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SILKAIR (SINGAPORE) PTE, LTD

vs. COMMISSIONER OF INTERNAL REVENUE


G.R. No. 173594, Fe!"#!$ %, &''(
F#)*+,
- Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the
laws of Singapore which has a Philippine representative ofce, is an online
international air carrier operating the Singapore-Ceu-!avao-Singapore, Singapore-
!avao-Ceu-Singapore, and Singapore-Ceu-Singapore routes.
- "n !ece#er $%, &''$, Silkair (led with the )ureau of *nternal +evenue ()*+) a
written application for the refund of P,,-./,,-'./% e0cise ta0es it clai#ed to have
paid on its purchases of 1et fuel fro# Petron Corporation fro# 2anuar3 to 2une &'''.
- C45 denied Silkair6s petition on the ground that as the e0cise ta0 was i#posed on
Petron Corporation as the #anufacturer of petroleu# products, an3 clai# for refund
should e (led 3 the latter7 and where the urden of ta0 is shifted to the purchaser,
the a#ount passed on to it is no longer a ta0 ut eco#es an added cost of the
goods purchased.
- 4he liailit3 for e0cise ta0 on petroleu# products that are eing re#oved fro# its
re(ner3 is i#posed on the #anufacturer8producer (Section 130 of the NIRC of 1997.
- 4he right to clai# for the refund of e0cise ta0es paid on petroleu# products lies with
Petron Corporation who paid and re#itted the e0cise ta0 to the )*+. +espondent, on
the other hand, #a3 onl3 clai# fro# Petron Corporation the rei#urse#ent of the
ta0 urden shifted to the for#er 3 the latter. 4he e0cise ta0 partaking the nature of
an indirect ta0, is clearl3 the liailit3 of the #anufacturer or seller who has the option
whether or not to shift the urden of the ta0 to the purchaser. 9here the urden of
the ta0 is shifted to the :purchaser;, the a#ount passed on to it is no longer a ta0 ut
eco#es an added cost on the goods purchased which constitutes a part of the
purchase price.
I++"e, 9hether or not the petitioner is the proper part3 to clai# for refund or ta0 credit.
R"-./0, <o, 4he proper part3 to =uestion, or seek a refund of, an indirect ta0 is the
statutor3 ta0pa3er, the person on who# the ta0 is i#posed 3 law and who paid
the sa#e even if he shifts the urden thereof to another.

Section $>' (5) (&) of the
<*+C provides that ?unless otherwise speci(call3 allowed, the return shall e (led
and the e0cise ta0 paid 3 the #anufacturer or producer efore re#oval of
do#estic products fro# place of production.? 4hus, Petron Corporation, not Silkair,
is the statutor3 ta0pa3er which is entitled to clai# a refund ased on Section $>-
of the <*+C of $%%/ and 5rticle ,(&) of the 5ir 4ransport 5gree#ent etween +P
and Singapore.
Silkair ases its clai# for refund or ta0 credit on Section $>- () of the <*+C of
$%%/ which reads
Sec. $>-. Petroleu# Products sold to *nternational Carriers and @0e#pt @ntities of
5gencies. A Petroleu# products sold to the following are e0e#pt fro# e0cise ta0B
() @0e#pt entities or agencies covered 3 ta0 treaties, conventions, and other
international agree#ents for their use and consu#ptionB Provided, however, 4hat
the countr3 of said foreign international carrier or e0e#pt entities or agencies
e0e#pts fro# si#ilar ta0es petroleu# products sold to Philippine carriers, entities
or agencies7
and 5rticle ,(&) of the 5ir 4ransport 5gree#ent etween the Covern#ent of the
+epulic of the Philippines and the Covern#ent of the +epulic of Singapore (5ir
4ransport 5gree#ent etween +P and Singapore)
4he e0e#ption granted under Section $>- () of the <*+C of $%%/ and 5rticle ,(&)
of the 5ir 4ransport 5gree#ent etween +P and Singapore cannot, without a clear
showing of legislative intent, e construed as including indirect ta0es. Statutes
granting ta0 e0e#ptions #ust e construed in strictissimi juris against the
ta0pa3er and lierall3 in favor of the ta0ing authorit3, and if an e0e#ption is found
to e0ist, it #ust not e enlarged 3 construction.
4a0 avoidance and ta0 evasion are the two wa3s 3 which ta0 pa3ers tr3 to reduce the
a#ount the3 have to pa3 to the )ureau of *nternal +evenue. 9hile oth these ter#s have
the sa#e o1ective, ta0 avoidance and ta0 evasion diDer in the #eans 3 which the purpose
of pa3ing lesser a#ount of ta0 is otained.
