BELL CORP. VS. CIR GR NO. CIR VS.

PL MANAGEMENT
181298
Option to carry-over excess income tax
payments to the succeeding years once
made becomes irrevocable
Under Section 76 of the 1997 National
Internal Revenue Code (NIRC), once an
option to carry-over excess income tax
payments to the succeeding years, it
becomes irrevocable. This was what the
Supreme Court reiterated in its new
decision in the case of Belle Corporation vs.
Commissioner of Internal Revenue, G.R.
No. 181298 promulgated last January 10,
2011.
INTERNATIONAL PHILIPPINES
GR No. 160949
National Internal Revenue Code;
irrevocability of option to carry-over excess
income tax payments. When the taxpayer
opted to carry over its unutilized creditable
withholding tax from1997 to taxable year
1998, the carry-over could no longer be
converted into a claim for tax refund
because of the irrevocability rule provided
in Section 76 of the National Internal
Revenue Code of 1997. Thereby, the
taxpayer became barred from claiming the
refund.

The issue passed upon by the Court is
whether petitioner is entitled to a refund of
its excess income tax payments for the
taxable year 1997 in the amount of
P106,447,318.00.
In denying petitioner Belle Corp.s Petition
for Certiorari under Rule 45 of the Rules of
Court, the highest tribunal of the land
opined that since petitioner already carried
over its 1997 excess income tax payments to
the succeeding taxable year 1998, it may no
longer file a claim for refund of unutilized
tax credits for taxable year 1997.
National Internal Revenue Code; carrying-
over excess income tax payments;
prescription. In view of its irrevocable
choice, taxpayer remained entitled to utilize
that amount of excess creditable
withholding tax as tax credit in succeeding
taxable years until fully exhausted. In this
regard, prescription did not bar it from
applying the amount as tax credit
considering that there was no prescriptive
period for the carrying over of the amount
as tax credit in subsequent taxable years.

The Court explained that Under the new

law, in case of overpayment of income
taxes, the remedies are still the same; and
the availment of one remedy still precludes
the other. But unlike Section 69 of the old
NIRC, the carry-over of excess income tax
payments is no longer limited to the
succeeding taxable year. Unutilized excess
income tax payments may now be carried
over to the succeeding taxable years until
fully utilized. In addition, the option to
carry-over excess income tax payments is
now irrevocable. Hence, unutilized excess
income tax payments may no longer be
refunded.
Co Untian Cases 1
 MERCURY DRUG
CORPORATION vs. CIR GR
No. 164050
The SC declared that the main issue under
this case is to determine whether the claim
for tax credit should be based on the full
amount of the 20% senior citizens discount
or the acquisition cost of the merchandise
sold.
The SC declared: Preliminarily, Republic
Act No. 7432 is a piece of social legislation
aimed to grant benefits and privileges to
senior citizens. Among the highlights of this
Act is the grant of sales discounts on the
purchase of medicines to senior citizens.
Section 4 (a) of Republic Act No. 7432
reads:
SEC.4. Privileges for Senior Citizens. The
senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%)
discount from all establishments relative to
the utilization of transportation services,
hotels and similar lodging establishments,
restaurants and recreation centers and
purchase of medicines anywhere in the
country; Provided, That private
establishments may claim the cost as tax
credit;
X x x.
The foregoing proviso specifically allows
the 20% senior citizens discount to be
claimed by the private establishment as a
tax credit and not merely as a tax deduction
from gross sales or gross income. X x x.
In Bicolandia, we construed the term cost
as referring to the amount of the 20%
discount extended by a private
establishment to senior citizens in their
purchase of medicines. X x x.
We reiterated this ruling in the 2008 case of
Cagayan Valley Drug by holding that
petitioner therein is entitled to a tax credit
for the full 20% sales discounts it extended
to qualified senior citizens. This holds true
despite the fact that petitioner suffered a net
loss for than taxable year. We finally
affirmed in M.E. Holding that the tax credit
should be equivalent to the actual 20% sales
discount granted to qualified senior
citizens.
The SC mentioned that RA No. 7432 has
under- gone two amendments. The first was
in 2003 by RA No. 9257and the second by
RA No. 9994 in 2010. The SC stressed that
the 20% sales discount granted by
establishments to qualified senior citizens is
now treated as tax deduction and not as a
tax credit.
The SC concluded:
Based on the foregoing, we sustain
petitioners argument that the cost of
discount should be computed on the actual
amount of the discount extended to senior
citizens. How- ever, we give full accord to
the factual findings of the Court of Tax
Appeals with respect to the actual amount
of the 20% sales discount, i.e., the sum of
P3,522,123.25. for the year 1993 and
P34,211,769.45 for the year 1994. There- fore,
petitioner is entitled to a tax credit equiva-
lent to the actual amounts of the 20% sales
discount as determined by the Court of Tax
Appeals.
Co Untian Cases 2
 PAGCOR VS. BIR GR No. 172087
PAGCOR is subject to income tax but
remains exempt fromthe imposition of
value-added tax.
With the amendment by R.A. No. 9337 of
Section 27 (c) of the National Internal
Revenue Code of 1997 by omittingPAGCOR
from the list of government corporations
exempt for income tax,the legislative intent
is to require PAGCOR to
paycorporateincome tax. However,
nowhere in R.A. No. 9337 is it providedthat
PAGCOR can be subjected to VAT. Thus,
the provision of RR No. 16-2005, which the
respondent BIR issued to implementthe
VAT law, subjecting PAGCOR to 10% VAT
isinvalid for being contrary to R.A. No.
9337.
LUNG CENTER OF THE
PHILIPPINES VS. QUEZON CITY
AND CONSTANTINO ROSAS GR
No. 144104
Despite this, the Court held that the
portions of real property that are leased to
private entities are not exempt from real
property taxes as these are not actually,
directly and exclusively used for charitable
purposes. (strictissimi juris) Moreover, P.D.
No. 1823 only speaks of tax exemptions as
regards to:
- income and gift taxes for all
donations, contributions,
endowments and equipment and
supplies to be imported by
authorized entities or persons and
by the Board of Trustees of the
Lung Center of the Philippines for
the actual use and benefit of the
Lung Center; and
- taxes, charges and fees imposed by
the Government or any political
subdivision or instrumentality
thereof with respect to equipment
purchases (expression unius est
exclusion alterius/expressium facit
cessare tacitum).

The Court held that the petitioner is indeed

a charitable institution based on its charter
and articles of incorporation. As a general
principle, a charitable institution does not
lose its character as such and its exemption
from taxes simply because it derives income
from paying patients, whether out-patient
or confined in the hospital, or receives
subsidies from the government, so long as
the money received is devoted or used
altogether to the charitable object which it is
intended to achieve; and no money inures
to the private benefit of the persons
managing or operating the institution.

