G.R. No. L-46954 July 20, 1982 ELPIDIO YABES and SEVERINO YABES, petitioners, vs. THE HON.

NAPOLEON FLOJO, in his capacity as Presiding Judge of Branch II, Court of First Instance of Cagayan and THE REPUBLIC OF THE PHILIPPINES, respondents. Bito, Misa & Lozada & Associates for petitioners. Solicitor General Estelito P. Mendoza, Asst. Solicitor General Ruben E. Agpolo and Solicitor Deusdedit B. Quinano for respondents.

CONCEPCION JR., J.: The lone issue raised in this petition for certiorari and prohibition, which seeks to annul the Order dated June 22, 1971 issued by the Court of First Instance of Cagayan in Civil Case No. II-7, which denied the motion to dismiss said case dated March 25, 1971, filed by petitioner; 1 the Order dated June 7, 1977 of the respondent District Judge of said Court in the same civil case denying petitioners' motion for reconsideration of the said Order of denial dated June 22, 1971; 2 and the Order dated July 21, 1977, issued by the said respondent Judge of said Court in the same civil case denying petitioners' motion for leave to file a second motion for reconsideration of the aforesaid order of 3 denials; is whether or not respondent Court of First Instance can lawfully acquire jurisdiction over a contested assessment made by the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes, which has not yet become final, executory and incontestable, and which assessment is being contested by petitioners in the Court of Tax Appeals, Case No. 2216, and still pending consideration. After this Court required respondents to comment on the petition and issued a temporary restraining order in the Resolution dated September 28, 1977, 4 the Solicitor General, in his Comment dated November 21, 1977, submitted that the petition be given due course, and thereafter judgment be rendered setting aside the questioned orders issued by the respondent Court of First Instance of Cagayan in Civil Case No. II-7, directing said lower Court to hold in abeyance any action or proceeding in Civil Case No. II-7, until after the Court of Tax Appeals shall have finally 5 decided CTA Case No. 2216. The Solicitor General also filed a Manifestation dated November 22, 1977, stating that "in their Comment dated November 21, 1977, they have limited their appearance as counsel only for the Republic of the Philippines and not for the respondent Judge on the ground that they do not agree with the latter's orders which 6 are being questioned in the instant petition." Undisputed facts of record are as follows: (1) Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an exclusive dealer of products of the International Harvester Macleod, Inc., received on or about May 1, 1962, a letter from the Commissioner of Internal Revenue dated March 27, 1962, demanding payment of the amount of P15,976.81, as commercial broker's fixed and percentage taxes plus surcharges and the 7 sum of P2,530 as compromise penalty alledgely due from Yabes for the years 1956-1960; (2) On May 11, 1962, Doroteo Yabes, through his counsel, filed with the Commissioner's Office his letter dated May 10, 1962, protesting the assessment of commercial broker's fixed and percentage taxes plus penalties against him on the ground that his agreements with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was not able to 8 pay such kind of taxes; (3) Thereafter, there ensued an exchange of correspondence between the lawyers of Doroteo Yabes and the Commissioner; the Commissioner in a letter dated August 3, 1962, informed Doroteo Yabes that he acted as a commercial broker "in accordance with the ruling of this Office in 9 the case of Cirilo D. Constantino;" in turn, Doroteo Yabes, in a letter dated August 22, 1962, requested for the reinvestigation, or review of the case by the appellate division of the Bureau of Internal Revenue in accordance with standing rules, regulations or practice on the matter; 10 Yabes also wrote the Commissioner on August 24, 1962, requesting that the appeal be held in abeyance

pending final decision of the Case of Cirilo D. Constantino; in reply, the Commissioner informed Doroteo Yabes in a letter dated September 18, 1962, that the latter's request for reinvestigation was denied on the ground that he has "not submitted any evidence to offset the findings of this Office as to warrant a reinvestigation thereof"; 12 but eight days later or on September 26, 1962, the Commissioner wrote a letter advising Doroteo Yabes that "the administrative appeal ... will be held in abeyance pending the resolution of the issues in a similar case (obviously referring to the aforesaid Constantino case)"; (4) To give time for the Commissioner to study the case and several other cases similar thereto, the lawyers of Doroteo Yabes agreed to file, and their client, Doroteo Yabes did file a tax waiver on 13 October 20, 1962, extending the period of prescription to December 31, 1967; (5) Doroteo Yabes died on March 13, 1963 and no estate proceedings were instituted for the settlement of his estate; his widow also died during the pendency of the case; the petitioners are the children of the deceased taxpayer; 14 (6) On March 14, 1966, the Court of Tax Appeals decided the Constantino "test" case. The Court of Tax Appeals ruled that agreements entered into by Constantino with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence no commercial broker's fixed and percentage fees could be collected from the said taxpayer; however this Court on February 27, 1970, in G.R. No. L-25926 reversed the Court of Tax Appeals and ruled in favor of the 15 Commissioner of Internal Revenue; (7) After a lapse of about five years, the heirs of the deceased Doroteo Yabes, through their lawyers, received on August 4, 1967, a letter from the Commissioner dated July 27, 1967, requesting that they "waive anew the Statute of Limitations" and further confirming the previous understanding that the final resolution of the protest of the deceased Doroteo Yabes was "being held in abeyance until the Supreme Court renders its decision on a similar case involving the same 16 factual and legal issues brought to it on appeal" (referring to the Constantino "test" case); conformably with the request of the Commissioner, the heirs of Doroteo Yabes filed a revised waiver further extending the period of prescription to December 31, 1970; 17 (8) Thereafter, no word was received by the petitioners or their lawyers during the interim of more than three (3) years, but on January 20, 1971, petitioners as heirs of the deceased Doroteo Yabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First Instance of Cagayan which seeks to collect from the petitioners the sum of P 15,976.82, as deficiency commercial broker's fixed and percentage taxes, including surcharges and interest thereon, due from their predecessor-in-interest, Doroteo Yabes, by reason of the latter's income derived from transactions as dealer of the products of the International Harvester Macleod, Inc.; (9) Taking the complaint as the final decision of the Commissioner on the disputed assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for 18 review of said disputed assessment with the Court of Tax Appeals; later on the same day, February 12, 1971, petitioners filed their answer to the complaint of the Commissioner before the Court of First Instance of Cagayan; 19 and alleged therein, by way of special defense, that the Court of Tax Appeals has exclusive jurisdiction of the action and that there is another action of the same nature between the parties relating to the same assessment pending before the Court of Tax Appeals; (10) On the other hand, the Commissioner filed a motion to dismiss dated March 24, 1971, with the Court of Tax Appeals in CTA Case No. 2216, and subsequently filed a memorandum in support of said motion to dismiss, on the ground that the assessment against Doroteo Yabes had already become final, executory and incontestable, and the Court of Tax Appeals had no jurisdiction over the case; (11) On March 25, 1971, petitioners filed a formal motion to dismiss Civil Case No. II-7 with the Court of First Instance of Cagayan on the grounds that said Court has no jurisdiction over the case

