cases tax 2

8/9/2019 Cases Tax 2

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kaFIRST DIVISION [G.R. No. 147188. September 14, 2004]

COMMISSIONER OF INTERNAL REEN!E, petitioner, vs.T"E ESTATE OF #ENIGNO $.TO%A, &R., Repre'e(te) b* Spe+- Co/-)m('tr-tor' Lor(- -p(-( -() M-ro L- #-t't-,respondents.

% E C I S I O N

%AI%E, &R., C.J.3

This Court is called upon to determine in this case whether the tax planning scheme adopted b acorporation constitutes tax e!asion that would "usti# an assessment o# de#icienc income tax$

The petitioner seeks the re!ersal o# the Decision%&'o# the Court o# (ppeals o# )& *anuar +,,& in C(-.$R$S/ No$ 01122 a##irming the ) *anuar +,,, Decision%+'o# the Court o# Tax (ppeals 3CT(4 in C$T$($ Case

No$ 0)+56%)'which held that the respondent 7state o# 8enigno /$ Toda6 *r$ is not liable #or the de#iciencincome tax o# Cibeles Insurance Corporation 3CIC4 in the amount o# /126,226222$++ #or the ear &2526and ordered the cancellation and setting aside o# the assessment issued b Commissioner o# InternalRe!enue 9iwawa Vin:ons-Chato on 2 *anuar &220$

The case at bar stemmed #rom a Notice o# (ssessment sent to CIC b the Commissioner o# InternalRe!enue #or de#icienc income tax arising #rom an alleged simulated sale o# a &;-store commercial

building known as Cibeles 8uilding6 situated on two parcels o# land on (ala (!enue6 6>21$,,6 it paid /+;6)>&6+,1%5'#or its net taxable income o# /10625161+0$

On &+ *ul &22,6 Toda sold his entire shares o# stocks in CIC to 9e ?un T$ Choa #or /&+$0 million6 ase!idenced b a Deed o# Sale o# Shares o# Stocks$%2'Three and a hal# ears later6 or on &; *anuar &22>6Toda died$

On +2 6 the 8ureau o# Internal Re!enue 38IR4 sent an assessment notice%&,'and demand letterto the CIC #or de#icienc income tax #or the ear &252 in the amount o# /126,226222$++$

The new CIC asked #or a reconsideration6 asserting that the assessment should be directed against the oldCIC6 and not against the new CIC6 which is owned b an entirel di##erent set o# stockholders@ moreo!er6Toda had undertaken to hold the buer o# his stockholdings and the CIC #ree #rom all tax liabilities #or the#iscal ears &251-&252$%&&'

On +1 *anuar &2206 the 7state o# 8enigno /$ Toda6 *r$6 represented b special co-administrators 9ornaAapunan and 'the Commissioner dismissed the protest6 stating that a #raudulentscheme was deliberatel perpetuated b the CIC wholl owned and controlled b Toda b co!ering up theadditional gain o# /&,, million6 which resulted in the change in the income structure o# the proceeds o#the sale o# the two parcels o# land and the building thereon to an indi!idual capital gains6 thus e!ading thehigher corporate income tax rate o# )0=$

On &0 Februar &22;6 the 7state #iled a petition #or re!iew%&0'with the CT( alleging that theCommissioner erred in holding the 7state liable #or income tax de#icienc@ that the in#erence o# #raud o#the sale o# the properties is unreasonable and unsupported@ and that the right o# the Commissioner toassess CIC had alread prescribed$

In his (nswer%&;'and (mended (nswer6%&1'the Commissioner argued that the two transactions actuallconstituted a single sale o# the propert b CIC to R