12#* .+ *#3 #4o.5#/)e6
4his is the #eans 3 which ta0 pa3ers tr3 to reduce ta0 within the #eans allowed 3 law. 4a0
avoidance should #e #ade in good faith and at ar#s length, otherwise it will not e
regarded as such.
12#* .+ #/ e3#78-e o9 *#3 #4o.5#/)e6
5 good e0a#ple of ta0 avoidance is the use of the depreciation #ethod in clai#ing
deductile e0penses to lessen the inco#e ta0.
12#* #!e *2e e-e7e/*+ o9 *#3 e4#+.o/6
4a0 evasion connotes the integration of three factorsB ($) end to e achieved, i.e. the
pa3#ent of less than that known 3 the ta0pa3er to e legall3 due, or the non-pa3#ent of
ta0 when it is shown that the ta0 is due7 (&) an acco#pan3ing state of #ind which is known
as Eevil,F in Ead faith,F Ewillful,F or Edelierate and not accidentalF7 and (>) a course of
action or a failure of action which is unlawful.
12#* .+ *#3 e4#+.o/6
4a0 evasion is the opposite of ta0 avoidance. Gnder this sche#e, the ta0pa3er e#plo3s
#eans outside the lawful #eans and will #erit the ta0 pa3er civil and even cri#inal
sanctions for his fraudulent acts.
12#* .+ #/ e3#78-e o9 *#3 e4#+.o/6
5 si#ple e0a#ple of this #ethod is the understate#ent 3 the ta0 pa3er of his revenues in
order to #ini#ize or reduce the ta0es which will e i#posed thereon. 5s an illustration, Hr.
Salazar reported onl3 Php$ #illion as his inco#e when in truth he was ale to earn Php$'
#illion.
4he case of Commissioner of Intern! Revenue vs. "he #stte of $eni%no P. "od et
!, decided 3 the Supre#e Court on $, Septe#er &'',, is illustrative of the concepts of
ta0 evasion and ta0 avoidance. *n the said case Cieles *nsurance Corporation (C*C)
authorized )enigno P. 4oda, IPresident and owner of %%.%J of its issued and outstanding
capital stock to sell the Cieles )uilding, located in 53ala 5venue, to a certain +afael
5ltonaga for Php$'' #illion. 4he latter sold the uilding to +H* for Php&'' #illion. 4his
transaction was evidenced 3 !eeds of 5solute Sale notarized 3 the sa#e notar3 pulic
on the sa#e da3.
4he Court noted that Hr. 5ltonaga was a #ere du##3 and that the transaction was actuall3
etween C*C and +H*. C*C sought to avoid the pa3#ent of corporate inco#e ta0 on the
additional Php$'' #illion 3 changing the inco#e fro# inco#e structure fro# corporate
inco#e ta0 to individual capital gain. 4hus, the whole transaction was considered as ta0
evasion and not a #ere ta0 avoidance.
G.R. No. 1471(( Se8*e7e! 14, &''4
COMMISSIONER OF INTERNAL REVENUE vs.T:E ESTATE OF ;ENIGNO P. TODA, <R.,
Re8!e+e/*e5 $ S8e).#- Co=#57./.+*!#*o!+ Lo!/# K#8"/#/ #/5 M#!.o L"># ;#"*.+*#
FACTS, C*C authorized )enigno P. 4oda, 2r., President and owner of %%.%%$J of its issued and
outstanding capital stock, to sell the Cieles )uilding and the two parcels of land on which
the uilding stands for an a#ount of not less than P%' #illion. 4oda purportedl3 sold the
propert3 for P$'' #illion to +afael 5. 5ltonaga, who, in turn, sold the sa#e propert3 on the
sa#e da3 to +o3al Hatch *nc. (+H*) for P&'' #illion. 4hese two transactions were evidenced
3 !eeds of 5solute Sale notarized on the sa#e da3 3 the sa#e notar3 pulic.

Kor the sale
of the propert3 to +H*, 5ltonaga paid capital gains ta0 in the a#ount of P$' #illion.
C*C (led its corporate annual inco#e ta0 return for the 3ear $%L%, declaring, a#ong other
things, its gain fro# the sale of real propert3 in the a#ount of P/-,/&L.'&$. 5fter crediting
withholding ta0es ofP&-,,,%/.'', it paid P&.,>,$,&'/ for its net ta0ale inco#e
of P/-,%L/,/&-. 4oda sold his entire shares of stocks in C*C to Le Mun 4. Choa for P$&.-
#illion, as evidenced 3 a !eed of Sale of Shares of Stocks. 4hree and a half 3ears later,
4oda died. Suse=uentl3, )ureau of *nternal +evenue ()*+) sent an assess#ent notice and
de#and letter to the C*C for de(cienc3 inco#e ta0 for the 3ear $%L%. 4he new C*C asked for
a reconsideration, asserting that the assess#ent should e directed against the old C*C, and
not against the new C*C, which is owned 3 an entirel3 diDerent set of stockholders7
#oreover, 4oda had undertaken to hold the u3er of his stockholdings and the C*C free fro#
all ta0 liailities for the (scal 3ears $%L/-$%L%. 4he estate of 4oda then received a <otice of
5ssess#ent for the de(cienc3 of inco#e ta0 in the a#ount of P/%,'%%,%%%.&&. 4he @state
thereafter (led a letter of protest.
