TAXATION LAW 2

PHILIPPINE AIRLINES, INC. (PAL) GR No. G.R. Nos. 206079-80,

v. COMMISSIONER OF INTERNAL REVENUE
Date: January 17, 2018
And
COMMISSIONER OF INTERNAL Ponente: Leonen, J.
REVENUE v. PHILIPPINE AIRLINES, INC. (PAL)

SUMMARY

Philippine Airlines, Inc. is entitled to its claim for refund of P510,223.16 and US$65,877.07, representing the final income
taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered Bank because
proof of remittance is not necessary for Philippine Airlines, Inc. to claim a refund under its charter, Presidential Decree
No. 1590.
DOCTRINE

The Commissioner has the right to hear a refund claim first, if he or she fails to act on it, it will be treated as a denial of
the refund, and the Court of Tax Appeals is the only entity that may review this ruling. And the power of the Court of Tax
Appeals to exercise its appellate jurisdiction does not preclude it from considering evidence that was not presented in the
administrative claim in the Bureau of Internal Revenue.

Under its franchise, Presidential Decree No. 1590, petitioner may either pay a franchise tax or the basic corporate income
tax, and is exempt from paying any other tax, including taxes on interest earned from deposits. Considering that PAL is not
liable to pay the tax on interest income from bank deposits, any payments made for that purpose are in excess of what is
due from it. Thus, if PAL erroneously paid for this tax, it is entitled to a refund.

Proof of actual remittance is not a condition to claim for a refund of unutilized tax credits. Under Sections 57 and 58 of
the 1997 National Internal Revenue Code, as amended, it is the payor-withholding agent, and not the payee-refund
claimant such as respondent, who is vested with the responsibility of withholding and remitting income taxes. Thus, PAL is
not obliged to remit, let alone prove the remittance of, the taxes withheld.

To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld. Taxes withheld by the
withholding agent are deemed to be the full and final payment of the income tax due from the income earner or payee.
Certificates of Final Taxes Withheld issued by the Agent Banks are sufficient evidence to establish the withholding of
the taxes.
Nature of the case: Two (2) consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing
the August 14, 2012 Decision1 and February 25, 2013 Resolution2 of the Court of Tax Appeals En Banc in CTA EB Nos. 749
and 757 (CTA Case No. 6877)
FACTS

Sometime in 2002, PAL made US dollar and Philippine peso deposits and placements in the following Philippine banks:
Chinabank, JPMorgan, PBCom, and Standard Chartered.
SUMMARY :

AMOUNT OF TAX WITHHELD

BANK PERIOD COVERED
PESO US DOLLAR
China Banking Corp. January 2002 - December
38,974.75
(Exhibit "C") 2002
JP Morgan Chase Bank September 2002 - December
1,237,646.43
(Exhibit "D") 2002
Phil. Bank of Communication[s]
January 2002 - March 2002 7,698.63
(Exhibit "E")
Phil. Bank of Communication[s]
April 2002 - June 2002 108,351.68 1,698.99
(Exhibit "F")
Phil. Bank of Communication[s]
July 2002 - September 2002 401,871.48 3,009.28
(Exhibit "G")
 Phil. Bank of Communication[s] October 2002 - December
8,037.28
(Exhibit[s] "H" and "I") 2002
Standard Chartered [Bank]
May 2002 - December 2002 6,458.14
(Exhibit "J")
TOTAL P1,747,869.59 $65,877.07

Claiming that it was exempt from final withholding taxes under its franchise, Presidential Decree No. 1590, PAL filed with
the Commissioner on November 3, 2003 a written request for a tax refund of the withheld amounts of P1,747,869.59 and
US$65,877.07. The Commissioner failed to act on the request. Thus, on February 24, 2004, PAL elevated the case to the
Court of Tax Appeals in Division.
In its November 9, 2010 Decision, the Court of Tax Appeals Special First Division partially granted PAL's Petition and
ordered the Commissioner to refund PAL P1,237,646.43, representing the final income tax withheld and remitted by
JPMorgan. It denied the remaining claim for refund of P510,223.16 and US$65,877.07 representing the final income tax
withheld by Chinabank, PBCom, and Standard Chartered.
The Court of Tax Appeals Special First Division found that PAL was exempted from final withholding tax on interest on
bank deposits. However, it ruled that PAL failed to adequately substantiate its claim because it did not prove that the
Agent Banks, with the exception of JPMorgan, remitted the withheld amounts to the Bureau of Internal Revenue. PAL only
presented documents which showed the total amount of final taxes withheld for all branches of the banks. As such, the
amount of tax withheld from and to be refunded to PAL could not be ascertained with particularity. It ruled that the
Certificates of Final Tax Withheld at Source are not sufficient to prove remittance.
Court of Tax Appeals En Banc denied the petitions and affirmed the decision of the Court of Tax Appeals Special First
Division. The Court of Tax Appeals En Banc sustained that PAL needed to prove the remittance of the withheld taxes
because although remittance is the responsibility of the banks as withholding agents, remittance was put in issue in this
case.
In G.R. Nos. 206079-80, PAL questions the denial of its refund claim for the taxes withheld by Chinabank, PBCom, and
Standard Chartered.
PAL arguments:
1.That it is entitled to its claim for tax refund or tax credit and insists that it has adequately established that the final taxes
on interest income withheld by the banks were remitted to the Bureau of Internal Revenue. It contends that the
Certificates of Final Taxes Withheld issued by the Agent Banks are prima facie evidence of actual remittance. As prima
facie evidence, they are sufficient proof of the fact that PAL is establishing, if they are unexplained or uncontradicted.
2.That the Commissioner had the burden to prove that the Agent Banks failed to remit the withheld taxes.59 Nonetheless,
the Commissioner simply submitted the case for decision based on the pleadings. It did not contradict or dispute the
Certificates of Final Taxes Withheld.
3.PAL further posits that the failure of the Agent Banks to remit the withheld taxes should not prejudice PAL, because they
are the withholding agents accountable for proving remittance. PAL has no control or responsibility over the remittance of
the taxes withheld.
4.Moreover, PAL holds that there is no need for proof of actual remittance to be entitled to claim for refund,62 and that
this Court's rulings on creditable taxes withheld should also apply to final taxes withheld at source, as they are of the
same nature. Since PAL has shown that it is unequivocally exempt from paying final withholding taxes, its taxes were
erroneously paid and must be refunded.
5.PAL further asserts that the Court of Tax Appeals is a court of record, required to conduct a trial de novo. Thus, it should
not be barred from considering new evidence not submitted in the administrative claim for refund.
In G.R. No. 206309, the Commissioner questions the grant of refund to PAL for the final income taxes withheld by
JPMorgan. She argues that PAL is not entitled to the refund as it failed to present its documentary evidence before the
Bureau of Internal Revenue when it filed its administrative claim. The Commissioner argues in her Memorandum that PAL
needed to prove, but did not prove, that the withheld taxes were remitted to the Bureau of Internal Revenue. She points
out that PAL only showed the withheld amounts remitted by branches of Chinabank, PBCom, and Standard Chartered, but
there is no indication that the remitted amounts are the taxes withheld from PAL's interest income. She argues that PAL
must first prove that the money remitted to the Bureau of Internal Revenue is attributable to it because tax refunds are
strictly construed against the taxpayer.
ISSUE/S
1. Whether or not evidence not presented in the administrative claim for refund in the Bureau of Internal Revenue can be
presented in the Court of Tax Appeals; YES
2. Whether or not Philippine Airlines, Inc. was able to prove remittance of its final taxes withheld to the Bureau of Internal
Revenue; NO
3. Whether or not proof of remittance is necessary for Philippine Airlines, Inc. to claim a refund under its charter,
Presidential Decree No. 1590. NO
RATIO
This Court sustains the factual findings of the Court of Tax Appeals that Philippine Airlines, Inc. failed to prove
remittance of the withheld taxes. Nonetheless, this Court grants the Petition of Philippine Airlines, Inc.

1. This Court rules that the Court of Tax Appeals is not limited by the evidence presented in the administrative claim in the
Bureau of Internal Revenue. The claimant may present new and additional evidence to the Court of Tax Appeals to
support its case for tax refund.

Section 4 of the National Internal Revenue Code81 states that the Commissioner has the power to decide on tax refunds,
but his or her decision is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Moreover, Republic
Act No. 9282,amending Republic Act No. 1125, is the governing law on the jurisdiction of the Court of Tax Appeals. Section
7 provides that the Court of Tax Appeals has exclusive appellate jurisdiction over tax refund claims in case the
Commissioner fails to act on them.

This means that while the Commissioner has the right to hear a refund claim first, if he or she fails to act on it, it will be
treated as a denial of the refund, and the Court of Tax Appeals is the only entity that may review this ruling. The power of
the Court of Tax Appeals to exercise its appellate jurisdiction does not preclude it from considering evidence that was not
presented in the administrative claim in the Bureau of Internal Revenue. Republic Act No. 1125 states that the Court of
Tax Appeals is a court of record:

Section 8. Court of record; seal; proceedings. — The Court of Tax Appeals shall be a court of record and shall have a seal
which shall be judicially noticed. It shall prescribe the form of its writs and other processes. It shall have the power to
promulgate rules and regulations for the conduct of the business of the Court, and as may be needful for the uniformity of
decisions within its jurisdiction as conferred by law, but such proceedings shall not be governed strictly by technical rules
of evidence.

As such, parties are expected to litigate and prove every aspect of their case anew and formally offer all their evidence.No
value is given to documentary evidence submitted in the Bureau of Internal Revenue unless it is formally offered in the
Court of Tax Appeals. Thus, the review of the Court of Tax Appeals is not limited to whether or not the Commissioner
committed gross abuse of discretion, fraud, or error of law, as contended by the Commissioner. As evidence is considered
and evaluated again, the scope of the Court of Tax Appeals' review covers factual findings.

In the case of Commissioner of Internal Revenue v. Philippine National Bank, the SC held : the Court of Tax Appeals is
not precluded from accepting respondent's evidence assuming these were not presented at the administrative level.
Cases filed in the Court of Tax Appeals are litigated de novo. Thus, respondent "should prove every minute aspect of its
case by presenting, formally offering and submitting . . . to the Court of Tax Appeals [all evidence] . . . required for the
successful prosecution of [its] administrative claim."

In the case at bar, the Commissioner failed to act on PAL's administrative claim.90 If she had acted on the refund claim,
she could have directed PAL to submit the necessary documents to prove its case. Furthermore, considering that the
refund claim will be litigated anew in the Court of Tax Appeals, the latter may consider all pieces of evidence formally
offered by PAL, whether or not they were submitted in the administrative level. Thus, the Commissioner's contention
must fail.

2. Both PAL and the Commissioner are contesting whether or not PAL has proven the Agent Banks' remittance of the
withheld taxes on its interest income. The Court of Tax Appeals Special First Division and En Banc ruled that PAL was able
to prove JPMorgan's remittance of the withheld taxes but that it failed to prove those of Chinabank, PBCom, and Standard
Chartered. This Court maintains the factual findings of the Court of Tax Appeals Special First Division and En Banc.

REASONS: Firstly, in bringing forth the issue of remittance, the parties are raising a question of fact which is not within the
scope of review on certiorari under a Rule 45 Petition. An appeal under Rule 45 must raise only questions of law. A party
filing the petition, however, has the burden of showing convincing evidence that the appeal falls under one of the
exceptions. A mere assertion is not sufficient. AND this Court has consistently held that the findings of fact of the Court of
Tax Appeals, as a highly specialized court, are accorded respect and are deemed final and conclusive. Because of this
recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on
its part. The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to
delve into facts, only questions of law are open for determination.

In the case at bar, both the Court of Tax Appeals Special First Division and En Banc ruled that PAL failed to sufficiently
prove that Chinabank, PBCom, and Standard Chartered had remitted the withheld taxes.105 It found that the presented
documents106 only showed the total amount of final taxes withheld for all branches of these Agent Banks.107 It did not
show that the amounts remitted by these Agent Banks pertained to the taxes withheld from PAL’s interest income.108

However, it found that PAL was able to prove the remittance of the taxes withheld by JPMorgan because the monthly
remittance returns were identified by PAL's witness and were formally offered in the Court of Tax Appeals Special First
Division without objections to their admissibility.

The Court of Tax Appeals Special First Division stated: To prove that petitioner earned interest income on its bank deposits
and that they were remitted to the BIR, petitioner offered in evidence the following certifications and Certificates of Final
Tax Withheld at Source (BIR Form No. 2306) from various banks.

A careful scrutiny of the evidence presented reveals that only documents pertaining to the amount of taxes withheld and
actually remitted to the BIR by depositary bank JP Morgan Chase, in the amount of P1,237,646.43, represents petitioner's
valid claim . . .

....

This Court cannot give credence to the other certifications and Certificates of Final Tax Withheld at Source issued by the
various depositary banks because proof on the fact of remittance was not aptly complied with; thus, the amount of taxes
to be refunded cannot be ascertained.

The amount of final withholding taxes as reflected on the Summary of Monthly Final Income Taxes Withheld on Philippine
Savings Deposit and Foreign Currency Deposit and the Monthly Remittance Return of Final Income Taxes (BIR Form No.
1602) provided by withholding agents China Banking Corporation, Philippine Bank of Communication, and Standard
Chartered Bank were based on the total amount of final withholding taxes per branch of each depositary banks; while the
total amount appearing on the documents of Monthly Remittance Return of Final Income Taxes (BIR Form No. 1602) was
based on the total amount of final withholding taxes for all branches of the depositary banks.

Therefore, the amount of final income tax withheld from petitioner cannot be ascertained with particularity from the total
amount of final withholding taxes that were remitted to the BIR by China Banking Corporation, Philippine Bank of
Communication[s), and Standard Chartered Bank. These findings were affirmed by the Court of Tax Appeals En Banc.

The Court of Tax Appeals Special First Division and En Banc based their findings after an examination of all pieces of
evidence presented by PAL. Both parties failed to show that the Court of Tax Appeals committed any gross error or
abuse in making this factual determination. There is likewise no showing that the findings are conflicting or based on
speculation, conjecture, or misapprehension or mistake of facts. There is no sign of any grave abuse of discretion. Thus,
this Court finds no reason to disturb the Court of Tax Appeals' factual findings.

3. Nonetheless, this Court rules that PAL is entitled to its claim for refund for taxes withheld by Chinabank, PBCom, and
Standard Chartered. Remittance need not be proven. PAL needs only to prove that taxes were withheld from its
interest income.
3a. First, PAL is uncontestedly exempt from paying the income tax on interest earned.

Under its franchise, Presidential Decree No. 1590, petitioner may either pay a franchise tax or the basic corporate income
tax, and is exempt from paying any other tax, including taxes on interest earned from deposits:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the
provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction
as to transport or nontransport operations; provided, that with respect to international air-transport service, only the
gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed,
or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including
but not limited to the following: . . . .

The grantee, shall, however, pay the tax on its real property in conformity with existing law. (Emphasis supplied)

In Commissioner of Internal Revenue v. Philippine Airlines, Inc., this Court maintained that despite these amendments to
the National Internal Revenue Code, PAL remains exempt from all other taxes, duties, royalties, registrations, licenses,
and other fees and charges, provided it pays the corporate income tax as granted in its franchise agreement. It further
emphasized that no explicit repeals were made on Presidential Decree No. 1590.