Co Untian Cases 3
 CIR VS. ST. LUKE'S MEDICAL
CENTER GR No. 195909
St. Lukes Medical Center, Inc. (St. Lukes)
was assessed by the BIR for deficiency
income tax under Section 27(B) of the 1997
Tax Code, which imposes 10% income tax
on the taxable income of proprietary
educational institutions and hospitals which
are non profit. The CTA dismissed the
assessment on the ground that St. Lukes is
not subject to income tax under Section
30(E) and (G) of the Tax Code, which
exempts from income tax income received
by non-stock corporations organized and
operated exclusively for charitable purposes
and civic leagues and organizations not
organized for profit and promoting social
welfare.
Upon appeal to the Supreme Court (SC), the
latter ruled that St. Lukes is subject to tax
under Section 27(B) of the 1997 Tax Code. In
arriving at the conclusion, the SC reconciled
the provisions of Sections 27(B) and 30 of
the 1997 Tax Code. A charitable institution,
while organized and operated
exclusively for charitable purposes, is
nevertheless allowed to engage in
activities conducted for profit without
loosing its tax exempt status. The only
consequence is that the income of
whatever kind and character from any of
the activities conducted for profit,
regardless of the disposition of such
income, shall be subject to tax. St. Lukes is
a non-stock non-profit corporation.
Nonetheless, services to paying patients are
activities conducted for profit. Such income
is subject to income tax, but not to the 30%
income tax but to 10% under Section 27(B)
of the 1997 Tax Code.
COMMISSIONER VS. BRITISH
OVERSEAS AIRWAYS CORP. GR
L-65773-74
The source of an income is the property,
activity or service that produced the
income. For the source of income to be
considered as coming from the Philippines,
it is sufficient that the income is derived
from activity within the Philippines. Herein,
the sale of tickets in the Philippines is the
activity that produced the income. The
tickets exchanged hands here and payments
for fares were also made here in Philippine
currency.
The situs of the source of payments is the
Philippines. The flow of wealth proceeded
from, and occurred within, Philippine
territory, enjoying the protection accorded
by the Philippine Government. In
consideration of such protection, the flow of
wealth should share the burden of
supporting the government. PD 68, in
relation to PD 1355, ensures that
international airlines are taxed on their
income from Philippine sources. The 2 1/2
%tax on gross billings is an income tax. If it
had been intended as an excise or
percentage tax, it would have been placed
under Title V of the Tax Code covering
taxes on business.
Co Untian Cases 4
 CIR VS. BPI GR No. 178490
IRREVOCABILITY RULE
There are two options offered by Section 76
to a taxable corporation whose total
quarterly income tax payments in a given
taxable year exceed its total income tax due.
These are the filing for a tax refund or the
availing of a tax credit. These two options
are alternative in nature. The choice of one
precludes the other. The controlling factor
for the operation of the irrevocability rule is
that the taxpayer chose an option; and once
it had already done so, it could no longer
make another one. Consequently, after the
taxpayer opts to carry-over its excess tax
credit to the following taxable period, the
question of whether or not it actually gets to
apply said tax credit is irrelevant The choice
by BPI of the option to carry over its 1998
excess income tax credit to succeeding
taxable years, which it explicitly indicated
in its 1998 ITR, is irrevocable. Hence, BPI is
not entitled to a refund.
CIR VS. SMART
COMMUNICATIONS GR No.
179045-46
SMART, AS WITHHOLDING AGENT,
MAY FILE THE CLAIM FOR REFUND.
The person entitled to claim a tax refund is
the taxpayer [Sections 204(c) and 229 of the
National Internal Revenue Code (NIRC)].
However, in case the taxpayer does not file
a claim for refund, the withholding agent
may file the claim. Thus, in Commissioner
of Internal Revenue v. Procter & Gamble
Philippine Manufacturing Corporation
(G.R. No. 66838, December 2, 1991, 204
SCRA 377), a withholding agent was
considered a proper party to file a claim for
refund of the withheld taxes of its foreign
parent company. The CIR was incorrect in
saying that this ruling applies only when
the withholding agent and the taxpayer are
related parties, i.e., where the withholding
agent is a wholly owned subsidiary of the
taxpayer. Although such relation between
the taxpayer and the withholding agent is a
factor that increases the latters legal interest
to file a claim for refund, there is nothing in
the decision in said case to suggest that such
relationship is required or that the lack of
such relation deprives the withholding
agent of the right to file a claim for refund.
Rather, what is clear in the decision is that a
withholding agent has a legal right to file a
claim for refund for two reasons. First, he is
considered a taxpayer under the NIRC as
he is personally liable for the withholding
tax as well as for deficiency assessments,
surcharges, and penalties, should the
amount of the tax withheld be finally found
to be less than the amount that should have
been withheld under law. Second, as an
agent of the taxpayer, his authority to file
the necessary income tax return and to
remit the tax withheld to the government
impliedly includes the authority to file a
claim for refund and to bring an action for
recovery of such claim.
Silkair (Singapore) Pte, Ltd. vs.
Commissioner of Internal Revenue (supra),
cited by the CIR, was inapplicable as it
involved excise taxes, not withholding
taxes. In that case, it was ruled that the
proper party to question, or seek a refund
Co Untian Cases 5
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.
As an agent of the taxpayer, it is the duty of
the withholding agent to return to the
principal taxpayer what he has recovered.
Otherwise, he would be unjustly enriching
himself at the expense of the principal
taxpayer from whom the taxes were
withheld, and from whom he derives his
legal right to file a claim for refund.
THE PAYMENTS FOR THE CM AND SIM
APPLICATION AGREEMENTS
CONSTITUTED BUSINESS PROFITS
WHICH WERE NOT TAXABLE UNDER
THE RP-MALAYSIA TAX TREATY.
HOWEVER, THE PAYMENT FOR THE
SDM AGREEMENT CONSTITUTED
TAXABLE ROYALTY UNDER THE
SAME TREATY.
The RP-Malaysia Tax Treaty defines
royalties as payments of any kind
received as consideration for: (i) the use of,
or the right to use, any patent, trade mark,
design or model, plan, secret formula or
process, any copyright of literary, artistic or
scientific work, or for the use of, or the right
to use, industrial, commercial, or scientific
equipment, or for information concerning
industrial, commercial or scientific
experience; (ii) the use of, or the right to use,
cinematograph films, or tapes for radio or
television broadcasting. They are taxed at
25% of the gross amount.
Under the same Treaty, the business
profits of an enterprise of a Contracting
State is taxable only in that State, unless the
enterprise carries on business in the other
Contracting State through a permanent
establishment. The term permanent
establishment is defined as a fixed place of
business where the enterprise is wholly or
partly carried on. However, even if there is
no fixed place of business, an enterprise of a
Contracting State is deemed to have a
permanent establishment in the other
Contracting State if it carries on supervisory
activities in that other State for more than 6
months in connection with a construction,
installation or assembly project which is
being undertaken in that other State. In this
case, it was established during the trial that
Prism did not have a permanent
establishment in the Philippines. Hence,
business profits derived from Prisms
dealings with Smart were not taxable.
Under its agreements with Smart, Prism
had intellectual property right over the
SDM program, but not over the CM and
SIM Application programs as the
proprietary rights of these programs
belonged to Smart. Thus, out of the
payments made to Prism, only the payment
for the SDM program was a royalty subject
to a 25% withholding tax; the payments for
the CM and SIM Application programs
constituted Prisms non-taxable business
profits. The BIR should, therefore, refund
the erroneously withheld royalty taxes for
the payments pertaining to the CM and SIM
Application Agreements.
The BIR was ordered to issue a Tax Credit
Certificate to Prism in the amount of
P3,989,456.43.
Co Untian Cases 6
 NPC VS. CBAA GR No. 171470 Time and again, the Supreme
Court has stated that taxation is the
NAPOCORs basis for its claimed rule and exemption is the
exception. The law does not look
exemption Section 234(c) of the LGC is with favor on tax exemptions and
clear and not at all ambiguous in its the entity that would seek to be
terms. Exempt from real property taxation thus privileged must justify it by
words too plain to be mistaken and
are: (a) all machineries and equipment; (b) [that too categorical to be
are] actually, directly, and exclusively used by; misinterpreted. Thus, applying the
(c) [local water districts and] government- rule of strict construction of laws
granting tax exemptions, and the
owned or controlled corporations engaged in rule that doubts should be resolved
the [supply and distribution of water in favor of provincial corporations,
and/or] generation and transmission of electric we hold that FELS is considered a
taxable entity.
power.
The mere undertaking of
We note, in the first place, that the petitioner NPC under Section 10.1
of the Agreement, that it shall be
present case is not the first occasion where
responsible for the payment of all
NAPOCOR claimed real property tax real estate taxes and assessments,
exemption for a contract partner under Sec. does not justify the exemption. The
privilege granted to petitioner
234 (c) of the LGC. In FELS Energy, Inc. v.
NPC cannot be extended to FELS.
The Province of Batangas (that was The covenant is between FELS and
consolidated with NAPOCOR v. Local Board NPC and does not bind a third
of Assessment Appeals of Batangas, et person not privy thereto, in this
case, the Province of Batangas.
al.), the Province of Batangas assessed real
property taxes against FELS Energy, Inc.
We also recognized this strictissimi
the owner of a barge used in generating
juris standard in NAPOCOR v. City of
electricity under an agreement with
Cabanatuan. Under this standard, the
NAPOCOR. Their agreement provided that
claimant must show beyond doubt, with
NAPOCOR shall pay all of FELS real estate
clear and convincing evidence, the factual
taxes and assessments. We concluded in
basis for the claim. Thus, the real issue in a
that case that we could not recognize the tax
tax exemption case such as the present case
exemption claimed, since NAPOCOR was
is whether NAPOCOR was able to
not the actual, direct and exclusive user of
convincingly show the factual basis for its
the barge as required by Sec. 234 (c). In
claimed exception.
making this ruling, we cited the required
standard of construction applicable to tax
exemptions and said:

Co Untian Cases 7
 The records show that NAPOCOR,
no less, admits BPPCs ownership of the
machineries and equipment in the power
plant. Likewise, the provisions of the BOT
agreement cited above clearly show
BPPCs ownership. Thus, ownership is not a
disputed issue.
Rather than ownership,
NAPOCORs use of the machineries and
equipment is the critical issue, since its
claim under Sec. 234(c) of the LGC is
premised on actual, direct and exclusive
use. To support this claim, NAPOCOR
characterizes the BOT Agreement as a
mere financing agreement where BPPC is
the financier, while it (NAPOCOR) is the
actual user of the properties.
As in the fact of ownership,
NAPOCORs assertion is belied by the
documented arrangements between the
contracting parties, viewed particularly
from the prism of the BOT law.
The underlying concept behind a
BOT agreement is defined and described
in the BOT law as follows:
Build-operate-and-
transfer A contractual
arrangement whereby the
project proponent
undertakes the
construction, including
financing, of a given
infrastructure facility, and
the operation and
maintenance thereof. The
project proponent operates
the facility over a fixed term
during which it is allowed
to charge facility users
appropriate tolls, fees,
rentals, and charges not
exceeding those proposed
in its bid or as negotiated
and incorporated in the
contract to enable the
project proponent to
recover its investment, and
operating and maintenance
expenses in the project. The
project proponent transfers
the facility to the
government agency or local
government unit concerned
at the end of the fixed term
which shall not exceed fifty
(50) years x x x x.
Under this concept, it is the project
proponent who constructs the project at its
own cost and subsequently operates and
manages it. The proponent secures the
return on its investments from those using
the projects facilities through appropriate
tolls, fees, rentals, and charges not
exceeding those proposed in its bid or as
negotiated. At the end of the fixed term
agreed upon, the project proponent
transfers the ownership of the facility to the
government agency. Thus, the government
is able to put up projects and provide
immediate services without the burden of
the heavy expenditures that a project start
up requires.
Co Untian Cases 8
 A reading of the provisions of the
parties BOT Agreement shows that it fully
conforms to this concept. By its express
terms, BPPC has complete ownership
both legal and beneficial of the project,
including the machineries and equipment
used, subject only to the transfer of these
properties without cost to NAPOCOR
after the lapse of the period agreed
upon. As agreed upon, BPPC provided
the funds for the construction of the power
plant, including the machineries and
equipment needed for power generation;
thereafter, it actually operated and still
operates the power plant, uses its
machineries and equipment, and receives
payment for these activities and the
electricity generated under a defined
compensation scheme. Notably, BPPC as
owner-user is responsible for any defect
in the machineries and equipment.
As envisioned in the BOT law, the
parties agreement assumes that within the
agreed BOT period, BPPC the investor
private corporation shall recover its
investment and earn profits through the
agreed compensation scheme; thereafter, it
shall transfer the whole project, including
machineries and equipment, to
NAPOCOR without additional cost or
compensation. The latter, for its part,
derives benefit from the project through
the fulfillment of its mandate of delivering
electricity to consumers at the soonest
possible time, without immediately
shouldering the huge financial
requirements that the project would entail
if it were to undertake the project on its
own. Its obligation, in exchange, is to
shoulder specific operating costs under a
compensation scheme that includes the
purchase of all the electricity that BPPC
generates.
That some kind of financing
arrangement is contemplated in the
sense that the private sector proponent
shall initially shoulder the heavy cost of
constructing the projects buildings and
structures and of purchasing the needed
machineries and equipment is
undeniable. The arrangement, however,
goes beyond the simple provision of
funds, since the private sector proponent
not only constructs and buys the necessary
assets to put up the project, but operates
and manages it as well during an agreed
period that would allow it to recover its
basic costs and earn profits. In other
words, the private sector proponent goes
into business for itself, assuming risks and
incurring costs for its account. If it
receives support from the government at
all during the agreed period, these are pre-
agreed items of assistance geared to ensure
that the BOT agreements objectives both
for the project proponent and for the
government are achieved. In this sense,
a BOT arrangement issui generis and is
different from the usual financing
arrangements where funds are advanced
Co Untian Cases 9
to a borrower who uses the funds to direct, and immediate, while NAPOCORs
establish a project that it owns, subject is contingent and, at this stage of the BOT
only to a collateral security arrangement to Agreement, not sufficient to support its
guard against the nonpayment of the claim for tax exemption. Thus, the CTA
loan. It is different, too, from an committed no reversible error in denying
arrangement where a government agency NAPOCORs claim for tax exemption.
borrows funds to put a project from a
private sector-lender who is thereafter For these same reasons, we reject
commissioned to run the project for the NAPOCORs argument that the
government agency. In the latter case, the machineries and equipment must be
government agency is the owner of the subjected to a lower assessment
project from the beginning, and the lender- level. NAPOCOR cites as support Section
operator is merely its agent in running the 216 of the LGC which provides:
project.
Section 216. Special
Classes of Real Property. - All
If the BOT Agreement under lands, buildings, and other
consideration departs at all from the improvements thereon
actually, directly and
concept of a BOT project as defined by law, exclusively used for
it is only in the way BPPCs cost recovery is hospitals, cultural, or
achieved; instead of selling to facility users scientific purposes, and
those owned and used by
or to the general public at large, the
local water districts, and
generated electricity is purchased by government-owned or
NAPOCOR which then resells it to power controlled corporations
rendering essential public
distribution companies. This deviation,
services in the supply and
however, is dictated, more than anything distribution of water
else, by the structure and usages of the and/or generation and
transmission of electric
power industry and does not change the
power shall be classified as
BOT nature of the transaction between the special.
parties.
in relation with Section 218 (d) of the LGC
Consistent with the BOT concept which provides:
Section
and as implemented, BPPC the owner-
218. Assessment Levels. - The
manager-operator of the project is the assessment levels to be
actual user of its machineries and applied to the fair market
equipment. BPPCs ownership and use of value of real property to
determine its assessed value
the machineries and equipment are actual,
Co Untian Cases 10
 shall be fixed by ordinances properties are not really tax
of the Sangguniang
Panlalawigan, Sangguniang exempt). NAPOCOR argues that if no tax
Panlungsod or Sangguniang exemption will be recognized, the
Bayan of a municipality responsibility it assumed carries practical
within the Metropolitan
Manila Area, at the rates implications that are very difficult to
not exceeding the ignore. In fact, NAPOCORs supplemental
following: petition is anchored on these practical
xxxx
implications the alleged detriment to the
(d) On Special Classes: The
assessment levels for all lands public interest that will result if the levy,
buildings, machineries and other sale, and transfer of the machineries and
improvements;
equipment were to be
Actual Use Assessment Level
completed. NAPOCORs reference is to
Cultural 15% fact that the machineries and
the
Scientific 15%
equipment have been sold in public
Hospital auction
15% and the buyer the respondent