11

and that there is another action pending between the same parties for the same cause before a 20 competent court; (12) On June 22, 1971, the respondent Court of First Instance of Cagayan, through its former presiding judge issued the questioned order in Civil Case No. II-7, which is the main subject of the instant petition, denying the petitioners' motion to dismiss on the ground that the petitioners "have already made a previous answer wherein they categorically admitted the jurisdiction of the court over the subject matter and the Court believes that, granting for the sake of argument, there is a pending action between the same parties for the same cause yet the judgment which may be 21 rendered in the first cited case does not necessarily bar the present action"; (13) On September 1, 1972, the respondent Court of First Instance of Cagayan issued an order 22 holding the trial of Civil Case No. I I-7, in abeyance upon the joint motion of the parties; (14) On September 29, 1974, the Court of Tax Appeals denied the Commissioner's motion to dismiss CTA Case No. 2216. 23 Accordingly, on October 30, 1975, the Commissioner filed his 24 Answer to the petition for review. (15) On December 17, 1976, however, the Court of First Instance of Cagayan, this time presided by the respondent Judge Napoleon Flojo, upon motion of counsel for the plaintiff therein, set Civil 25 Case No. II-7 for trial on January 27 and 28, 1977. (16) On February 9, 1977, the respondent Judge Flojo denied the petitioners' motion to suspend 26 further proceedings and set the trial of the case for March 5, 1977. (17) On May 3, 1977, the herein petitioners filed a motion for the reconsideration of the order issued on June 22, 1971 and for a ruling on their affirmative defense that the Court of First Instance 27 of Cagayan has no jurisdiction over the case. (18) On June 7, 1977, the respondent Judge denied the aforementioned motion for reconsideration 28 for lack of merit, and set the trial of the case for June 23, 1977. (19) On July 8, 1977, the petitioners filed a motion seeking leave to file a second motion for 29 reconsideration of the order issued on June 7, 1977, attaching thereto a copy of their motion for 30 reconsideration. The motions were denied on July 21, 1977, and trial was set for August 18, and 31 32 19, 1977 which was postponed to September 23, 1977. Hence, the present recourse. As prayed for, a temporary restraining order was issued on September 28, 1977. 33 As to the issue of whether or not the assessment made by the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes, as contained in the letter dated March 27, 1962, has become final, executory and incontestable, after Doroteo Yabes had received the Commissioner's letter dated August 3, 1962, denying the latter's protest against the said assessment on September 18, 1962 and his failure to appeal therefrom within the 30-day period contemplated under Section 11, of Republic Act 1125, We are constrained to agree with the Court of Tax Appeals, when it denied the Commissioner's motion to dismiss CTA Case No. 2216, that: the period for appeal to this Court should not be counted from September 18, 1962. In a letter of July 27, 1967, respondent informed petitioners that a resolution of their protest was being held in abeyance until the Supreme Court renders a decision on a similar case "involving the same factual and legal issues". As a matter of fact, in an earlier letter dated September 26, 1962, respondent also informed petitioners' counsel that "administrative appeal for and in behalf of their clients win be held in abeyance pending resolution of the issues on a similar case which was appealed by you to the Court of Tax Appeals". It is thus clear in these letters that respondent reconsidered the finality 34 of his decision of August 3, 1962, assuming arguendo that the letter had a tenor of finality. The Court of Tax Appeals in CTA Case No. 2216, stated further:

The records show that a warrant of distraint and levy was issued on October 2, 1970. Had this been served on Doroteo Yabes, it would have been equivalent to a final decision, ... There is, however, nothing to show that it was ever served on Yabes. Neither is there anything in the record to show that a formal decision of denial was made after respondent's letter of July 27, 1967. 35 There is no reason for Us to disagree from or reverse the Court of Tax Appeals' conclusion that under the circumstances of this case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the respondent Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals in CTA Case 36 No. 2216 was filed on time. The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases 37 involving disputed assessments and other matters arising under the National Internal Revenue Code. For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed in Civil Case No. II-7. The recommendation of the Solicitor General that the lower court hold in abeyance any action or proceeding in Civil Case No. II-7 until after the Court of Tax Appeals shall have finally decided CTA Case No. 2216, is untenable since the lower court has no jurisdiction over the case. Jurisdiction over an action includes jurisdiction over all interlocutory matters incidental to the case and deemed necessary to preserve the subject matter of the suit or protect interests of the parties. Absent jurisdiction over the case, it would be improper for the Court of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case, as well. The dismissal of the complaint, however, is not sufficient. The ends of justice would best be served by considering the complaint filed in Civil Case No. II-7 not only as a final notice of assessment but also as a counterclaim in CTA Case No. 2216, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability of the heirs of the deceased Doroteo Yabes for commercial broker's fixed and percentage taxes due from the said deceased. WHEREFORE, the petition is granted and the writs prayed for are hereby issued. The questioned orders dated June 22, 1971, June 7, 1977 and July 21, 1977 are hereby annulled and set aside and the complaint filed in Civil Case No. II-7 of the Court of First Instance of Cagayan, entitled: "Republic of the Philippines, plaintiff, versus Nicolasa Jurado Yabes, et al., defendants," should be, as it is hereby, dismissed, the same to be transferred to the Court of Tax Appeals to be considered therein as a counterclaim in CTA Case No. 2216. The temporary restraining order heretofore issued is hereby made permanent. Without costs. SO ORDERED.