Thus, Presidential Decree No. 1590 and PAL's tax exemptions subsist. Necessarily, PAL remains exempt from tax on
interest income earned from bank deposits. Moreover, Presidential Decree No. 1590 provides that any excess payment
over taxes due from PAL's shall either be refunded or credited against its tax liability for the succeeding taxable year.
Thus, PAL is entitled to a tax refund or tax credit if excess payments are made on top of the taxes due from it.
Considering that PAL is not liable to pay the tax on interest income from bank deposits, any payments made for that
purpose are in excess of what is due from it. Thus, if PAL erroneously paid for this tax, it is entitled to a refund.

3b. PAL is likewise entitled to a refund because it is not responsible for the remittance of tax to the Bureau of Internal
Revenue. The taxes on interest income from bank deposits are in the nature of a withholding tax. Thus, the party liable
for remitting the amounts withheld is the withholding agent of the Bureau of Internal Revenue.

Under Revenue Regulations No. 02-98, Section 2.57: Section 2.57. Withholding of Tax at Source: (A) Final Withholding Tax.
— Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a
full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests
primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an
income tax return for the particular income. (Emphasis supplied)

Clearly, the withholding agent is the payor liable for the tax, and any deficiency in its amount shall be collected from
it.129Should the Bureau of Internal Revenue find that the taxes were not properly remitted, its action is against the
withholding agent, and not against the taxpayer.

In Commissioner of Internal Revenue v. Philippine National Bank: Petitioner's posture that respondent is required to
establish actual remittance to the Bureau of Internal Revenue deserves scant consideration. Proof of actual remittance is
not a condition to claim for a refund of unutilized tax credits. Under Sections 57 and 58 of the 1997 National Internal
Revenue Code, as amended, it is the payor-withholding agent, and not the payee-refund claimant such as respondent,
who is vested with the responsibility of withholding and remitting income taxes.
In the case at bar, PAL is the income earner and the payee of the final withholding tax, and the Agent Banks are the
withholding agents who are the payors responsible for the deduction and remittance of the tax. Given the above
provisions, the failure of the Agent Banks to remit the amounts does not affect and should not prejudice PAL. In case of
failure of remittance of taxes, the Bureau of Internal Revenue's cause of action is against the Agent Banks. Thus, PAL is not
obliged to remit, let alone prove the remittance of, the taxes withheld.

3c. To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld. Taxes withheld by the
withholding agent are deemed to be the full and final payment of the income tax due from the income earner or payee.

Certificates of Final Taxes Withheld issued by the Agent Banks are sufficient evidence to establish the withholding of the
taxes.

In Commissioner of internal Revenue v. Philippine National Bank: The certificate of creditable tax withheld at source is the
competent proof to establish the fact that taxes are withheld. It is not necessary for the person who executed and
prepared the certificate of creditable tax withheld at source to be presented and to testify personally to prove the
authenticity of the certificates.

In the case at bar, the Court of Tax Appeals Special First Division noted that PAL offered in evidence the following
Certificates of Final Tax Withheld at Source from the Agent Banks to prove the earned interest income on its bank
deposits and the taxes withheld: (MGA CERTIFICATES with interest income and tax withheld quarterly and total PER BANK,
basta yung summary nalang sa taas HAHAHA)

Considering that these Certificates were presented, the burden of proof shifts to the Commissioner, who needs to
establish that they were incomplete, false, or issued irregularly. However, the Commissioner did no such thing. Thus,
these Certificates are sufficient evidence to establish the withholding of the taxes. The taxes withheld from PAL are
considered its full and final payment of taxes. Necessarily, when taxes were withheld and deducted from its income,
PAL is deemed to have paid them. Considering that PAL is exempted from paying the withholding tax, it is rightfully
entitled to a refund.

3d. This Court notes that the case of Commissioner of Internal Revenue v. Philippine National Bank161 involves a refund
of creditable withholding tax and not of final withholding tax. However, its ruling that proof of remittance is not
necessary to claim a tax refund applies to final withholding taxes. The same principles used to rationalize the ruling apply
to final withholding taxes: (i) the payor-withholding agent is responsible for the withholding and remitting of the income
taxes; (ii) the payee-refund claimant has no control over the remittance of the taxes withheld from its income; (iii) the
Certificates of Final Tax Withheld at Source issued by the withholding agents of the government are prima facie proof of
actual payment by payee-refund claimant to the government itself and are declared under perjury.

3e. Lastly, while tax exemptions are strictly construed against the taxpayer, the government should not misuse
technicalities to keep money it is not entitled to. Considering that PAL presented sufficient proof that: (i) it is exempted
from paying withholding taxes; (ii) amounts were withheld and deducted from its accounts; (iii) and the Commissioner did
not contest the withholding of these amounts and only raises that they were not proven to be remitted, this Court finds
that PAL sufficiently proved that it is entitled to its claim for refund.
RULING
WHEREFORE, premises considered, the Petition of Philippine Airlines, Inc. in G.R. Nos. 206079-80 is GRANTED. The
Petition of the Commissioner of Internal Revenue in G.R. No. 206309 is DENIED. The August 14, 2012 Decision and
February 25, 2013 Resolution of the Court of Tax Appeals En Banc in CTA CASE No. 6877 are PARTIALLY REVERSED.
Philippine Airlines, Inc. is entitled to its claim for refund of P510,223.16 and US$65,877.07, representing the final
income taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered
Bank. SO ORDERED.
(IGNACIO)
 TAXATION LAW 2
Commissioner of Internal Revenue, petitioner vs. St. Luke’s GR No. 195909
Medical Center, Inc., respondent Date: 26 September 2012
Ponente: Carpio, J.

DOCTRINE

Even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is nevertheless
allowed to engage in "activities conducted for profit" without losing its tax exempt status for its not-for-profit activities.
The only consequence is that the "income of whatever kind and character" of a charitable institution "from any of its
activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax."

FACTS

St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit corporation. On 16
December 2002, BIR assessed St. Luke’s deficiency taxes amounting to Php76,063,116.06 for 1998, comprised of
deficiency income tax, VAT, WHT on compensation and E-WHT. St. Luke’s then filed an administrative protest with the BIR
against the deficiency tax assessment. The BIR did not act on the protest within the 180-day period under Sec. 228 of the
NIRC. Thus, St. Luke’s appealed to the CTA.
BIR: Section 27(B) of the NIRC which imposes a 10% preferential tax rate on the income of proprietary non-profit
hospitals, should be applicable to St. Luke’s. St. Luke’s was actually operating for profit in 1998 because only 13% of its
revenues came from charitable purposes.
St. Luke’s: BIR should not consider its total revenues because its free services to patients was 65.20% of its 1998 operating
income. St. Luke’s also claimed that its income does not inure to the benefit of any individual. It maintained that it is a
non-stock and non-profit institution for charitable and social welfare purposes under Sec. 30(E) and (G) of the NIRC. IT
argued that the making of profit per se does not destroy its income tax exemption.
CTA: Ordered petitioner to pay deficiency income tax of Php5,496,963.54 arising from the failure of St. Luke’s to prove
that part of its income in 1998 came from charitable activities. The CTA cancelled the remainder of the deficiency
assessed by the BIR based on the 1-% tax rate which the CTA En Banc held was not applicable to St. Luke’s.
ISSUE/S
I. WON St. Luke’s is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which imposes a
preferential tax rate of 10% on the income of proprietary non-profit hospitals?
RATIO
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution. However, this does not
automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes,
Section 28 (3), Article VI of the Constitution requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section 30 (E) of the NIRC requires that a charitable
institution must be "organized and operated exclusively" for charitable purposes. Likewise, to be exempt from income
taxes, Section 30 (G) of the NIRC requires that the institution be "operated exclusively" for social welfare.

However, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any" activity for
profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the
requirements in Section 30 (E) that the "[n]on-stock corporation or association [must be] organized and operated
exclusively for . . . charitable . . . purposes . . . ." It likewise qualifies the requirement in Section 30 (G) that the civic
organization must be "operated exclusively" for the promotion of social welfare.

Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is
nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt status for its not-for-
profit activities. The only consequence is that the "income of whatever kind and character" of a charitable institution"
from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax."
Prior to the introduction of Section 27 (B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27 (A). With the introduction of Section 27 (B), the tax rate is now 10%.

In 1998, St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It cannot be disputed that a
hospital which receives approximately P1.73 billion from paying patients is not an institution "operated exclusively" for
charitable purposes. Clearly, revenues from paying patients are income received from "activities conducted for profit."

Services to paying patients are activities conducted for profit. They cannot be considered any other way. There is a
"purpose to make profit over and above the cost" of services.

The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social welfare purposes
insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a
provision granting tax exemption, but also on the clear and plain text of Section 30 (E) and (G). Section 30 (E) and (G) of
the NIRC requires that an institution be "operated exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30 (E) or (G) does not lose its tax exemption if it earns income from
its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27 (B).

St. Luke's fails to meet the requirements under Section 30 (E) and (G) of the NIRC to be completely tax exempt from all its
income. However, it remains a proprietary non-profit hospital under Section 27 (B) of the NIRC as long as it does not
distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes. St. Luke's,
as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit
activities.

St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27 (B) of the NIRC. However, St. Luke's has
good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Luke's is "a corporation for purely
charitable and social welfare purposes" and thus exempt from income tax. In Michel J. Lhuillier, Inc. v. Commissioner of
Internal Revenue, the Court said that "good faith and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest."

RULING
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909 is PARTLY GRANTED. The Decision
of the Court of Tax Appeals En Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA Case No.
6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 based on the
10% preferential income tax rate under Section 27 (B) of the National Internal Revenue Code. However, it is not liable for
surcharges and interest on such deficiency income tax under Sections 248 and 249 of the National Internal Revenue Code.
All other parts of the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.
)

TAXATION LAW 2 14. South Afrian Airways v. CIR
SOUTH AFRICAN AIRWAYS, GR No. 180356
Petitioner, Date: February 16, 2010
v.
COMMISSIONER OF INTERNAL REVENUE, Ponente: Velasco, Jr., J.:
Respondent.
SUMMARY
South African Airways maintains a sales agent here in the Philippines. It only sells passage
documents and has no landing rights. More sell lang siya ng tickets, sis. Di siya nagffly here.
It filed a claim for refund dahil sobra sa 2.5% GPB ang binayad niya. BIR deadma. CTA 1st
Division and CTA En Banc, denied. SAS liable for regular income tax na 32%, GPB does not
apply. SC affirmed CTA. See doctrine.
DOCTRINE
If an international air carrier maintains flights to and from the Philippines, it shall be taxed
at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do
not have flights to and from the Philippines but nonetheless earn income from other activities
in the country will be taxed at the rate of 32% of such income.
Nature of the case: Petition for Review on Certiorari under Rule 45

FACTS
Petitioner South African Airways is a foreign corporation organized and existing under and
by virtue of the laws of the Republic of South Africa. It is an internal air carrier having no
landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel
Limited Corporation (Aerotel). Aerotel sells passage documents for compensation or
commission for petitioner’s off-line flights for the carriage of passengers and cargo between
ports or points outside the territorial jurisdiction of the Philippines.

For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns
for its off-line flights. Thereafter, petitioner filed with the BIR, a claim for the refund of the
amount of PhP 1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for
the taxable year 2000.

BIR: the claim was unheeded. Petitioner filed a Petition for Review with the CTA for the refund
of the abovementioned amount.

CTA First Division: issued a Decision denying the petition for lack of merit. The CTA ruled
that petitioner is a resident foreign corporation engaged in trade or business in
the Philippines. It further ruled that petitioner was not liable to pay tax on its GPB under
Section 28(A)(3)(a) of the NIRC but is liable to pay a tax of 32% on its income derived from
the sales of passage documents in the Philippines. On this ground, the CTA denied petitioners
claim for a refund.

CTA En Banc: affirmed CTA First Division

Petitioner’s contention: It is petitioner’s contention that, with the new definition of GPB, it is
no longer liable under Sec. 28(A)(3)(a). Further, petitioner argues that because the 2 1/2%
tax on GPB is inapplicable to it, it is thereby excluded from the imposition of any income tax.
ISSUE/S
W/N, as an off-line international carrier selling passage documents through an independent
sales agent in the Philippines, is subject to the 32% income tax imposed by Section 28
(A)(1) of the 1997 NIRC.
RATIO
YES.

Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable
for 32% tax on all income from sources within the Philippines. Sec. 28(A)(3) is an exception
to this general rule. In the instant case, the general rule is that resident foreign corporations
shall be liable for a 32% income tax on their income from within the Philippines, except for
resident foreign corporations that are international carriers that derive income from carriage
of persons, excess baggage, cargo and mail originating from the Philippines which shall be
taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international carrier
with no flights originating from the Philippines, does not fall under the exception.

To reiterate, the correct interpretation of the above provisions is that, if an international air
carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2%
of its Gross Philippine Billings, while international air carriers that do not have flights to and
from the Philippines but nonetheless earn income from other activities in the country will be
taxed at the rate of 32% of such income.

NOTES:
SEC. 28. (A) (1) In General. – tax rate for Foreign Corporations: 32%
SEC. 28. (A) (3) International Carrier. - An international carrier doing business in the
Philippines shall pay a tax of two and one-half percent (2 1/2%) on its Gross Philippine
Billings as defined hereunder:

Gross Philippine Billings refers to the amount of gross revenue derived from carriage of
persons, excess baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the
ticket or passage document: Provided, That tickets revalidated, exchanged and/or indorsed
to another international airline form part of the Gross Philippine Billings if the passenger
boards a plane in a port or point in the Philippines: Provided, further, That for a flight which
originates from the Philippines, but transshipment of passenger takes place at any port
outside the Philippines on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the point of transshipment shall form
part of Gross Philippine Billings.

RULING
WHEREFORE, the assailed July 19, 2007 Decision and October 30, 2007 Resolution of the
CTA En Banc in CTA E.B. Case No. 210 are SET ASIDE. The instant case is REMANDED to
the CTA En Banc for further proceedings and appropriate action, more particularly, the
reception of evidence for both parties and the corresponding disposition of CTA E.B. Case No.
210 not otherwise inconsistent with our judgment in this Decision.
CABAN
 TAXATION LAW 2
Commissioner of Internal Revenue vs. Nagase CTA EB NO. 1048
Philippines Corporation Date: June 22, 2015
Ponente: Ringpis-Liban, J.
DOCTRINE

Prescription period: An assessment that was given beyond the statute of limitations can never become final and
executory, hence, the assessments would not be binding on the taxpayer except if there is a valid waiver for the
extension of the assessment and collection of the taxes due

Nature of the case: "Motion for Reconsideration" of the Decision promulgated on January 29,2015 denying the present
petition for lack of merit. Petitioner prays that the Court En Banc reconsider and set aside the Decision and a new one
be rendered ordering respondent to pay deficiency income tax in the amount of P36,433,548.87 plus accrued interest
and delinquency interest pursuant to Sections 249 (B) and (C) of the NIRC of 1997.
FACTS
April 14, 2004- Nagase Philippines Corporation (Nagase) filed its Annual Income Tax Return (ITR)
September 14, 2007- Nagase received from the CIR a Formal Assessment Notice (FAN) dated September 12,
2007, together with Details of Discrepancies, alleging that Nagase has deficiency income tax liability in the
amount of P36,433,548.87, inclusive of 50% surcharge and interest for taxable year 2003.