Local water districts Province

10% will consolidate its ownership
over these properties on February 1, 2009.
Government-owned or 10%
controlled corporations
engaged in the supply and We fully recognize these
distribution of water concerns. However, these considerations
and/or generation and are not relevant to our disposition of the
transmission of electric
power issues in this case. We are faced here with
the application of clear provisions of law
and settled jurisprudence to a case that, to
our mind, should not be treated differently
Since the basis for the application of
solely because of non-legal or practical
the claimed differential treatment or
considerations. Significantly, local
assessment level is the same as the claimed
government real property taxation also has
tax exemption, the lower tribunals
constitutional underpinnings, based on
correctly found that there is no basis to
Section 5 of Article X of the
apply the lower assessment level of 10%.
Constitution, that we cannot simply
As our last point, we note that a real ignore. In FELS
concern for NAPOCOR in this case is its
assumption under the BOT agreement of
BPPCs real property tax liability (which in
itself is a recognition that BPPCs real
Co Untian Cases 11
Energy, Inc. v. The Province of
Batangas, earlier cited, we said:

The power to tax is an

incident of sovereignty and is
unlimited in its magnitude,
acknowledging in its very nature
no perimeter so that security
against its abuse is to be found
only in the responsibility of the
legislature which imposes the tax
on the constituency who are to pay
for it. The right of local
government units to collect taxes
due must always be upheld to
avoid severe tax erosion. This
consideration is consistent with
the State policy to guarantee the
autonomy of local governments
and the objective of the Local
Government Code that they enjoy
genuine and meaningful local
autonomy to empower them to
achieve their fullest development
as self-reliant communities and
make them effective partners in
the attainment of national goals.
In conclusion, we
reiterate that the power to
tax is the most potent
instrument to raise the
needed revenues to finance
and support myriad
activities of the local
government units for the
delivery of basic services
essential to the promotion
of the general welfare and
the enhancement of peace,
progress, and prosperity of
the people. [Emphasis
supplied.]

Co Untian Cases 12
CITY ASSESSOR OF CEBU
VS. ASSOCIATION OF
BENEVOLA DE CEBU GR
No. 152904
We hold that the new building is an
integral part of the hospital and should not
be assessed as commercial. Being a tertiary
hospital, it is mandated to fully
departmentalized and be equipped with
the service capabilities needed to support
certified medical specialist and other
licensed physicians. The fact that they are
holding office is a separate building does
not take away the essence and nature of
their services vis-a-vis the overall
operation of the hospital and to its
patients.
Under the Local Government Code, Sec.
26: All lands, buildings and other
improvements thereon actually, directly
and exclusively used for hospitals, cultural
or scientific purposes and those owned and
used by local water districts shall be
classified as special.
CIR VS. AICHI GR No.
184823
WHETHER OR NOT THE CLAIM FOR
REFUND WAS FILED WITHIN THE
PRESCRIBED PERIOD
Yes. As ruled in the case of Commissioner
of Internal Revenue v. Mirant Pagbilao
Corporation (G.R. No. 172129, September
12, 2008), the two-year period should be
reckoned from the close of the taxable
quarter when the sales were made.
In Commissioner of Internal Revenue v.
Primetown Property Group, Inc (G.R. No.
162155, August 28, 2007, 531 SCRA 436),
we said that as between the Civil Code,
which provides that a year is equivalent to
365 days, and the Administrative Code of
1987, which states that a year is composed
of 12 calendar months, it is the latter that
must prevail being the more recent law,
following the legal maxim, Lex posteriori
derogat priori.
Thus, applying this to the present case, the
two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to
September 30, 2002 expired on September
30, 2004. Hence, respondents
administrative claim was timely filed.
WHETHER OR NOT THE
SIMULTANEOUS FILING OF THE
ADMINISTRATIVE AND THE JUDICIAL
CLAIMS CONTRAVENES SECTION 229
OF THE NIRC, WHICH REQUIRES THE
PRIOR FILING OF AN ADMINISTRATIVE
CLAIM, AND VIOLATES THE DOCTRINE
OF EXHAUSTION OF ADMINISTRATIVE
REMEDIES
Yes. We find the filing of the
judicial claim with the CTA
premature.
Co Untian Cases 13
Section 112(D) of the NIRC clearly
provides that the CIR has 120 days, from
the date of the submission of the complete
documents in support of the application
[for tax refund/credit], within which to
grant or deny the claim. In case of full or
partial denial by the CIR, the taxpayers
recourse is to file an appeal before the
CTA within 30 days from receipt of the
decision of the CIR. However, if after the
120-day period the CIR fails to act on the
application for tax refund/credit, the
remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.
Subsection (A) of Section 112 of the NIRC
states that any VAT-registered person,
whose sales are zero-rated or effectively
zero-rated may, within two years after the
close of the taxable quarter when the sales
were made, apply for the issuance of a tax
credit certificate or refund of creditable
input tax due or paid attributable to such
sales. The phrase within two (2) years x x
x apply for the issuance of a tax credit
certificate or refund refers to applications
for refund/credit filed with the CIR and not
to appeals made to the CTA.
The case of Commissioner of Internal
Revenue v. Victorias Milling, Co., Inc. is
inapplicable as the tax provision involved
in that case is Section 306, now Section 229
of the NIRC. Section 229 does not apply to
refunds/credits of input VAT.
TOSHIBA VS. CIR GR No. 157594
IT IS AXIOMATIC IN PLEADINGS AND
PRACTICE THAT NO NEW ISSUE IN A CASE
CAN BE RAISED IN A PLEADING WHICH BY
DUE DILIGENCE COULD HAVE BEEN RAISED
IN PREVIOUS PLEADINGS.
The CIR did not argue in his Answer that
Toshiba had no right to the credit/refund of
its input VAT payments because the latter
was VAT-exempt and its export sales were
VAT-exempt transactions. The Pre-Trial Brief
of the CIR was equally bereft of such
allegations or arguments. The CIR likewise
chose not to present any evidence at all
during the trial before the CTA, and also
waived the submission of a Memorandum.
The CIR had waited until the CTA already
rendered its Decision before asserting in his
Motion for Reconsideration that Toshiba was
VAT-exempt and its export sales were VAT-
exempt transactions. Upon the failure of the
CIR to timely plead and prove before the CTA
its defenses or objections, the CIR is deemed
to have waived the same.

