered to compromise butonly resulted to a slight reduction of the tax as per the acting decision on December 10,1979. On January 18, 1980, Wyeth Suaco filed petition for review with the CTA, praying that CIR been joined from enforcing the assessments by reason of prescription and that assessments be declared null and void for lack of legal and factual basis. The CTA decided against the CIR holding that while the assessments for the deficiency taxes were made within the five-year period of limitation, the right of CIRto collect the same has already prescribed, in accordance with Sec. 319(c) of the NIRC.

Held: CTA is wrong. The letters of Wyeth Suaco interrupted the running of the five-year perspective period to collect the deficiency taxes. Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown in a letter of its president and General Manager. Further, although the protest letters prepared by SGV & Co. did not categorically state or use the and the same are to be treated as letters of reinvestigation and reconsideration .As to Wyeth argument that withholding tax at source should only be remitted to the BIR once the incomes subject to withholding tax at source have actually been paid, the

SC cited the lifeblood doctrine, the express provision of the law which requires the filing of monthly return and payment of taxes withheld at source within 10 days after the end of each month. Further, the company uses accrual method of accounting and therefore the effect of transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate rather than only when cash is received or paid .

Atlas Consolidated vs. CIR ATLAS CONSOLIDATED MINING 524 SCRA GR Nos. 141104 & 148763, June 8, 2007

DEVT 73,

CORP

vs.

CIR 103

"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be permitted to stand on vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for refund/credit.

The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for not being established and substantiated by appropriate and sufficient evidence. Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications.

RIZAL COMMERCIAL BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Protest Tax Assessments

FACTS:

RCBC received the final assessment notice on July 5, 2001. It filed a protest on July 20, 2001. As the protest was not acted upon, it filed a Petition for Review with the Court of Tax Appeals (CTA) on April 30, 2002, or more than 30 days after the lapse of the 180-day period reckoned from the submission of complete documents. The CTA dismissed the Petition for lack of jurisdiction since the appeal was filed out of time. ISSUE: Has the action to protest the assessment judicially prescribed? HELD: YES. The assessment has become final. The jurisdiction of the CTA has been expanded to include not only decision but also inactions and both are jurisdictional such that failure to observe either is fatal. However, if there has been inaction, the taxpayer can choose between (1) file a Petition with the CTA within 30 days from the lapse of the 180-day period OR (2) await the final decision of the CIR and appeal such decision to the CTA within 30 days after receipt of the decision. These options are mutually exclusive and resort to one bars the application of the other. Thus, if petitioner belatedly filed an action based on inaction, it can not subsequently file another petition once the decision comes out.

COMMISSIONER OF INTERNAL REVENUE vs. UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS G.R. No. L-66160 May 21, 1990 FACTS: In a letter dated December 27, 1974 petitioner assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation for deficiency income taxes due for the years 1971 and 1972. Private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy. In a letter, private respondent reiterated its request for reinvestigation. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit against private respondent. In 1979, private respondent filed with respondent court a Petition for Review. The CTA

ruled in favor of private respondent. Hence, this is a petition for review on certiorari

ISSUE: Whether or not the issuance of a warrant of distraint and levy is proof of the finality of an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment.

HELD: The Supreme Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. CIR v. Isabela Cultural Corporation Facts: In an investigation conducted in the 1986 books of account of Isabela, it preliminarily incurred a tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by Isabelas counsel, the said preliminary assessment was reduced to the amount of P325,869.44. On February 23, 1990, Isabela received from CIR an assessment letter demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. Isabela then filed a letter to CIR asking for reconsideration on the subject assessment. It even attached certain documents supporting its protest.

On February 9, 1995, Isabela received from CIR a Final Notice Before Seizure. In said letter, CIR demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain CIR to collect the subject assessment through summary remedies. Isabela considered said final notice of seizure as [petitioners] final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, Isabela filed the instant petition anchored on the argument that CIRs issuance of the Final Notice Before Seizure constitutes its decision on Isabelas request for reinvestigation, which Isabela may appeal to the CTA. CA reversed CTAs decision. CIR: Final Notice was a mere reiteration of the delinquent taxpayers obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the taxpayers request for reconsideration and must likewise state the reason therefor. Isabela: Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioners last act, since failure to comply with it would lead to the distraint and levy of respondents properties, as indicated therein. Issue: Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA.

Held: No. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the

assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefore, and submitting such proof as may be necessary. That letter is considered as the taxpayers request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIRs position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioners decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIRs final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would be subjected to distraint and levy. Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains un acted upon 180 days after submission thereof. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable. In this case, the said period of 180 days had already lapsed when Isabela filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. In the instant case, the second notice received by Isabela verily indicated its nature that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. In the present case, CIR does not deny receipt of private respondents protest letter. As a matter of fact, it categorically relates the following in its Statement of Relevant Facts:

PROTECTORS SERVICES, INC., V CA ET. AL. G.R. No 118176, April 12, 2000 Facts: Petition Protectors Services, Inc., (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for 1985. Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employers share of SSS, SIF and Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSIs capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total

unsettled

tax

to

P2,851,805.16.

On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of security guards are part of taxable gross receipts for determination of contractors tax. PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employers share of SSS, SIF and medicare contributions should not form part of taxable gross receipts. The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTAs decision was affirmed.

Issues: Whether or not the CTA has jurisdiction to act on the petition for review filed before it. Whether or not the assessments against PSI for deficiency percentage tax for 1983 and 1984 were made within the prescriptive period. Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed. Whether or not the assessments are correct.

Held: An assessment maybe administratively protested within 30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction. Petitioners contention that the Governments right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still covered by the 5-year statutory prescriptive period. The 3-year prescriptive period for assessment of contractors tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments. As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the governments right to collect the tax has prescribed, the court ruled that the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter. In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case to the SC, hoping for a review in the favor. The actions taken by petitioner before the CTA and the SC suspended the running of the statute of limitation. As to the correctness of the assessment, it was held that contractors tax on gross receipts imposed on business agents including private detective watchman agencies,

was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term gross receipts means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under the subcontract arrangement. Hence, gross receipts could not be diminished by employers SSS, SIF and medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts subject to tax.

CITIBANK, N.A. V CA October 10, 1997 Facts: Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31, 1979 showing a net loss of P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the years operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979. For the year ended December 31, 1980, Citibanks corporate income tax returns, filed on April 15, 1981, showed a net loss P77,071,790.00 for income tax purposes. Its available tax credit at the end of 1980 amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not include the amounts withheld by Citibanks tenants from rental payment sin 1980 but the rental payments for that year were declared as part of its gross income included in its annual income tax returns. On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829.29, respectively or a total of P568,989.85; and on

October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund. On August 30, 1981, the CTA adjudged Citibanks entitlement to thetax refund sought for, representing the 5% tax withheld and paid on Citibanks rental income for 1979 and 1980. The Court of Tax Appeals, rejected Respondent CIRs argument that the claim was not seasonably filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibanks rental income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the petitioner bank was denied. Hence, this petition.

Issue: Whether or not income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayers final adjusted returns.

Held: In several cases, we have already ruled that income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayers final adjusted returns, not on such periodic or quarterly basis. When applied to taxpayers filing income tax returns on a quarterly basis, the date of payment mentioned in Sec. 230 must be deemed to be qualified by Sec. 68 and 69 of the present. Tax Code. It may be observed that although quarterly taxes due are required to be paid within 60 days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to be corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns.

FEBTC VS CIR 02 MAY 2006 SUBSTANTIATION REQUIREMENT

Refund claim must be substantiated by invoices/receipts. CPA report is not sufficient. CIR vs. Manila Mining Corp., G.R. No. 153204, August 31, 2005, 3rd Div. Failure to present VAT ORs evidencing zero-rated sales to AMEX-HK Branch resulted in claim disallowance notwithstanding CPA report. American Express International, Inc. Philippine Branch vs. CIR, CTA EB No. 103, March 3, 2006. See Rule 12, Section 5, and Rule 13, Revised Rules of the Court of Tax Appeals. Affirming the CTA decision denying the claim for refund by the trustee bank of the withholding tax on money market placements, bank 15deposits, deposit substitutes and government securities it made allegedly on behalf of various tax exempt employee trusts, the Supreme Court held that mere testimony of witnesses is insufficient to establish that tax exempt employee trusts invested in such placements subjected to withholding tax. Documentary proof of such transactions, such as confirmation receipts and purchase orders, constitute the best evidence on the participation of the funds from these employee trusts. Far East Bank and Trust Company vCIR & CA, G.R No. 138919, May 2, 2006, 3rd) . CIRVS.ROSEMARIEACOSTA9. G.R. NO. 154068 AUGUST 3, 2007 FACTS: Acosta is an employee of Intel and was assigned in a foreign country. Duringth at period Intel withheld the taxes due and remitted them to BIR. Respondent claimed overpayment of taxes and filed petition for review with CTA. CTA dismissed the petition for failure to file a written claim for refund with the CIR a condition precedent to the filing of a petition for review with the CTA. CA reversed the decision reasoning that Acostasfiling of an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim. ISSUE: Whether or not CTA has jurisdiction to take cognizance of respondents petition for review.

RULING: A party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief but al so to pursue it to its appropriate conclusion before seeking judicial intervention in order to give administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action. At the time respondent filed her amended return, the 1997, NIRC was not yet in effect, hence respondent had no reason to think that the filing of an amended return would constitute the written claim required by law .CTA likewise stressed that even the date of filing of the Final Adjustment return was omitted, inadvertently or otherwise, by respondent in her petition for review. This is fatal to respondents claim, for it deprived the CTA of its jurisdiction over the subject matter of the case. Finally, revenue statutes are substantive laws and in no sense must with that of remedial laws. Revenue laws are not intended to be liberally constructed

ACCRA INVESTMENT Corp vs CA, December 20, 1991 Facts: ACCRA INVESTMENTS (ACCRAIN) is a domestic corporation engaged in the business of real estate investment and management consultancy. ACCRAIN filed with the Bureau of Internal Revenue its annual corporate income tax return for the calendar year reporting a net loss of P2,957,142.00 on April 15, 1982. ACCRAIN declared as creditable all taxes withheld at source by various withholding agents which withholding agents afores tated paid and remitted the above amounts representing taxes on rental, commission and consultancy income of the petitioner corporation to the Bureau of Internal Revenue. ACCRAIN filed a claim for refund. Pending action of the respondent Commissioner on its claim for refund, the petitioner corporation, on April 13, 1984, filed a petition for review with the respondent Court of Tax Appeals. The CTA dismissed the case for being filed out of time and the MR was likewise denied. A petition for review was submitted to the SC and the SC referred the case to the CA. The CA affirmed decision of the CTA. Issue: Whether or not the claim for refund was filed on time

Held: YES. Crucial in the resolution of the instant case is the interpretation of the phraseology "from the date of payment of the tax" in the context of Section 230 on Recovery of tax erroneously or illegally collected. A correct application of the Gibbs case according to the court is that a taxpayer whose income is withheld at source will be deemed to have paid his tax liability at the end of the tax year. It is from when the same falls due at the his latter date then, or when the two-year prescriptive period under Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system.. The aforequoted ruling presents two alternative reckoning dates, (1) the end of the tax year; and (2) when the tax liability falls due. In the instant case, it is undisputed that the petitioner corporation's withholding agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from February to December 1981. ACCRAIN is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery the refundable or creditable amount determined upon the petitioner corporation's filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petitioner corporation duly complied with this requirement Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that: Section 8. Claims for tax credit or refund Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement, duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid and the amount of tax withheld therefrom. The term "return" in the case of domestic corporations like ACCRAIN refers to the final adjustment return. It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund

from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

C OMMISSIONER OF I NTERNAl R EVENUE V TMX SALES I NC (205 SCRA 184) Topic: Prescriptive period to claim refund of erroneously paid taxes Facts: TMX Sales, Inc., a domestic corporation, filed on 15 May 1981 a quarterly income tax return for the first quarter of 1981 and paid the corresponding income tax thereon.During the subsequent quarters, it suffered losses so that when it filed its Annual Income Tax Return for the year that ended on 31December 1981, it declared a net loss. It thereafter filed a claim for refund, which was no acted upon by the Commissioner of Internal Revenue. On 14 March 1984, TMX Sales, Inc. filed a petition for review with the Court of Tax Appeals to order the CIR to refund the amount overpaid as income tax. The CIR raised the defense of prescription against TMX Sales, Inc., stating that more than two years had already elapsed since TMX paid the contended income tax and the filing of the claim in court.