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There being no proo# o# #raudulent transaction6 the applicable period #or the 8IR to assess CIC is thatprescribed in Section +,) o# the NIRC o# &25;6 which is three ears a#ter the last da prescribed b law#or the #iling o# the return$ Thus6 the go!ernments right to assess CIC prescribed on &0 (pril &22)$ Theassessment issued on 2 *anuar &220 was6 there#ore6 no longer !alid$ The CT( also ruled that the mereownership b Toda o# 22$22&= o# the capital stock o# CIC was not in itsel# su##icient ground #or piercingthe separate corporate personalit o# CIC$ ?ence6 the CT( declared that the 7state is not liable #orde#icienc income tax o# /126,226222$++ and6 accordingl6 cancelled and set aside the assessment issued

b the Commissioner on 2 *anuar &220$

In its motion #or reconsideration6%&2'the Commissioner insisted that the sale o# the propert owned b CICwas the result o# the conni!ance between Toda and (ltonaga$ She #urther alleged that the latter was a

representati!e6 dumm6 and a close business associate o# the #ormer6 ha!ing held his o##ice in a propertowned b CIC and deri!ed his salar #rom a #oreign corporation 3(erobin6 Inc$4 dul owned b Toda #orrepresentation ser!ices rendered$ The CT( denied%+,'the motion #or reconsideration6 prompting theCommissioner to #ile a petition #or re!iew%+&'with the Court o# (ppeals$

In its challenged Decision o# )& *anuar +,,&6 the Court o# (ppeals a##irmed the decision o# the CT(6reasoning that the CT(6 being more ad!antageousl situated and ha!ing the necessar expertise in matterso# taxation6 is Jbetter situated to determine the correctness6 propriet6 and legalit o# the income taxassessments assailed b the Toda 7state$K %++'

Ensatis#ied with the decision o# the Court o# (ppeals6 the Commissioner #iled the present petitionin!oking the #ollowing groundsB

I$ T?7 COERT OF (//7(9S 7RR7D IN ?O9DIN. T?(T R7S/OND7NT CO


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#rom the commencement o# negotiations to the consummation o# the sale is rele!ant$ ( sale b one personcannot be trans#ormed #or tax purposes into a sale b another b using the latter as a conduit throughwhich to pass title$ To permit the true nature o# the transaction to be disguised b mere #ormalisms6 whichexist solel to alter tax liabilities6 would seriousl impair the e##ecti!e administration o# the tax policies o#Congress$%))'

To allow a taxpaer to den tax liabilit on the ground that the sale was made through anotherand distinct entit when it is pro!ed that the latter was merel a conduit is to sanction a circum!ention o#our tax laws$ ?ence6 the sale to (ltonaga should be disregarded #or income tax purposes$%)>'The two saletransactions should be treated as a single direct sale b CIC to R o# the NIRC o# &25;6 asamended 3now +1 3(4 o# the Tax Re#orm (ct o# &22146 which stated as #ollowsB

Se+. 24. R-te' o6 t- o( +orpor-to('. ? @- T- o( )ome't+ +orpor-to('./ ( tax is hereb imposedupon the taxable net income recei!ed during each taxable ear #rom all sources b e!er corporationorgani:ed in6 or existing under the laws o# the /hilippines6 and partnerships6 no matter how created ororgani:ed but not including general pro#essional partnerships6 in accordance with the #ollowingB

Twent-#i!e percent upon the amount b which the taxable net income does not exceed one hundredthousand pesos@ and

Thirt-#i!e percent upon the amount b which the taxable net income exceeds one hundred thousandpesos$

CIC is there#ore liable to pa a )0= corporate tax #or its taxable net income in &252$ The 0= indi!idualcapital gains tax pro!ided #or in Section )> 3h4 o# the NIRC o# &25;%)0'3now ;= under Section +> 3D4 3&4o# the Tax Re#orm (ct o# &2214 is inapplicable$ ?ence6 the assessment #or the de#icienc income tax

issued b the 8IR must be upheld$

"-' t5e pero) o6 -''e''me(t pre'+rbe)9

No$ Section +;2 o# the NIRC o# &25; 3now Section +++ o# the Tax Re#orm (ct o# &2214 readB

Se+. 2B. E+epto(' -' to pero) o6 mt-to( o6 -''e''me(t -() +oe+to( o6 t-e'./3a4 In the case o#a #alse or #raudulent return with intent to e!ade tax or o# #ailure to #ile a return6 the tax ma be assessed6 ora proceeding in court a#ter the collection o# such tax ma be begun without assessment6 at an time withinten ears a#ter the disco!er o# the #alsit6 #raud or omissionB$ro)e), That in a #raud assessment whichhas become #inal and executor6 the #act o# #raud shall be "udiciall taken cogni:ance o# in the ci!il orcriminal action #or collection thereo#P $