October 10, 2007- Nagase flied its protest to the FAN, which was received by the CIR on October 11, 2007,
alleging that the CIR's assessment for alleged deficiency income tax has no legal and factual bases, and
requested that said assessment be reconsidered, withdrawn and cancelled.
Nagase filed a Petition for Review before the Court in Division against the CIR, assailing the assessment for
alleged deficiency income tax, including the 50% surcharge and interest, for taxable year 2003 issued by the
CIR.

In the questioned decision, the Court En Banc ruled that:

Considering that the FAN and Details of Discrepancies were issued beyond the three-year period from the time
Nagase filed its 2003 ITR, the assessment for Taxable Year 2003 dated September 12, 2007 is null and void and
should therefore be cancelled

The Commissioner of Internal Revenue (CIR) argues that:

- The Court En Banc erred in holding that her right to make an assessment had prescribed;
- That the Court En Banc erred in not holding that Nagase filed a false return;
- That in a false return, intent to evade the tax is not an element;
- That a re-investigation was conducted after the issuance of a Preliminary Assessment Notice (PAN), hence, it
effectively suspended the running of the prescriptive period for the issuance of the Final Assessment Notice
(FAN).

Nagase argues that:

- The Court's Decision was already final and executory when petitioner filed her "Motion for Reconsideration,"
and
- The grounds and discussion in the Motion for Reconsideration is an almost word-for-word replication of
petitioner's Petition for Review dated August 22, 2013, which has been thoroughly considered and dispensed
by the Court En BanC in its Decision.
ISSUE/S
Whether or not there is merit in the motion for reconsideration
RATIO

No.
Petitioner insists that Nagase's request for re-investigation and the granting of the same effectively suspended
the running of the prescriptive period for the issuance of the FAN, hence its right to make an assessment has
not prescribed. However, as found by the Court En Banc, the CIR failed to present any evidence to prove that
Nagase requested for a reinvestigation. Hence, the running of the prescriptive period was not tolled.
In the Assailed Decision, he Court En Bane unanimously ruled in this "An assessment that was given beyond
the statute of limitations can never become final and executory, hence, the assessments would not be
binding on the taxpayer except if there is a valid waiver for the extension of the assessment and collection
of the taxes due.
In this case, there is nothing on record to show that Nagase executed a waiver or that Nagase requested for a
Reinvestigation.
The Supreme Court had consistently ruled in a number of cases that a request for reconsideration and
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and
collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.
The CIR argues that her right to assess Nagase for deficiency income tax for the year 2003 has not prescribed
pursuant to Section 222 of the NIRC.
As correctly ruled by the Court in Division:
"Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.- (a) In the case of
a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof."
As provided above, in cases when a false or fraudulent return is ftled with the intent of evading the tax or
when no return was ftled at all, the CIR can assess or begin a court proceeding for the collection without an
assessment within ten years. In these cases, the ten-year period for prescription begins, or is counted from
the date of discovery of the falsity, fraud or omission.
Fraud is a question of fact which must be alleged and proved. It must be proved to exist by clear and convincing
evidence- mere preponderance of evidence is not even adequate to prove fraud.
As stated, not every mistake or deviation from the truth necessarily brings a particular return under the
coverage of Section 222 of the NIRC.
The fraud contemplated by Section 222 is actual and not constructive, and must amount to intentional wrong-
doing with the sole object of avoiding taxation, not merely error. Fraud must be proven by clear and convincing
evidence, and not by mere conjectures and speculations. Beyond the allegation of fraud in its "Details of
Discrepancies" and presentation of internal Memoranda prepared by Revenue Officer Dionisio Lumagui
mentioning the same, not much else was asserted or presented to bolster the serious allegation. Neither was
this allegation tackled in Revenue Officer Lumagui's Judicial Affidavit, or subsequent testimony. It is a settled
rule that an assessment should not be based on mere presumptions no matter how reasonable or logical said
presumptions may be. Furthermore, fraud is a serious charge and to be sustained, it must be supported by
clear and convincing proof. Thus, due to respondent's failure to prove fraud on the part of petitioner, the
assessment issued against it beyond the three year period allowed by law, is void."
Considering that the FAN and Details of Discrepancies were issued beyond the three year period from the time
Nagase filed its 2003 ITR, the assessment for Taxable Year 2003 dated September 12, 2007 is null and void and
should therefore be cancelled."
RULING
In fine, We see no cogent reason to deviate from our previous ruling that due to petitioner's failure to prove fraud on the
part of Nagase, the assessment issued against Nagase beyond the three year period, is therefore, void.
 TAXATION LAW 2
ARMO-MARSTEEL ALLOY CORPORATION GR No. C.T.A. CASE NO. 4592
vs. Date: JULY 1, 1993
THE COMMISSIONER OF INTERNAL REVENUE Ponente: Ernesto D. Acosta

SUMMARY

DOCTRINE
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.
R.A. 5186 prescribes a minimum requirement of notification and not approval by the BIR of the availment of the
incentive adopting the accelerated depreciation.
For repairs and maintenance cost, the amount should not be the controlling factor. Substance, not form should
be the controlling factor.

Nature of the case: This case involves petitioner's claim for refund or in the ,
alternative tax credit of alleged overpaid income tax for the fiscal
year ending October 3L 1989 in the amount of P5,061,899.00.
FACTS
Petitioner is a domestic corporation registered with the Board of Investments as a preferred pioneer enterprise
engaged in the business of producing/manufacturing grinding balls and billets. Petitioner is entitled to avail as an
incentive under R.A. 5186 the allowable deductions of the accelerated depreciation.
Petitioner's annual income tax return for the fiscal year ending October 31, 1989 was filed on February 15, 1990.
The income tax return shows a refundable amount of P5,061,899.00, computed as follows:

For the succeeding taxable fiscal year ending October 31, 1990, petitioner suffered a loss. Thus, petitioner was
not able to apply the refundable amount as an automatic tax credit pursuant to the provision of Section 69 of the
National Internal Revenue Code. On Februaty 21. 1991. petitioner filed a claim for refund in the amount of
P5,061.899.00 citing as b sis Section 69 of the said Code, to wit:
Sec. 69. Final Adjustment Ret1,un – Every corporation liable to tax under Section 24 shall file a final adjustment
return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that
year the corporation shall either: a.)Pay the excess tax still due; or b) Be refunded the excess amount paid, as
the case maybe.
To date, respondent has not acted on the claim for refund/tax credit filed by petitioner. Hence, on April 3, 1991,
petitioner filed the instant petition for review.
Respondent answered that the petition states no cause of action for failure on the part of petitioner to allege
the date/s when the quarterly income tax payments were made. In addition, all payments made prior to April 3,
1989 have prescribed. TI1e quoted provision (Section 69) is misplaced. It is incumbent upon the taxpayer to
prove entitlement to the refund/credit sought.
Moreover, Respondent presented as witness, Mrs. Jane Denosta, Revenue Officer IL BIR, Makati East District
one of the revenue examiners who conducted the examination on petitioner's alleged claim for refund. The
Statement of Findings (Exh. 1) shows that instead of a refund petitioner was found to be liable for deficiency
income tax in the amount of P5.3317 42.34. computed as follows:

Respondent's revenue examiner testified that upon investigation petitioner was not able to secure the approval
of the BIR regarding the use of the accelerated method of depreciation. Thus, the disallowance of P6,
176,375.00 accelerated depreciation. Likewise, the amount of P2.413J39. 19, representing some of the repairs
and maintenance expense, were disallowed on the ground that the same should have been capitalized because
of its material amount as compared to others with minimal amounts.
ISSUE/S
Whether or not petitioner entitled to the refund or tax credit of P5,061,899.00, representing overpaid income tax
for the fiscal year ending October 31 1989?
RATIO
YES.
FIRST, as to prescription, In an earlier ruling of the Supreme Court in the case of Commissioner of Internal
Revenue v. Asia Australia Express Ltd, it was held that "where the tax is payable by the taxpayer in quarterly
installments, the final payment is the last quarter payment at the end of the tax year when it is finally
ascertainable that the taxpayer either made profits or suffered losses in its operations. In the subsequent case of
Commissioner of Internal Revenue v. TMX Sales Inc. et. al, the Supreme Court ruled that 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.
In the case at bar, the quarterly income tax payments for the first and second quarters of fiscal year 1989 should
only be considered mere instalments 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 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.
Hence, since the claim for refund covers overpaid income tax for the fiscal year ending October 31, 1989,
petitioner has two-years counted from February 15, 1990 (the date when the Final Income Tax Return was filed)
to file a claim for refund. It has up to February 15, 1992 to file a claim for refund with the respondent and with
this Court. Since the claim for refund was filed ·with respondent on February 21, 1991 and the petition for review
was filed on April 3, 1991, it is therefore dear that the petition was filed on time.
SECOND, with regard to the disallowance of accelerated depreciation in the amount . of P 6,176,375.00,
petitioner maintains that as a registered preferred pioneer enterprise it can avail of the incentives provided under
Section 7(b) of R.A. No. 5186, to wit:
Sec. 7. Incentives to a Registered Enterprise. - A registered enterprise, to the extent engaged in a preferred
area of investment, shall be granted the following incentive benefits.
(a) X X X XXX XXX.
(b) Accelerated Depreciation. xxxxxx “Provided, that the taxpayer notifies the Bureau of Internal Revenue, at the
beginning of the depreciation period which depreciation rate allowed by this section will be used by it”
Being a preferred pioneer enterprise registered with the Board of Investments, petitioner availed the incentives
provided under R.A. 5186 one of which is the use of ·the accelerated depreciation. In the course of the cross
examination of · respondent's witness, it was established that petitioner notified the BIR of its availment of the
accelerated depredation. No response was received thereafter from the Bureau. The records will also show that
petitioner filed with the Bureau BIR Form No. 1702-E, indicating the nature of incentives availed of, that is, the
accelerated depreciation.
R.A. 5186 prescribes a minimum requirement of notification and not approval by the BIR of the
availment of the incentive adopting the accelerated depreciation. The option to use the accelerated
depreciation is on the preferred pioneer enterprise. Having exercised its power of choice, petitioner's
only obligation is to notify respondent of that choice.
LASTLY, Another item disallowed by the examiner refers to the repairs and maintenance in the total amount of
P2,413,103.17. because of the material amount involve, respondent's examiner contends that the same should
be capitalized.
The repairs and maintenance cost must be ordinary and necessary business expense in order to be deductible
from income. "The cost of the incidental repairs which neither materially add to the value of the property nor
appreciably prolong its life and which were made to keep the property in an ordinarily efficient operating
condition may be deducted as n expense." The amount should not be the controlling factor. Substance, not
form should be the controlling factor.
In the case at bar, the Notes to Financial Statements of petitioner's audited financial report for the fiscal year
1989 indicates that the cost of maintenance and repairs is charged to income as incurred and significant
renewals and betterment's are capitalized. Most of the items disallowed refer to spare parts, pinion gears, roller
bearing, transformers and landed cost can be considered cost of machinery repairs. Spare parts are deemed to
be replacement of worn-out parts the same is true with the rest of the items disallowed.
RULING
WHEREFORE, finding the petition meritorious, respondent Commissioner of Internal Revenue is hereby ordered
to refund or in the alternative, issue a tax credit certificate in favor of petitioner, Armco-Marsteel Alloy
Corporation, in the amount of P5,061,899.00, representing overpaid income tax for the fiscal year ending
October 31. 1989. SO ORDERED.
(IGNACIO)
TAXATION LAW 2 Due Process Requirement in the Issuance of a Deficiency Tax Assessment (PAN & FAN)
CIR vs. Alpha Rigging & Moving Systems, Inc. CTA EB CASE NO. 1076 (CTA Case No. 8135)
JAN 0 8 2015
MINDARO-GRULLA, J.:
SUMMARY
The CIR issued assessments against Alpha for deficiency taxes covering taxable years 2000 and 2001. For failure to pay,
the CIR issued warrant of distraint and/or levy covering deficiencies for both years. Alpha filed a petition for review (CTA
division) for the cancellation of these assessments and nullification of the WLD on the ground that the CIR failed to
properly serve the required notices and the period to assess has prescribed. This Court's Division (Special 3rd) cancelled
the formal letter of demand and assessment notices for calendar year 2000 and 2001, and declared null and void the
Warrant of distraint and/or levy (WLD) No. 059-10-018 due to the failure of the CIR to prove that the Preliminary
Assessment Notice (PAN) and Final Assessment Notice (FAN) were sent and received by taxpayer, a violation of due
process. The CTA En Banc affirmed the decision of the Division.
DOCTRINE
Pursuant to the jurisdiction over cases that arise out of the NIRC or related laws administered by the Bureau of Internal
Revenue, it gives this Court the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and
to rule whether the assessment has prescribed or if the notice requirement in the issuance of a deficiency tax assessment
pursuant to Section 228 of the NIRC, as amended, was complied with.

Evidently, the preliminary assessment notice and final assessment notice must be sent to the taxpayer informing the
facts and the law on which the assessment was based. The sending of PAN and FAN to a taxpayer to inform him of the
assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment," the absence
of which renders nugatory any assessment made by the tax authorities.

To end, void assessment bears no fruit. Failure to comply with the notice requirements prescribed under Section 228 of
the NIRC of 1997 and RR No. 12-99 will result to a denial of due process, regardless of the failure to file a protest in the
assessment.
Nature of the case: Petition for Review for the Court En Banc of Special 3rd Division’s decision cancelling the formal letter
of demand and assessment notices for calendar year 2000 and 2001, and declaring as null and void the Warrant of
distraint and/or levy (WLD) No. 059-10-018
FACTS
As narrated by CTA Division (so “Petitioner” refers to Alpha)
Petitioner filed its Annual Income Tax Returns (ITR) for taxable years 2000 and 2001 with the BIR on April 18, 2001 and
April 15, 2002, respectively. On different dates, two Letters of Authority were issued against petitioner for the
examination of its books of accounts for all internal revenue taxes for taxable years 2000 and 2001. Petitioner then
executed two waivers ("Waiver of the Defense of Prescription under the Statute of Limitations of the NIRC") covering tax
liabilities for years 2000 and 2001.

In 2005, two separate Ten-Day PANs were issued against petitioner by RDO Leron, assessing petitioner for deficiency
income tax, VAT, DST, and compromise penalties for taxable years 2000 and 2001. Acting Regional Director Ordoyo issued
a PAN (2000 PAN), and later on, a Formal Letter of Demand (2000 FLD) and Assessment Notices (FAN) No. 59/2000.
Petitioner wrote a letter to RDO Leron stating its objections to the 2000 PAN. Subsequently, Acting Regional Director
Ordoyo issued another PAN (2001 PAN) for taxable year 2001, and also a Formal Letter of Demand (2001 FLD) and FAN
No. 59/2001. Petitioner filed its protest letter, protesting the 2001 FLD and FAN No. 59/2001. (So in short, may PAN then
FLD + FAN for both years pero 2001 lang may protest)

RE 2000: Later in 2005, OIC-RDO Lucman issued a Final Notice against petitioner to settle deficiency taxes per 2000 FLD.
Later in 2006, OIC-RDO Tamani issued a Final Notice Before Seizure requesting petitioner to settle its deficiency tax
assessment per 2000 FLO and FAN No. 59/2000.