G.R. No. L-66160 May 21, 1990 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents. PARAS, J.: This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in CTA Case No. 2989 reversing the Commissioner of Internal Revenue. In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), received by petitioner on January 13, 1975, private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was served on private respondent's counsel, Clemente Celso, on November 25, 1976. In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit "D-1") private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in the said collection case was issued to private respondent on December 28, 1978. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979 (Rollo, pp. 50-53). Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from, assessing against and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972, respectively, is reversed. Hence, the instant petition. The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January 28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on the other hand, filed their brief on June 6, 1985 (Rollo, p. 156). The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals has jurisdiction over this case and (b) on the merits, whether or not Union Shipping Corporation acting as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of the latter. The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the

warrant of distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12). Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation sought redress from the Tax Court, petitioner's decision has long become final and executory. On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. Specifically, this Court ruled: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]). There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative action. Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by satisfactory uncontradicted testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C. Cabalquinto, President and General Manager, of petitioner that it is actually and legally the husbanding agent of the vessel of Yee Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or constructive, over the funds representing payment by Philippine shippers for cargo loaded on said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong Hong, Ltd. any sum of money representing freight incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight payments made for cargo loaded in the Philippines for foreign destination were actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports. (Rollo, pp. 58-59). On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's counsel, opined that respondent corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66). Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67). Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court (Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company, 135 SCRA 8 [1985]). A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax Appeals. PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED.

G.R. No. L-9692

January 6, 1958

COLLECTOR OF INTERNAL REVENUE, petitioner, vs. BATANGAS TRANSPORTATION COMPANY and LAGUNA-TAYABAS BUS COMPANY, respondents. Office of the Solicitor General Ambrosio Padilla, Solicitor Conrado T. Limcaoco and Zoilo R. Zandoval for petitioner. Ozaeta, Lichauco and Picazo for respondents. MONTEMAYOR, J.: This is an appeal from the decision of the Court of Tax Appeals (C.T.A.), which reversed the assessment and decision of petitioner Collector of Internal Revenue, later referred to as Collector, assessing and demanding from the respondents Batangas Transportation Company, later referred to as Batangas Transportation, and Laguna-Tayabas Bus Company, later referred to as Laguna Bus, the amount of P54,143.54, supposed to represent the deficiency income tax and compromise for the years 1946 to 1949, inclusive, which amount, pending appeal in the C.T.A., but before the Collector filed his answer in said court, was increased to P148,890.14. The following facts are undisputed: Respondent companies are two distinct and separate corporations engaged in the business of land transportation by means of motor buses, and operating distinct and separate lines. Batangas Transportation was organized in 1918, while Laguna Bus was organized in 1928. Each company now has a fully paid up capital of Pl,000,000. Before the last war, each company maintained separate head offices, that of Batangas Transportation in Batangas, Batangas, while the Laguna Bus had its head office in San Pablo Laguna. Each company also kept and maintained separate books, fleets of buses, management, personnel, maintenance and repair shops, and other facilities. Joseph Benedict managed the Batangas Transportation, while Martin Olson was the manager of the Laguna Bus. To show the connection and close relation between the two companies, it should be stated that Max Blouse was the President of both corporations and owned about 30 per cent of the stock in each company. During the war, the American officials of these two corporations were interned in Santo Tomas, and said companies ceased operations. They also lost their respective properties and equipment. After Liberation, sometime in April, 1945, the two companies were able to acquire 56 auto buses from the United States Army, and the two companies diveded said equipment equally between themselves,registering the same separately in their respective names. In March, 1947, after the resignation of Martin Olson as Manager of the Laguna Bus, Joseph Benedict, who was then managing the Batangas Transportation, was appointed Manager of both companies by their respective Board of Directors. The head office of the Laguna Bus in San Pablo City was made the main office of both corporations. The placing of the two companies under one sole mangement was made by Max Blouse, President of both companies, by virtue of the authority granted him by resolution of the Board of Directors of the Laguna Bus on August 10, 1945, and ratified by the Boards of the two companies in their respective resolutions of October 27, 1947. According to the testimony of joint Manager Joseph Benedict, the purpose of the joint management, which was called, "Joint Emergency Operation", was to economize in overhead expenses; that by means of said joint operation, both companies had been able to save the salaries of one manager, one assistant manager, fifteen inspectors, special agents, and one set of office of clerical force, the savings in one year amounting to about P200,000 or about P100,000 for each company. At the end of each calendar year, all gross receipts and expenses of both companies were determined and the net profits were divided fifty-fifty, and transferred to the book of accounts of each company, and each company "then prepared its own income tax return from this fifty per centum of the gross receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency Operation' and paid the corresponding income taxes thereon separately". Under the theory that the two companies had pooled their resources in the establishment of the Joint Emergency Operation, thereby forming a joint venture, the Collector wrote the bus companies that there was due from them the amount of P422,210.89 as deficiency income tax and compromise for the years 1946 to 1949, inclusive. Since the Collector caused to be restrained, seized, and advertized for sale all the rolling stock of the two corporations, respondent companies had to file a surety bond in the same amount of P422,210.89 to guarantee the payment of the income tax assessed by him. After some exchange of communications between the parties, the Collector, on January 8, 1955, informed the respondents "that after crediting the overpayment made by them of their alleged income tax liabilities for the aforesaid years, pursuant to the doctrine of equitable recoupment, the income tax due from the `Joint Emergency Operation' for the years 1946 to 1949, inclusive, is in the total amount of P54,143.54." The respondent companies appealed from