4he Co##issioner dis#issed the protest. 4he @state (led a petition for review

with the C45.
C45 held that the Co##issioner failed to prove that C*C co##itted fraud to deprive the
govern#ent of the ta0es due it. 4he C45 also denied the #otion for reconsideration. 4he
Court of 5ppeals afr#ed the decision of the C45.
ISSUESB
$. *s this a case of ta0 evasion or ta0 avoidanceI
&. Mas the period for assess#ent of de(cienc3 inco#e ta0 for the 3ear $%L%
prescriedI and
>. Can respondent @state e held liale for the de(cienc3 inco#e ta0 of C*C for the
3ear $%L%, if an3I
:ELDB $. T#3 e4#+.o/. 4a0 avoidance and ta0 evasion are the two #ost co##on wa3s used
3 ta0pa3ers in escaping fro# ta0ation. 4a0 avoidance is the ta0 saving device within the
#eans sanctioned 3 law. 4his #ethod should e used 3 the ta0pa3er in good faith and at
ar#s length. 4a0 evasion, on the other hand, is a sche#e used outside of those lawful #eans
and when availed of, it usuall3 su1ects the ta0pa3er to further or additional civil or cri#inal
liailities.
4a0 evasion connotes the integration of three factorsB ($) the end to e achieved, i.e., the
pa3#ent of less than that known 3 the ta0pa3er to e legall3 due, or the non-pa3#ent of
ta0 when it is shown that a ta0 is due7 (&) an acco#pan3ing state of #ind which is descried
as eing ?evil,? in ?ad faith,? ?willfull,? or ?delierate and not accidental?7 and (>) a course
of action or failure of action which is unlawful.
&,
5ll these factors are present in the instant case. *t is signi(cant to note that as earl3 as ,
Ha3 $%L%, prior to the purported sale of the Cieles propert3 3 C*C to 5ltonaga on >'
5ugust $%L%, C*C received P,' #illion fro# +H*, and not fro# 5ltonaga. 4hat P,' #illion
was deited 3 +H* and reNected in its trial alance as ?other inv. A Cieles )ldg.? 5lso, as of
>$ 2ul3 $%L%, another P,' #illion was deited and reNected in +H*6s trial alance as ?other
inv. A Cieles )ldg.? 4his would show that the real u3er of the properties was +H*, and not
the inter#ediar3 5ltonaga.
4a0 planning is 3 de(nition to reduce, if not eli#inate altogether, a ta0. Surel3 petitioner
cannot e faulted for ?#/*./0 *o !e5")e *2e *#3 9!o7 35@ *o 5@. 4he sche#e resorted
to 3 C*C in #aking it appear that there were two sales of the su1ect properties, i.e., fro#
C*C to 5ltonaga, and then fro# 5ltonaga to +H* cannot e considered a legiti#ate ta0
planning. Such sche#e is tainted with fraud. &rud in its general sense, ?is dee#ed to
co#prise an3thing calculated to deceive, including all acts, o#issions, and conceal#ent
involving a reach of legal or e=uitale dut3, trust or con(dence 1ustl3 reposed, resulting in
the da#age to another, or 3 which an undue and unconscionale advantage is taken of
another.?
Mence, the sale to 5ltonaga should e disregarded for inco#e ta0 purposes. 4he two sale
transactions should e treated as a single direct sale 3 C*C to +H*. 5ccordingl3, the ta0
liailit3 of C*C is governed 3 then Section &, of the <*+C of $%L., as a#ended (now &/ (5)
of the 4a0 +efor# 5ct of $%%/). C*C is therefore liale to pa3 a >-J corporate ta0 for its
ta0ale net inco#e in $%L%. 4he -J individual capital gains ta0 provided for in Section >,
(h) of the <*+C of $%L.
>-
(now .J under Section &, (!) ($) of the 4a0 +efor# 5ct of $%%/) is
inapplicale. Mence, the assess#ent for the de(cienc3 inco#e ta0 issued 3 the )*+ #ust e
upheld.
&. <o. (Legal asisB Section &.% of the <*+C of $%L. (now Section &&& of the 4a0 +efor# 5ct
of $%%/).