RE 2001: Petitioner’s letter requesting for reinvestigation for taxable year 2001 was granted by respondent. In 2008,
petitioner availed of the Tax Amnesty Program under RA 9480. However in 2010, petitioner was informed thru letter
that it is not qualified to avail of Tax Amnesty Program and was requested to pay the deficiency tax due for the year
2000; otherwise, said RDO will be constrained to collect said deficiency tax through distraint and/or levy or garnishment.

On June 15, 2010, Warrant of Distraint and/or Levy (WDL) No. 059-10-018 was issued against petitioner, pertaining to
petitioner's deficiency tax liabilities for taxable years 2000 and 2001. Since petitioner's authorized personnel refused to
receive WDL No. 059-10-018, the officers of respondent left the copy of the WDL in the premises, with a notation that it
was constructively served on June 23, 2010, and witnessed by Mary Grace I. Endaya and Zenaida B. Datingaling.

On July 23, 2010, petitioner filed the instant Petition for Review seeking the cancellation and/or withdrawal of WDL No.
059-10-018 as well as the corresponding deficiency tax assessments covering taxable years 2000 and 2001, in the total
amount of P48,488,123.06. Petitioner argues that the 2000 FLD and FAN No. 59/2000 are not valid for respondent's
failure to properly serve the same upon petitioner and for being issued beyond the prescriptive period prescribed by law.
Petitioner also asserts that it was deprived of its right to file a Reply because it did not receive the 2001 Ten-Day PAN.

On September 6, 2010, respondent filed her Answer to the Petition for Review and raised the following Special and
Affirmative Defenses inter alia:

• The taxes were assessed within the period allowed by law (i.e. 3years to assess, 10years after discovery in case of a
false or fraudulent return with intent to evade taxes or failure to file a return)—in this case, the 10year period applies
because there was failure to file some ITRs (fringe benefits, withholding, etc.) for 2000 and 2001.
• Alternatively, under NIRC, the period to assess can be validly extended with the execution of a waiver.
• Alternatively, respondent submits that the assessments from which the warrant of distraint and levy was issued had
long become final and executory. In this case, as per BIR records, petitioner did not comply with the requirements of
submitting all relevant documents within the sixty (60)-day period from receipt of protest by respondent.
• Finally, 'it is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. It is the lifeblood of the government and so should be collected
without unnecessary hindrance.'

(Basically, the CIR argues that the right to assess these deficiency taxes has not yet prescribed, citing NIRC periods (3y or
10y), effect of the execution of the waivers, failure to properly protest, laches, lifeblood doctrine. CIR seeks to establish
that the assessments were timely and validly served (notices) as legal basis of the WLD.)

On July 12, 2013, this Court's Division granted the petition and cancelled the formal letter of demand and assessment
notices for calendar year 2000 and 2001, and declared null and void the Warrant of distraint and/or levy No. 059-10-018.
The formal letter of demand, assessment notices for 2000 and 2001, and warrant of distraint and levy were invalidated
due to the failure of the CIR to prove that the Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN)
were sent and received by taxpayer, a violation of due process. Thereafter, CIR's Motion for Reconsideration was denied
for lack of merit, hence, the present petition.

(re issue 1) CIR claims that action to challenge collection procedures on final and executory assessments should be limited
to collection procedure and that the validity of assessment is a separate and distinct issue that can no longer be
questioned.

(re issue 2) CIR further claims that the testimonial evidence of petitioner, documentary evidence by both parties and the
admission by silence by the taxpayer bolster the disputable presumption that the mail was indeed received in the
ordinary course of mail. CIR maintains that mere denial, unsupported by evidence could never overcome any disputable
presumption. Furthermore, CIR claims that this Court's Division erred in invalidating the 2001 assessment for failure to
serve the PAN when it is not an issue and that respondent even admitted it was informed of the PAN.

ISSUE/S
I. Whether or not the CTA has jurisdiction to review validity of assessment—YES
II. Whether or not there is violation of due process requirement—YES
III. Whether or not the assessments for 2000 and 2001, and consequently WLD, are valid—NO
RATIO
I. In the Philippine Journalist Case, the warrant of distraint and levy was declared invalid and the Court does not limit
on the timelines and validity of the collection procedure itself. On the contrary, the validity of the assessment was
 determined. Consequently, the Supreme Court concluded that a warrant of distraint and levy would be a nullity if
issued from an invalid assessment. Clearly, a void assessment bears no fruit and a warrant of distraint and/or levy
issued pursuant a void assessment is likewise null and void. Similarly, pursuant to the jurisdiction over cases that
arise out of the NIRC or related laws administered by the Bureau of Internal Revenue, it gives this Court the
jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule whether the
assessment has prescribed or if the notice requirement in the issuance of a deficiency tax assessment pursuant to
Section 228 of the NIRC, as amended, was complied with.

II. In the Metro Star Superama Case, the Supreme Court ruled that failure to strictly comply with notice requirements
prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No.
12-99 is tantamount to a denial of due process, regardless of the failure to file a protest in the assessment, for it is
well-settled that a void assessment bears no fruit. This is confirmed under the provisions R.R. No. 12-99 of the BIR
which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
XXX
3.1.1 Notice for informal conference. XXX
3.1.2 Preliminary Assessment Notice (PAN). XXX at least by registered mail, a PAN for the proposed assessment, showing in detail,
the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based.
XXX
3.1.4 Formal Letter of Demand and Assessment Notice. - The letter of demand calling for payment of the taxpayer's deficiency tax
or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof
in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to
act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt
thereof.
XXX.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the
assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment,''
the absence of which renders nugatory any assessment made by the tax authorities. The use of the word "shall"
in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to
due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Star's right to due process. Thus, for its
failure to send the PAN stating the facts and the law on which the assessment was made as required by Section
228 of R.A. No. 8424, the assessment made by the CIR is void.

III. Evidently, the preliminary assessment notice and final assessment notice must be sent to the taxpayer informing
the facts and the law on which the assessment was based. The sending of PAN and FAN to a taxpayer to inform him
of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment,"
the absence of which renders nugatory any assessment made by the tax authorities.

In the case at bar, the Court in Division found that petitioner's (CIR’s) witness testified that FLD and FAN 59/2000 and
2001 PAN were mailed and received by respondent, however, CIR failed to mark, offer, identify and admit as
evidence any registry receipt and return card to prove the fact of mailing and receipt. This is clear error on the part
of CIR and cost the government the 2000/2001 assessment.

RE 2000: Indeed, due process requires that the FAN must be served on, and received by the taxpayer. This will give
the taxpayer the opportunity to file a protest against the FAN. If a taxpayer did not receive the assessment, the
assessment could not become final and executory. Here, respondent failed to prove that the 2000 FLD and FAN No.
59/2000 were indeed served and received by petitioner. As such, there is no assessment to begin with, and petitioner
cannot be considered a delinquent taxpayer. Consequently, there is no basis for the issuance of WDL No. 059-10-
018. Stated differently, WDL No. 059-10-018 issued by respondent to petitioner, in so far as it seeks to collect from
petitioner deficiency taxes for year 2000, is void.
 RE 2001: As discussed earlier, this Court cannot give evidentiary value to pieces of evidence that were not formally
offered. In this case, the testimony of respondent's witness alone could not give rise to the presumption that the
2001 Ten-Day PAN (Notice of Informal Conference) and the 2001 PAN were served and received by petitioner in the
regular course of mail. Since respondent failed to adduce sufficient proof that petitioner received the 2001 Ten-Day
PAN (Notice of Informal Conference) and the 2001 PAN in the ordinary course of mail, it cannot be presumed that
petitioner received them.

In view of the foregoing, the resolution of the issue on prescription of respondent's right to assess petitioner for
deficiency taxes for the year 2000 is no longer necessary.

The due process requirements in the issuance of a deficiency tax assessment are laid down in Section 3 of RR No.
12-99, which provides the need for (1) a notice for informal conference, (2) a preliminary assessment notice, and
(3) a formal letter of demand and assessment notice sent to the taxpayer. Evidently, respondent failed to prove
that it complied with the first two requirements, and such failure violated petitioner's right to due process. Said
failure on the part of respondent makes the 2001 FLO and FAN No. 59/2001 as well as the WDL No. 059-10-018
invalid.

To end, void assessment bears no fruit. Failure to comply with the notice requirements prescribed under Section
228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 will result to a denial
of due process, regardless of the failure to file a protest in the assessment.

RULING
WHEREFORE premises considered, the petition is DENIED. The Decision of the Special Third Division of this Court in CTA
Case No. 8135, promulgated on July 12, 2013 and its Resolution, promulgated on October 9, 2013, are hereby AFFIRMED.
 TAXATION LAW 2
PREMIUM LEISURE CORP (FORMERLY: SINOPHIL CTA CASE NO. 8940
CORPORATION) ... Petitioner Date: MAR 14, 2017
versus Ponente: Ringpis-Liban, J.
COMMISSIONER OF INTERNAL REVENUE ... Respondent

SUMMARY

Premium Leisure Corp. is an owner of stocks of Belle Bay City Corp (BBCC). BBCC is to be dissolved since their term of
existence has expired. As a result, BBCC transferred to Premium a parcel of land, covered by liquidating dividends.
Premium was demanded to pay the corresponding capital gains tax from the abovementioned transaction and
eventually paid under protest. Premium contends that the same should not be subject to CGT, hence, it must be given
a tax credit certificate. The CTA agreed with the contention of Premium. The end!

DOCTRINE

Mere distribution of liquidating dividends on account of the dissolution of a corporation is not considered a sale of
asset by the liquidating corporation for the purpose of the imposition of capital gains tax.

Nature of the case: This is a Petition for Review.

FACTS

Petitioner Premium Leisure Corp. is a domestic corporation duly organized and existing under and by virtue of the laws
of the Philippines. It is primarily established to invest in, purchase, or otherwise acquire and own all properties of every
kind, nature and description. Previously, petitioner did business under the name of Sinophil Corporation before.
Petitioner is the registered holder of 74,027,418 shares of the capital stock of Belle Bay City Corp. (BBCC).
Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) empowered to perform the
duties of his office, including, among others, to act on and approve claims for refund or tax credit as provided by law.
BBCC’s term of existence is only until January 31, 2004.
Pursuant to BBCC’s letter on 2006 requesting confirmation from the BIR of its opinion as regards certain tax implications
in relation to the transfer of its lots to its stockholders as liquidating dividends, the BIR declared that the transfer by BBCC
of the reclaimed lots to its stockholders as liquidating dividends is not subject to income tax, creditable withholding tax,
and documentary stamp tax; and that the receipt of reclaimed lots as liquidating dividends by the stockholder is a taxable
income or a deductible loss, as the case may be.
On November 12, 2012, BBCC executed a Deed of Conveyance in favor of petitioner, transferring a parcel of land, and is
covered by liquidating dividends.
In its 2012 Annual Income Tax Return, petitioner reported the fact of its receipt of liquidating dividends from BBCC by
recognizing a net liquidating gain of P33,324,175.00 as part of its “Other Taxable Income not Subjected to Final Tax,”
thus, subjecting said liquidating gains to the thirty percent (30%) regular corporate income tax.
On November 28, 2012, petitioner filed its Capital Gains Tax Return with the Land Bank of the Philippines (LBP), Baclaran
Branch and paid under protest the amount of P6,522,000.00 allegedly representing capital gains tax arising from its
receipt of real property by way of liquidating dividends from BBCC.

Petitioner filed an application for refund and/or issuance of Tax Credit Certificate (TCC) to recover the capital gains tax
previously remitted in the amount of P6,522,000.00 in relation to the conveyance of real properties by BBCC to petitioner
by way of liquidating dividends. There being no action taken by respondent on petitioner’s administrative claim for refund
or issuance of TCC, petitioner filed the present Petition for Review before this Court.
ISSUE/S
I. Whether or not the transfer of real property by BBCC to petitioner, by way of liquidating dividends, is subject
to the six percent (6%) final withholding capital gains tax prescribed under Section 27(d)(5) of the Tax Code
RATIO
No. Mere distribution of liquidating dividends on account of the dissolution of a corporation is not to be treated as
sale for purposes of the imposition of capital gains tax.

Petitioner asserts that it is entitled to a tax refund or issuance of TCC since the conveyance of real property by BBCC in
favor of petitioner may not be considered as a taxable sale or exchange of properties.

Respondent, on the other hand, argues that capital gains tax is a final tax assessed on the presumed gain derived by BBCC
from the disposition of its parcel of land in exchange for common shares of stock owned by petitioner. He claims that it
is not essential that a gain must be realized first before a corporation may be held liable under Section 27(D)(5) of the
Tax Code since gain is presumed from the disposition of its real property considered as capital asset.
The Court finds respondent’s arguments to be without merit.
Capital gains tax is a tax on the gain from the sale of the taxpayer's property forming part of capital assets. It implies that
in order to be liable for payment of capital gains tax, one has to profit or gain from the sale, exchange or disposition of
the real property. In other words, in the absence of income from or the absence of sale, disposition or conveyance of
real property, the imposition of capital gains tax does not arise.
Accordingly, for a contract [of sale] to be valid, it must have three essential elements: (1) consent of the contracting
parties; (2) object certain which is the subject matter of the contract; and (3) cause/consideration of the obligation
which is established.
This Court ruled in previous cases that the conveyance of real property as a result of a valid dissolution was without
any consideration. It must be emphasized that the subject real property was distributed in the form of liquidating
dividend as a consequence of BBCC’s dissolution as clearly stated in the Deed of Conveyance executed by BBCC as
assignor and petitioner as assignee.
Considering that the conveyance by BBCC in favor of petitioner was done in pursuance of BBCC’s dissolution and
considering further that the real property is conveyed as a liquidating dividend, the transaction is therefore not subject
to capital gains tax.
Likewise, in the case of Victoria Fernando vs. Sps. Keginaldo Um and Asuncion Lim, the Supreme Court declared that a
mere distribution of liquidating dividends on account of the dissolution of a corporation is not considered a sale of
asset by the liquidating corporation for the purpose of the imposition of capital gains tax.
RULING

WHEREFORE, premises considered, the Petition for Review is GRANTED. Accordingly, respondent is ORDERED TO REFUND
OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P6,522,000.00, representing erroneously
paid capital gains tax from its receipt of real property by way of liquidating dividends from BBCC.
(CORPUZ)
 TAXATION LAW 2 (Baliktad yung petitioner and respondent sa list na binigay ni Atty. Caban hehe)
Commissioner of Internal Revenue, petitioner vs. Bank of GR No. 224327
the Philippine Islands, respondent Date: 11 June 2018
Ponente: Peralta, J.

DOCTRINE

(Marami e, please check the ratio nalang ☺)

Nature of the case: Petition for Review on Certiorari under Rule 45

FACTS

(Dates are important.)