said assessment of P54,143.54 to the Court of Tax Appeals, but before filing his answer, the Collector set aside his original assessment of P54,143.54 and reassessed the alleged income tax liability of respondents of P148,890.14, claiming that he had later discovered that said companies had been "erroneously credited in the last assessment with 100 per cent of their income taxes paid when they should in fact have been credited with only 75 per cent thereof, since under Section 24 of the Tax Code dividends received by them from the Joint Operation as a domestic corporation are returnable to the extent of 25 per cent". That corrected and increased reassessment was embodied in the answer filed by the Collector with the Court of Tax Appeals. The theory of the Collector is the Joint Emergency Operation was a corporation distinct from the two respondent companies, as defined in section 84 (b), and so liable to income tax under section 24, both of the National Internal Revenue Code. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency Operation or joint management of the two companies "is not a corporation within the contemplation of section 84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and therefore was not subject to the income tax under the provisions of section 24 of the same Code, separately and independently of respondent companies; so, it reversed the decision of the Collector assessing and demanding from the two companies the payment of the amount of P54,143.54 and/or the amount of P148,890.14. The Tax Court did not pass upon the question of whether or not in the appeal taken to it by respondent companies, the Collector could change his original assessment by increasing the same from P54,143.14 to P148,890.14, to correct an error committed by him in having credited the Joint Emergency Operation, totally or 100 per cent of the income taxes paid by the respondent companies for the years 1946 to 1949, inclusive, by reason of the principle of equitable recoupment, instead of only 75 per cent. The two main and most important questions involved in the present appeal are: (1) whether the two transportation companies herein involved are liable to the payment of income tax as a corporation on the theory that the Joint Emergency Operation organized and operated by them is a corporation within the meaning of Section 84 of the Revised Internal Revenue Code, and (2) whether the Collector of Internal Revenue, after the appeal from his decision has been perfected, and after the Court of Tax Appeals has acquired jurisdiction over the same, but before said Collector has filed his answer with that court, may still modify his assessment subject of the appeal by increasing the same, on the ground that he had committed error in good faith in making said appealed assessment. The first question has already been passed upon and determined by this Tribunal in the case of Eufemia Evangelista et al., vs. Collector of Internal Revenue et al.,* G.R. No. L-9996, promulgated on October 15, 1957. Considering the views and rulings embodied in our decision in that case penned by Mr. Justice Roberto Concepcion, we deem it unnecessary to extensively discuss the point. Briefly, the facts in that case are as follows: The three Evangelista sisters borrowed from their father about P59,000 and adding thereto their own personal funds, bought real properties, such as a lot with improvements for the sum of P100,000 in 1943, parcels of land with a total area of almost P4,000 square meters with improvements thereon for P18,000 in 1944, another lot for P108,000 in the same year, and still another lot for P237,000 in the same year. The relatively large amounts invested may be explained by the fact that purchases were made during the Japanese occupation, apparently in Japanese military notes. In 1945, the sisters appointed their brother to manage their properties, with full power to lease, to collect and receive rents, on default of such payment, to bring suits against the defaulting tenants, to sign all letters and contracts, etc. The properties therein involved were rented to various tenants, and the sisters, through their brother as manager, realized a net rental income of P5,948 in 1945, P7,498 in 1946, and P12,615 in 1948. In 1954, the Collector of Internal Revenue demanded of them among other things, payment of income tax on corporations from the year 1945 to 1949, in the total amount of P6,157, including surcharge and compromise. Dissatisfied with the said assessment, the three sisters appealed to the Court of Tax Appeals, which court decided in favor of the Collector of Internal Revenue. On appeal to us, we affirmed the decision of the Tax Court. We found and held that considering all the facts and circumstances sorrounding the case, the three sisters had the purpose to engage in real estate transactions for monetary gain and then divide the same among themselves; that they contributed to a common fund which they invested in a series of transactions; that the properties bought with this common fund had been under the management of one person with full power to lease, to collect rents, issue receipts, bring suits, sign letters and contracts, etc., in such a manner that the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit; and that the said sisters had the intention to constitute a partnership within the meaning of the tax law. Said sisters in their appeal insisted that they were mere co-owners, not co-partners, for the reason that their acts did not create a personality independent of them, and that some of the characteristics of partnerships were absent, but we held that when the Tax Code includes "partnerships" among the entities subject to the tax on corporations, it must refer to organizations which are not necessarily partnerships in the technical sense of the term, and that furthermore, said law defined the term "corporation" as including partnerships no matter how created or organized, thereby indicating that "a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on