The premature filing of respondents claim

for refund/credit of input VAT before the
CTA warrants a dismissal inasmuch as no
jurisdiction was acquired by the CTA.

Co Untian Cases 14
 CIR VS. SM Prime Holdings GR
No. 183505
THE REPEAL OF THE LOCAL TAX CODE
BY THE LOCAL GOVERNMENT CODE
(LGC) OF 1991 IS NOT A LEGAL BASIS
FOR THE IMPOSITION OF VAT ON THE
GROSS RECEIPTS OF CINEMA/THEATER
OPERATORS OR PROPRIETORS DERIVED
FROM ADMISSION TICKETS.
The removal of the prohibition under the
Local Tax Code did not grant nor restore to
the national government the power to
impose amusement tax on cinema/theater
operators or proprietors. Considering that
there is no provision of law imposing VAT
on the gross receipts of cinema/theater
operators or proprietors derived from
admission tickets, Revenue Memorandum
Circular (RMC) No. 28-2001 which imposes
VAT on the gross receipts from admission
to cinema houses must be struck down.
RMCs must not override, supplant, or
modify the law, but must remain consistent
and in harmony with the law they seek to
apply and implement.
CEPALCO VS. CITY OF
CAGAYAN DE ORO GR No.
191761
FAILURE TO APPEAL TO THE
SECRETARY OF JUSTICE WITHIN THE
STATUTORY PERIOD OF 30 DAYS FROM
THE EFFECTIVITY OF AN ORDINANCE
IS FATAL ONES CAUSE.
On January 10, 2005, the Sangguniang
Panlungsod of Cagayan de Oro (City
Council) passed Ordinance No. 9503-2005
imposing a tax on the lease or rental of
electric and/or telecommunication posts,
poles or towers by pole owners to other
pole users at ten percent (10%) of the annual
rental income derived from such lease or
rental. The City Council, in a letter dated 15
March 2005, informed Cagayan Electric
Power and Light Company, Inc.
(CEPALCO), through its President and
Chief Operation Manager, Ms. Consuelo G.
Tion, of the passage of the subject
ordinance. On September 30, 2005,
appellant CEPALCO, purportedly on pure
question of law, filed a petition for
declaratory relief assailing the validity of
Ordinance No. 9503-2005 before the
Regional Trial Court.
The Court ruled that CEPALCO failed to
exhaust administrative remedies. Section 5
of said ordinance provided that the
Ordinance shall take effect after 15 days
following its publication in a local
newspaper of general circulation for at least
three (3) consecutive issues. Gold Star
Daily published Ordinance No. 9503-2005
on 1 to 3 February 2005. Ordinance No.
9503-2005 thus took effect on 19 February
2005. CEPALCO filed its petition for
declaratory relief before the Regional Trial
Court on 30 September 2005, clearly beyond
the 30-day period provided in Section 187.
CEPALCO did not file anything before the
Secretary of Justice. Thus, the Court found
that CEPALCO ignored the mandatory
nature of the statutory periods.
Note though that in this case, the Court
relaxed the rules. It then invalidated
Ordinance No. 9503-2005 for imposing 10%
tax instead of only 2%, in violation of
Section 143(h) of the Local Government
Code.
Co Untian Cases 15
 CIR VS. YMCA GR No. 124043
WHETHER THE INCOME DERIVED
FROM RENTALS OF REAL PROPERTY
OWNED BY YMCA SUBJECT TO INCOME
TAX
Yes. Income of whatever kind and character
of non-stock non-profit organizations from
any of their properties, real or personal, or
from any of their activities conducted for
profit, regardless of the disposition made of
such income, shall be subject to the tax
imposed under the NIRC.
Rental income derived by a tax-exempt
organization from the lease of its properties,
real or personal, is not exempt from income
taxation, even if such income is exclusively
used for the accomplishment of its
objectives.
Because taxes are the lifeblood of the nation,
the Court has always applied the doctrine
of strict in interpretation in construing tax
exemptions (Commissioner of Internal
Revenue v. Court of Appeals, 271 SCRA
605, 613, April 18, 1997). Furthermore, a
claim of statutory exemption from taxation
should be manifest and unmistakable from
the language of the law on which it is based.
Thus, the claimed exemption must
expressly be granted in a statute stated in a
language too clear to be mistaken (Davao
Gulf Lumber Corporation v. Commissioner
of Internal Revenue and Court of Appeals,
G.R. No. 117359, p. 15 July 23, 1998).
Verba legis non est recedendum. The law
does not make a distinction. The rental
income is taxable regardless of whence such
income is derived and how it is used or
disposed of. Where the law does not
distinguish, neither should we.
Private respondent also invokes Article XIV,
Section 4, par. 3 of the Constitution,
claiming that it is a non-stock, non-profit
educational institution whose revenues and
assets are used actually, directly and
exclusively for educational purposes so it is
exempt from taxes on its properties and
income. This is without merit since the
exemption provided lies on the payment of
property tax, and not on the income tax on
the rentals of its property. The bare
allegation alone that one is a non-stock,
non-profit educational institution is
insufficient to justify its exemption from the
payment of income tax.
For the YMCA to be granted the exemption
it claims under the above provision, it must
prove with substantial evidence that (1) it
falls under the classification non-stock, non-
profit educational institution; and (2) the
income it seeks to be exempted from
taxation is used actually, directly, and
exclusively for educational purposes.
Unfortunately for respondent, the Court
noted that not a scintilla of evidence was
submitted to prove that it met the said
requisites.
The Court appreciates the nobility of
respondents cause. However, the Courts
power and function are limited merely to
applying the law fairly and objectively. It
cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it
would be over spilling its role and invading
the realm of legislation. The Court regrets
that, given its limited constitutional
authority, it cannot rule on the wisdom or
propriety of legislation. That prerogative
belongs to the political departments of
government.
Co Untian Cases 16
 2013 CTA RULINGS
VAT REFUND
1. In an application for refund of input
taxes related to zero-rated sales,
compliance with the 120-day waiting
period is mandatory and jurisdictional,
with the exception of the period from
December 10, 203 to December 6, 2010.
Applying the Supreme Court En Banc
decision in the case of Commissioner of
Internal Revenue vs. San Roque Power
Corporation, G. R. No. 187485; Taganito
Mining Corporation vs. Commissioner of
Internal Revenue, G.R. No. 19613; and
Philex Mining Corporation vs.
Commissioner of Internal Revenue, G.R.
No. 197156 promulgated on February 12,
2013, compliance with the mandatory and
jurisdictional 120+30 day period is
necessary whether before, during, or after
the effectivity of the Atlas and Mirant
doctrine. However, there is an exception -
the period from the issuance of BIR Ruling
No. DA-489-03 on December 10, 203 to
December 6, 2010 when the Aichi doctrine
was adopted, which again reinstated the
120+30 day periods as mandatory and
jurisdictional. [Deutsche Knowledge