Citytrust Banking Corporation (CBC) filed its Annual Income Tax Returns for its Regular Banking Unit, and Foreign Currency
Deposit Unit, for taxable year 1986 on 15 April 1987.
Thereafter, on 11 August 1989, 12 July 1990, and 08 November 1990, CBC executed Waivers of the Statute of Limitations
under the NIRC.
7 March 1991 – Petitioner CIR issued a Pre-Assessment Notice (PAN) against CBC for deficiency taxes within 30 days from
receipt thereof.
27 May 1991 and 17 Feb 1992 – Counsel for CBC filed its Protest against the assessments.
05 Feb 1992 – A letter was again issued by petitioner requesting for the payment of CBC’s t ax liabilities, within 10 days
from receipt thereof.
29 Mar 1994 – The counsel for CBC issued a Letter addressed to petitioner offering a compromise settlement on its
deficiency Income Tax assessment for taxable year 1986 with an attached Application for Compromise
Settlement/Abatement of Penalties in the amount of Php 1,721,503.40 or 20% of the subject assessment.
12 Oct 1994 – Petitioner approved the mentioned Application for Compromise Settlement of CBC provided that 100% of
its deficiency Income Tax Assessment for the year 1986 or in the amount of Php 8,607,517 to be paid within 15 days from
receipt thereof.
(Puro sila ganito hanggang umabot yung offer to compromise ni CBC ng Php 4,303,758.50. Di ko na sinama kasi di
naman relevant sa ruling hehe)
04 Oct 1996 – The SEC approved the Articles of Merger between respondent BPI and CBC, with BPI as the surviving
corporation.
26 May 2011 – Petitioner issued a Notice of Denial addressed to respondent, requesting for the payment of CBC’s
deficiency Income tax for taxable year 1986.
21 Sept 2011 – Petitioner issued a Warrant of Distraint and/or Levy against BPI which prompted the latter to file a
petitioner for Review with the CTA.
CTA 3rd Division – Granted the petition. The Warrant of Distraint and/or Levy is cancelled and set aside.
CTA en banc – affirmed
Petitioner CIR:
1) CTA did not acquire jurisdiction over the case for respondent’s failure to contest the assessments made against it by
the BIR within the period prescribed by law.
2) By the principle of estoppel, respondent is not allowed to raise the defense of prescription against the efforts of the
government to collect the tax assessed against it.
Respondent BIR:
1) CTA has jurisdiction over the case.
2) The assessment notice is not yet final and executory.
3) The right of the CIR to assess and collect the deficiency income tax for 1986 had already prescribed.

ISSUE/S
I. See BPI’s contentions
RATIO

1) CTA has jurisdiction over cases asking for the cancellation and withdrawal of a warrant of distraint and/or levy.
Section 7 (2) of RA No. 9282 provides that CTA has exclusive appellate jurisdiction to review by appeal inaction by
the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges penalties
in relations thereto, or other matter arising under the NIRC or other laws administered by the BIR, where the
NIRC provides a specific period of action, in which case the inaction shall be deemed a denial.
2) An assessment becomes final and unappealable if within 30 days from receipt of the assessment, the taxpayer
fails to file his or her protest requesting for reconsideration or reinvestigation as provided in Section 229 of the
NIRC. However, in the case at bar, CIR failed to prove that it sent a notice of assessment and that it was received
by BIR. CIR was unable to present substantial evidence that such notice was, indeed, mailed or sent before the
BIR's right to assess had prescribed and that said notice was received by BPI. As a matter of fact, there was an
express admission on the part of the CIR that there was no proof that indeed the alleged Final Assessment Notice
was ever sent to or received by BPI.
The Court stressed on the importance of clearly and satisfactorily proving the release, mailing or sending of the
notice. Mere notations made without the taxpayer’s intervention, notice or control, without adequate supporting
evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate
protection or defense.
Thus, the failure of petitioner to prove the receipt of the assessment by respondent would necessarily lead to the
conclusion that no assessment was issued.
3) The right of CIR to assess BIR has already prescribed and BIR is not liable to pay the deficiency tax assessment.
The period of collection has also prescribed. The Assessment Notices, being issued only on 6 May 1991, were
already issued beyond the 3-year period to assess, counting from 15 April 1987. As to the period of collection,
Regardless if We will reckon the period to collect from May 6, 1991, or the alleged Final Demand Letter on
February 5, 1992, counting the three-year period therein to collect in accordance with Section 223 (c) of the 1977
Tax Code, obviously, the mode of collection through the issuance of Warrant of Distraint and/or Levy on October
05, 2011 was made beyond the prescriptive period.
It must be remembered that the law imposes a substantive, not merely a formal requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce supporting evidence. Although taxes are
the lifeblood of the government, their assessment and collection “should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.”
UNLAD ☺
RULING
WHEREFORE, the Petition for Review on Certiorari dated June 16, 2016 of petitioner Commissioner of Internal Revenue
isDENIED for lack of merit. Consequently, the Decision dated September 16, 2015 and the Resolution dated April 21, 2016
of the Court of Tax Appeals En Banc in CTA EB No. 1173 (CTA CASE NO. 8350), are AFFIRMED.
)

 TAXATION LAW 2
SOLID-ONE MILLS, PHIL., INC. v CIR CTA EB No. 1562
Date: June 1, 2018
Ponente: Castaneda, J.
SUMMARY

DOCTRINE

Nature of the case: Petition for Review

FACTS
 Petitioner Solid-One Mills, Phils., Inc. is a corporation organized and existing under and by virtue of Philippine
laws, with address at Km. 68 Laurel Highway, Barangay Darasa, Tanauan City, Batangas.
 Petitioner filed its ITR for taxable year 2007. Petitioner received a Letter of Authority issued by the BIR
authorizing the examination of petitioner’s books of account and other records for all internal revenue taxes.
 A notice of informal conference (November 23, 2010) was issued stating that petitioner has deficiency taxes
 (July 25, 2011) Petitioner received a Formal Letter of Demand dated June 30, 2011
 Petitioner on August 24, 2011, filed a protest letter dated August 16, 2011.
 On March 16, 2012, petitioner received a letter dated January 11, 2012 issued by BIR Revenue Region No. 9,
stating that since petitioner failed to submit supporting documents, the assessment was deemed final and
executory.
 On March 16, 2012, petitioner received a letter dated January 11, 2012 issued by BIR Revenue Region No. 9,
stating that since petitioner failed to submit supporting documents, the assessment was deemed final and
executory.
 Petitioner received a Warrant of Distraint and/or Levy dated May 14, 2012 on May 31, 2012, issued against it by
respondent for its alleged tax liabilities for taxable year 2008. Finally, on September 19, 2012, petitioner received
a Demand Letter dated September 17, 2012, stating that its internal revenue tax liabilities in the assessment
notice dated June 30, 2011 remains unpaid and must be paid immediately.
 RESPONDENT’S ANSWER: interposing that the right of respondent to assess petitioner has not prescribed; that
petitioner miserably failed to substantiate its protest with sufficient documents to prove the validity of its claim;
that the assessments issued against petitioner have legal and factual bases; and that the assessments issued
against petitioner are valid and lawful.
 Petitioner presented as evidence Mr. Ronnie Arojando, its accountant, his sole witness.
 CTA DIVISION: Dismissed the Petition for Review for lack of jurisdiction

ISSUE/S
I. Whether the assessment has prescribed
II. Whether the assessment is void for lack of due process
RATIO

DENIED. The CTA has no jurisdiction.

Section 11 of Republic Act (RA) No. 1125, as amended by RA No. 9282, pertinently provides that any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue (CIR) may file an appeal with the CTA
within thirty (30) days after the receipt of such decision or ruling. Meanwhile, Section 3.1.4 of Revenue Regulations (RR)
No. 12-99, as amended by RR No. 18-2013, provides that if the protest or administrative appeal, as the case may be, is
denied, in whole or in part, by the CIR, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of
the said decision. Otherwise, the assessment shall become final, executory and demandable.

In this case, records reveal that on March 16, 2012,11 petitioner received the letter dated January 11, 2012 issued by BIR
Revenue Region No. 9. Said letter categorically declared that petitioner's failure to submit supporting documents in
connection with its request for reinvestigation rendered the assessment final and executory.

Based on the subject letter, it was categorically stated that the assessment had already become final and executory. This
decision of respondent is further echoed by the fact that the letter already informed petitioner that its case shall already
be forwarded to the BIR's Collection Division.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue, et al., 12 the Supreme Court ruled that a demand
letter may be considered the final decision on a disputed assessment, if the language used or the tenor thereof shows a
character of finality, which is tantamount to a rejection of the request for reconsideration.

Applying the Oceanic case in the instant case, the Court En Bane rules that the subject letter constitutes the final decision
of respondent that is appealable to the CT A. In other words, said letter demonstrated a character of finality, such that
there can be no doubt that respondent had already made a conclusion to deny petitioner's request and he had the clear
resolve to collect the subject taxes.

Considering that the January 11, 2012 BIR letter constitutes the final decision of respondent, petitioner had thirty (30)
days from March 16, 2012, or until April 15, 2012, within which to file its Petition for Review. However, petitioner filed its
Petition before the Court in Division only on October 18, 2012. Since the Petition was belatedly filed, the CT A did not
acquire jurisdiction over this case.

RULING
WHEREFORE, the instant Petition for Review is DISMISSED for lack of jurisdiction. Accordingly, the Decision dated
June 21, 2016 and the Resolution dated November 7, 2016, respectively, of the CTA Third Division are AFFIRMED.
)
TAXATION LAW 2
PETRON VS CIR CTA EB 1499
Date: June 14. 2018
Ponente:

SUMMARYa
Hindi naman to about income tax/estate/donors. Wag nang namnamin charot
DOCTRINE

CTA that has the power to take cognizance of appeals questioning a ruling or issuance of the CIR
and upheld by the Secretary of Finance
FACTS
Petitioner is a domestic corporation engaged in the business of manufacturing and marketing petroleum
products. In compliance with Republic Act (RA) No. 8749, otherwise known as the Clear Air Act of 1999, and RA
No. 9367, also known as the Biofuels Act of 2006, petitioner imports on various dates alkylate as raw material or
blending component for its manufacture of ethanol-blended motor gasoline.

For the period January 2009 to August 2011, as well as or the month of April 2012, petitioner made several
importations of alkylate for which respondent CIR issued Authorities to Release Imported Goods (ATRIGs),
categorically stating that petitioner's importation of alkylate is exempt from the payment of the
excise tax as it was "not among those articles enumerated under Title VI of the NIRC of 1997".

On June 2012, petitioner imported 12,802,660 liters or 79,231 barrels of alkylate and paid value-added tax (VAT)
in the total amount of P41,657,533.00. However, upon the instruction of respondent COC, the said
importation was subjected by respondent Collector of Customs of Port of Limay, Bataan to excise
taxes of P4.35 per liter, or in the aggregate amount of P55,691,571.00, and consequently, to an additional
VAT of 12°/o on the imposed excise tax in the amount of P6,682,989.00, per Final Computation. The imposition
of the excise tax was allegedly pursuant to Customs Memorandum Circular (CMC) No. 164-2012
dated July 18, 2012, implementing the Letter dated June 29, 2012 issued by respondent CIR, which reads as
follows:

Alkylate which is a product of distillation similar to that of naphta, is subject to excise tax under Section
148(e) of the National Internal Revenue Code (NIRC) of 1997.
ISSUE/S
Whether or not the Court of Tax Appeals has jurisdiction over cases interpreting tax laws as falling under the
clause "other matters" arising under the Tax Code or other laws or portions thereof administered by the BIR.
RATIO

Petitioner submits that the core issue in this case is the propriety or correctness of respondent CIR's
interpretation and application of Section 148 (e) of the 1997 NIRC (as embodied in CMC No. 164-2012)
concerning the imposition of excise tax on petitioner's importation of alkylate. According to petitioner, the CIR's
power to interpret laws, subject to review by the Secretary of Finance being the head of the department which
oversees the BIR, falls under the exclusive appellate jurisdiction of the CTA under "other matters" arising under
the Tax Code or other laws or portions thereof administered by the BIR. Allegedly, this stance is in accord with
the ruling in Phi/am case where the Supreme Court clarified and settled that it is the CTA that has the power
to take cognizance of appeals questioning a ruling or issuance of the CIR and upheld by the
Secretary of Finance

While generally, no recourse to courts can be had until all administrative remedies have been exhausted,
petitioner submits that this rule is not applicable where the challenged/ administrative act is patently illegal,
amounting to lack or in excess of jurisdiction and where the question(s) involved is essentially judicial. Petitioner
opines that its immediate resort to the CTA is justified under attendant circumstances as an exception to the
rule on non-exhaustion of administrative remedies. The petition before the CTA clearly calls for a determination
of the proper interpretation of the law, particularly, whether alkylate is an article subject to excise tax as
contemplated under Section 148 of the 1997 NIRC, hence, purely legal; the collection of excise taxes on the
importation of alkylate is patently illegal in the absence of any provision in the 1997 NIRC subjecting the
importation of alkylate to excise taxes; judicial intervention is extremely urgent as the imposition of excise taxes
on alkylate will cause great irreparable damage to it; and that its Petition for Review was filed for lack of any
other plain, speedy and adequate remedy.
RULING
WHEREFORE, petitioner'sPetition for Review is hereby GRANTED. Accordingly, the case is REMANDED to the
Court in Division for disposition on the merits
(CEBALLOS, PONCEVIC)
 TAXATION LAW 2
11. General Foods Inc. vs. CIR GR No. CTA No. 4386
Date: Feb 8, 1994
Ponente:
Nature of the case: This is an assessment case for alleged deficiency income tax in the amount of
P2,635,141.42 for fiscal year ended February 28, 1985.
FACTS
Petitioner General Foods, Inc. is a domestic corporation engaged in the manufacture and sale of various
consumer products such as “Tang”, “Calumet”, and “Kool-Aid”.

On June 14, 1985, it filed its Corporate Annual Income Tax Return for fiscal year ended February 28, 1985
and claimed P9,461,246.00 as deduction under “Marketing Expenses”, (Media Advertising).

Respondent CIR disallowed fifty percent (50%) thereof or P4,730,623.00 on the ground that said expenses
are in the nature of capital expenditures which should be amortized for two (2) years.

The disallowance resulted to an alleged deficiency income tax of P2,635,141.42.

In the present appeal, petitioner averred that the amount being claimed is reasonable considering the grave
economic situation that took place after the Aquino assassination characterized by capital flight, strong
deterioration of the purchasing power of the Philippine peso and the slackening demand for consumer
products.
ISSUE/S
I. Whether or not the media advertising expenses paid or incurred by petitioner constitute
ordinary and necessary expenses fully deductible under the tax code.
RATIO
Before an expense is allowed as deduction from gross income, it must satisfy the following requirements:
1. It must be both ordinary and necessary;
2. It must be paid or incurred within the taxable year;
3. It must be incurred in carrying on a trade or business.

The CTA held in Visayan Cebu Terminal Co., Inc. v. Collector of Internal Revenue that an expense is
necessary when the expenditure is appropriate or helpful in the development of the taxpayer’s business
or that the same is proper for the purpose of realizing a profit or minimizing a loss, as distinguished
from one not pertinent to the business of the taxpayer.