partnerships, in order that one could be deemed constituted for purposes of the tax on corporations"; that besides, said section 84 (b) provides that the term "corporation" includes "joint accounts" (cuentas en participacion) and "associations", none of which has a legal personality independent of that of its members. The decision cites 7A Merten's Law of Federal Income Taxation. In the present case, the two companies contributed money to a common fund to pay the sole general manager, the accounts and office personnel attached to the office of said manager, as well as for the maintenance and operation of a common maintenance and repair shop. Said common fund was also used to buy spare parts, and equipment for both companies, including tires. Said common fund was also used to pay all the salaries of the personnel of both companies, such as drivers, conductors, helpers and mechanics, and at the end of each year, the gross income or receipts of both companies were merged, and after deducting therefrom the gross expenses of the two companies, also merged, the net income was determined and divided equally between them, wholly and utterly disregarding the expenses incurred in the maintenance and operation of each company and of the individual income of said companies. From the standpoint of the income tax law, this procedure and practice of determining the net income of each company was arbitrary and unwarranted, disregarding as it did the real facts in the case. There can be no question that the receipts and gross expenses of two, distinct and separate companies operating different lines and in some cases, different territories, and different equipment and personnel at least in value and in the amount of salaries, can at the end of each year be equal or even approach equality. Those familiar with the operation of the business of land transportation can readily see that there are many factors that enter into said operation. Much depends upon the number of lines operated and the length of each line, including the number of trips made each day. Some lines are profitable, others break above even, while still others are operated at a loss, at least for a time, depending, of course, upon the volume of traffic, both passenger and freight. In some lines, the operator may enjoy a more or less exclusive exclusive operation, while in others, the competition is intense, sometimes even what they call "cutthroat competition". Sometimes, the operator is involved in litigation, not only as the result of money claims based on physical injuries ar deaths occassioned by accidents or collisions, but litigations before the Public Service Commission, initiated by the operator itself to acquire new lines or additional service and equipment on the lines already existing, or litigations forced upon said operator by its competitors. Said litigation causes expense to the operator. At other times, operator is denounced by competitors before the Public Service Commission for violation of its franchise or franchises, for making unauthorized trips, for temporary abandonement of said lines or of scheduled trips, etc. In view of this, and considering that the Batangas Transportation and the Laguna Bus operated different lines, sometimes in different provinces or territories, under different franchises, with different equipment and personnel, it cannot possibly be true and correct to say that the end of each year, the gross receipts and income in the gross expenses of two companies are exactly the same for purposes of the payment of income tax. What was actually done in this case was that, although no legal personality may have been created by the Joint Emergency Operation, nevertheless, said Joint Emergency Operation joint venture, or joint management operated the business affairs of the two companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. For the foregoing reasons, and in the light of our ruling in the Evangelista vs. Collector of Internal Revenue case, supra, we believe and hold that the Joint Emergency Operation or sole management or joint venture in this case falls under the provisions of section 84 (b) of the Internal Revenue Code, and consequently, it is liable to income tax provided for in section 24 of the same code. The second important question to determine is whether or not the Collector of Internal Revenue, after appeal from his decision to the Court of Tax Appeals has been perfected, and after the Tax Court Appeals has acquired jurisdiction over the appeal, but before the Collector has filed his answer with the court, may still modify his assessment, subject of the appeal, by increasing the same. This legal point, interesting and vital to the interests of both the Government and the taxpayer, provoked considerable discussion among the members of this Tribunal, a minority of which the writer of this opinion forms part, maintaining that for the information and guidance of the taxpayer, there should be a definite and final assessment on which he can base his decision whether or not to appeal; that when the assessment is appealed by the taxpayer to the Court of Tax Appeals, the collector loses control and jurisdiction over the same, the jurisdiction being transferred automatically to the Tax Court, which has exclusive appellate jurisdiction over the same; that the jurisdiction of the Tax Court is not revisory but only appellate, and therefore, it can act only upon the amount of assessment subject of the appeal to determine whether it is valid and correct from the standpoint of the taxpayer-appellant; that the Tax Court may only correct errors committed by the Collector against the taxpayer, but not those committed in his favor, unless the Government itself is also an appellant; and that unless this be the rule, the Collector of Internal Revenue and his agents may not exercise due care, prudence and pay too much attention in making tax assessments, knowing that they can at any time correct any error committed by them even when due to negligence, carelessness or gross mistake in the interpretation or application of the tax law, by increasing the