Issue and Ruling: 1. Does the two-year prescriptive period to claim a refund of erroneously collected tax provided for in Section230 of the National Internal Revenue Code commence to run from the date the quarterly income tax was paid, or from the date of filing of the Final Adjustment Return (final payment)?The most reasonable and logical application of the law would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax.

Notes: The filing of quarterly income tax returns required in Section 68 of the Tax Code and implemented per BIR Form1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar year or fiscal year. This is reinforced by Section 69 which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive provided in Section 230of the Tax Code should be computed from the time of the filing of the Adjustment Return or Annual Income Tax Return and final payment of income tax.

COMMISSIONER OF INTERNAL REVENUE V PHILAMLIFE G.R. NO. 105208 MAY 29, 1995

FACTS: Respondent Philamlife herein sought refund of excess quarterly income tax paid by it in the amount of P3,643,0125.00 representing excess corporate income taxes for the first and second quarters of 1983. The CTA ruled in favor of Philamlife when it filed its appeal seeking for refund, hence this instant review on certiorari filed by the CIR. The facts showed that on May 30, 1983, private respondent Philamlife paid to the Bureau of Internal Revenue (BIR) its first quarterly corporate income tax for Calendar Year (CY) 1983 amounting to P3,246,141.00, subsequently it again paid on August 29, 1983, it paid P396,874.00 for the Second Quarter of 1983 for the Third Quarter of 1983, private respondent declared a net taxable income of P2,515,671.00 and a tax due of P708,464.00. After crediting the amount of P3,899,525.00 it declared a refundable amount of P3,158,061.00. In 1984, private respondent again suffered a loss and declared no income tax liability. However, it applied as tax credit for 1984, the amount of P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and the amount of P250,867.00 as withholding tax on rental income for 1984. On December 10, 1985 the responder Philamlife filed with the CIR a claim for refund, when it was denied it filed a petition for review with the CTA.

The contention of the CIR is that the claim for refund has prescribed. ISSUE: Whether or not the claim for refund has prescribed? Held: No, the claim for refund has not prescribed. The main questioned to be resolved in this case in order to rule on the claim of prescription is the running of the prescriptive period i.e. in the case of a corporate tax payer should the prescriptive period be counted from the date of the actual payment or should the reckoning date be that wherein the corporate final adjustment return was filed. Herein the Court ruled that the counting of the period of prescription should commence at the filing of the final adjustment return. In order to come up with the above decision the SC harmonised the provisions of Sec 292 (now Section 230) with the provisions of Section 68 and 69 of the Tax Code to wit: while section 292 stipulates that the two year prescriptive period for refunds should be counted from date of payment of the tax sought to be refunded; when applied to tax payers filing income tax returns on a quarterly basis, the date of payment mentioned in Section 292 must be deemed to be qualified by Section 68 and 69 of the Tax Code which provides, in the case of corporations, the necessity of filing a quarterly income tax and a final adjustment return. Thus, the court said that it is only upon the filing of the final adjustment return that the amount due to the government or what should be refunded to the corporation may be ascertained. Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not have been able to ascertain on that date, that the said amount was refundable. The same applies with cogency to the payment of P396,874.00 on August 29, 1983. The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record shows that the claim for refund was filed on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Private respondent being a corporation, Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year prescriptive period for refunds.

G.R. No. 117254 January 21, 1999 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and BANK OF THE PHILIPPINE ISLANDS as LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORPORATION, respondent.

MENDOZA, J.: This is a petition for review on certiorari of the decision, dated September 19, 1994, of the Court of Appeals affirming the decision of the Court of Tax Appeals which ordered petitioner to refund P65,259.00 as overpaid income tax. The facts are stated in the following portion of the decision of the CTA which the Court of Appeals quoted with approval: Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly organized and existing under Philippine laws. It acts as the liquidator of Paramount Acceptance Corporation after its dissolution on March 31, 1986. On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax Return, for calendar year ending December 31, 1985, declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax, to wit: Qtr. CR/ROR 1st 6817293 2nd 5613316 3rd 7720471 TOTAL P1,218,940.00 Date Bank Amount Exh. C C-1 C-2

5/30/85 DBP P308,779.00 8/29/85 DBP 626,000.00 11/29/85 DBP 284,161.00

========== After deducting Paramount's total quarterly income tax payments of P1,218,940.00 from its income tax of P1,153,681.00, the return showed a refundable amount of P65,259.00. The appropriate box in the return was marked with a cross (x) indicating "To be refunded" he amount of P65,29,00. n April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid income tax for the calendar year 1985. The following day or on April 15, 1988. BPI filed the instant petition with this Court in order to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes. The question is whether the two-year period of prescription for filing a claim for refund, as provided in 230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return was actually filed or from April l5, 1986 when, according to 70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty. The aforesaid 230 of the NLRC 1 provides that such period must be counted "from the date of payment of the tax." But, given the facts as stated above, when was the corporate income tax paid in this case? The Court of Tax Appeals rendered a decision decision the considering the two year period of prescription to have commenced to run from April 15, 1986, the last day for filing the corporate income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was brought on April 15, 1988, it held that prescription had not set in. Accordingly, the CTA ordered as follows: WHEREFORE, the respondent [petitioner herein] is hereby ordered to REFUND in favor of petitioner, the sum of P65,259.00, representing overpaid income tax of Paramount Acceptance Corporation for the calendar year 1985. No pronouncement as to costs. SO ORDERED. 2

On appeal, its decision was affirmed by the Court of Appeals. Said the appellate court: 3 We agree with the respondent court's ruling that the date of payment of the tax as prescribed under the Tax Code is the date when the corporate income tax return is required to be filed. . . . The Supreme Court has laid down the rule regarding the computation of the prescriptive period that the two-year period should be computed from the time of filing of the Adjustment Returns or Annual Income Tax Return and final payment of income tax: it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures (Commissioner of Internal Revenue vs. TMX Sales Inc., 205 SCRA 184). The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return (Commissioner of Internal Revenue vs. Asia Australia Express Ltd., G.R. No. 85956). The "date of payment" from which to reckon the two-year period, in the case of a corporation whose taxable year is on a calendar basis, is the 15th day of the fourth month (April 15th) following the close of the fiscal year, and the filing of the final adjustment return on April 15th, following the close of the preceding taxable year, is such "date of payment" (ACCRA Investments Corp. vs. Court of Appeals, 204 SCRA 957). In this case, BPI filed its final adjustment return on April 2, 1985. No taxes were paid then because the returns showed that the quarterly taxes already paid exceeded the income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the previous year's income tax becomes due and payable and the taxpayer is still free to make amendments or adjustments on its return, without penalty, until April 15, 1986 (See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed to be on April 15, 1986, when the previous year's income tax became due and payable and when the quarterly corporate income taxes may be considered paid. Accordingly the administrative claim and court proceeding for tax refund were timely filed.

Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the two-year prescriptive period should be computed from April 2, 1984, when the final adjustment return was actually filed, because that is the time of payment of the tax, within the meaning of 230 of the NIRC. We agree. The conclusions reached by the appellate court are contrary to the very rulings cited by it. In Commissioner of Internal Revenue v. TMX Sales, Inc., 4 this Court, in rejecting the contention that the period of prescription should be counted from the date of payment of the quarterly tax, held: . . . [T]he filing of a quarterly income tax return required in Section 85 [now Section 68] and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payment which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 [now Section 69] which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 [now Section 230 of the Tax Code] should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. On the other hand, in ACCRA Invesments Corporation v. Court of Appeals, 5 where the question was whether the two-year period of prescription should be reckoned from the end of the taxable year (in that case December 31, 1981), we explained why the period should be counted from the filing of the final adjustment return, thus: 6 Clearly, there is the need to file a return first before a claim for refund can proper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed

its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. xxx xxx xxx It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed is final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payments", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982. Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance Co., 7 we held: Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record shows that the claim for refund was filed on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Private respondent being a corporation, Section 292 [now Section 230] cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As we have earlier stated in the TMX Sales case. Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Sectibn 321 should be construed in conjunction with it. Sec. 49(a) of the NIRC provides that

9. Payment and assessment of income tax for individuals and corporations. (a) Payment of tax(1) In general. The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. . . . On the other hand, 70(b) of the same Code provides that 70 (b) Title of filing the income return The corporate quarterly declaration shall be filed within sisty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. Thus, it can be deduced from the foregoing that, in the contest of 230, which provides for a two-year period of prescription counted "from the date of payment of the tax" for actions for refund of corporate income tax, the two-year period should be computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time the return is filed. In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription. The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in this case by petitioner. WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for refund filed by private respondent is DISMISSED on the ground that it is barred by prescription.1wphi1.nt SO ORDERED. Bellosillo, Puno, Quisumbing and Buena, JJ., concur.