General Rule: Advertising expenses are deductible in the year when paid or incurred.
Limitations:
1. The reasonableness of the amount.
2. Whether or not the questioned advertising expenses are actually capital outlays to create
“goodwill” to the product and/or business, and hence, considered as capital expenditure to be
spread over the life of the asset.

Kinds of advertising:
1. Advertising to stimulate the current sale of merchandise or use of services;
o Incurred in whole or in part to create or maintain some form of good will for the taxpayer’s
trade or business
o Deductible as business expenses, provided the amount is reasonable
2. Advertising designed to stimulate the future sale of merchandise or use of services.
o Normally are spread over a reasonable period of time

Here, petitioner General Foods, Inc. failed to comply with the two aforementioned limitations. The
advertising expenses incurred by petitioner constitute almost ½ of petitioner’s claim for “Marketing
Expenses”. Such amount is almost twice over General and Administrative Expenses, and it excludes the
amount of P2,678,328 being claimed under “Other advertising and promotions” expense.

The CTA held that the said amount was incurred to create some form of goodwill for petitioner’s trade or
business, and thus, is not a deductible business expense but rather a capital expenditure.
)
 TAXATION LAW 2
PHILIPPINE AIRLINES, INC. (PAL) GR No. G.R. Nos. 206079-80,
v. COMMISSIONER OF INTERNAL REVENUE
Date: January 17, 2018
And
COMMISSIONER OF INTERNAL Ponente: Leonen, J.
REVENUE v. PHILIPPINE AIRLINES, INC. (PAL)

SUMMARY

Philippine Airlines, Inc. is entitled to its claim for refund of P510,223.16 and US$65,877.07, representing the final income
taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered Bank because
proof of remittance is not necessary for Philippine Airlines, Inc. to claim a refund under its charter, Presidential Decree
No. 1590.
DOCTRINE

The Commissioner has the right to hear a refund claim first, if he or she fails to act on it, it will be treated as a denial of
the refund, and the Court of Tax Appeals is the only entity that may review this ruling. And the power of the Court of Tax
Appeals to exercise its appellate jurisdiction does not preclude it from considering evidence that was not presented in the
administrative claim in the Bureau of Internal Revenue.

Under its franchise, Presidential Decree No. 1590, petitioner may either pay a franchise tax or the basic corporate income
tax, and is exempt from paying any other tax, including taxes on interest earned from deposits. Considering that PAL is not
liable to pay the tax on interest income from bank deposits, any payments made for that purpose are in excess of what is
due from it. Thus, if PAL erroneously paid for this tax, it is entitled to a refund.

Proof of actual remittance is not a condition to claim for a refund of unutilized tax credits. Under Sections 57 and 58 of
the 1997 National Internal Revenue Code, as amended, it is the payor-withholding agent, and not the payee-refund
claimant such as respondent, who is vested with the responsibility of withholding and remitting income taxes. Thus, PAL is
not obliged to remit, let alone prove the remittance of, the taxes withheld.

To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld. Taxes withheld by the
withholding agent are deemed to be the full and final payment of the income tax due from the income earner or payee.
Certificates of Final Taxes Withheld issued by the Agent Banks are sufficient evidence to establish the withholding of
the taxes.
Nature of the case: Two (2) consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing
the August 14, 2012 Decision1 and February 25, 2013 Resolution2 of the Court of Tax Appeals En Banc in CTA EB Nos. 749
and 757 (CTA Case No. 6877)
FACTS

Sometime in 2002, PAL made US dollar and Philippine peso deposits and placements in the following Philippine banks:
Chinabank, JPMorgan, PBCom, and Standard Chartered.
SUMMARY :

AMOUNT OF TAX WITHHELD

BANK PERIOD COVERED
PESO US DOLLAR
China Banking Corp. January 2002 - December
38,974.75
(Exhibit "C") 2002
JP Morgan Chase Bank September 2002 - December
1,237,646.43
(Exhibit "D") 2002
Phil. Bank of Communication[s]
January 2002 - March 2002 7,698.63
(Exhibit "E")
Phil. Bank of Communication[s]
April 2002 - June 2002 108,351.68 1,698.99
(Exhibit "F")
Phil. Bank of Communication[s]
July 2002 - September 2002 401,871.48 3,009.28
(Exhibit "G")
 Phil. Bank of Communication[s] October 2002 - December
8,037.28
(Exhibit[s] "H" and "I") 2002
Standard Chartered [Bank]
May 2002 - December 2002 6,458.14
(Exhibit "J")
TOTAL P1,747,869.59 $65,877.07

Claiming that it was exempt from final withholding taxes under its franchise, Presidential Decree No. 1590, PAL filed with
the Commissioner on November 3, 2003 a written request for a tax refund of the withheld amounts of P1,747,869.59 and
US$65,877.07. The Commissioner failed to act on the request. Thus, on February 24, 2004, PAL elevated the case to the
Court of Tax Appeals in Division.
In its November 9, 2010 Decision, the Court of Tax Appeals Special First Division partially granted PAL's Petition and
ordered the Commissioner to refund PAL P1,237,646.43, representing the final income tax withheld and remitted by
JPMorgan. It denied the remaining claim for refund of P510,223.16 and US$65,877.07 representing the final income tax
withheld by Chinabank, PBCom, and Standard Chartered.
The Court of Tax Appeals Special First Division found that PAL was exempted from final withholding tax on interest on
bank deposits. However, it ruled that PAL failed to adequately substantiate its claim because it did not prove that the
Agent Banks, with the exception of JPMorgan, remitted the withheld amounts to the Bureau of Internal Revenue. PAL only
presented documents which showed the total amount of final taxes withheld for all branches of the banks. As such, the
amount of tax withheld from and to be refunded to PAL could not be ascertained with particularity. It ruled that the
Certificates of Final Tax Withheld at Source are not sufficient to prove remittance.
Court of Tax Appeals En Banc denied the petitions and affirmed the decision of the Court of Tax Appeals Special First
Division. The Court of Tax Appeals En Banc sustained that PAL needed to prove the remittance of the withheld taxes
because although remittance is the responsibility of the banks as withholding agents, remittance was put in issue in this
case.
In G.R. Nos. 206079-80, PAL questions the denial of its refund claim for the taxes withheld by Chinabank, PBCom, and
Standard Chartered.
PAL arguments:
1.That it is entitled to its claim for tax refund or tax credit and insists that it has adequately established that the final taxes
on interest income withheld by the banks were remitted to the Bureau of Internal Revenue. It contends that the
Certificates of Final Taxes Withheld issued by the Agent Banks are prima facie evidence of actual remittance. As prima
facie evidence, they are sufficient proof of the fact that PAL is establishing, if they are unexplained or uncontradicted.
2.That the Commissioner had the burden to prove that the Agent Banks failed to remit the withheld taxes.59 Nonetheless,
the Commissioner simply submitted the case for decision based on the pleadings. It did not contradict or dispute the
Certificates of Final Taxes Withheld.
3.PAL further posits that the failure of the Agent Banks to remit the withheld taxes should not prejudice PAL, because they
are the withholding agents accountable for proving remittance. PAL has no control or responsibility over the remittance of
the taxes withheld.
4.Moreover, PAL holds that there is no need for proof of actual remittance to be entitled to claim for refund,62 and that
this Court's rulings on creditable taxes withheld should also apply to final taxes withheld at source, as they are of the
same nature. Since PAL has shown that it is unequivocally exempt from paying final withholding taxes, its taxes were
erroneously paid and must be refunded.
5.PAL further asserts that the Court of Tax Appeals is a court of record, required to conduct a trial de novo. Thus, it should
not be barred from considering new evidence not submitted in the administrative claim for refund.
In G.R. No. 206309, the Commissioner questions the grant of refund to PAL for the final income taxes withheld by
JPMorgan. She argues that PAL is not entitled to the refund as it failed to present its documentary evidence before the
Bureau of Internal Revenue when it filed its administrative claim. The Commissioner argues in her Memorandum that PAL
needed to prove, but did not prove, that the withheld taxes were remitted to the Bureau of Internal Revenue. She points
out that PAL only showed the withheld amounts remitted by branches of Chinabank, PBCom, and Standard Chartered, but
there is no indication that the remitted amounts are the taxes withheld from PAL's interest income. She argues that PAL
must first prove that the money remitted to the Bureau of Internal Revenue is attributable to it because tax refunds are
strictly construed against the taxpayer.
ISSUE/S
1. Whether or not evidence not presented in the administrative claim for refund in the Bureau of Internal Revenue can be
presented in the Court of Tax Appeals; YES
2. Whether or not Philippine Airlines, Inc. was able to prove remittance of its final taxes withheld to the Bureau of Internal
Revenue; NO
3. Whether or not proof of remittance is necessary for Philippine Airlines, Inc. to claim a refund under its charter,
Presidential Decree No. 1590. NO
RATIO
This Court sustains the factual findings of the Court of Tax Appeals that Philippine Airlines, Inc. failed to prove
remittance of the withheld taxes. Nonetheless, this Court grants the Petition of Philippine Airlines, Inc.

1. This Court rules that the Court of Tax Appeals is not limited by the evidence presented in the administrative claim in the
Bureau of Internal Revenue. The claimant may present new and additional evidence to the Court of Tax Appeals to
support its case for tax refund.

Section 4 of the National Internal Revenue Code81 states that the Commissioner has the power to decide on tax refunds,
but his or her decision is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Moreover, Republic
Act No. 9282,amending Republic Act No. 1125, is the governing law on the jurisdiction of the Court of Tax Appeals. Section
7 provides that the Court of Tax Appeals has exclusive appellate jurisdiction over tax refund claims in case the
Commissioner fails to act on them.

This means that while the Commissioner has the right to hear a refund claim first, if he or she fails to act on it, it will be
treated as a denial of the refund, and the Court of Tax Appeals is the only entity that may review this ruling. The power of
the Court of Tax Appeals to exercise its appellate jurisdiction does not preclude it from considering evidence that was not
presented in the administrative claim in the Bureau of Internal Revenue. Republic Act No. 1125 states that the Court of
Tax Appeals is a court of record:

Section 8. Court of record; seal; proceedings. — The Court of Tax Appeals shall be a court of record and shall have a seal
which shall be judicially noticed. It shall prescribe the form of its writs and other processes. It shall have the power to
promulgate rules and regulations for the conduct of the business of the Court, and as may be needful for the uniformity of
decisions within its jurisdiction as conferred by law, but such proceedings shall not be governed strictly by technical rules
of evidence.

As such, parties are expected to litigate and prove every aspect of their case anew and formally offer all their evidence.No
value is given to documentary evidence submitted in the Bureau of Internal Revenue unless it is formally offered in the
Court of Tax Appeals. Thus, the review of the Court of Tax Appeals is not limited to whether or not the Commissioner
committed gross abuse of discretion, fraud, or error of law, as contended by the Commissioner. As evidence is considered
and evaluated again, the scope of the Court of Tax Appeals' review covers factual findings.

In the case of Commissioner of Internal Revenue v. Philippine National Bank, the SC held : the Court of Tax Appeals is
not precluded from accepting respondent's evidence assuming these were not presented at the administrative level.
Cases filed in the Court of Tax Appeals are litigated de novo. Thus, respondent "should prove every minute aspect of its
case by presenting, formally offering and submitting . . . to the Court of Tax Appeals [all evidence] . . . required for the
successful prosecution of [its] administrative claim."

In the case at bar, the Commissioner failed to act on PAL's administrative claim.90 If she had acted on the refund claim,
she could have directed PAL to submit the necessary documents to prove its case. Furthermore, considering that the
refund claim will be litigated anew in the Court of Tax Appeals, the latter may consider all pieces of evidence formally
offered by PAL, whether or not they were submitted in the administrative level. Thus, the Commissioner's contention
must fail.

2. Both PAL and the Commissioner are contesting whether or not PAL has proven the Agent Banks' remittance of the
withheld taxes on its interest income. The Court of Tax Appeals Special First Division and En Banc ruled that PAL was able
to prove JPMorgan's remittance of the withheld taxes but that it failed to prove those of Chinabank, PBCom, and Standard
Chartered. This Court maintains the factual findings of the Court of Tax Appeals Special First Division and En Banc.

REASONS: Firstly, in bringing forth the issue of remittance, the parties are raising a question of fact which is not within the
scope of review on certiorari under a Rule 45 Petition. An appeal under Rule 45 must raise only questions of law. A party
filing the petition, however, has the burden of showing convincing evidence that the appeal falls under one of the
exceptions. A mere assertion is not sufficient. AND this Court has consistently held that the findings of fact of the Court of
Tax Appeals, as a highly specialized court, are accorded respect and are deemed final and conclusive. Because of this
recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on
its part. The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to
delve into facts, only questions of law are open for determination.

In the case at bar, both the Court of Tax Appeals Special First Division and En Banc ruled that PAL failed to sufficiently
prove that Chinabank, PBCom, and Standard Chartered had remitted the withheld taxes.105 It found that the presented
documents106 only showed the total amount of final taxes withheld for all branches of these Agent Banks.107 It did not
show that the amounts remitted by these Agent Banks pertained to the taxes withheld from PAL’s interest income.108

However, it found that PAL was able to prove the remittance of the taxes withheld by JPMorgan because the monthly
remittance returns were identified by PAL's witness and were formally offered in the Court of Tax Appeals Special First
Division without objections to their admissibility.

The Court of Tax Appeals Special First Division stated: To prove that petitioner earned interest income on its bank deposits
and that they were remitted to the BIR, petitioner offered in evidence the following certifications and Certificates of Final
Tax Withheld at Source (BIR Form No. 2306) from various banks.

A careful scrutiny of the evidence presented reveals that only documents pertaining to the amount of taxes withheld and
actually remitted to the BIR by depositary bank JP Morgan Chase, in the amount of P1,237,646.43, represents petitioner's
valid claim . . .

....

This Court cannot give credence to the other certifications and Certificates of Final Tax Withheld at Source issued by the
various depositary banks because proof on the fact of remittance was not aptly complied with; thus, the amount of taxes
to be refunded cannot be ascertained.

The amount of final withholding taxes as reflected on the Summary of Monthly Final Income Taxes Withheld on Philippine
Savings Deposit and Foreign Currency Deposit and the Monthly Remittance Return of Final Income Taxes (BIR Form No.
1602) provided by withholding agents China Banking Corporation, Philippine Bank of Communication, and Standard
Chartered Bank were based on the total amount of final withholding taxes per branch of each depositary banks; while the
total amount appearing on the documents of Monthly Remittance Return of Final Income Taxes (BIR Form No. 1602) was
based on the total amount of final withholding taxes for all branches of the depositary banks.

Therefore, the amount of final income tax withheld from petitioner cannot be ascertained with particularity from the total
amount of final withholding taxes that were remitted to the BIR by China Banking Corporation, Philippine Bank of
Communication[s), and Standard Chartered Bank. These findings were affirmed by the Court of Tax Appeals En Banc.

The Court of Tax Appeals Special First Division and En Banc based their findings after an examination of all pieces of
evidence presented by PAL. Both parties failed to show that the Court of Tax Appeals committed any gross error or
abuse in making this factual determination. There is likewise no showing that the findings are conflicting or based on
speculation, conjecture, or misapprehension or mistake of facts. There is no sign of any grave abuse of discretion. Thus,
this Court finds no reason to disturb the Court of Tax Appeals' factual findings.