assessment, naturally to the prejudice of the taxpayer who would not know when his tax liability has been completely and definitely met and complied with, this knowledge being necessary for the wise and proper conduct and operation of his business; and that lastly, while in the United States of America, on appeal from the decision of the Commissioner of Internal Revenue to the Board or Court of Tax Appeals, the Commissioner may still amend or modify his assessment, even increasing the same the law in that jurisdiction expressly authorizes the Board or Court of Tax Appeals to redetermine and revise the assessment appealed to it. The majority, however, holds, not without valid arguments and reasons, that the Government is not bound by the errors committed by its agents and tax collectors in making tax assessments, specially when due to a misinterpretation or application of the tax laws, more so when done in good faith; that the tax laws provide for a prescriptive period within which the tax collectors may make assessments and reassessments in order to collect all the taxes due to the Government, and that if the Collector of Internal Revenue is not allowed to amend his assessment before the Court of Tax Appeals, and since he may make a subsequent reassessment to collect additional sums within the same subject of his original assessment, provided it is done within the prescriptive period, that would lead to multiplicity of suits which the law does not encourage; that since the Collector of Internal Revenue, in modifying his assessment, may not only increase the same, but may also reduce it, if he finds that he has committed an error against the taxpayer, and may even make refunds of amounts erroneously and illegally collected, the taxpayer is not prejudiced; that the hearing before the Court of Tax Appeals partakes of a trial de novo and the Tax Court is authorized to receive evidence, summon witnesses, and give both parties, the Government and the taxpayer, opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected, may be determined and decided, whether resulting in the increase or reduction of the assessment appealed to it. The result is that the ruling and doctrine now being laid by this Court is, that pending appeal before the Court of Tax Appeals, the Collector of Internal Revenue may still amend his appealed assessment, as he has done in the present case. There is a third question raised in the appeal before the Tax Court and before this Tribunal, namely, the liability of the two respondent transportation companies for 25 per cent surcharge due to their failure to file an income tax return for the Joint Emergency Operation, which we hold to be a corporation within the meaning of the Tax Code. We understand that said 25 per cent surcharge is included in the assessment of P148,890.14. The surcharge is being imposed by the Collector under the provisions of Section 72 of the Tax Code, which read as follows: The Collector of Internal Revenue shall assess all income taxes. In case of willful neglect to file the return or list within the time prescribed by law, or in case a false or fraudulent return or list is willfully made the collector of internal revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make and file a return list within the time prescribed by law or by the Collector or other internal revenue officer, not due to willful neglect, the Collector, shall add to the tax twenty-five per centum of its amount, except that, when the return is voluntarily and without notice from the Collector or other officer filed after such time, it is shown that the failure was due to a reasonable cause, no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. We are satisfied that the failure to file an income tax return for the Joint Emergency Operation was due to a reasonable cause, the honest belief of respondent companies that there was no such corporation within the meaning of the Tax Code, and that their separate income tax return was sufficient compliance with the law. That this belief was not entirely without foundation and that it was entertained in good faith, is shown by the fact that the Court of Tax Appeals itself subscribed to the idea that the Joint Emergency Operation was not a corporation, and so sustained the contention of respondents. Furthermore, there are authorities to the effect that belief in good faith, on advice of reputable tax accountants and attorneys, that a corporation was not a personal holding company taxable as such constitutes "reasonable cause" for failure to file holding company surtax returns, and that in such a case, the imposition of penalties for failure to file holding company surtax returns, and that in such a case, the imposition of 1 penalties for failure to file return is not warranted In view of the foregoing, and with the reversal of the appealed decision of the Court of Tax Appeals, judgment is hereby rendered, holding that the Joint Emergency Operation involved in the present is a corporation within the meaning of section 84 (b) of the Internal Revenue Code, and so is liable to incom tax under section 24 of the code; that pending appeal in the Court of Tax Appeals of an assessment made by the Collector of Internal Revenue, the Collector, pending hearing before said court, may amend his appealed assessment and include the amendment in his

answer before the court, and the latter may on the basis of the evidence presented before it, redetermine the assessment; that where the failure to file an income tax return for and in behalf of an entity which is later found to be a corporation within the meaning of section 84 (b) of the Tax Code was due to a reasonable cause, such as an honest belief based on the advice of its attorneys and accountants, a penalty in the form of a surcharge should not be imposed and collected. The respondents are therefore ordered to pay the amount of the reassessment made by the Collector of Internal Revenue before the Tax Court, minus the amount of 25 per cent surcharge. No costs.

G.R. No. L-19074

January 31, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ANTONIO G. GUERRERO, and the COURT OF TAX APPEALS, respondents. ----------------------------G.R. No. L-19089 January 31, 1967

ANTONIO G. GUERRERO, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. L-19074. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General F. R. Rosete and Atty. A. B. Afurong for petitioner. Venancio B. Fernando for respondents. L-19089 Venancio B. Fernando for petitioner. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General F. R. Rosete and Atty. A. B. Afurong for respondent. CONCEPCION, C.J.: These are two (2) appeals from the same decision of the Court of Tax Appeals. One (L-19074) was taken by the Commissioner of Internal Revenue, and the other (L-19089) by Antonio G. Guerrero. The dispositive part of said decision reads: In line with the foregoing opinion, the decision appealed from is hereby modified. Petitioner (Antonio G. Guerrero) is ordered to pay the sum of P3,775.66 within thirty days from the date this decision becomes final. No pronouncement as to costs. (Emphasis ours.) Said Antonio G. Guerrero was, during the years 1949 and 1950, a dealer in logs, which he used to sell to the Aparri Lumber Company, hereinafter referred to as the company. On April 2, 1954, the then Collector of Internal Revenue made an assessment and demand requiring Guerrero to pay the sum of P4,014.91, representing fixed and percentage taxes and forest charges, as well as surcharges and penalties, in connection with his aforementioned business transactions with the company. Upon Guerrero's request, the matter was submitted to the Conference Staff of the Bureau of Internal Revenue, which, in due course, thereafter, or on January 11, 1956, recommended that the assessment be increased to P5,139.17, computed as follows: C-14 producer's fixed tax for 1949 and 1950 . . . . . . . . . . . . . . . . . . . 5% sales tax on P18,760.20 (P14,377.92 & P4,382.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total for fixed and sales taxes and surcharges . . . . . . . . Vol. of timber, July 4, 1949 to May 21, 1950 (41,880 & 13,892) . . . Add: 40% for squaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,772 Bd. ft 22,309 " " P 20.00 938.01 234.50 P1,192.51

Total volume to be assessed . . . . . . . . . . . . . . . . . . . . . . .

78,081

" "

or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184.15 cu. m. Regular forest charges on 184.15 cu. m. at P3.50 . . . . . . . . . . . . . 300% surcharge for cutting without license . . . . . . . . . . . . . . . . . . . 50% (x) surcharge for transporting without invoice . . . . . . . . . . . . . 50% surcharge for discharging without permit . . . . . . . . . . . . . . . . . 50% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . Regular forest charges on 13.94 cu. m. at P3.50 . . . . . . . . . . . . . . . 300% surcharge for cutting without license . . . . . . . . . . . . . . . . . . . . 25% surcharge for transporting without invoice . . . . . . . . . . . . . . . . 25% surcharge for discharging without permit . . . . . . . . . . . . . . . . . 25% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . . TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.79 146.37 12.20 12.20 12.20 P231.76 P4,969.17 P 644.53 1,933.59 322.26 322.26 322.26 P3,544.90