Put diDerentl3, in cases of ($) fraudulent returns7 (&) false returns with intent to evade ta07
and (>) failure to (le a return, the period within which to assess ta0 is ten 3ears fro#
discover3 of the fraud, falsi(cation or o#ission, as the case #a3 e. 4he prescriptive period
to assess the correct ta0es in case of false returns is ten 3ears fro# the discover3 of the
falsit3. 4he false return was (led on $- 5pril $%%', and the falsit3 thereof was clai#ed to
have een discovered onl3 on L Harch $%%$.4he assess#ent for the $%L% de(cienc3 inco#e
ta0 of C*C was issued on % 2anuar3 $%%-. Clearl3, the issuance of the correct assess#ent for
de(cienc3 inco#e ta0 was well within the prescriptive period.
>. Oes. 5 corporation has a 1uridical personalit3 distinct and separate fro# the persons
owning or co#posing it. 4hus, the owners or stockholders of a corporation #a3 not generall3
e #ade to answer for the liailities of a corporation and vice versa. 4here are, however,
certain instances in which personal liailit3 #a3 arise. *t has een held in a nu#er of cases
that personal liailit3 of a corporate director, trustee, or ofcer along, aleit not necessaril3,
with the corporation #a3 validl3 attach whenB
$. Me assents to the (a) patentl3 unlawful act of the corporation, () ad faith or gross
negligence in directing its aDairs, or (c) conNict of interest, resulting in da#ages to
the corporation, its stockholders, or other persons7
&. Me consents to the issuance of watered down stocks or, having knowledge thereof,
does not forthwith (le with the corporate secretar3 his written o1ection thereto7
>. Me agrees to hold hi#self personall3 and solidaril3 liale with the corporation7 or
,. Me is #ade, 3 speci(c provision of law, to personall3 answer for his corporate
action.
>L
9hen the late 4oda undertook and agreed ?to hold the )GO@+ and Cieles free fro# an3 all
inco#e ta0 liailities of Cieles for the (scal 3ears $%L/, $%LL, and $%L%,? he there3
voluntaril3 held hi#self personall3 liale therefor. +espondent estate cannot, therefore, den3
liailit3 for C*C6s de(cienc3 inco#e ta0 for the 3ear $%L% 3 invoking the separate corporate
personalit3 of C*C, since its oligation arose fro# 4oda6s contractual undertaking, as
contained in the 'eed of S!e of Shres of Stoc(.
COMMISSIONER 4 <AVIER
FACTS
*n $%//, Pictoria 2avier (wife of Helchor), received fro# the Prudential )ank and 4rust Co.
GSQ%%%,%/>./' re#itted 3 her sister, !olores Pentosa, through so#e anks in the Gnited
States, a#ong the# Hellon )ank <5. Hellon )ank (led suit to recover the e0cess a#ount of
GSQ%%%%,''' as the re#ittance of GSQ $ #illion was a
clerical error and should have een GS Q$,''' onl3 (Co#pare facts in Hellon )ank vs.
Hagsino, C+ /$,/%, $L "ctoer $%%'). *n $%/L, Helchor 2avier (led his inco#e ta0 return for
$%//showing a gross inco#e of P->,'->.>L and a net inco#e of P,L,'->.>L and stating in
the footnote of the return that Eta0pa3er was recepient of so#e #one3 received fro#
aroad which he presu#ed to e a gift ut turned out to e an error and
is now su1ect of litigation. *n $%L', the Co##issioner assessed and de#anded fro# 2avier
de(cienc3 assess#ent of P%,&L/,&%/.-$ for $%//. 2avier protested such assess#ent, where
the Co##issioner in turn i#posed a -'J fraud penalt3 against 2avier.
ISSUE
9hether 2avier is liale for the -'J fraud penalt3.
:ELD
Gnder the then Section /& of the 4a0 Code, a ta0pa3er who (les a false return is liale to pa3
the fraud penalt3 of -'J of the ta0 due fro# hi# or of the de(cienc3 ta0 in case pa3#ent
has een #ade on the asis of the return (led efore the discover3 of the falsit3 or fraud.
4he fraud conte#plated 3 law is actual and not constructive. *t
#ust e intentional fraud, consisting of deception willfull3 and delieratel3 done or resorted
to in order to induce another to give up so#e legal right. Kraud is never i#puted and the
courts never sustain (ndings of fraud upon circu#stances, which, at #ost created onl3
suspicion. 5 fraudulent return is alwa3s an atte#pt to evade a ta0,
ut a #erel3 false return #a3 not e. Merein, there was no actual and intentional fraud
through willful and delierate #isleading of the govern#ent agenc3 concerned ()*+)
co##itted 3 2avire. 2avier did not conceal an3thing to induce the govern#ent to give so#e
legal right and place itself at a disadvantage. @rror or #istake of law is not fraud. 5s ruled 3
the Court of 4a0 5ppeals, the -'J surcharge i#posed as fraud penalt3 in
the de(cienc3 assess#ent should e deleted.

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