/ut di##erentl6 in cases o# 3&4 #raudulent returns@ 3+4 #alse r eturns with intent to e!ade tax@ and 3)4 #ailureto #ile a return6 the period within which to assess tax is ten ears #rom disco!er o# the #raud6 #alsi#icationor omission6 as the case ma be$

It is true that in a uer dated +> (ugust &2526 (ltonaga6 through his counsel6 asked the Opinion o# the8IR on the tax conseuence o# the two sale transactions$%);'Thus6 the 8IR was ampl in#ormed o# thetransactions e!en prior to the execution o# the necessar documents to e##ect the trans#er$ Subseuentl6the two sales were openl made with the execution o# public documents and the declaration o# taxes #or&252$ ?owe!er6 these circumstances do not negate the existence o# #raud$ (s earlier discussed those twotransactions were tainted with #raud$ (nd e!en assuming arguendothat there was no #raud6 we #ind thatthe income tax return #iled b CIC #or the ear &252 was #alse$ It did not re#lect the true or actual amountgained #rom the sale o# the Cibeles propert$ Ob!iousl6 such was done with intent to e!ade or reduce taxliabilit$

(s stated abo!e6 the prescripti!e period to assess the correct taxes in case o# #alse returns is ten ears #romthe disco!er o# the #alsit$ The #alse return was #iled on &0 (pril &22,6 and the #alsit thereo# wasclaimed to ha!e been disco!ered onl on 5 $ ?e is made6 b speci#ic pro!ision o# law6 to personall answer #or his corporate action$%)5'

It is worth n oting that when the late Toda sold his shares o# stock to 9e ?un T$ Choa6 he knowingl and!oluntaril held himsel# personall liable #or all the tax liabilities o# CIC and the buer #or the ears &2516&2556 and &252$ /aragraph g o# the Deed o# Sale o# Shares o# Stocks speci#icall pro!idesB

g$ 7xcept #or transactions occurring in the ordinar course o# business6 Cibeles has no liabilities orobligations6 contingent or otherwise6 #or taxes6 sums o# mone or insurance claims other than thosereported in its audited #inancial statement as o# December )&6 &2526 attached hereto as J(nnex 8K andmade a part hereo#$ The business o# Cibeles has at all times been conducted in #ull compliance with allapplicable laws6 rules and regulations$ SELLER ()ert-e' -() -;ree' to 5o) t5e #!DER -()

Cbee' 6ree 6rom -(* -() - (+ome t- -bte' o6 Cbee' 6or t5e 6'+- *e-r' 187, 188 -()18.%)2'%Enderscoring Supplied'$

Hhen the late Toda undertook and agreed Jto hold the 8EM7R and Cibeles #ree #rom an all income taxliabilities o# Cibeles #or the #iscal ears &2516 &2556 and &2526K he thereb !oluntaril held himsel#

personall liable there#or$ Respondent estate cannot6 there#ore6 den liabilit #or CICs de#icienc incometax #or the ear &252 b in!oking the separate corporate personalit o# CIC6 since its obligation arose #romTodas contractual undertaking6 as contained in theDeed of Sale of Shares of Stock.

"EREFORE6 in !iew o# all the #oregoing6 the petition is hereb .R(NT7D$ The decision o#the Court o# (ppeals o# )& *anuar +,,& in C(-.$R$ S/ No$ 01122 is R7V7RS7D and S7T (SID76 andanother one is hereb rendered ordering respondent 7state o# 8enigno /$ Toda *r$ to pa /126,226222$++ asde#icienc income tax o# Cibeles Insurance Corporation #or the ear &2526 plus legal interest #rom & until the amount is #ull paid$

Costs against respondent$

SO OR%ERE%.

Quisumbing, Ynares-Santiago, Cario, and!"cuna, ##., concur.

3


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S7COND DIVISION [G.R. No. 120880. &(e =, 17]

FER%INAN% R. MARCOS II,petitioner, vs.CO!RT OF A$$EALS, T"E COMMISSIONER OFT"E #!REA! OF INTERNAL REEN!E -() "ERMINIA %. %E G!MAN, respondents.