3. Nonetheless, this Court rules that PAL is entitled to its claim for refund for taxes withheld by Chinabank, PBCom, and
Standard Chartered. Remittance need not be proven. PAL needs only to prove that taxes were withheld from its
interest income.
3a. First, PAL is uncontestedly exempt from paying the income tax on interest earned.

Under its franchise, Presidential Decree No. 1590, petitioner may either pay a franchise tax or the basic corporate income
tax, and is exempt from paying any other tax, including taxes on interest earned from deposits:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the
provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction
as to transport or nontransport operations; provided, that with respect to international air-transport service, only the
gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed,
or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including
but not limited to the following: . . . .

The grantee, shall, however, pay the tax on its real property in conformity with existing law. (Emphasis supplied)

In Commissioner of Internal Revenue v. Philippine Airlines, Inc., this Court maintained that despite these amendments to
the National Internal Revenue Code, PAL remains exempt from all other taxes, duties, royalties, registrations, licenses,
and other fees and charges, provided it pays the corporate income tax as granted in its franchise agreement. It further
emphasized that no explicit repeals were made on Presidential Decree No. 1590.

Thus, Presidential Decree No. 1590 and PAL's tax exemptions subsist. Necessarily, PAL remains exempt from tax on
interest income earned from bank deposits. Moreover, Presidential Decree No. 1590 provides that any excess payment
over taxes due from PAL's shall either be refunded or credited against its tax liability for the succeeding taxable year.
Thus, PAL is entitled to a tax refund or tax credit if excess payments are made on top of the taxes due from it.
Considering that PAL is not liable to pay the tax on interest income from bank deposits, any payments made for that
purpose are in excess of what is due from it. Thus, if PAL erroneously paid for this tax, it is entitled to a refund.

3b. PAL is likewise entitled to a refund because it is not responsible for the remittance of tax to the Bureau of Internal
Revenue. The taxes on interest income from bank deposits are in the nature of a withholding tax. Thus, the party liable
for remitting the amounts withheld is the withholding agent of the Bureau of Internal Revenue.

Under Revenue Regulations No. 02-98, Section 2.57: Section 2.57. Withholding of Tax at Source: (A) Final Withholding Tax.
— Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a
full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests
primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an
income tax return for the particular income. (Emphasis supplied)

Clearly, the withholding agent is the payor liable for the tax, and any deficiency in its amount shall be collected from
it.129Should the Bureau of Internal Revenue find that the taxes were not properly remitted, its action is against the
withholding agent, and not against the taxpayer.

In Commissioner of Internal Revenue v. Philippine National Bank: Petitioner's posture that respondent is required to
establish actual remittance to the Bureau of Internal Revenue deserves scant consideration. Proof of actual remittance is
not a condition to claim for a refund of unutilized tax credits. Under Sections 57 and 58 of the 1997 National Internal
Revenue Code, as amended, it is the payor-withholding agent, and not the payee-refund claimant such as respondent,
who is vested with the responsibility of withholding and remitting income taxes.
In the case at bar, PAL is the income earner and the payee of the final withholding tax, and the Agent Banks are the
withholding agents who are the payors responsible for the deduction and remittance of the tax. Given the above
provisions, the failure of the Agent Banks to remit the amounts does not affect and should not prejudice PAL. In case of
failure of remittance of taxes, the Bureau of Internal Revenue's cause of action is against the Agent Banks. Thus, PAL is not
obliged to remit, let alone prove the remittance of, the taxes withheld.

3c. To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld. Taxes withheld by the
withholding agent are deemed to be the full and final payment of the income tax due from the income earner or payee.

Certificates of Final Taxes Withheld issued by the Agent Banks are sufficient evidence to establish the withholding of the
taxes.

In Commissioner of internal Revenue v. Philippine National Bank: The certificate of creditable tax withheld at source is the
competent proof to establish the fact that taxes are withheld. It is not necessary for the person who executed and
prepared the certificate of creditable tax withheld at source to be presented and to testify personally to prove the
authenticity of the certificates.

In the case at bar, the Court of Tax Appeals Special First Division noted that PAL offered in evidence the following
Certificates of Final Tax Withheld at Source from the Agent Banks to prove the earned interest income on its bank
deposits and the taxes withheld: (MGA CERTIFICATES with interest income and tax withheld quarterly and total PER BANK,
basta yung summary nalang sa taas HAHAHA)

Considering that these Certificates were presented, the burden of proof shifts to the Commissioner, who needs to
establish that they were incomplete, false, or issued irregularly. However, the Commissioner did no such thing. Thus,
these Certificates are sufficient evidence to establish the withholding of the taxes. The taxes withheld from PAL are
considered its full and final payment of taxes. Necessarily, when taxes were withheld and deducted from its income,
PAL is deemed to have paid them. Considering that PAL is exempted from paying the withholding tax, it is rightfully
entitled to a refund.

3d. This Court notes that the case of Commissioner of Internal Revenue v. Philippine National Bank161 involves a refund
of creditable withholding tax and not of final withholding tax. However, its ruling that proof of remittance is not
necessary to claim a tax refund applies to final withholding taxes. The same principles used to rationalize the ruling apply
to final withholding taxes: (i) the payor-withholding agent is responsible for the withholding and remitting of the income
taxes; (ii) the payee-refund claimant has no control over the remittance of the taxes withheld from its income; (iii) the
Certificates of Final Tax Withheld at Source issued by the withholding agents of the government are prima facie proof of
actual payment by payee-refund claimant to the government itself and are declared under perjury.

3e. Lastly, while tax exemptions are strictly construed against the taxpayer, the government should not misuse
technicalities to keep money it is not entitled to. Considering that PAL presented sufficient proof that: (i) it is exempted
from paying withholding taxes; (ii) amounts were withheld and deducted from its accounts; (iii) and the Commissioner did
not contest the withholding of these amounts and only raises that they were not proven to be remitted, this Court finds
that PAL sufficiently proved that it is entitled to its claim for refund.
RULING
WHEREFORE, premises considered, the Petition of Philippine Airlines, Inc. in G.R. Nos. 206079-80 is GRANTED. The
Petition of the Commissioner of Internal Revenue in G.R. No. 206309 is DENIED. The August 14, 2012 Decision and
February 25, 2013 Resolution of the Court of Tax Appeals En Banc in CTA CASE No. 6877 are PARTIALLY REVERSED.
Philippine Airlines, Inc. is entitled to its claim for refund of P510,223.16 and US$65,877.07, representing the final
income taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered
Bank. SO ORDERED.
(IGNACIO)
 TAXATION LAW 2 CTA CASE SYA CHARAN.
PHILIPPINE AIRLINES VS. CIR CTA Case No. 7152
Date: April 3, 2018
Ponente: Bautista, J.
PHILIPPINE AIRLINES, INC. (PAL), petitioner. COMMISSIONER OF INTERNAL REVENUE and
COMMISSIONER OF CUSTOMS, respondents.

DOCTRINE

The term "locally available supply," taken in its ordinary sense is the supply which is available to Philippine Airlines
within the Philippines, be it imported or domestic production.

Nature of the case: The present case is a consolidation of seven (7) Petitions for Review filed pursuant to Section 3(a)(1)
of Rule 4 of the Revised Rules of the Court of Tax Appeals in relation to the provisions of Republic Act No. 11251 as further
amended by Republic Act No. 92821 which prays for the refund of the aggregate amount of Php953,820,553.84
representing specific taxes paid for petitioner's importation of aviation turbo jet fuel or Jet A-I for its domestic operations
from the period of February 2003 to December 2004.

FACTS

 The type of tax involved in this case is the excise tax of PHP3.67 per liter of volume capacity on aviation turbo
jet fuel imposed by Section 148 of the National Internal Revenue of 1997, as amended.
 On June 11, 1978, former (Dictator) President Ferdinand E. Marcos issued P.D. No. 1590 granting PAL a franchise
to establish, operate, and maintain transport services for the Carriage of passengers, mail, and property by air
in and between any and all points and places throughout the Philippines, and between the Philippines and other
countries. Under its franchise, PAL had the benefit of paying either the basic corporate income tax or a franchise
tax of two percent (2%) of its gross revenues, which shall be in lieu of all other taxes, duties and fees that maybe
imposed by the State.
 On October 1985, Letter of Instruction (LOI) No. 1483 was issued, essentially withdrawing the tax exemption
privilege granted to petitioner on its purchase of DOMESTIC petroleum products for use in its domestic
operations.
 In 1999, CIR issued BIR Ruling No. 013-99 which reiterated the withdrawal of the tax exemption on PAL’s
purchase of domestic petroleum products for use in its domestic operations. The ruling stated that the petroleum
products purchased or imported by PAL from abroad can be used by it in its domestic operations without payment
of tax since that said products were not a domestic purchase. The intention of LOI No. 1483 is to impose a tax on
domestic petroleum products purchased by PAL for use in its domestic operations. This was confirmed by the
Secretary of Finance (so EXEMPTED pa rin yung petroleum products IMPORTED by PAL whether for domestic or
international flights.)
 On December 2002, the Department of Energy (DOE) issued a Certification to the effect that aviation gas, fuel
and oil for use in domestic operation of domestic airline companies are locally available in reasonable quantity,
quality and price.
 In line with the Certification of the DOE, the BIR Commissioner issued BIR Ruling No. 001-2003, (2003 BIR Ruling)
addressed to PAL, which stated that since there is now an absence of the second condition (that there should be
no petroleum products available locally in reasonable quantity, quality, price) required for the airlines to
continue to enjoy tax exemption on their importations petroleum products for domestic operations as stated in
PAL’s charter, PAL’s importations may not be given the same tax treatment as before for as long as there is
such available domestic supply of petroleum products. (THE TAX EXEMPTION ON IMPORTED PETROLEUM
PRODUCTS WAS ALSO WITHDRAWN)
 CIR then assessed PAL for specific taxes on importations of aviation fuel or Jet A-1 for use in its domestic
operations.
 From February 2003 to December 2004, PAL made importations and paid the taxes thereon under protest. It
then filed the Petitions for Review before the CTA THIRD DIVISION seeking to annul the DOE Certification, the
 2003 BIR Ruling, and to claim tax refunds it had paid based on CIR’s assessment for specific taxes on importations
of aviation fuel.
 PAL’s Contentions:
 PAL claims that under PD No. 1590, it is exempt from specific tax on its importations of Jet A-1 fuel for
domestic operations, and that the Letter of Instruction 1483 only withdrew the tax exemption privilege of
petitioner on its purchase of domestic petroleum products for use in its domestic operations. To enjoy such
a privilege, PD No. 1590 requires that not only would such articles or supplies be imported, but that these
must not be locally available in reasonable quantity, quality or price.
 PAL points out that up to the year 2002, there was no locally available supply present, and as a non-oil
producing country, the Philippines imports most, if not all, its crude oil and petroleum products, contrary
to what the DOE Certification has stated.
 PAL alleges that the respondent's theory that "locally available supply" refers to the sum of refinery
production, product importation and inventory is absurd, and that imported supply should not be included,
as this runs contrary to the intent of PD No. 1590. PAL alleged that DOE has consistently understood "local
supply" as synonymous to "local domestic refinery production."
 PAL also stresses that there is not enough local production to satisfy the needs of petitioner's requirements,
let alone the local airline industry.
 CIR and COC’s Contentions: CIR and COC claims that PAL failed to establish its entitlement to its claim for refund,
when it failed to substantiate its claim that there was no locally available supply in reasonable quantity, quality
or price. CIR points out that petitioner conceded that the quality of Jet A-1 fuel is universally similar. Also, taking
into consideration the DOE's interpretation as to quantity, three components are considered: refinery
production, product importation and inventory. Thus, CIR states that "local available supply" is that which is
locally available to the market, including importations. As for the price, CIR states reasonable price is not
necessarily the lowest price, so long as it is reasonable both in the legal and economic sense.
ISSUE/S
I. Whether or not the CTA Third Division has jurisdiction over the present case.
II. Whether or not PAL is entitled to a tax refund.
RATIO

I. The CTA has jurisdiction over PAL’s prayer asking for tax refund. Under Section 9(a) of RA No. 1125, as amended by
R.A. No. 9282, the CTA has jurisdiction over :
1) the Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;
2) inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period for action, in which case the inaction shall be deemed a denial.
However, the prayers to invalidate the DOE Circular and the BIR ruling are beyond this Court's purview. The Court
clearly does not have jurisdiction over such an issuance. The Court of Tax Appeals is a specialized court of limited
jurisdiction, and only those cases as enumerated by law can be taken cognizance of. Respondent COC correctly raises the
issue that if the Court looks into the validity of the DOE Certification, it will be in violation of the principle of separation
of powers, and that it is a generally accepted principle that the factual findings of a co-equal branch of Government must
be respected.
II. NO.
The Court agrees with petitioner that the exemption allowed under PD No. 1590 from specific tax on its importations of
Jet A-1 fuel for domestic operations was not affected by the issuance of LOI No. 1483, as the latter only withdrew the tax
exemption privilege of petitioner on its purchase of domestic petroleum products for use in its domestic operations.
Thus, with that in mind, a thorough analysis of Section 13 of PD No. 1590 is in order.
The provision allows an exemption from all taxes, including compensating taxes, duties, charges, royalties, or fees due
on all importations, but is subject to the following conditions:
1. articles or supplies or materials are imported for the use in its transport and non-transport operations and other
activities incidental thereto; and
2. not locally available in reasonable quantity, quality, or price.
There is no question that in this case, petitioner has fulfilled the first condition set forth in the law. However, it must be
determined is whether the petitioner was able to substantiate or support the existence of the second condition.
In this, the Court finds that petitioner failed to prove that there is no locally available supply in reasonable quantity,
quality, or price. It is a generally accepted principle in tax law that a claimant has the burden of proof to establish the
factual basis of his or her claim for tax credit or refund.
Tax refunds are in the nature of tax exemptions. As such, they are regarded as derogation of sovereign authority and to
be construed strictissimi juris against the person or entity claiming the refund.
The law in itself does not prescribe how a taxpayer may prove that there is not locally available in reasonable quantity,
quality, or price. The respondents want to advance the theory that the DOE Certification and the 2003 BIR Ruling are
conclusive in proving that there was enough locally available supply in reasonable quantity, quality, or price. On the other
hand, petitioner states that these were patently erroneous.
As previously discussed, the Court cannot rule on the validity of the DOE Certification or the 2003 BIR Ruling as both are
beyond its technical competency and jurisdiction under the law. However, there is nothing that stands in the way of the
Court to determine on its own the sufficiency of the evidence presented by petitioner to prove that the second condition
existed at the time of importation, thus exempting it from the specific taxes which it is now claiming for refund.
The crux of this issue is the interpretation of the term "locally available supply." Petitioner puts forward that it is
synonymous to domestic manufacture or produced in the Philippines, while the CIR posits the interpretation that it
means that which is locally available to the market, including importations.
It is the general rule in construing words and phrases used in a statute is that, in the absence of legislative intent to the
contrary, they should be given their plain, ordinary and common usage meaning; the words should be read and
considered in their natural, ordinary, commonly accepted usage, and without resorting to forced or subtle construction.
Words are presumed to have been employed by the lawmaker in their ordinary and common use and acceptation. The
exemption is when it is shown that the word is intended to be given a different or restricted meaning.
To clarify, locally available should be taken in the plain, ordinary and common usage. Petitioner's theory that this should
exclude importations is incorrect. The term "locally available supply," taken in its ordinary sense is the supply which is
available to petitioner within the Philippines, be it imported or domestic production. Petitioner is also incorrect in
saying that this interpretation will contribute to a condition that prevents it from using the same tax exemption. The
Court clarified that petitioner can claim an exemption either through its own importation, or its purchase of Jet A-1 Fuel
from an importer. Either way, petitioner may take advantage of a tax exemption as allowed by its Charter, so long as the
conditions under the law are met.
Unfortunate for petitioner, that in arguing on the definition of "locally available supply," it chose only to substantiate
domestically manufactured supply in terms of quantity and price to prove that there was no locally available supply.
Petitioner chose not to consider the articles or goods which were already imported into the Philippines, which petitioner
could have purchased. Had petitioner included this, the Court would have the ability to determine if the second condition
to the tax exemption was fulfilled.
After a thorough review of the pieces of evidence and arguments presented, the Court finds that petitioner was not able
to prove sufficiently that there was no locally available supply of Jet A-1 Fuel, in reasonable quantity, quality, or price.
Thus, there being no other independent and credible evidence was presented, the claim for refund must fail.
RULING
WHEREFORE, the Petition for Review filed by petitioner Philippine Airlines, Inc., is hereby DENIED.
ACUÑA
 TAXATION LAW 2
CIR v LUDO & LUYM CORPORATION CTA EB NO. 1559 (CTA Case No. 8613)
Date: June 8, 2018
Ponente: Castaneda, Jr., J.
Nature of the case: Petition for Review filed by petitioner Commissioner of Internal Revenue, seeks to reconsider and
modify the Court of Tax Appeals (CTA) 3rd Division's Decision dated August 8, 2016 and Resolution dated November 10,
2016, respectively