Services Pte. Ltd. vs. CIR, CTA EB Case No.
816, May 9, 2013]
2. Observance of the 120-day period under
Section 12(C) of the Tax Code for the
Commissioner to act on administrative
claims for refund/credit of unutilized
input VAT is crucial in filing an appeal to
the CTA.
As to its judicial claim, Petioner belatedly
filed its Petition for Review before the Court
a quo only on April 20, 207 or 187 days
beyond the prescribed 30-day period to
appeal before the CTA, reckoned from the
lapse of the 120-day period fixed by law for
the BIR to act on claim for refund. Clearly
then, this case is one of late filing which
renders the Court without jurisdiction to
entertain the instant petition.
Consequently, petitioner's failure to file its
judicial claim before the CTA within 30
days from the lapse of the mandatory 120-
day period under Section 12(C) of the NIRC
of 197, as amended, warrants a dismissal on
its petition on the ground of absence of
jurisdiction to take cognizance of the case.
(Chevron Holdings, Inc. vs. CIR, CTA EB
Case No. 837, May 07, 2013)
3. The 120-day period should be reckoned
from the filing of the administrative claim
for refund should the taxpayer fail or opt
not to submit any document.
Petioner filed an administrative claim with
the BIR for the refund of its alleged
unutilized input VAT attributable to its
zero-rated sales for the year 209.
Respondent argues that Petioner must
prove that it submitted the complete
documents required under RMO No.53- 98
before the 120-day audit period shall apply
and before judicial remedies as provided for
in the law may be availed of. Respondent
also alleges that perusal of the petition for
review would show that petitioner never
Co Untian Cases 17
made mention that it submitted documents
in support of its claim for refund. The
allegation of submission of complete
documents is a material fact necessary to
invoke jurisdiction and to justify relief
demanded. Having failed to allege
submission of complete documents,
respondent claims that she was evidently
deprived of her opportunity to validate
petitioner's claim for refund in the
administrative level.
The court disagreed and ruled that the
completeness of documents to support a
claim is determined by a taxpayer. Should
the taxpayer decide to submit only certain
documents, or should the taxpayer fail, or
opted not, to submit any document at al, in
support of its application for refund under
Section 12, the 120-day period should be
reckoned from the filing of the said
application. Moreover, the alleged non-
submission of complete documents at he
administrative level is not fatal to a claim
for refund in the judicial level. (CE
Casecnan Water and Energy Company, Inc.
vs. CIR, CTA Case No 8245, May 10, 2013)
4. Unreported input taxes cannot be the
subject of refund on the ground of
erroneous payment.
Petioner claims that due to inadvertence,
some of its input taxes for the quarter were
not declared in its Quarterly VAT Return,
and consequently, not charged to the output
tax payable for the same quarter, resulting
to the alleged understatement of VAT
overpayment. Petioner filed a claim for
refund of the alleged understatement of
overpayment of VAT liabilities pursuant o
Sections 204(C) and 29 of the amended 197
Tax Code.
The court denied Petitioners claim and
ruled that the amount being claimed
essentially represents undeclared input
taxes for the second quarter of 208, and not
the erroneously paid VAT. The Court ruled
that for input taxes to be available as tax
credits, they must be substantiated and
reported in the VAT returns. Moreover,
Section 12 of the NIRC of 197, as amended,
enumerates the two instances when excess
input taxes may be claimed for refund: a)
when they are attributable to zero-rated or
effectively zero-rated sales, and b) upon
cancelation of VAT registration due to
retirement from business. The undeclared
input taxes do not fall under any of these
instances. Hence, petioner is not entitled to
refund or issuance of tax credit. (Coca-Cola
Bottlers Philippines, Inc. vs. CIR, CTA Case
No. 8136, May 15, 2013)
Co Untian Cases 18
5. Sale of services to a foreign corporation
with a branch office in the Philippines
cannot qualify for VAT zero-rating.
In claim for refund under Section 12 of the
197 Tax Code, the refund/tax credit of
unutilized input VAT attributable to zero-
rated or effectively zero rated sales is
allowed subject o the taxpayer's compliance
with the following requisites:
1. that here must be zero-rated or effectively
zero-rated sales;
2. that input axes were incurred or paid;
3. that such input axes are attributable to
zero-rated or effectively zero- rated sales;
4. that he input axes were not applied
against any output VAT liability; and
5. that he claim for refund was filed within
the two-year prescriptive period.
Petioner claims that its sales of services to
foreign affiliates which are al engaged in
business conducted outside the Philippines
qualify for VAT zero-rating. But the Court
ruled that Petioner's reported sales of
services to The Manufacturers Life
Insurance Company cannot qualify for VAT
zero-rating, as it is a corporation organized
under the laws of the Dominion of Canada
but duly licensed and registered with the
SEC to do business in the Philippines
through its branch, The Manufacturers Life
Insurance Co. (Phils.), Inc. (Manulife Data
Services, Inc. vs. CIR, CTA Case Nos. 8054,
817, and 8139, May 8, 2013)
ASSESSMENTS
6. Issuance of Preliminary Assessment
Notice (PAN) is part of the due process
and non-issuance of which renders the
assessment void.
Petioner was issued a Formal Letter of
Demand and Final Assessment Notice for
the year 2005, without prior issuance of a
PAN. The Court ruled that the issuance of
PAN is an integral part of procedural due
process. The PAN lays down the factual and
legal basis for the assessment. The Court
emphasized the indispensable nature of the
PAN in the issuance of assessments and
gave emphasis to the fact that the 197 NIRC
provided that the issuance of PAN is
mandatory in tax assessments except in a
few instances, specifically enumerated by
law, where it is not required. (CIR vs.
Laurence Le V. Luang (CTA EB Case No.
878 May 14, 2013)
7. Under-declaration of purchases cannot
give rise to income tax and VAT
assessments.
Petioner received from the CIR assessment
on alleged Petitioners deficiency income
tax and VAT for taxable year 207. The
assessment arose from the Reconciliation of
Listing for Enforcement System (RELIEF),
Tax Reconciliation System (TRS) and Third
Party Matching Bureau of Customs (TPM-
BOC) Data Program. Respondent alleged
that Petioner had under-declaration of
purchases as a result of reconciliation of the
BOC data as against Petitioners purchases
per returns filed. It is on this alleged under-
declaration of purchases that Petioner was
assessed with deficiency income tax and
VAT on the premise that the under-
Co Untian Cases 19
declaration of purchases will translate to handling/storage or during the rectification
under-declaration of income. process shall not be allowed or granted."