G.R. No. 161997 October 25, 2005 COMMISSIONER OF INTERNAL vs. PHILIPPINE NATIONAL BANK, Respondent. DECISION GARCIA, J.: Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue seeks to set aside the Decision dated October 14, 20031 of the Court of Appeals (CA) in CA-G.R. SP No. 76488 and its Resolution dated January 26, 20042 denying petitioners motion for reconsideration. The petition is cast against the following factual setting: In early April 1991, respondent Philippine National Bank (PNB) issued to the Bureau of Internal Revenue (BIR) PNB Cashiers Check No. 109435 for P180,000,000.00. The check represented PNBs advance income tax payment for the banks 1991 operations and was remitted in response to then President Corazon C. Aquinos call to generate more revenues for national development. The BIR acknowledged receipt of the amount by issuing Payment Order No. C-10151465 and BIR Confirmation Receipt No. 22063553, both dated April 15, 1991.3 Via separate letters dated April 19 and 29, 1991 and May 14, 19914 to then BIR Commissioner Jose C. Ong, PNB requested the issuance of a tax credit certificate (TCC) to be utilized against future tax obligations of the bank. For the first and second quarters of 1991, PNB also paid additional taxes amounting to P6,096,150.00 and P26,854,505.80, respectively, as shown in its corporate quarterly income tax return filed on May 30, 1991.5Inclusive of the P180 Million aforementioned, PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79.6 This final figure, if tacked to PNBs prior years excess tax credit (P1,385,198.30) and the creditable tax withheld for 1991 (P3,216,267.29), adds up to P217,552,122.38. REVENUE, Petitioner,

By the end of CY 1991, PNBs annual income tax liability, per its 1992 annual income tax return,7 amounted to P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38, resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the banks negative tax position for the said inclusive years, having incurred losses during the 4-year period. On July 28, 1997, PNB wrote then BIR Commissioner Liwayway Vinzons-Chato, Attention: Appellate Division, to inform her about the above developments and to reiterate its request for the issuance of a TCC, this time for the " unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60".9 This request was forwarded for review and further processing to the Office of the Deputy Commissioner for Legal and Inspection Group, Lilian B. Hefti, and then to the BIRs Large Taxpayers Service. In a letter dated July 26, 2000, PNB sought reconsideration of the decision of Deputy Commissioner Hefti not to take cognizance of the banks claim for tax credit certificate on the ground that the jurisdiction of the Appellate Division is limited to claims for tax refund and credit "involving erroneous or illegal collection of taxes whenever there are questions of law and/or facts and does not include claims for refund of advance payment, pursuant to Revenue Administrative Order [RAO] No. 7-95 dated October 10, 1995."10 In her letter-reply dated August 8, 2008,11 Deputy Commissioner Hefti denied PNBs request for reconsideration with the following explanations: In reply, please be advised that upon review . . . of your case, this Office finds that the same presents no legal question for resolution. Rather, what is involved is the verification of factual matters, i.e., the existence of material facts to establish your entitlement to refund. Such facts were initially verified through the proper audit of your refund case by the investigating unit under the functional control and supervision of the Deputy Commissioner, Operations Group of this Bureau. It is therefore right and proper for the Operations Group to review, confirm and/or pass judgment upon the findings of the unit under it. At any rate, sound management practices demand that issues as crucial as refund cases be subjected to complete staff work. There might be a little delay in the transition

of cases but expect the new procedures to be well-established in no time. Allow us, however, to allay your concern about delayed processing of your claim. In fact, the undersigned has made representations with the Operations Group about your case and if you would check the status of your case again, you will find that the same has been duly acted upon." (Emphasis supplied) On August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its unutilized advance tax payment of P73,298,892.60 to the banks future gross receipts tax liability.12 Replying, the BIR Commissioner denied PNBs claim for tax credit for the following reasons stated in his letter of May 21, 2002, to wit:13 1. The amount subject of claim for [TCC] is being carried over from your 1991 to 1996 Annual Income Tax Returns. xxx. To grant your claim would result into granting it twice first for tax carry over as shown in your 1991 amended Income Tax Return and second for granting a tax credit. 2. When you requested for a refund on April 19, 1991, reiterated on April 29, 1991 and again on May 14, 1991 on alleged excess income taxes, the same was considered premature since the determination . . . of your income tax liability can only be ascertained upon filing of your Final or Adjusted Income Tax Return for 1991 on or before April 15, 1992. 3. When you carried over the excess tax payments from 1991 to 1996 Annual Income Tax Return, you had already abandoned your original intention of claiming for a [TCC]. Furthermore, the 1991 amended Income Tax Return you filed on April 14, 1994 clearly showed that the amount being claimed has already been applied as tax credit against your 1992 income tax liability. 4. Although there was already a recommendation for the issuance of a [TCC] by the Chief, Appellate Division and concurred in by the Assistant Commissioner, Legal Service, the recommendation was for . . . year 1992 and not for the taxable year 1991, which is the taxable year involved in this case. 5. Even if you reiterated your claim for tax credit certificate when you filed your claim on July 28, 1997, the same has already prescribed on the ground that it was filed

beyond the two (2) year prescriptive period as provided for under Section 204 of NIRC. [Words in bracket and emphasis added] On June 20, 2002, PNB, via a petition for review, appealed the denial action of the BIR Commissioner to the Court of Tax Appeals (CTA). There, its appellate recourse was docketed as C.T.A. Case No. 6487. The Revenue Commissioner filed a motion to dismiss PNBs aforementioned petition on ground of prescription under the 1977 National Internal Revenue Code (NIRC)14. To this motion, PNB interposed an opposition, citingCommissioner of Internal Revenue vs. Philippine American Life Insurance Co.15 In its Resolution of October 10, 2002,16 the CTA granted the Commissioners motion to dismiss and, accordingly, denied PNBs petition for review, pertinently stating as follows: To reiterate, both the claim for refund and the subsequent appeal to this court must be filed within the same two (2)-year period [provided in Sec. 230 of the NIRC]. This is not subject to qualification. The court is bereft of any jurisdiction or authority to hear the instant Petition for Review, considering that the above stated action for refund was filed beyond the two (2)-year prescriptive period as allowed under the Tax Code. (Words in bracket added) PNBs motion for reconsideration was denied by the tax court in its subsequent Resolution of March 20, 2003.17 In time, PNB filed a petition for review with the Court of Appeals (CA), thereat docketed as CA-G.R. SP No. 76488, arguing that the applicability of the two (2)-year prescriptive period is not jurisdictional and that said rule admits of certain exceptions. 18 Following the filing by the Commissioner Internal Revenue of his Comment to PNBs petition in CA-G.R. in SP No. 76488, respondent PNB filed a Supplement to its Petition for Review.19 In the herein assailed Decision dated October 14, 2003,20 the appellate court reversed the ruling of the CTA, disposing as follows:

WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE. Consequently, the assailed Resolutions dated October 10, 2002 and March 30, 2003 of the Court of Tax Appeals in C.T.A. Case No. 6487 are hereby ANNULLED and SET ASIDE. The case is hereby REMANDED to the respondent Commissioner for issuance with deliberate dispatch of the tax credit certificate after completion of processing of petitioners claim/request by the concerned BIR officer/s as to the correct amount of tax credit to which petitioner is entitled. No pronouncements as to costs. SO ORDERED. In gist, the appellate court predicated its disposition on the following main premises: 1. Considering the "special circumstance" that the tax credit PNB has been seeking is to be sourced not from any tax erroneously or illegally collected but from advance income tax payment voluntarily made in response to then President Aquinos call to generate more revenues for the government, in no way can the amount of P180 million advanced by PNB in 1991 be considered as erroneously or illegally paid tax.21 2. The BIR is deemed to have waived the two (2)-year prescriptive period when its officials led the PNB to believe that its request for tax credit had not yet prescribed since the matter was not being treated as an ordinary claim for tax refund/credit or a simple case of excess payment. 3. Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.22 instructs that even if the two (2)-year prescriptive period under the Tax Code had already lapsed, the same is not jurisdictional, and may be suspended for reasons of equity and other special circumstances. PNBs failure to apply the advance income tax payment due to its negative tax liability in the succeeding taxable years i.e., 19921996, should not be subject to the two (2)-year limitation as to bar its claim for tax credit. The advance income tax payment, made as it were under special circumstances, warrants a suspension of the two (2)-year limitation, underscoring the fact that PNBs claim is not even a simple case of excess payment. In time, the BIR Commissioner moved for a reconsideration, but its motion was denied by the appellate court in its equally challenged Resolution of January 26, 2004.23

Hence, the Commissioners submissions:

present

recourse

on

the

following

substantive

1. A prior tax assessment before respondent PNB can apply for tax credit is unnecessary; 2. PNBs letter dated April 19, 29 and May 14, 1991 cannot be legally interpreted as claims for refund or tax credit as required by the NIRC; 3. PNBs claim for tax credit is barred by prescription; and 4. The equitable principle of estoppel does bar the BIR petitioner from collecting taxes due. 24 Petitioner first scores the CA for concluding that "the amount of advance income tax payment voluntarily remitted to the BIR by the [respondent] was not a consequence of a prior tax assessment or computation by the taxpayer based on business income" and, therefore, it cannot "be treated as similar to those national revenue taxes erroneously, illegally or wrongfully paid as to be automatically covered by the two (2)year limitation under Sec. 230 [of the NIRC] for the right to its recovery." Petitioner invokes the all too-familiar principle that the collection of taxes, being the lifeblood of the nation,25 should be summary and with the least interference from the courts. Pressing its point, petitioner asserts that what transpired under the premises is a case of excessive collection not arising from an erroneous, illegal of wrongful assessment and collection. According to petitioner, respondent PNB, after making a prepayment of taxes in 1991, had realized, upon filing, in 1992, of its 1991 final annual income tax return, the excess payment by simple process of mathematical computation; hence, it was unnecessary to make any assessment of overpaid taxes. Moreover, petitioner points out that the tenor of PNBs letters of April 19, 29, and May 14, 199126 indicated a mere request for an issuance of a TCC covering the advance payments of taxes, not a claim for refund or tax credit of overpaid national internal revenue taxes. Citing Revenue Regulation No. 10-77, petitioner likewise argues that any excess or overpaid income tax for a given taxable year may be carried to the succeeding taxable year only. It cannot, petitioner expounds, go beyond, as what respondent PNB attempted to do in 1997, when, after realizing the inapplicability of the excess carry-

forward scheme for its 1992 income tax liabilities owing to its negative tax position for the 1992 to 1996 tax period, it belatedly requested for a TCC issuance. Lastly, petitioner urges the Court to make short shrift of the invocation of equity and estoppel, on the postulate that the erroneous application and enforcement of tax laws by public officers does not preclude the subsequent correct application of such laws. 27 In its Comment, respondent PNB contends that its claim for tax credit did not arise from overpayment resulting from erroneous, illegal or wrongful collection of tax. And obviously having in mind the holding of this Court in Juan Luna Subdivision Inc. vs. Sarmiento,28 respondent stresses that its P180 Million advance income tax payment for 1991 partakes of the nature of a deposit made in anticipation of taxes not yet due or levied. Accordingly, respondent adds, the P180 Million was strictly not a payment of a valid and existing tax liability, let alone an erroneous payment, the refund of which is governed by Section 230 of the NIRC. Taking a different tack, respondent PNB would also argue that, even assuming, in gratia argumenti that the two (2)-year limitation in Section 230 of the NIRC is of governing application, still the prescriptive period set forth therein is not jurisdictional. The suspension of the statutory limitation in this case, PNB adds, is justified under exceptional circumstance. We rule for respondent PNB. As may be recalled, both the CTAs and the BIRs refusal to grant PNBs claim for refund or credit was based on the proposition that such claim was time-barred. On the other hand, the CA rejected both the CTAs and BIRs stance for reasons as shall be explained shortly. As we see it then, the core issue in this case pivots on the applicability hereto of the two (2)-year prescriptive period under in Section 230 (now Sec. 229) of the NIRC, reading: "SEC. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , . . , or of any sum, alleged to have been excessive or in any manner wrongfully collected, until a

claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Underscoring added.) Here, respondent PNB requested the BIR to issue a TCC on the remaining balance of the advance income tax payment it made in 1991. It should be noted that the request was made considering that, while PNB carried over such credit balance to the succeeding taxable years, i.e., 1992 to 1996, its negative tax position during said tax period prevented it from actually applying the credit balance of P73, 298,892.60. It is fairly correct to say then that the claim for tax credit was specifically pursued to enable the respondent bank to utilize the same for future tax liabilities. However, petitioner ruled that the claim in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992 when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment ascertained with the filing of its final 1991 income tax return. In rejecting petitioners ruling, as seconded by the CTA, the CA stated that PNBs request for issuance of a tax credit certificate on the balance of its advance income tax payment cannot be treated as a simple case of excess payment as to be automatically covered by the two (2)-year limitation in Section 230, supra of the NIRC. We agree with the Court of Appeals. Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected. Black defines the term erroneous or illegal tax as one levied without statutory authority.29 In the strict legal viewpoint, therefore, PNBs claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally

collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter30 was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period. The instant case ought to be distinguished from a situation where, owing to net losses suffered during a taxable year, a corporation was also unable to apply to its income tax liability taxes which the law requires to be withheld and remitted. In the latter instance, such creditable withholding taxes, albeit also legally collected, are in the nature of "erroneously collected taxes" which entitled the corporate taxpayer to a refund under Section 230 of the Tax Code. So it is that in Citibank, N.A. vs. Court of Appeals31, we held: The taxes thus withheld and remitted are provisional in nature. We repeat: five percent of the rental income withheld and remitted to the BIR pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final taxes on passive incomes, a creditable withholding tax; that is, creditable against income tax liability if any, for that taxable year. In Commissioner of Internal Revenue vs. TMX Sales, Inc., this Court ruled that the payments of quarterly income taxes (per Section 68, NIRC) should be considered mere installments on the annual tax due. These quarterly tax payments . . . should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. The same holds true in the case of the withholding of creditable tax at source. Withholding taxes are "deposits" which are subject to adjustments at the proper time when the complete tax liability is determined. In this case, the payments of the withholding taxes for 1979 and 1980 were creditable to the income tax liability, if any, of petitioner-bank, determined after the filing of the corporate income tax returns on April 15, 1980 and April 15, 1981. As petitioner posted net losses in its 1979 and 1980 returns, it was not liable for any income taxes. Consequently and clearly, the taxes withheld during the course of the taxable year, while collected legally under the aforecited revenue regulation, became untenable and

took on the nature of erroneously collected taxes at the end of the taxable year. (Underscoring added) Analyzing the underlying reason behind the advance payment made by respondent PNB in 1991, the CA held that it would be improper to treat the same as erroneous, wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code. So that even if the respondents inability to carry-over the remaining amount of its advance payment to taxable years 1992 to 1996 resulted in excess credit, it would be inequitable to impose the two (2)-year prescriptive period in Section 230 as to bar PNBs claim for tax credit to utilize the same for future tax liabilities. We quote with approval the CAs disquisition on this point: Thus, in no sense can the subject amount of advance income tax voluntarily remitted to the BIR by the [respondent], not as a consequence of prior tax assessment or computation by the taxpayer based on business income, be treated as similar to those national revenue taxes erroneously, illegally or wrongfully paid as to be automatically covered by the two (2)-year limitation under Sec. 230 for the right to its recovery. When the P180 million advance income tax payment was tendered by [respondent], no tax had been assessed or due, or actually imposed and collected by the BIR. Neither can such payment be considered as illegal having been made in response to a call of patriotic duty to help the national government . We therefore hold that the tax credit sought by [respondent] is not simply a case of excess payment, but rather for the application of the balance of advance income tax payment for subsequent taxable years after failure or impossibility to make such application or carry over the preceding four (4)-year period when no tax liability was incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-year prescriptive period as to legally bar any request for such tax credit certificate considering the special circumstances under which the advance income tax payment was made and the unexpected event (four years of business losses) which prevented such application or carry over. Ironically, both the [petitioner] and CTA would fault the [respondent] for electing to credit or carry over the excess amount of tax payment advanced instead of choosing to refund any such excess amount, holding that such decision on the part of petitioner caused the two (2)-year period to lapse without the petitioner filing such a request for the issuance of a tax credit certificate. They emphasized that the advance tax payment was made with the understanding that any excess amount will be either carried over to the next taxable year or refunded. It appears then that the request for

issuance of a tax credit certificate was arbitrarily interpreted by respondent as a simple claim for refund instead of a request for application of the balance (excess amount) to tax liability for the succeeding taxable years, as was the original intention of [respondent] when it tendered the advance payment in 1991."32 (Emphasis in the original; words in bracket added) Petitioner insists that a prior tax assessment in this case was unnecessary, the excess tax payment having already been ascertained by the end of 1992 upon the filing by respondent of its adjusted final return. Thus, petitioner adds, the two (2)-year prescriptive period to recover said excess credit balance had begun to run from the accomplishment of the said final return and, ergo, PNBs claim for tax credit asserted in 1997 is definitely belated. Additionally, petitioner, citing Revenue Regulation No. 10-77, contends that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. We do not agree. Revenue Regulation No. 10-7733 governs the method of computing corporate quarterly income tax on a cumulative basis. Section 7 thereof provides: SEC. 7. Filing of final or adjustment return and final payment of income tax. -- A final or an adjustment return . . . covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. xxxx. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year. "Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return its intention whether to request for the refund of the overpaid income or claim for automatic tax credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling the appropriate box on the corporate tax return. (B.I.R. Form No. 1702) [Emphasis added]

As can be gleaned from the above, the mandate of Rev. Reg. No. 10-77 is hardly of any application to PNBs advance payment which, needless to stress, are not "quarterly payments" reflected in the adjusted final return, but a lump sum payment to cover future tax obligations. Neither can such advance lump sum payment be considered overpaid income tax for a given taxable year, so that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only.34 Clearly, limiting the right to carry-over the balance of respondents advance payment only to the immediately succeeding taxable year would be unfair and improper considering that, at the time payment was made, BIR was put on due notice of PNBs intention to apply the entire amount to its future tax obligations. In Commissioner vs. Phi-am Life35, the Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the Tax Code or special laws, that period would be ten (10) years under Article 1144 of the Civil Code. Significantly, Commissioner vs. Phil-Am is partly a reiteration of a previous holding that even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is not jurisdictional36 and may be suspended for reasons of equity and other special circumstances.37 While perhaps not in all fours because it involved the refund of overpayment due to misinterpretation of the law on franchise, our ruling in Panay Electric Co. vs. Collector of Internal Revenue38, is apropos. There, the Court stated: "xxx(L)egally speaking, the decision of the Tax Court [on the two-year prescriptive period for tax refund] is therefore correct, being in accordance with law. However, ones conscience does not and cannot rest easy on this strict application of the law, considering the special circumstances that surround this case. Because of his erroneous interpretation of the law on franchise taxes, the Collector, from the year 1947 had illegally collected from petitioner the respectable sum of . . . . From a moral standpoint, the Government would be enriching itself of this amount at the expense of the taxpayer. (Words in bracket added and underscoring added.) Like the CA, this Court perceives no compelling reason why the principle enunciated in Panay Electric andCommissioner vs. Phil-Am Life should not be applied in this case, more so since the amount over which tax credit is claimed was theoretically booked as

advance income tax payment. It bears stressing that respondent PNB remitted the P180 Million in question as a measure of goodwill and patriotism, a gesture noblesse oblige, so to speak, to help the cash-strapped national government. It would thus indeed, be unfair, as the CA correctly observed, to leave respondent PNB to suffer losing millions of pesos advanced by it for future tax liabilities. The cut becomes all the more painful when it is considered that PNBs failure to apply the balance of such advance income tax payment from 1992 to 1996 was, to repeat, due to business downturn experienced by the bank so that it incurred no tax liability for the period. The rule of long standing is that the Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 39 It is likewise settled that to a claimant rests the onus to establish the factual basis of his or her claim for tax credit or refund.40 In this case, however, petitioner does not dispute that a portion of the P180 Million PNB remitted to the BIR in 1991 as advance payment remains unutilized for the purpose for which it was intended in the first place. But petitioner asserts that respondents right to recover the same is already time-barred. The CTA upheld the position of petitioner. The CA ruled otherwise. We find the CAs position more in accord with the facts on record and is consistent with applicable laws and jurisprudence. Verily, the suspension of the two (2)-year prescriptive period is warranted not solely by the objective or purpose pursuant to which respondent PNB made the advance income tax payment in 1991. Records show that petitioners very own conduct led the bank to believe all along that its original intention to apply the advance payment to its future income tax obligations will be respected by the BIR. Notwithstanding respondent PNBs failure to request for tax credit after incurring negative tax position in 1992, up to taxable year 1996, there appears to be a valid reason to assume that the agreed carrying forward of the balance of the advance payment extended to succeeding taxable years, and not only in 1992. Thus, upon posting a net income in 1997 and regaining a profitable business operation, respondent bank promptly sought the issuance of a TCC for the reason that its credit balance of P73, 298,892.60 remained unutilized. If ever, petitioners pose about respondent PNB never having made a written claim for refund only serves to buttress the latters position that it was not out to

secure a refund or recover the aforesaid amount, but for the BIR to issue a TCC so it can apply the same to its future tax obligations. Lest it be overlooked, petitioner peremptorily denied the request for tax credit on the ground of its having been filed beyond the two (2)-year prescriptive period. In the same breath, however, petitioner appears to have glossed over an incident which amounts to an earlier BIR ruling that "there is no legal question to be resolved but only a factual investigation" in the processing of PNBs claim. Even as petitioner concluded such administrative investigation, it did not deny the request for issuance of a tax credit certificate on any factual finding, such as the veracity of alleged business losses in the taxable years 1992 to 1996, during which the respondent bank alleged the credit balance was not applied. Lastly, there is no indication that petitioner considered respondents request as an ordinary claim for refund, the very reason why the same was referred by the BIR for processing to the Operations Group of the Bureau. Hence, no reversible error was committed by the CA in holding that, upon basic considerations of equity and fairness, respondents request for issuance of a tax credit certificate should not be subject to the two (2)-year limitation in Section 230 of the NIRC. With the foregoing disquisitions, the Court finds it unnecessary to delve on the question of whether or not mistakes of tax officers constitute a bar to collection of taxes by the BIR Commissioner. The procedural issue presently raised by petitioner, i.e., respondent PNBs alleged non-compliance with the forum shopping rule when its petition for review filed with the CTA did not contain the requisite authority of PNB Vice President Ligaya R. Gagolinan to sign the certification, need not detain us long. Petitioner presently faults the CA for not having taken notice that PNBs initiatory pleading before the CTA suffers from an infirmity that justifies the dismissal thereof. But it is evident that the issue of forum shopping is being raised for the first time in this appellate proceedings. Accordingly, the Court loathes to accommodate petitioners urging for the dismissal of respondents basic claim on the forum-shopping angle. As earlier ruled by this Court, a party ought to invoke the issue of forum shopping, assuming its presence, at the first opportunity in his motion to dismiss or similar

pleading filed in the trial court. Else, he is barred from raising the ground of forum shopping in the Court of Appeals and in this Court.41 So it must be here. WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and resolution of the Court of Appeals in CA-G.R. SP No. 76488 AFFIRMED. No pronouncement as to costs.