FACTS
"On July 1, 2008, the Large Taxpayers District Office – Cebu ('LTDO'), Cebu Office of the BIR issued Letter of Authority No.
00007074 for the examination of petitioner's [now respondent] books of accounts for CY 2007 covering all internal
revenue taxes, which petitioner received on July 16, 2008.

On September 23, 2010, petitioner received a letter from the Large Taxpayer Service ('LTS') dated September 22, 2010,
informing the former of the results of the investigation, and inviting petitioner to an informal conference on September
29, 2010.

On March 16, 2011, the L TS issued a Preliminary Assessment Notice ('PAN') informing petitioner of its assessment for
deficiency income tax, VAT, and expanded withholding tax ('EWT') for CY 2007 in the aggregate amount of
Php194,543,838.71. Under the PAN, petitioner was given a period of fifteen (15) days within which to reply. Petitioner
received the PAN on March 17, 2011.

On April 1l, 2011, the L TS issued a Final Assessment Notice ('FAN') informing petitioner of its assessment for deficiency
income tax, VAT, and EWT for CY 2007 in the aggregate amount of Php195,542,828.83, which petitioner received on even
date. Under the FAN, respondent found the following discrepancies, among others:
Income Tax
 Alleged fictitious expenses arising from alleged bank overdrafts or negative balance in the amount of [Php]
154,964,207.83 which it added to the taxable income of petitioner for CY 2007
 Disallowance of Interest Expense in the amount of [Php ]223, 794,203.46
Value-Added Tax
 Additional Taxable Sales in the amount of [Php] 1 ,540,088l.OO]
 Disallowance on Input - expenses with no corresponding documents ([Php] 18,848,21 0.95)

On December 21, 2011, L TS issued a Final Decision on Disputed Assessment ( 'FDDA') stating that it has reconsidered the
assessment against petitioner. Petitioner received the FDDA on January 3, 2012. The FDDA stated:
 Alleged fictitious expenses arising from alleged bank overdrafts or negative balance in the amount of [Php]
80,425,042.37 which it added to the taxable income of petitioner for CY 2007
 Disallowance of Interest Expense in the amount of [Php ]223, 794,203.46
Value-Added Tax
 Additional Taxable Sales in the amount of [Php] 1 ,540,088l.OO]
 Disallowance on Input - expenses with no corresponding documents ([Php] 18,848,21 0.95)

Within thirty (30) days from receipt of the CIR's Decision, or on February 27, 2013, petitioner filed the instant Petition for
Review.
In the assailed Decision, the Court in Division affirmed petitioner's assessments, as follows: (1) fictitious expenses
arising from bank overdrafts with Eastwest Banking Corporation and International Exchange Bank; (2) disallowed
bad debts; and (3) disallowed miscellaneous expense. However, the Court in Division cancelled the assessments
in relation to: (1) disallowance of interest expense; (2) additional gross income on unrecorded purchases.
Further, it held that petitioner's VAT assessment had already prescribed.
ISSUE/S
I. Whether respondent is liable for deficiency income tax and Value-Added Tax for taxable year 2007 in the
total amount of P57,863,909.86; and
II. Whether the VAT assessment is already barred by prescription.
RATIO
 1. NO
According to the Court in Division, the BSP exercises supervisory and regulatory powers over banks and quasi-banks.
Further, the Court in Division explained that respondent is engaged in the business of processing and selling coconut oil
and other products, which does not fall within the jurisdiction of the BSP. Thus, the Court in Division cancelled the
disallowance of interest expense in the amount ofP223,794,203.46.
Meanwhile, petitioner asserts that the principal basis for the disallowance of interest expense is anchored on Revenue
Regulations No. (RR) 13-2000, and not on BSP Circular No. 202. 22 In this regard, Section 3 of RR 13-2000, implementing
Section 34(B) of the National Internal Revenue Code (NIRC) of 1997, as amended, provides the requirements for
deductibility of interest expense, to wit:
"SECTION 3. Requisites for Deductibility of Interest Expense. - In general, subject to certain limitations, the
following are the requisites for the deductibility of interest expense from gross income, viz:
(a) There must be an indebtedness;
(b) There should be an interest expense paid or incurred upon such indebtedness;
(c) The indebtedness must be that of the taxpayer,
(d) The indebtedness must be connected with the taxpayer's trade, business or exercise of profession;
(e) The interest expense must have been paid or incurred during the taxable year;
(f) The interest must have been stipulated in writing;
(g) The interest must be legally due;
(h) The interest payment arrangement must not be between related taxpayers as mandated in Sec. 34(B)(2)(b ),
in relation to Sec. 36(B), both of the Tax Code of 1997;
(i) The interest must not be incurred to finance petroleum operations; and
(j) In case of interest incurred to acquire property used in trade, business or exercise of profession, the same was
not treated as a capital expenditure."
As examined by the ICPA, respondent's outstanding loans amounted to Pl,992,563,685.51.
Respondent uses the accrual method of accounting. In other words, respondent accrues interest expense as incurred,
although not yet paid.
The Court in Division explained that the accrual of income and expense is permitted when the all-events test, i.e., the
right to income or liability should be fixed and that the amount of such income or liability be determined with reasonable
accuracy, is met. It held that the accrual method relies upon the taxpayer's right to receive amounts or its obligation to
pay them, in opposition to actual receipt or payment, which characterizes the cash method of accounting. Amounts of
income accrue where the right to receive them become fixed or where there is created an enforceable liability. Similarly,
liabilities are accrued when fixed and determinable in amount, without regard to the indeterminacy merely of the time
of payment.
Under the accrual method of accounting, respondent recorded its interest expense in the total amount of P223,
794,203.46 on the date of their occurrence, and not on the date in which they were actually paid for. Thus, petitioner-
appellee complied with the requirement that there should be an interest expense paid or incurred upon its indebtedness.
Petitioner asserts that the loans were already contingent liabilities, and there was no reasonable expectation that the
amount will be paid in due course. 30 He cites Sections 1 and 4 ofBSP Circular No. 202 Series of 1999, to wit:
"SECTION 1. Non-performing loans - Definition. Non-performing loans shall, as a general rule, refer to loan accounts
whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they have become past due
in accordance with existing rules and regulations. This shall apply to loans payable in lump sum and loans payable in
quarterly, semi-annual or annual installments, in which case, the total outstanding balance thereof shall be considered
non-performing. . .
Petitioner contends, by analogy, that since banks are not allowed to recognize interest receivable/income on non-
performing loans, the corresponding interest expense of respondent is not legally due and demandable.
To reiterate, BSP Circular No. 202 Series of 1999 pertains to reporting of interest receivable/income on non-performing
loans which applies to banks only. Respondent's line of business simply does not fall within the jurisdiction of the BSP.
Moreover, respondent failed to comply with the 4th requisite for the deductibility of interest expense. In other words,
respondent failed to prove that the indebtedness is connected with its trade or business.
Even so, respondent will still not be liable for any deficiency income tax for CY 2007, computed as follows:

At any rate, even if the said amount of interest expense is added to respondent's taxable income, petitioner is still not
liable for any deficiency income, as shown above.
2. YES
Finally, petitioner asserts that his right to assess respondent's deficiency VAT has not yet prescribed because respondent
filed false or fraudulent return. Thus, the tax may be assessed within ten (10) years after the discovery of the falsity.
According to petitioner, this is evident from the final decision signed by former Commissioner Kim Jacinto Henares where
she imposed a fifty percent (50%) surcharge against petitioner.
In Commissioner of Internal Revenue v. Asalus Corporation, the Supreme Court explained the doctrine on the
presumption of falsity of returns, as follows:
" Under Section 248(B) of the NIRC, there is a prima facie evidence of a false return if there is a substantial
underdeclaration of taxable sales, receipt or income. The failure to report sales, receipts or income in an amount
exceeding 30% what is declared in the returns constitute substantial underdeclaration. A prima facie evidence is one
which that will establish a fact or sustain a judgment unless contradictory evidence is produced.
In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income,
there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support
the falsity of the return, unless the taxpayer fails to overcome the presumption against it.
In the instant case, there is no showing that respondent has substantially underdeclared its sales, receipt or income.
Meanwhile, the presumption of falsity of returns cannot arise by mere assertion that the former commissioner imposed
surcharge against respondent. Hence, in the absence of proof of substantially underdeclared sales, receipt or income,
the presumption of falsity of returns cannot be applied. Therefore, respondent had only three (3) years to assess
respondent's deficiency VAT under Section 203 of the NIRC of 1997, as amended.
RULING

WHEREFORE, the instant Petition for Review is denied.

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 TAXATION LAW 2
Commissioner of Internal Revenue v. The Hon. Court of GR No. 95022
Appeals, The Court of Tax Appeals, GCL Retirement Plan Date: March 23, 1992
Ponente: Melencio-Herrera, J.
Commissioner of Internal Revenue The Hon. Court of Appeals, Court of Tax Appeals, GCL
Retirement Plan
FACTS
Private respondent, GCL Retirement Plan (GCL, for brevity) is an employees’ trust maintained by the employer, GCL Inc.,
to provide retirement, pension, disability and death benefits to its employees. The Plan as submitted was approved and
qualified as exempt from income tax by petitioner Commissioner of Internal Revenue in accordance with RA 4917.

In 1984, GCL made investments and earned therefrom interest income from which was withheld the fifteen per centum
(15%) final withholding tax imposed by PD No. 1959, which took effect on 15 October 1984.

On January 15, 1985, GCL filed with petitioner a claim for refund for the amounts withheld by Anscor Capital and
Investment Corp., and by Commercial Bank of Manila. In a letter GCL disagreed with the collection of 15% final
withholding tax from the interest income claiming it was exempt under RA 4917 in relation to Sec. 56 (b) of the Tax Code.

The claim for refund having been denied, GCL elevated the matter to the CTA. The latter ruled in favor of GCL. Upon
appeal, the CTA’s decision was affirmed. Hence this petition.

CIR’s argument: Petitioner submits that the deletion of the exempting and preferential tax treatment provisions under
the old law (PD No. 1739) is a clear manifestation that the single 15% (now 20%) rate is imposed on all interest incomes
from deposits, deposit substitutes, trust funds and similar arrangements, regardless of the tax status or character of the
recipients thereof. In short, petitioner's position is that from 15 October 1984 when PD No. 1959 was promulgated,
employees' trusts ceased to be exempt and thereafter became subject to the final withholding tax

GCL’s argument: Private respondent contends that the tax exempt status of the employees' trusts applies to all kinds of
taxes, including the final withholding tax on interest income. That exemption, according to GCL, is derived from Section
56(b) and not from Section 21 (d) or 24 (cc) of the Tax Code, as argued by petitioner.
ISSUE/S
Whether or not the GCL Plan is exempt from the final withholding tax on interest income from money placements and
purchase of treasury bills required by PD No. 1959
RATIO
Yes. Exemption upheld.

The tax-exemption privilege of employees' trusts, as distinguished from any other kind of property held in trust, springs
from the foregoing provision (Sec. 56(b) of the Tax Code, as amended by RA 1983 which took effect June 22, 1957 and
RA 4917 which was approved on June 17, 1967). It is unambiguous. Manifest therefrom is that the tax law has singled
out employees' trusts for tax exemption.

And rightly so, by virtue of the raison de'etre behind the creation of employees' trusts. Employees' trusts or benefit plans
normally provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age
retirement, death, sickness, or disability. It provides security against certain hazards to which members of the Plan may
be exposed. It is an independent and additional source of protection for the working group. What is more, it is established
for their exclusive benefit and for no other purpose.

The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in order to encourage the formation and
establishment of such private Plans for the benefit of laborers and employees outside of the Social Security Act.
Enlightening is a portion of the explanatory note to H.B. No. 6503, now R.A. 1983, reading:

“Considering that under Section 17 of the social Security Act, all contributions collected and payments of sickness,
unemployment, retirement, disability and death benefits made thereunder together with the income of the pension trust
are exempt from any tax, assessment, fee, or charge, it is proposed that a similar system providing for retirement, etc.
benefits for employees outside the Social Security Act be exempted from income taxes. (Congressional Record, House of
Representatives, Vol. IV, Part. 2, No. 57, p. 1859, May 3, 1957; cited in Commissioner of Internal Revenue v. Visayan
Electric Co., et al., G.R. No. L-22611, 27 May 1968, 23 SCRA 715); emphasis supplied.”

It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those
earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive
out of the trust fund. This would run afoul of the very intendment of the law.

The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old
law, therefore, cannot be deemed to extend to employees' trusts. Said Decree, being a general law, cannot repeal by
implication a specific provision, Section 56(b) (now 53 [b]) in relation to Rep. Act No. 4917 granting exemption from
income tax to employees' trusts. Rep. Act 1983, which excepted employees' trusts in its Section 56 (b) was effective on
22 June 1957 while Rep. Act No. 4917 was enacted on 17 June 1967, long before the issuance of Pres. Decree No. 1959
on 15 October 1984. A subsequent statute, general in character as to its terms and application, is not to be construed as
repealing a special or specific enactment, unless the legislative purpose to do so is manifested. This is so even if the
provisions of the latter are sufficiently comprehensive to include what was set forth in the special act.
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