The court ruled that the assessment has no Section 14 of RR No. 3-206 even expressly
factual or legal basis because under- provides that the "excise tax due on loses
declaration of purchases does not mean shall be paid by the rectifier on or before the
under-declaration of income. The eighth (8th) day of the month immediately
presumption of correctness of assessment following the month of operation." (Avon
being a mere presumption cannot be made Products Manufacturing, Inc. vs. CIR, CTA
to rest on another presumption. The three Case No. 8174, May 16, 2013)
(3) elements in the imposition of income are
1) there must be gain or profit, 2) the gain or
profit is realized or received, actually or
constructively, and 3) it is not exempted by
law or treaty from income tax. In the
imposition of assessment of income tax, it
must be clear that there was an income, and
such income was received by the taxpayer,
not when there is under-declaration of
expenses. Likewise, VAT can be imposed
only when it is shown that the taxpayer
received an amount of money or its
equivalent from its sale, barter or exchange
of goods or properties, or from sale or
exchange of services, and not when there
are un- declared sales. (Agrinurture, Inc. vs.
CIR, CTA Case No. 8345, May 29, 2013)

8. Taxpayer is liable for excise taxes on

distilled spirits on losses incurred in the
transportation and delivery of denatured
alcohol.

On the imposition of excise tax under

Section 141 of the amended 197 NIRC,
loses due to evaporation is covered and
contemplated by the excise tax impositions
because "no claim for excise tax refund or
credit shall be allowed on distilled spirits
that have been lost or destroyed after
removal thereof from the place of
production or released from the customs'
custody", and that "any allowance for losses
or actual losses incurred, whether or not
due to negligence, in-transit,