% E C I S I O N

TORRES, &R., J.3

In this /etition #or Re!iew on Certiorari,.o!ernment action is once again assailed as precipitate andun#air6 su##ering the basic and o#tl implored reuisites o# due process o# law$ Speci#icall6 the petitionassails the Decision o# the Court o# (ppeals dated No!ember +26 &22> in C(-.$R$ S/ No$ )&);)6 where

the said court heldBQIn !iew o# all the #oregoing6 we rule that the de#icienc income tax assessments and estate taxassessment6 are alread #inal and 3u4nappealable -and- the subseuent le! o# real properties is a taxremed resorted to b the go!ernment6 sanctioned b Section +&) and +&5 o# the National InternalRe!enue Code$ This summar tax remed is distinct and separate #rom the other tax remedies 3such as*udicial Ci!il actions and Criminal actions46 and is not a##ected or precluded b the pendenc o# an othertax remedies instituted b the go!ernment$

H?7R7FOR76 premises considered6 "udgment is hereb rendered DIS


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assessments were all personall and constructi!el ser!ed on (ugust +;6 &22& and September &+6 &22&upon


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en#orcement o# all #or#eitures6 penalties6 and # ines connected therewith6 including the execution o#"udgments in all cases decided in its #a!or b the Court o# Tax (ppeals and the ordinar courts$ Said8ureau shall also gi!e e##ect to and administer the super!isor and police power con#erred to it b thisCode or other laws$Q

Thus6 it was in Vera !s$ Fernande:'that the court recogni:ed the liberal treatment o# claims #or taxescharged against the estate o# the decedent$ Such taxes6 we said6 were exempted #rom the application o# thestatute o# non-claims6 and this is "usti#ied b the necessit o# go!ernment #unding6 immortali:ed in themaxim that taxes are the li#eblood o# the go!ernment$ $ectigalianervisuntreiublicae- taxes are thesinews o# the state$

QTaxes assessed against the estate o# a deceased person6 a#ter administration is opened6 need not besubmitted to the committee on claims in the ordinar course o# administration$ In the exercise o# itscontrol o!er the administrator6 the court ma direct the pament o# such taxes upon motion showing thatthe taxes ha!e been assessed against the estate$Q

Such liberal treatment o# internal re!enue taxes in the probate proceedings extends so #ar6 e!en to allowingthe en#orcement o# tax obligations against the heirs o# the decedent6 e!en a#ter distribution o# the estates

properties$

QClaims #or taxes6 whether assessed be#ore or a#ter the death o# the deceased6 can be collected #rom theheirs e!en a#ter the distribution o# the properties o# the decedent$ The are exempted #rom the applicationo# the statute o# non-claims$ The heirs shall be liable there#or6 in proportion to their share in theinheritance

QThus6 the .o!ernment has two was o# collecting the taxes in uestion$ One6 b going a#ter all the heirsand collecting #rom each one o# them the amount o# the tax proportionate to the inheritance recei!ed$(nother remed6 pursuant to the lien created b Section )&0 o# the Tax Code upon all propert and rightsto propert belong to the taxpaer #or unpaid income tax6 is b sub"ecting said propert o# the estate whichis in the hands o# an heir or trans#eree to the pament o# the tax due the estate$ 3Commissioner o# InternalRe!enue !s$ /ineda6 +& SCR( &,06 September &06 &2;1$4

From the #oregoing6 it is discernible that the appro!al o# the court6 sitting in probate6 or as a settlementtribunal o!er the deceased is not a mandator reuirement in the collection o# estate taxes$ It cannotthere#ore be argued that the Tax 8ureau erred in proceeding with the le!ing and sale o# the propertiesallegedl owned b the late /resident6 on the ground that it was reuired to seek #irst the probate courtssanction$ There is nothing in the Tax Code6 and in the pertinent remedial laws that implies the necessit o#the probate or estate settlement courts appro!al o# the states claim #or estate taxes6 be#ore the same can been#orced and collected$

On the contrar6 under Section 51 o# the NIRC6 it is the probate or settlement court which is bidden not toauthori:e the executor or "udicial administrator o# the decedents estate to deli!er an distributi!e share toan part interested in the estate6 unless it is shown a Certi#ication b the Commissioner o# Internal