In addition to the above amount, the sums of P20.00 and P100.00 as compromise penalties in extrajudicial settlement of his penal liabilities under sections 208 and 209 of the N.I.R.C. should be reiterated. That another sum of P50.00 as compromise penalty for his violation of the Bookkeeping Regulations should be imposed against the taxpayer, he having admitted during the hearing of this case that he did not keep books of accounts for his timber business. This recommendation was approved by the Collector of Internal Revenue, who, accordingly, made the corresponding reassessment upon receipt of notice of which Guerrero requested, on February 10, 1956, a rehearing before the Conference Staff. Instead of acting on this request, on April 20, 1956, the corresponding Internal Revenue Regional Director issued a warrant of distraint and levy against the properties of Guerrero, in order to effect the collection of his tax liabilities under said reassessment. Hence, on June 8, 1956, Guerrero filed with the Court of Tax Appeals the corresponding petition for review. Subsequently, said court rendered the decision appealed from. Hence, these appeals. There is no dispute as to the volume of sales of logs made by Guerrero during the years 1949 and 1950, upon which the disputed reassessment is based. The only issues in these appeals are whether or not he is liable for the payment of: (1) P3,775.66, by way of forest charges and surcharges on the logs sold to the company, which the Court of Tax Appeals answered in the affirmative; (2) P1,192.51, by way of fixed and percentage taxes and surcharges as producer of said logs, which said court decided in the negative; (3) P668.36, as additional forest charges and sales taxes, as well as surcharges, which was decided by the trial court in favor of the taxpayer; and (4) P120.00 and P50.00 as compromise penalties for violation of Sections 208 and 209 of the Revised Internal Revenue Code and of the bookkeeping regulations, respectively, likewise, decided by the Court of Tax Appeals against the Government. With respect to the first item, Guerrero maintains that, he is not liable therefor because he bought the logs in question for the company, as agent thereof and with money belonging thereto. However, before the Conference Staff of the then Bureau of Internal Revenue, Guerero had: claimed that he financed his business with his own money and sold the logs to the company on a commission basis. Moreover, he admitted having sold some lumber to other enterprises in Manila, although he had previously asserted that he dealt exclusively with the company. Upon the other hand, the auxiliary invoices presented before the Bureau of Internal Revenue were either spurious, or referred to logs other than those involved in the disputed reassessment. Thus, for instance, in exhibit 8-AA (O.R. No.

6578049, p. 82, BIR record), the word "June" was superimposed over the word "May" and, at the back of Exhibit 8AA-1 (p. 81, BIR record), which is the corresponding invoice, two similar alterations were made. In the auxiliary invoices Exhibits 00-3 and 00-4 (PP. 28-29, BIR record), submitted by Guerrero to the Conference Staff, as Exhibits C-3 and C-4, his name is written (script), in ink, on the space opposite the word consignee". However, in the copies of said auxiliary invoices (Exhibits 8-R-2 and 8-S pp. 117 and 119, BIR record), taken from the company, the corresponding space is blank. Again, the taxpayer's name on said Exhibits 00-3 and 00-4 is handwritten with a penmanship that is markedly different from that of Segundo Agustin, the signatory of said invoices, who had supposedly accomplished the same, thus indicating that said name could not have been written by Segundo Agustin, and rendering the authenticity of the documents highly doubtful. Furthermore, said invoices, as well as the other invoices submitted by Guerrero to the Conference Staff (Exhibits C-1 to C-14, also, marked as Exhibits 00-1 to 00-14, pp. 18-31, BIR record), referred to logs other than those involved in the questioned reassessment. The foregoing circumstances clearly indicate that the logs involved in said reassessment were obtained from illegal sources, and that the forest charges due thereon had not been paid. Since these charges "are liens on the products and collectible from whomsoever is in possession" thereof, "unless he can show that he has the required auxiliary and official invoice and discharge permit" (Collector of Internal Revenue vs. Pio Barretto and Sons, L-11805, May 31, 1960) which Guerrero has not shown it follows that he is bound to pay the aforementioned forest charges and surcharges, in the sum of P3,775.66. As regards the second item of P1,192.51, representing fixed and percentage taxes and surcharges, as producer of the logs involved in the reassessment, the Court of Tax Appeals held that Guerrero is not liable therefor, upon the theory that said logs were sold by the Government to the one who had cut, and removed the products from the forest; that the original sale of said logs was, therefore, made by the Government, not by the concessionaire or cutter of the forest products; and that, accordingly, Guerrero is not liable for the payment of the corresponding fixed and percentage taxes thereon. This theory is based upon the premise that, whereas in Collector of Internal Revenue vs. M.R. Lacson, L-12945 (April 29, 1960), we held that forest charges are internal revenue taxes, this ruling was reversed in Collector of Internal Revenue vs. Pio Barretto Sons, L-11805 (May 31, 1960). It is true that the dispositive portion of our decision in the first case expressly sustained the concurring and dissenting opinion of a member of the Court of Tax Appeals in the appealed decision thereof and that the writer of the opinion maintained that forest charges are internal revenue taxes. A careful perusal of the text of the decision of the Supreme Court therein shows, however, that said dissenting opinion is not the ratio decidendi of the aforementioned decision. It should be noted that the Collector of Internal Revenue contested the jurisdiction of the Court of Tax Appeals to entertain the appeal taken by Lacson from the assessment made by said officer involving forest charges, and that the Supreme Court upheld the authority of the tax court to hear and decide said appeal, because the issue therein was the validity of said assessment. From the viewpoint of the Supreme Court, this issue was decisive on the question of jurisdiction of the Court of Tax Appeals, regardless of whether forest charges were taxes or not. At this juncture, it may not be amiss to advert to a problem of semantics arising from the operation of Section 1588 of the Revised Administrative Code, the counterpart of which is now Section 315 of the National Internal Revenue Code, pursuant to which: Every internal revenue tax on property or on any business or occupation, and every tax on resources and receipts, and any increment to any of them incident to delinquency, shall constitute a lien superior to all other charges or liens not only on the property itself upon which such tax may be imposed but also upon the property used in any business or occupation upon which the tax is imposed and upon all property rights therein. xxx xxx xxx

The enforcement of this lien by the Commissioner (formerly Collector) of Internal Revenue, has often induced the parties adversely affected thereby to raise the question whether a given charge is a tax or not, on the theory that there would be no lien if said question were decided in the negative. In connection therewith, said parties had tended to distinguish between taxes, on the one hand as burdens imposed upon persons and/or properties, by way of contributions to the support of the Government, in consideration of general benefits derived from its operation and license fees charged in the exercise of the regulatory authority of the state, under its police power and other charges for specific things or special or particular benefits received from the Government on the other hand.