Co Untian Cases 20
 LOCAL TAXES
9. An entity that was not granted
secondary franchise by the government
cannot be liable for franchise tax.
The term "franchise" for purposes of the
imposition of the franchise tax under
Section 137 of RA No. 7160 is clearly
defined under Section 131(m) as a right or
privilege, affected with public interest
which is conferred upon private persons or
corporation, under such terms and
conditions as the government and its
political subdivisions may impose in the
interest of public welfare, security, and
safety.
It is clear that no secondary franchise was
granted by the Government or its agency in
favor of petioner. First, the grant of such
franchise is not required under PD No. 142
and RA No. 9513 for the exploration,
development, and operation of geothermal
resources. Second, considering the meaning
of the terms "service contract" and
"franchise", petitioner's operation of the
Steamfields located within the Geothermal
Plant is by virtue of a service contract or
agreement whereby petioner undertakes to
perform al the obligations stated under
Section VI of the Geothermal Service
Contract. Since petioner does not have a
secondary franchise as it is not required by
law to be granted one, there is no basis to
hold petitioner liable for franchise tax under
Section 137 of the LGC and the Sorsogon
City Revenue Code.
Accordingly, the Notice of Assessment
dated July 26, 2010 issued by the Office of
the City Treasurer of Sorsogon, assessing
petioner for deficiency franchise tax in the
amount of P3,71,742 .6, is void for lack of
legal and factual basis. Being a void
assessment, said Notice of Assessment does
not give rise to an obligation on the part of
petioner to pay deficiency franchise tax to
respondent Sorsogon City who had no
authority to collect the same. (Energy
Development Corporation vs. CIR, CTA
AC. NO. 90 May 14, 2013)
DOCUMENTARY STAMP TAX
10. To prove that DST payments are
covered by the exemption under section
19(e) of the Tax Code, taxpayer must show
that the DST was paid on instruments
evidencing sale, barter or exchange of
shares of stock listed and traded through
the local stock exchange.
Petioner filed a refund on its alleged
erroneous payment of documentary stamp
tax (DST) on the sale of shares of stock
listed and traded through the Philippine
Stock Exchange (PSE). It argued that it is
not liable to pay DST on the sale, barter or
exchange of shares of stock listed and
traded through the local stock exchange
pursuant to Section 19(e) of the 197 Tax
Code as, amended by Republic Act (RA)
9648.
The court denied Petitioners claim for
insufficiency of evidence. The Summary of
Periodic Payments, which was presented by
Petioner to support its claim that it indeed
paid DST does not show that he alleged
documentary stamp tax was paid on
instruments, documents, and papers
evidencing sale, barter or exchange of
shares of stock listed and traded through
the local stock exchange. (Imperial, De
Guzman, Abalos & Co., Inc. vs. CIR, CTA
Case No. 8261, May 15, 2013)
Co Untian Cases 21
January 2014 CTA Rulings
ASSESSMENT
1. Failure to imprint the word VAT-
Exempt Sale or ZERO-Rated Sale
makes the transaction VATable.
When a PEZA-registered enterprise engages
in activities which are not registered with
PEZA, the income or receipts derived from
the unregistered activities shall be subject to
the regular internal revenue taxes, such as
VAT. In such case, the PEZA-registered
enterprise is obliged to register as a VAT
taxpayer and issue a VAT official receipt or
invoice for every sale or transaction which
is subject to VAT. Should the PEZA-
registered enterprise use its VAT official
receipt or invoice to evidence its VAT-
exempt sale, Section 13 of the NIRC of 197
requires it to prominently write or print the
term VAT-exempt sale on the VAT
official receipt or invoice as failure to do so
shall make it liable to account for the VAT
as if the sale is not VAT-exempt.
Thus, by reason of taxpayers failure to
indicate the words VAT-exempt sale on
the official receipts that were issued,
taxpayer is liable for the sale of services
which are supported by official receipts that
do not bear the word VAT-exempt sale.
(Commissioner of Internal Revenue vs. First
Sumiden Realty, Inc., CTA EB No. 975,
January 04, 2014)
2. No taxable income will result from the
difference between the amount of income
payments reported per alpahlist and
expenses per FS and ITR.
The BIR compared the expenses reported by
the taxpayer in its FS and ITR with the same
nature of expenses reported in the alphalist.
With the alpha list showing higher amount,
the BIR concluded that the taxpayer had
unaccounted sources of cash or undeclared
income.
According to the Court, this conclusion
lacks merit because assuming that there is
unaccounted source of cash or undeclared
income, there are also payments or
expenses which were unreported. If this is
the case, the undeclared income would be
effectively of set with the consideration of
the related expenses. Consequently, no
taxable income will result from the
transactions. (East Asia Power Resources,
Corp. vs. Commissioner of Internal
Revenue, CTA Case No. 8182, January 15,
2014)
Co Untian Cases 22
3. The Court of Tax Appeals does not have
jurisdiction over a petition for review filed
before it questioning the validity of an
assessment that was not protested before
the BIR.
On December 14, 2010, taxpayers were
issued Preliminary Assessment Notice
(PAN) assessing them for alleged deficiency
donors taxes. On January 18, 201, taxpayers
filed their protest against the PAN. On
March 9, 201, taxpayers received a letter
from the Regional Director denying the
protest to the PAN. And attached to said
letter are the Formal Letter of Demand and
the Assessment Notice, reiterating the same
assessment for the donors tax. Without
filing any formal protest letter against the
Formal Letter of Demand and Assessment
Notice, the taxpayers filed a petition for
review with the CTA on March 28, 201. The
BIR argued that he CTA is bereft of
jurisdiction to try the case on account of the
prematurity of filing of the petition for
review.
According to the Court, given that the
taxpayers did not file a protest against the
final assessment notice, there is no inaction
or decision of the BIR Commissioner
appealable before the Court. Thus, the
Court has not acquired jurisdiction over the
subject matter of the case. (Castalloy
Technology Corp., Allied Industrial Corp.
and Alinsu Steel Foundry Corp. vs. Aty.
Jose N. Tan, CTA Case No. 824, January 30,
2014)
4. Eror in the carry-over of prior years
excess credits does not give rise to
deficiency income tax liability because it
does not in any way pertain to an expense
or income account which could affect the
income tax due.
In the 206 annual income tax return of
taxpayer, it erroneously carried over a prior
years excess tax credits of P12,785,038,
instead of the correct amount of
P1,278,461.95. The taxpayer was then
assessed by the BIR for deficiency income
tax for the overstatement in the amount of
P1,506,576. The taxpayer explained in its
protest that the discrepancy in the prior
years excess credit was adjusted in the ITR
of the year 208 and this had no effect in the
amount to be paid in 206. In the Final
Decision on Disputed Assessment, the BIR
did not consider the adjustment made in
208 on the ground that the said adjustment
allegedly affected the seceding year 207,
which is under investigation. Taxpayer then
appealed to the CTA. The BIR argued that
taxpayer cannot escape liability by
adjusting its 208 ITR to offset the
erroneously carried-over excess tax credits
in 206 since an assessment was already
issued.
The Court ruled in favor of the taxpayer.
The item involved in the assessment, i.e.,
discrepancy on prior years excess tax
credits claimed, does not pertain to either of
the income or cost/expense accounts in the
206 ITR, which could affect taxpayers
income tax due. Hence, there could be no
deficiency income tax so to speak. In fact,
taxpayer would still have a tax
overpayment after adjustment of prior
years excess credits. (Commissioner of
Internal Revenue vs. Waterfront Cebu City
Hotel & Casino, Inc., CTA EB No. 91,
January 29, 2014)
Co Untian Cases 23
 TAX REFUND
5. DST on sale of shares of stock is based
on par value and not on the selling price of
the shares.
A shareholder sold to another taxpayer its
shares of stock held in another company
with par value of P93,727,00 for a total
consideration of P91,545,00. Taxpayer paid
the DST in the amount of P3,418,30 which
was computed based on the selling price of
P91,545,00. Realizing that it should have
paid DST based on the par value, taxpayer
filed a claim for refund for the excess tax
payment. The BIR argued that the DST on
sale of shares should be computed based on
the total purchase price and not on the par
value. Thus, there was no error in the
payment made.
In ruling in favor of the taxpayer, the Court
ruled that in accordance with Section 175 of
the Tax Code, in computing the DST due on
the sale of shares of stock, the tax base is the
total par value of the shares and not on the
purchase price. (Commissioner of Internal
Revenue vs. Eco Leisure and Hospitality
Holding Company, Inc., CTA EB Case No.
1013, January 14, 2014)
6. To be entitled to VAT zero-rating on
sale of electricity generated from
renewable source of energy, taxpayer must
prove that it is a generation company by
showing its ERC registration and
Certificate of Compliance.
Taxpayer owns a hydro-electric power
plant, which was duly certified by the
Department of Energy as consistent with
the Power Development Plan of the
government. Taxpayer sells its generated
power through hydro-electric power to
Davao Light and Power Company, Inc. For
its unutilized input VAT attributable to its
zero-rated sales of generated power
covering the first quarter of 208, taxpayer
filed a claim for refund. Due to inaction of
the BIR, taxpayer filed a petition for review
before the CTA.
As ruled by the Court, one of the requisites
for claim of refund of input taxes related to
zero-rated sales is that there must be zero-
rated of effectively zero-rated sales. In this
regard, the sale of generated power of fuel
through renewable source of energy is VAT
zero-rated under Section 108(B)(7) of the
NIRC of 197. However, to be qualified for
VAT zero-rating, taxpayer must be able to
prove that it is a generation company and
that it is engaged in the sale of power or
fuel generated though renewable source of
energy. To be considered a generation
company, an entity should be authorized by
the Energy Regulatory Commission (ERC).
Without a Certificate of Compliance (COC)
issued by the ERC, a person cannot be said
to be a generation company. Hence, a
taxpayer must be able to prove that it is
issued a COC by the ERC to be entitled to a
refund. (Hedcor Sibulan, Inc. vs.
Commissioner of Internal Revenue, CTA
Case No. 8051, January 29, 2014)
Co Untian Cases 24
REVENUE REGULATIONS NO. 16-
2011
The sale of real properties held primarily
for sale to customers or held for lease in the
ordinary course of trade or business of the
seller shall be subject to the value-added tax
(VAT).

Section 2 of Bureau of Internal Revenue

(BIR) Revenue Regulations (RR) 16-2011,
which further amended RR 16-2005 or the
Consolidated VAT Regulations of 2005,
states that the sale of residential lot with
gross selling price exceeding P1,919,500 and
residential house and lot or other residential
dwellings with gross selling price exceeding
P3,199,200, where the instrument of sale
(deed of absolute sale, deed of conditional
sale or otherwise) is executed on or after
November 1, 2005, shall be subject to a 10
percent output VAT, and starting February
1, 2006, to 12 percent output VAT.

If two or more adjacent residential lots are

sold or disposed in favor of one buyer to
use the lots as one residential lot, the sale
shall be exempt from VAT only if the
aggregate value of the lots do not exceed
P1,919,500.

Co Untian Cases 25