G.R. No. 144653

August 28, 2001 ISLANDS, petitioner,

BANK OF THE PHILIPPINE vs. COMMISSIONER OF INTERNAL REVENUE, respondents. MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court of Appeals,1 affirming the decision of the Court of Tax Appeals (which denied petitioner Bank of the Philippine Islands' claim for tax refund for 1985), and the appeals court's resolution, dated August 21, 2000, denying reconsideration. The facts are as follows: Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1985, The Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased properties and interest from its treasury notes for the period January 1 to June 30, 1985. As required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent of the rental income, in the amount of P118,609.17, while the Central Bank, from which the treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon. Creditable withholding taxes in the total

amount of P174,065.77 were remitted to respondent Commissioner of Internal Revenue. FBTC, however, suffered a new loss of about P64,000,000.00 during the period in question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its dissolution in 1985, FBTC had a refundable of P2,320,138.34, representing that year's tax credit of P174,065.77 and the previous year's excess credit of P2,146,072.57. As FBTC's successor-in-interest, petitioner BPI claimed this amount as tax refund, but respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57, leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount.2 However, in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioner's petition for review and denied its claim for refund on the ground that the claim had already prescribed.3 In its resolution, dated August 4, 1995, the Court of Tax Appeals denied petitioner's motion for reconsideration.4 Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000, the appeals court affirmed the decision of the CTA.5 The appeals court subsequently denied petitioner's motion for reconsideration.6 Hence this petition. The sole issue in this case is whether petitioner's claim is barred by prescription. The resolution of this question requires determination of when the two-year period of prescription under 292 of the Tax Code started to run. This provision states: Recovery of tax erroneously or illegally collected. No suit or proceedings shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with petitioner BPI. The merger was approved by the Securities and Exchange Commission on July 1, 1985. Petitioner contends, however that its claim for refund has yet prescribed because the two-year prescriptive period commenced to run only after it had filed FBTC's Final Adjustment Return on April 15 1986, pursuant to 46(a) of the National Internal Revenue Code of 1977 (the law applicable at the time of this transaction) which provided that Corporation returns. (a) Requirement. Every corporation, subject to the tax herein imposed, except foreign corporations not engaged in trade or business in the Philippines shall render, in duplicate, a true and accurate quarterly income tax return and final or adjustment return in accordance with the provisions of Chapter X of this Title. The return shall be filed by the president, vice-president, or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer. On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be counted from July 31, 1985, 30 days after the approval by the SEC of the plan of dissolution in view of 78 of the Code which provided that Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation or for the liquidation of the whole or any part of its capital stock, including corporations which have been notified of the possible involuntary dissolution by the Securities and Exchange Commission, render a correct return to the Commission of Internal Revenue, verified under oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the Securities and Exchange Commission shall secure a certificate of tax clearance

from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. Failure to render the return and secure the certificate of tax clearance as abovementioned shall subject the officer (s) of the corporation required by law to file the return under Section 46(a) of this Code, to a fine of not less than Five Thousand Pesos or imprisonment of not less than two years and shall make them liable for all outstanding or unpaid tax liabilities of the dissolving corporation. Its ruling was sustained by the Court of Appeals. After due consideration of the parties' arguments, we are of the opinion that, in case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by 78 of the Tax Code. Accordingly, we hold that petitioner's claim for refund is barred by prescription. First. Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.7 Hence, this Court has ruled that at the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.8 In the case at bar, however, the Court of Tax Appeals, applying 78 of the Tax Code, held: Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion (Exh. "A-7" to "A-17"), FBTC operates on a calendar year basis. Its twelve (12) months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1, 1985 when the Articles of Merger was approved by the Security and Exchange Commission. Thus, respondent('s) stand that FBTC operates on a fiscal year basis, based on its income tax return, holds no ground. Third Court believes that FBTC is

operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the income tax return can be concluded as an error on the part of FBTC. It should have been for the six month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor" (Mertens, Law of Federal Income Taxation, Vol. 7 S 38.36). Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its income tax return within thirty days after the cessation of its business or thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of the tax Code and under Sec. 244 of Revenue Regulation No. 29 As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months, from January 1, 1985 to June 30, 1985 The situation of FBTC is precisely what was contemplated under 78 of the Tax Code. It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months after it ceased its operations, before filing its income tax return. Thus, 46(a) of the Tax Code applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, 78 of the Tax Code applies. It is a rule of statutory construction that "[w]here there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.10

Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that 78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by 78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that 78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution. As the Court of Tax Appeals observed, however, petitioner could have asked for an extension of time of file its income tax return under 47 of the NIRC which provides: Extension of time to file returns. The Commissioner of Internal Revenue may, in meritorious cases, grant a reasonable extension of time for filing returns of income (or final and adjustment returns in the case of corporations), subject to the provisions of section fifty-one of this Code. Petitioner further argues that the filing of a Final Adjustment Return would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, petitioner presented no evidence that the FBTC ever filed such quarterly return in 1985. Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following 78 of the Tax Code, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000. Suffice it to say that such a situation may likewise be remedied by resort to 47 of the Tax Code. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by 78 of the Tax Code.

In any case, as held in Commissioner of Internal Revenue v. Santos,11 "Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues." Second. Petitioner contends that what 78 required was an information return, not an income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting Commissioner of Internal Revenue Ruben B. Ancheta, referring to an "information return" in interpreting Executive Order No. 1026, which amended 78.12 The contention has no merit. The circular in question must be considered merely as an administrative interpretation of the law which in no case is binding on the courts. 13 The opinion in question cannot be given any effect inasmuch as it is contrary to 244 of Revenue Regulation No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority to him by 78 of the Tax Code. This provision states: SEC. 244. Return of corporations contemplating dissolution or retiring from business. All corporations, partnership joint accounts and associations, contemplating dissolution or retiring from business without formal dissolution shall, within 30 days after the approval of such resolution authorizing their dissolution, and within the same period after their retirement from business, file their income tax returns covering the profit earned or business done by them from the beginning of the year up to the date of such dissolution or retirement and pay the corresponding income tax due thereon upon demand by the Commissioner of Internal Revenue This regulation prevails over the memorandum circular of the Acting Commissioner of Internal Revenue, which petitioner invokes. Thus, as required by 244 of Revenue Regulation No. 2, any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in 78 of the Tax Code limited the return to be filed by the corporation concerned to a mere information return. It is noteworthy that 78 of the Tax Code was substantially reproduced first in 45 (c), of the amendments to the same tax Code, and later in 52 (C) of the National Internal

Revenue Code of 1997. Through all the re-enactments of the law, there has been no change in the authority granted to the Secretary (formerly Minister) of Finance to require corporations to submit such other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence prior to these amendments. Had Congress intended only information returns, it would have expressly provided so. Third. Considering that 78 of the Tax Code, in relation to 244 of Revenue Regulation No. 2 applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with 292 of the Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the two-year period of prescription ended on July 30, 1987. As petitioner's claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear that the claim is barred by prescription. WHEREFORE, the petition is DENIED for lack of merit.1wphi1.nt SO ORDERED.

SILKAIR (SINGAPORE) PTE, LTD vs. COMMISSIONER OF INTERNAL REVENUEG.R. No. 173594, February 6, 2008 Facts: -Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organizedu n d e r th e l a ws o f S i n g a p o r e wh i c h h a s a P h i l i p p i n e r e p r e s e n t a t i ve office, is an online international air carrier operating the SingaporeCebu-Davao-Singapore, Singapore-Davao-CebuS i n g a p o r e , a n d Singapore-Cebu-Singapore routes. On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written application for the refund of P4,567,450.79excise taxes it claimed to have paid on its purchases of jet fuel from Petron

Corporation from January to June 2000.- C TA d e n i e d S i l k a i r s p e t i t i o n o n t h e ground that as the e xc i s e tax wa s i mp o s e d o n P e t r o n C o r p o r a t i o n a s t h e ma n u f a c t u r e r o f p e t r o l e u m pr oducts, any claim for refund should be filed by the latter; and where the burden of tax is shifted to the purchaser, the amount passed on toi t i s n o l o n g e r a t a x b u t b e c o m e s a n a d d e d c o s t o f t h e g o o d s purchased. The liability for excise tax on petroleum products that are bein g removed from its refinery is imposed on the manufacturer/producer (Section 130 of the NIRC of 1997. Th e r i g h t t o c l a i m f o r t h e r e f u n d o f e xc i s e t a xe s p a i d o n p e t r o l e u m products lies with Petron Corporation who paid and remitted the excise tax to the BIR. Respondent, on the other hand, may only claim from Petron Corporation the reimbursement of the tax burden shifted to the former by the latter. The excise tax partaking the nature of an indirect tax, is clearly the liability of the manufacturer or seller who has the option whether or not to shift the burden of the tax to the purchaser. Where the burden of the tax is shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased which constitutes a part of the purchase price.

Issue: Whether or not the petitioner is the proper party to claim for refund or tax credit. Ruling: No, The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. S e c t i o n 1 3 0 ( A ) ( 2 ) o f t h e N I R C p r o v i d e s t h a t " u n l e s s o t h e r wi s e s p e c i f i c a l l y a l l o we d , t h e r e t u r n s h a l l b e f i l e d a n d t h e excise tax paid by the manufacturer or producer before removal of d o m e s t i c p r o d u c t s f r o m p l a c e o f p r o d u c t i o n . " T h u s ,

P e t r o n Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article4(2) of the Air Transport Agreement between RP and Singapore. Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. Petroleum products sold to the following are exempt from excise tax:(b) Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies;a n d A r t i c l e 4 ( 2 ) o f t h e A i r T r a n s p o r t A g r e e m e n t b e t w e e n t h e Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) The exemption granted under Section 135 (b) of the NIRC of 1997a n d A r t i c l e 4 ( 2 ) o f t h e A i r Transport Agreement b e t we e n R P a n d Singapore cannot, without a clear showing of legislative intent, bec o n s t r u e d a s i n c l u d i n g i n d i r e c t t a x e s . S t a t u t e s g r a n t i n g t a x e xe m p t i o n s m u s t b e c o n s t r u e d i n s t r i c t i s s i mi j u r i s against the t a xp a ye r a n d l i b e r a l l y i n f a vo r o f t h e t a xi n g a u t h o r i t y, a n d i f a n exemption is found to exist, it must not be enlarged by construction.

COMMISSIONER OF INTERNAL REVENUE VS. SMART COMMUNICATION, INC.Tax Refund

FACTS: Smart entered into an Agreement with Prism, a nonresident foreign corporation domiciled in Malaysia, whereby Prism will provide programming and consultancy services to Smart. Thinking that the payments to Prism were royalties, Smart withheld 25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging that the payments were not subject to Philippine withholding taxes given that they

constituted business profits paid to an entity without a permanent establishment in the Philippines. ISSUE: Does Smart have the right to file the claim for refund?

HELD: YES. The Court reiterated the ruling in Procter & Gamble stating that a person liable for tax has sufficient legal interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the withholding agent is an agent of the beneficial owner of the payments (i.e., nonresident), the authority as agent is held to include the filing of a claim for refund. The Silkair case was held inapplicable as it involved excise taxes and not withholding taxes. Smart was granted a refund given that only a portion of its payments represented royalties since it is only that portion over which Prism maintained intellectual property rights and the rest involved full transfer of proprietary rights to Smart and were thus treated as business profits of Prism.

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC. PHILIPPINE BRANCH VS. COMMISSIONER OF INTERNAL REVENUE

FACTS: Exxonmobil was a US corporation engaged in selling petroleum products to domestic and international carriers. It purchased petroleum products from local suppliers (Caltex and Petron), the excise taxes on which were remitted by the said suppliers but the amount of which were, however, passed-on to Exxonmobil. It then filed a claim for refund of excise taxes paid on its purchase of petroleum products from its suppliers.