It is high time to stress that the term "tax," as it appears in said Section 1588 of the Revised Administrative Code and Section 315 of the National Internal Revenue Code, is used in these provisions, not in the limited sense adverted to above, but, in a broad sense encompassing all Government revenues collectible by the Commissioner of Internal Revenue under said Code, whether involving taxes, in the strict technical sense thereof, or not. Thus, under the heading "injunction not available to restrain collection of tax", Section 305 of said Code which is the first provision of Title IX (entitled "General Administrative Provisions"), Chapter I (entitled "Remedies in General) thereof provides: No court shall have authority to grant an injunction to restrain the collection of any national internalrevenue tax, fee, or charge imposed by this Code. Similarly, under the heading "Civil remedies for the collection of delinquent taxes," Section 316 of the same Code ordains; The civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto resulting from delinquency shall be (a) by distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and (b) by judicial action. Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes. No exemption shall be allowed against the internal revenue taxes in any case. (Emphasis supplied.) In other words, the National Internal Revenue Code makes a distinction between taxes, on the one hand, and fees or charges, on the other; but as used in Title IX of said Code, the term "tax" includes "any national internal revenue tax, fee or charge imposed by" the Code. And it is in this sense only that we sustained the view taken in the aforementioned concurring dissenting opinion in Collector of Internal Revenue vs. Lacson (supra). Hence, in the Barretto case, it was held that the Government does not sell forest products, but merely collects charges on the privilege granted by it "for the exploitation of forest concessions, i.e., charges for the right to exercise the privilege granted by the Government to the licensee of cutting timber from a public forest or forest reserve". In line with this view, we stressed in Cordero vs. Gonda, L-22369 (October 15, 1966), the declaration made in Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, L-18649 (February 27, 1965), that a mining ad valorem tax "is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth," although strictly a fee for something received is not a tax. As a consequence, the original sale, as contemplated in Section 186 of the Internal Revenue Code, is made by the concessionaire or whoever cuts or removes forest products from public forests or forest reserves in the case at bar, Guerrero, who is accordingly, bound to pay said sum of P1,192.51. While this case was being heard in the Court of Tax Appeals, certain documents were discovered, tending to show that Guerrero had evaded the payment of forest charges on certain logs (other than those heretofore mentioned), which had been shipped and sold by him to the company. Said documents, which were found in the possession of the latter, covered logs shipped and sold thereto as follows: Exhibit 8-I-2 8-I-3 Date May 9, 1949 May 9, 1949 Volume 4.966 Cu. m. 2.151 Cu. m. 5.20 Cu. m. 4.63 Cu. m. Invoice 12272263 Page 156 (BIR Rec.) " " " " " "

12272263 155 6578041 A-6578048 77 81

8-BB-1 May 20, 1949 8-AA-1 May 21, 1949

The aforementioned documents consist of auxiliary invoices purporting to have been issued by Concessionaire Segundo Agustin to Guerrero as consignee of the logs therein mentioned which are not included in Agustin's certificate (Exhibit 00, p. 32 BIR record) of the invoices covering logs sold by him to Guerrero, thus showing that the said invoices (Exhibits 8-I-2, 8-I-3, 8-BB-1 and 8-AA-1) are spurious; that the logs therein described must have been

obtained by Guerrero from illegal sources; and that the forest charges and the sale and percentage taxes thereon have not been paid. Although these charges and taxes are not included in the original and revised assessments made in this case, petitioner herein maintains that Guerrero may nevertheless be held liable therefor, inasmuch as: Where plaintiffs themselves show facts upon which they should not recover, whether defendant pleaded such fact as a defense or not, their claim should be dismissed. Evidence introduced without objection becomes property of the case and all the parties are amenable to any favorable or unfavorable effects resulting from the evidence. (Emphasis ours; Beam vs. Yatco, 82 Phil. 30.) Petitioner's contention is untenable. The foregoing doctrine deals with plaintiff's right to recover, when his own evidence proves the contrary. In short, it refers to a point in issue. In the case at bar, the additional logs under consideration were not included in the contested assessments. Since the jurisdiction of the Court of Tax Appeals is purely appellate, said Court correctly declined to make an award thereon, for lack of jurisdiction over the same. With reference to the last two (2) items of P120.00 and P50.00, the Court of Tax Appeals did not sentence Guerrero to pay the same upon the ground that he had not entered into a compromise agreement with the Government. The record shows, however, that Guerrero had expressed his willingness to pay "any compromise penalty which may be imposed by the Honorable Court." In short we find that the Court of Tax Appeals has erred in not sentencing Antonio G. Guerrero to pay, besides the sum of P3,775.66 awarded in the decision appealed from, the aforementioned additional sums of P1,192.51, P120.00 and P50.00. Thus modified, with the addition of these sums in the award in favor of the Government and against Antonio G. Guerrero, the decision appealed from is hereby affirmed, therefore, in all other respect, with costs against the latter. It is so ordered.