ISSUE:

Is Exxonmobil entitled to file the claim for the refund of the excise taxes passed-on by Caltex and Petron? HELD: NO. The proper party to seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden to another. Although the burden of an indirect tax can be shifted to the purchaser, the amount added or shifted becomes part of the price. Thus, the purchaser does not really pay the tax per se but only the price of the commodity. Indirect taxes were defined as those that are demanded, in the first instance, from, or are paid by, one person to someone else. When the seller passes on the tax to the buyer he in effect shifts only the tax burden and not the liability to pay for it. Philex GR Facts: Philex Mining Corporation assails the decision of the court of appeals which affirmed the decision of the court of tax appeals ordering philex to pay its excise tax liability philex refused to pay and contended it has pending claims for vat input credit or refund against the government which should be made compensate or set-off its tax liability. Issue: Ruling: No. tax cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its corporate capacity while taxes are due to the government in its sovereign capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the government. can tax be subject for set-off? Mining 125704, August vs. 28, CIR 1998

CALAMBA STEEL CENTER INC. V CIR GR 151857, APRIL 28, 2005

Facts: Petitioner is a domestic corporation engaged in the manufacture of steel blanks for use by manufacturers of automotive, electrical, electronics in industrial and household appliances. In it's amended Corporate Annual Income Tax Return on June 4, 1996 it declared a net taxable income of P9,461,597.00, tax credits of P6,471,246.00 and tax due in the amount of P3,311,559.00. It also reported uarterly payments for the second and third quarters of 1995 in the amounts of P2,328,747.26 and P1,082,108.00, respectively. It is the contention of the petitioner in this case filed in 1997, that it is entitled to a refund. The refund was purportedly due to income taxes witheld from it, and remitted in its behalf, by the witholding agents. Such witheld tax, as per petitioners 1997 return, were not utilised in 1996 since due to it's income/loss positions for the three quarters of 1996. ISSUE: Whether or not a tax refund may be claimed even beyong the taxable year following that in which the tax credit arises. Held: Yes, however; it is still incumbent upon the claimant to prove that it is entitled to such refund. Tax refunds being in the nature of tax exemptions such must be construed strictissimi juris against the taypayer-claimant. Under the NIRC, the only limitation as regards the claiming of tax refunds is that such must be made within two years. The claim for refund made by Calamba steel was well within the 2 year period. As regards the procedure taken by counsel of Calamba Steel in submitting the final adjustment returns (1996) after trial has been conducted, the Court said that although the ordinary rules of procedure from upon this jurisprudence mandates that the proceedings before the tax court's shall not be governed by strictly technical rules of evidence. Moreoover, as regards evidence, the court further said that Judicial notice could have been taken by the cA and the CTA of the 1996 final adjustment return made by petitioner in another case then pending with the CTA.

CIR G.R. No. Chico-Nazario, J.

v. 178490 July 7,

BPI 2009

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 taxpayers 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 ones 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.

PHILAM ASSET MANAGEMENT v. CIR (2005) - Philam has creditable withholding taxes from 1997. The following year, Philam wanted to utilize the credit. It applied for a tax refund by filing a written claim before the Commissioner. The Commissioner refused to grant a refund, holding that for a request for either a refund or a credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its annual corporate final adjustment return (FAR). Parenthetically, Section 76of the NIRC offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2)availing of a tax creditTax refund is easier as it only requires that a taxpayer properly apply for the refund (through written claim before the Commissioner). The tax credit option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.These two options are alternative in nature; the choice of one precludes the other.Meanwhile, while a taxpayer is required to mark its choice in the form provided by the BIR (the FAR), this requirement is only for the purpose of facilitating tax collection.Failure to signify ones intention in theFAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. The taxpayers failure to indicate an option in its FAR does not automatically mean that the taxpayer has opted to carry-over its income tax credit. The tax payers choice may be ascertained using circumstantial evidence. Nonetheless, when a choice to carry-over the tax credit in the succeeding year has been made actually or constructively, this becomes irrevocable already.

Finally, the Commissioner erroneously ruled that the ITR or FAR of the succeeding year be submitted as evidence to determine whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence Asiaworld Properties Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 171766, July 29, 2010

The exercise of the option to carry-over the excess income tax credit prohibits a claim for refund in the subsequent taxable years for the unused portion of the excess tax creditscarried over.The clear intent in the amendment under Section 76 of the Tax Code is to make the option, onceexercised, irrevocable for the succeeding taxable years. Thus, once the taxpayer opts to carry-overthe excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer fromapplying for a refund for that same excess income tax in the next succeeding taxable years. Theunutilized excess tax credits will remain in the taxpayers account and will be carried over andapplied against the taxpayers income tax liabilities in the succeeding taxable years until fully utilized.

COMMISSIONER OF INTERNAL REVENUE V. THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, G.R. NO. 175124, September 29, 2010 The exercise of the option to carry-over excess tax credits precludes a claim for a refund. Under Section 76 of the Tax Code, once the taxpayer exercises the option to carryover and apply the excess creditable tax against the income tax due for the succeeding

taxable years, such option is irrevocable. It is undisputed that respondent Phil am indicated in its 1997 Income Tax Return (ITR) its option to carry-over as tax credit for the next year its tax overpayment. In its 1998 ITR, respondent again indicated its preference to carry-over the excess income tax credit against the tax liabilities for the succeeding taxable years. Clearly, respondent chose to carry-over and apply the overpaid tax against the income tax due in the succeeding taxable years, hence it can no longer claim a refund of its excess income tax credit in the taxable year 1997.

CIR v. G.R. No. Carpio, J.

MC.GEORGE 174157

FOOD October

INDUSTRIES, 20,

INC. 2010

Doctrine: Pursuant to the general rule on the prospective application of laws, the 1997 NIRC operates to govern the conduct of corporate taxpayers the moment it took effect on 1 January 1998.

Facts: On 15 April 1998, respondent filed with the BIR its final adjustment income tax return for the calendar year ending 31 December 1997. The return indicated a net overpayment of P4,736,188. Exercising its option to either seek a refund of this amount or carry it over to the succeeding year as tax credit, respondent chose the latter, indicating in its 1997 final return that it wished the amount "to be applied as credit to next year." On 15 April 1999, respondent filed its final adjustment return for the calendar year ending 31 December 1998, indicating a tax liability of P5,799,056. Instead of applying

to this amount its unused tax credit carried over from 1997 (P4,736,188), respondent merely deducted from its tax liability the taxes withheld at source for 1998 and paid the balance of P5,581,877. On 14 April 2000, respondent simultaneously filed with the BIR and the Court of Tax Appeals (CTA) a claim for refund of its overpayment in 1997 of P4,736,188. The CTA held that refund was proper because respondent complied with the requirements of timely filing of the claim and its substantiation. Petitioner sought reconsideration, contending that respondent is precluded from seeking a refund for its overpayment in 1997 after respondent opted to carry-over and apply it to its future tax liability, following Section 76 of the 1997 NIRC. Petitioner claimed that Section 76 applies to respondent because by the time respondent filed its final adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already in force, having taken effect on 1 January 1998. The CTA denied reconsideration, holding that the 1997 NIRC only covers transactions done after 1 January 1998. The Court of Appeals affirmed the CTA, ruling that the right to claim for refund or tax credit must be governed by the law in effect at the time the excess credits were earned. Thus, the pertinent law applicable to the case at bar is Section 69 of the old Tax Code.

Issue: Whether

or

not

the

1997

NIRC

is

the

governing

law

Held: Yes.

Section

76

of

the

1997

NIRC

controls.

Section 76 should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998.

The lower courts grounded their contrary conclusion on the fact that respondents overpayment in 1997 was based on transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy and misconceiving the nature and purpose of Section 76. None of respondents corporate transactions in 1997 is disputed here. Nor can it be argued that Section 76 determines the taxability of corporate transactions. To sustain the rulings below is to subscribe to the untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS, respondents. REGALADO, J.: The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund to herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid income taxes for 1984 and 1985, but denied its claim for the alleged refundable amount reflected in its 1983 income tax return on the ground of prescription. 1 That judgment of the tax court was affirmed by respondent Court of Appeals in its judgment in CA-G.R. SP 2 No. 26839. The case was then elevated to us in the present petition for review on certiorari wherein the latter judgment is impugned and sought to be nullified and/or set aside.

It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate of the excess of its carried-over total quarterly payments over the actual income tax due, plus carried-over withholding tax payments on government securities and rental income, as computed in its final income tax return for the calendar year ending December 31, 1985. 3 Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4 In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government securities investments, as well as on rental income, respectively, are not properly documented; that assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. 5 On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence submitted by herein private respondent Citytrust. Herein petitioner could not present any evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. 6 However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion praying for the suspension of the proceedings in the said case on the ground that the claim of Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of the required confirmation

receipts which would show whether or not the aforestated amount was actually paid and remitted to the BIR. 7 Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired jurisdiction over the case, it could no longer be divested of the same; and, further, that the proceedings therein could not be suspended by the mere fact that the claim for refund was being administratively processed, especially where the case had already been submitted for decision. It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3 adduced in the case, which clearly showed that there was an overpayment of income taxes and for which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an admission by herein petitioner that there had been an overpayment of income taxes. 8 The tax court denied the motion to suspend proceedings on the ground that the case had already been submitted for decision since February 20, 1991. 9 Thereafter, said court rendered its decision in the case, the decretal portion of which declares: WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in its 1983 income tax return is hereby denied on the ground of prescription. Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking Corp. in the amount of P13,314,506.14 representing the overpaid income taxes for 1984 and 1985, recomputed as follows: 1984 Income tax due P Less: 1984 Quarterly payments P 1984 Tax Credits W/T on int. on gov't. sec. W/T on rental inc. 26,604.30* Tax Overpayment Less: FCDU payable 4,715,533.00 16,214,599.00* 1,921,245.37* 18,162,448.67 (13,446,915.67) 150,252.00

Amount

refundable

for

1984

(13,296,663.67) 0 36,716.47* (36,716.47)* 18,874.00

1985 Income tax due (loss) P Less: W/T on rentals Tax Overpayment Less: FCDU payable Amount Refundable for 1985 P (17,842.47) * Note:

These credits are smaller than the claimed amount because only the above figures are well supported by the various exhibits presented during the hearing. No pronouncement as to costs. SO ORDERED. 10 The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of withholding has been established by the statements and certificates of withholding taxes accomplished by herein private respondent's withholding agents, the authenticity of which were neither disputed nor controverted by herein petitioner; (2) no evidence was presented which could effectively dispute the correctness of the income tax return filed by herein respondent corporation and other material facts stated therein; (3) no deficiency assessment was issued by herein petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch, recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of official duty. 11 A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole ground that the statements and certificates of taxes allegedly withheld are not conclusive evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental motion for reconsideration was thereafter filed, wherein it was contended for the first time that herein private respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-

office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and business taxes covered by Demand/Assessment Notice No. FAS-1-84-003291-003296. 13 Oppositions to both the basic and supplemental motions for reconsideration were filed by private respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation 6-85, only requires that the claim for tax credit or refund must show that the income received was declared as part of the gross income, and that the fact of withholding was duly established. Moreover, with regard to the argument raised in the supplemental motion for reconsideration anent the deficiency tax assessment against herein petitioner, the tax court ruled that since that matter was not raised in the pleadings, the same cannot be considered, invoking therefor the salutary purpose of the omnibus motion rule which is to obviate multiplicity of motions and to discourage dilatory pleadings. 15 As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's findings of deficiency income and business tax liabilities against private respondent for the year 1984 bars such payment. 16 After a careful review of the records, we find that under the peculiar circumstances of this case, the ends of substantial justice and public interest would be better subserved by the remand of this case to the Court of Tax Appeals for further proceedings. It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and employees. It can readily be gleaned from the records that when it was herein petitioner's turn to present evidence, several postponements were sought by its counsel, the Solicitor General, due to the

unavailability of the necessary records which were not transmitted by the Refund Audit Division of the BIR to said counsel, as well as the investigation report made by the Banks/Financing and Insurance Division of the said bureau/ despite repeated requests. 17 It was under such a predicament and in deference to the tax court that ultimately, said records being still unavailable, herein petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without presenting any evidence. For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax Appeals which provides that the Commissioner of Internal Revenue and the Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days after filing his answer, all the records of the case in his possession, with the pages duly numbered, and if the records are in separate folders, then the folders shall also be numbered. The aforestated impass came about due to the fact that, despite the filing of the aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the BIR still continued to act administratively on the claim for refund previously filed therein, instead of forwarding the records of the case to the Court of Tax Appeals as ordered. 18 It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. 19In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. 21 The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, 22 especially in the case at bar where

the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's supplemental motion for reconsideration alleging bringing to said court's attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year. The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund. Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or contained any understatement or undervaluation, no tax collected under such assessment shall be recovered by any suits unless it is proved that the said list, statement, or return was not false nor fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells and mines." Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. 23 This would necessarily require and entail additional efforts and expenses on the part of the Government,

impose a burden on and a drain of government funds, and impede or delay the collection of much-needed revenue for governmental operations. Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly with its claim for tax refund, to determine once and for all in a single proceeding the true and correct amount of tax due or refundable. In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that the taxpayer and the Government alike be given equal opportunities to avail of remedies under the law to defeat each other's claim and to determine all matters of dispute between them in one single case. It is important to note that in determining whether or not petitioner is entitled to the refund of the amount paid, it would necessary to determine how much the Government is entitled to collect as taxes. This would necessarily include the determination of the correct liability of the taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as to all the matters subject thereof or necessarily involved therein. The Court cannot end this adjudication without observing that what caused the Government to lose its case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and not to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General found himself once again gives substance to the public perception and suspicion that it is another proverbial tip in the iceberg of venality in a government bureau which is pejoratively rated over the years. What is so distressing, aside from the financial losses to the Government, is the erosion of trust in a vital institution wherein the reputations of so many honest and dedicated workers are besmirched by the acts or omissions of a few. Hence, the liberal view we have here taken pro hac vice, which may give some degree of assurance that this Court will unhesitatingly react to any bane in the government service, with a replication of such response being likewise expected by the people from the executive authorities. WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate action, more particularly, the reception

of evidence for petitioner and the corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein. SO ORDERED.

R. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. VITUG,, J.:

Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999, in CAG.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in CTA Case No.4956, entitled "Jose V. Feria, in his capacity as Executor of the Estate of Jose San Agustin versus Commissioner of Internal Revenue." The tax court's decision has modified the deficiency assessment of the Commission of Internal Revenue for surcharge, interests and other penalties imposed against the estate of the late Jose San Agustin. The facts of the case narrated by the appellate court would appear, by and large, to be uncontroverted; thus viz: "Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof. "Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-2554.

Pursuantly, notice of decedent's death was sent to the Commissioner of Internal Revenue on August 30, 1990.1wphi1.nt "On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent's widow ( did) not personally have sufficient funds, and that the payment (would) have to come from the estate. "In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended. "In the probate proceedings, on October 11, 1990 the RTC allowed the will and appointed Jose Feria as Executor of the estate. On December 5, 1990, the executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such authority was granted by the probate court on March 5, 1991 .Thereafter, on March 8, 1991 , the executor paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the BIR. This was well within the six (6) months extension period granted by the BIR. "On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00. "On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period.

"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the pre- assessment notice and requesting payment on or before thirty (30) days upon receipt thereof. "In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. "On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of P538,509.50 through its Receivable Accounts Billing Division. "The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt thereof. "In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25, 1993. "On February 18, 1993, a Petition for Review was filed by the executor with the CT A with the prayer that the Commissioner's letter/decision, dated September 21, 1992 be reversed and that a refund of the amount of P438,040.38 be ordered . "The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. Moreover, there is no statutory basis for the refund of the deficiency surcharges, interests and penalties charged by the Commissioner upon the estate of the decedent. "Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated April 21, 1994, modifying the CIR's assessment for surcharge, interests and other

penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the balance of P423,577.64, to wit: "WHEREFORE, respondent's deficiency assessment for surcharge, interests, and other penalties is hereby modified and since petitioner has clearly paid the full amount of P438,040.38, respondent is hereby ordered to refund to the Estate of Jose San Agustin the overpayment amounting to P423,577.64."1 On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of Internal Revenue to the Court of Appeals. There, the petition for review raised the following issues: "1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering the failure of private respondent to comply with the mandatory requirements of Sections 204 and 230 of the National Internal Revenue Code. "2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of Jose San Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge, interests and compromise penalty imposed on the basic deficiency estate tax of P538,509.50 due on the transmission of the said Estate to the sole heir in 1990."2 In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void. Hence, the instant petition where petitioner submits that "1. The filing of a claim for refund [is] not essential before the filing of the petition for review. "2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal."3 The Court finds the petition partly meritorious.

The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue.4 The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held: "We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, in providing for appeals from '(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue allows an appeal from a decision of the Collector in cases involving' disputed assessments' as distinguished from cases involving' refunds of internal revenue taxes, fees or other charges, x x'; that the present action involves a disputed assessment'; because from the time petitioner received assessments Nos. 17EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to forestall the sale of his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on, the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony

that would only delay the ! disposition of the case, for the Collector (now Commissioner) would cer1ainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities."5 The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's appeal to it. On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges, interests, and penalties, provides thusly: "Sec. 248. Civil Penalties. "(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25% ) of the amount due, in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or "(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or "(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or "(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment." "Sec.249. Interest. "(A) In General. -There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate

as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. "(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. "(C) Delinquency Interest. -In case of failure to pay: "(1) The amount of the tax due on any return to be filed, or "(2) The amount of the tax due for which no return is required, or "(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax. "(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid." It would appear that, as early as 23 September 1991, the estate already received a pre-assessment notice indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in the pre-assessment notice, respondent Commissioner received a letter from petitioner expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and penalties be waived. On 04 October 1991, however, petitioner received from the Commissioner notice insisting payment of the tax due on or before the lapse of thirty

(30) days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until 19 December 1991.6 The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The computation of interest by the Court of Tax Appeals "Deficiency x Interest x Terms estate tax Rate 11/2 mo./12 P538,509.50 20% per (11/04/91 annum 12/19/91) = P13,462.74"7 conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it is paid. The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest by petitioner could only signify that there was no agreement that had effectively been reached between the parties. Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions. In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a total of P148,090.00.

mos to

WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs.

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINES, INC.- Tax Assessment and Protest

HAMBRECHT

&

QUIST

FACTS: The assessment against Hambrecht & Quist had become final and unappelable since there was a failure to protest the same within the 30-day period provided by law. However, the CTA held that the BIR failed to collect within the prescribed time and thus ordered the cancellation of the assessment notice. The CIR disputed the jurisdiction of the CTA arguing that since the assessment had become final and unappealable, the taxpayer can no longer dispute the correctness of the assessment even before the CTA. ISSUE: Can the CTA still take cognizance of an assessment case which has become final and unappealable for failure of the taxpayer to protest within the 30-day protest period? HELD: YES. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The CTA law clearly bestows jurisdiction to the CTA even on other matters arising under the National Internal Revenue Code. Thus, the issue of whether the right of the CIR to collect has prescribed, collection being one of the duties of the BIR, is considered covered by the term other matters. The fact that assessment has become final for failure to protest only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, this issue is entirely distinct from the issue of whether the right to collect has in fact prescribed.

The Court ruled that the right to collect has indeed prescribed since there was no proof that the request for reinvestigation was in fact granted/acted upon by the CIR. Thus, the period to collect was never suspended. COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND CIGARETTE FACTORY GR. No. 144942, July 4, 2002 Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review on Certiorari submitted by the Commissioner of Internal Revenue for non-compliance with the procedural requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil Procedure and, furthermore, because the appeal was not pursued by the Solicitor-General. When the motion for reconsideration filed by the petitioner was likewise denied, petitioner filed the instant motion seeking an elucidation on the supposed discrepancy between the pronouncement of this Court, on the one hand that would require the participation of the Office of the Solicitor-General and pertinent provisions of the Tax Code, on the other hand, that allow legal officers of the Bureau of Internal Revenue (BIR) to institute and conduct judicial action in behalf of the Government under Sec, 220 of the Tax Reform Act of 1997. Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished from commencement of proceeding) without the participation of the Solicitor-General? Held: NO. The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted y legal officers of the Bureau of Internal Revenue is not in dispute. An appeal from such court, however, is not a matter of right. Sec. 220 of the Tax Reform Act must not be understood as overturning the long-established procedure before this Court in requiring the Solicitor-General to represent the interest of the Republic. This court continues to maintain that it is the Solicitor-General who has the primary responsibility to appear for the government in appellate proceedings. This pronouncement finds justification in the various laws defining the Office of the Solicitor-General, beginning with Act No. 135, which took effect on 16 June 1901, up to the present Administrative Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said code outlines the powers and

functions of the Office of the Solicitor General which includes, but not limited to, its duty to 1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings; represent the Government and its officers in the Supreme Court, the Court of Appeals, and all other courts or tribunals in all civil actions and special proceedings in which the Government or any officer thereof in his official capacity is a party. 2. Appear in any court in any action involving the validity of any treaty, law, executive order, or proclamation, rule or regulation when in his judgment his intervention is necessary or when requested by the Court.

16: EMILIO S. LIM, SR. V. CA October 18, 1990; C.J. Fernan; G.R. L-48134-37 DOCTRINE: Prescriptive Period to File Criminal Case Under NIRC SECTION 281: 5 years from failure to pay tax after notice and demand. NATURE: Petition for Review on Certiorari FACTS:

Spouses Lim were engaged in the dealership of various household appliances.The NBI conducted a raid on Oct. 5, 1959 on their:1 . ) B u s i n e s s A d d r e s s : N o . 3 3 6 N u e va S t r e e t , Ma n i l a ; and2.)111 12thStreet, Quezon City.S e i z e d f r o m t h e L i m c o u p l e w e r e b u s i n e s s a n d a c c o u n t i n g r e c o r d s w h i c h s e r v e d a s b a s e s f o r a n investigation undertaken by the BIR.On Sept. 30, 1964, Senior Revenue Examiner Raphael S. Daet submitted a memorandum that the income tax r e t u r n s fi l e d b y t h e s p o u s e s L i m f o r 1 9 5 8 a n d 1 9 5 9 were false or fraudulent .Assessment should be: P835, 127.Acting Commissioner Benjamin M. Tabios informed the couple that there deficiency income taxes are P922,913.04.O n A p r i l 1 0 , 1 9 6 5 , s p o u s e s r e q u e s t e d a n r e - investigation.BIR expressed willingness on the following conditions:1.)written

waiver of the defense of prescription under the statute of limitations;2 . ) d e p o s i t i n g o f t h e a s s e s s m e n t a n d s e c u r i n g t h e other with a surety bond. Spouses Lim refused to comply with the conditions and reiterated his request. BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. The final notice and demand for payment was served through their daughter in law on July 3, 1968 for the amount of P1,237,190.55 including interest, surcharges and penalty for late payment. BIR referred the matter to the Manilas Fiscals Office for investigation and prosecution.4 criminal informations were filed against petitioners violation of NIRC SECTION 45 violation of NIRC SECTION 51RTC Manila found petitioners guilty CA affirmed RTC. 23 days later Antonio Lim, Sr. died. ISSUE/S: 1.)WON the offenses prescribe after 5 years (Lim) or10 years (governments position)? 2.) W O N t h e p r e s c r i p t i ve p e r i o d c o m m e n c e d t o r u n from 1965 date of 1st Assessment or discovery(accdg to Lim spouses) or from final notice on 1968(government) WON the RTC had jurisdiction over the tax case?4 . ) collection

W O N t h e d e a t h o f E m i l i o S . L i m, S r . e xt i n g u i s h e d his civil liabilities? HELD: 1 . ) 5 ye a r s b u t t h e g o ve r n m e n t i n s t i t u t e d t h e c a s e within the prescriptive period. NIRCSECTION 73. PENALTY FOR FAILURE TO FILERETURN OR TO PAY TAX. Anyone liable to pay the tax, to make a return or to supply information required under this code, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be punished by a fine of not more than P2,000 or by imprisonment for not more than6

months, or both .Any individual or any officer of any corporation, or general copartnership, required by law to make ,render, sign or verify any return or to supply any i n f o r m a t i o n , wh o m a k e s a n y f a l s e o r f r a u d u l e n t return or statement with intent to defeat or evade the assessment required by this Code to be made, shall be punished by a fine not exceeding P4,000 or by imprisonment for not exceeding 1 year, or both. S E C T I O N 3 5 4 . P R E S C R I P T I O N S O F AN Y P RO V I S I O N S O F T HI S CODE. F O R V I O L AT I O N

All violations of any provision of this Code shall prescribe after 5 years .P r e s c r i p t i o n s h a l l r u n f r o m t h e d a y o f t h e commission of the violation of the law, and if the same not be known at the time, from the discovery thereof AND the institution of judicial proceeding for its investigation and punishment.T h e p r e s u m p t i o n s h a l l b e i n t e r r u p t e d w h e n p r o c e e d i ngs are instituted against the guiltyp e r s o n s a n d s h a l l b e g i n t o run again if t he proceedings are dismissed for reasons n o t constituting jeopardy. T h e t e r m o f p r e s c r i p t i o n s h a l l n o t r u n wh e n t h e offender is absent from the Philippines. 2.) Commenced from the date of the final notice .In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute.Th e y r e c e i ve s t r i c t c o n s t r u c t i o n i n f a vo r o f t h e Government and limitations in such cases will not be presumed in the absence of clear legislation.3 . ) No , b e c a u s e t h e c r i m i n a l c a s e wa s i n s t i t u t e d o n June 23, 1970 and PD 69 which mandates RTC to order payment of the taxes took effect only on Jan.1, 1973. It has no retroactive application. The law applicable was SECTION 316 which does not sanction such imposition.4 . ) R e g a r d i n g t h e l i a b i l i t y o f E m i l i o S . L i m , S r . e x t i n g u i s h e d b y h i s d e a t h i n a c c o r d a n c e i t h SECTION 89 of the RPC; but the fine imposed in the4 criminal cases is affirmed in the case of petitioner Antonia Sun Lim in accordance with NIRC SECTION73.

JUDY ANNE L. SANTOS vs. PEOPLE OF THE PHILIPPINES, ET AL. (G.R. No. 173176, August 26, 2008) Is the filing of a Petition for Review with the CTA En Banc the proper remedy for a party aggrieved by an interlocutory order of a Division of the CTA? The case began when then CIR Guillermo L. Parayno Jr. recommended the criminal prosecution of Juday to Justice Secretary Raul M. Gonzales for substantial Under declaration of income Juday allegedly declared in her Income Tax Return for 2002 an income of P8,033,332.70solely derived from the talent fees paid to hereby the Kapamilya Network. However, this was belied by documents given by Judays accountant and other parties ,which establish that Juday actually had an income of at least P14,796,234.70, coming not only from the Kapamilya Network, but from movies and product endorsements as well. The non-declaration made by Juday amounts to at least 84.18% of the income declared in her ITR, which constitutes prima facie evidence of false or fraudulent return. Consequently, an Information charging Juday for violation of Section 255 in relation to Sections 254 and 248 (B) of the Tax Code was filed with the CTA .Juday then filed a Motion to Quash the Information which the CTA denied. Similarly, Judays reconsideration was also denied by the CTAs First Division. Juday then filed with the CTA en banc, a Motion for Extension of Time to File Petition for Review to appeal the denial of the abovementioned Motion to Quash. In the meantime, while Juday was able to file her Petition for Review with the CTA en banc on June 16, 2006, the CTA en banc denied on June 19, 2006 the Motion for Extension of time to file Petition for Review previously filed by Juday.. Aggrieved, Juday sought redress from the Supreme Court asserting that the resolutionof the CTA Division denying a motion to quash is appealable to the CTA en banc pursuant to Section 18 of Republic Act No.1125, as amended. Juday alleged that if that is not the case, a procedural void would be created, leaving the parties without any remedy involving erroneous resolutions of the CTA Division. However, this failed to persuade the SupremeCourt. The SC ruled that the petition for review to be filed with the CTA en banc as the mode for

appealing a decision, resolution, or order of the CTA Division, under Section 18 of Republic Act No. 1125, as amended, is not a totally new remedy, unique to the CTA, with a special application or use therein. To the contrary, the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. Accordingly, doctrines, principles, rules, and precedents laid down in jurisprudence by this Court as regardspetitions for review and appeals in courts of general jurisdiction should likewise bind the CTA, and it cannot depart therefrom. Section 1, Rule 41 of the Revised Rules of Court, governing appeals from the Regional Trial Courts (RTCs) to the Court of Appeals, provides that an appeal may be taken only from a judgment or final order that completely disposes of the case or of a matter therein when declared by the Rules to be appealable .Said provision, thus, explicitly states that no appeal may be taken from an interlocutory order .It is well-settled that after a final order or judgment has been issued, the court should have nothing more to do in respect of the relative rights of the parties to the case. Conversely, "an interlocutory order is one that does not finally dispose of the case and does not end the Court's task of adjudicating the parties' contentions in determining their rights and liabilities as regards each other, but obviously indicates that other things remain tobe done by the Court."7Further, the SC stressed that one reason why he law does not permit an appeal from an interlocutory order is to avoid the multiplicity of appeals in a single action, which would result into the delay of the trial on the merits of the case in the course of such appeal.7 BA Finance Corporation vs. Court of Appeals, G.R. No.84294, October 16, 1989.Finally, the SC emphasized that there is no dispute that a court order denying a motion to quash is interlocutory. The denial of the motion to quash means that the criminal information remains pending with the court ,which must proceed with the trial to determine whether the accused is guilty of the crime charged therein. Equally settled is the rule that an order denying a motion to quash, being interlocutory, is notimmediatelyappealable,8 nor can it be the subject of a petition for certiorari. Such order may only be reviewed in the ordinary course of law by an appeal from the judgment after trial.9Therefore, the Petition for Review filed by Juday is the wrong remedy to assail an interlocutory order denying her Motion to Quash. The SC declared that assuming Judays Petition for Review was treated by the CTA a A special civil action for certiorari, the same would still be dismissed for lack of merit. According to the Court, although the City Prosecutor has the power to investigate crimes, misdemeanors, and violations of ordinances committed within the territorial jurisdiction of the city, and which can be

prosecuted before the trial courts of the said city, however, said prosecutor had no authority to appear before the CTA where the case was already pending. Besides, there is nothing in the Revised Quezon City Charter which would suggest that the power of the City Prosecutor to investigate and prosecute crimes ,misdemeanors, and violations of ordinances committed within the territorial jurisdiction of the city is to the exclusion of the State Prosecutors. Moreover, there could not have been aviolation of Judays right to due process and equal protection of laws just because a similar8 Villasin vs. Seven-Up Bottling Co. of the Philippines, 107 Phil.801.9 Gamboa vs. Cruz, G.R. No. L-56291, June 27, 1988.case filed against the Songbird were dismissed by the DOJ. The SC emphasized that the more appropriate course of action that Juday should have taken is to appeal the Resolution of the State Prosecutor to the DOJ Secretary. Juday was also not denied of due process since she was given the opportunity to file her affidavits and other pleadings and submit evidence before the DOJ during the preliminary investigation of her case and before the Information was filed against her .Due process is merely an opportunity to be heard. In addition, preliminary investigation conducted by the DOJ is merely inquisitorial. It is not a trial of the case on the merits. Its sole purpose is to determine whether a crime has been committed and whether the respondent therein is probably guilty of the crime. It is not the occasion for the full and exhaustive display of the parties' evidence. Hence, if the investigating prosecutor is already satisfied that he can reasonably determine the existence of probable cause based on the parties' evidence thus presented, he may terminate the proceedings and resolve the case.10 There was likewise no violation of Judays rights to equal protection of the law since she was not able to establish that she and the Songbird were similarly situated, i.e., that they committed identical acts for which they were charged with the violation of the same provisions of the NIRC; and that they presented similar arguments and evidence in their defense yet, they were treated differently. Much less, aside from her claim that a similar charge against the Songbird was dismissed while that against her prospered, Juday has failed to present evidence showing that the discrimination against her.

Claim of right doctrine or doctrine of ownership, command or control- In this case, Javier is not liable for fraud penalty because the income he received is not yet a taxable gain since it is still under litigation. FACTS: 1977: Victoria Javier, wife of Javier-respondent, received $999k from Prudential Bank remitted by her sister Dolores through Mellon Bank in US. Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against Javier claiming that its remittance of $1M was a clerical error and should have been $1k only and praying that the excess be returned on the ground that the Javiers are just trustees of an implied trust for the benefit of Mellon Bank. CFI charged Javier with estafa alleging that they misappropriated and converted i t to their own personal use. A year after, Javier filed his Income Tax Return for 1977 and stating in the footnote that the taxpayer was recipient of some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation The Commissioner of Internal Revenue wrote a letter to Javier demanding him to pay

taxes for the deficiency, due to the remittance. Javier replied to the Commissioner and said that he will pay the deficiency but denied that he had any undeclared income for 1977 and requested that the assessment of 1977 be made to await final court decision on the case filed against him for filing an allegedly fraudulent return. Commissioner replied that the amount of Mellon Banks erroneous remittance which you were able to dispose is definitely taxable and the Commissioner imposed a 50% fraud penalty on Javier.

ISSUE: Whether or not Javier is liable for the 50% penalty. HELD: No. The court held that there was no actual and intentional fraud through willful and deliberate misleading of the BIR in the case. Javier even noted that the taxpayer was recipient of some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation (the ff are not expressly written in the case, in fact the doctrine I just found it elsewhere but this is relevant to the topic rather than the issue in the case) o Claim of right doctrine- a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite and unconditional obligation to return or repay. o In this case, the remittance was not a taxable gain, since it is still under litigation and there is a chance that Javier might have the obligation to return it. It will only become taxable once the case has been settled because by then whatever amount that will be rewarded, Javier has a claim of right over it.