Re!enue that the estate taxes ha!e been paid$ This pro!ision dispro!es the petitioners contention that it isthe probate court which appro!es the assessment and collection o# the estate tax$

I# there is an issue as to the !alidit o# the 8IRs decision to assess the estate taxes6 this should ha!e beenpursued through the proper administrati!e and "udicial a!enues pro!ided #or b law$

Section ++2 o# the NIRC tells us howB

QSec$ ++2$ /rotesting o# assessment$-Hhen the Commissioner o# Internal Re!enue or his dul authori:edrepresentati!e #inds that proper taxes should be assessed6 he shall #irst noti# the taxpaer o# his #indings$Hithin a period to be prescribed b implementing regulations6 the taxpaer shall be reuired to respond tosaid notice$ I# the taxpaer #ails to respond6 the Commissioner shall issue an assessment based on his#indings$

Such assessment ma be protested administrati!el b #iling a reuest #or reconsideration orrein!estigation in such #orm and manner as ma be prescribed b implementing regulations within 3),4das #rom receipt o# the assessment@ otherwise6 the assessment shall become #inal and unappealable$

I# the protest is denied in whole or in part6 the indi!idual6 association or corporation ad!ersel a##ected b

the decision on the protest ma appeal to the Court o# Tax (ppeals within thirt 3),4 das #rom receipt o#said decision@ otherwise6 the decision shall become #inal6 executor and demandable$ 3(s inserted b /$D$&11)4Q

(part #rom #ailing to #ile the reuired estate tax return within the time reuired #or the #iling o# the same6petitioner6 and the other heirs ne!er uestioned the assessments ser!ed upon them6 allowing the same tolapse into #inalit6 and prompting the 8IR to collect the said taxes b le!ing upon the properties le#t b/resident


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T?IRD DIVISION

G.R. No'. 1


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IV$

T?7 /RO8(T7 COERT .R(V79M 7RR7D IN F(I9IN. TO CONSID7R T?(T ITS ORD7R OF*(NE(RM &&6 &22;6 H?IC? (D0 o# the Rules o# Court$ 37mphasis andEnderscoring Supplied4

The pertinent portions o# Section &1&5o# the *udiciar (ct o# &2>5 readB

The Supreme Court shall #urther ha!e exclusi!e "urisdiction to r e!iew6 re!ise6 re!erse6 modi# or a##irmoncertiorarias the law or rules o# court ma pro!ide6 #inal "udgments and decrees o# in#erior courts as

herein pro!ided6 in 3&4 (ll cases in which the constitutionalit or !alidit o# an treat6 law6 ordinance6 or executi!e order orregulation is in uestion@

3+4 (ll cases in!ol!ing the legalit o# an tax6 impost6 assessment or toll6 or an penalt imposed inrelation thereto@

3)4 (ll cases in which the "urisdiction o# an in#erior court is in issue@

3>4 (ll other cases in which onl errors or uestions o# law are in!ol!edB /ro!ided6 howe!er6 That i#6 inaddition to constitutional6 tax or "urisdictional uestions6 the cases mentioned in the three next preceding

paragraphs also in!ol!e uestions o# #act or mixed uestions o# #act and law6 the aggrie!ed part shallappeal to the Court o# (ppeals@ and the #inal "udgment or decision o# the latter ma be re!iewed6 re!ised6re!ersed6 modi#ied or a##irmed b the Supreme Court on writ o# certiorari@ and

304 Final awards6 "udgments6 decision or orders o# the Commission on 7lections6 Court o# Tax (ppeals6

Court o# Industrial Relations6 the /ublic Ser!ice Commission6 and the Horkmens CompensationCommission$

( reading o# Supreme Court Circular +-2,6 in relation to Section &1 o# the *udiciar (ct o# &2>56 clearlshows that the sub"ect matter o# therein petition6 that is6 the propriet o# granting letters testamentar torespondents6 do not #all within an ground which can be the sub"ect o# a direct appeal to this Court$ TheC( was thus correct in declaring that the Qissues raised b petitioner do not #all within the pur!iew o#Section &1 o# the *udiciar (ct o# &2>5 such that the Supreme Court should take cogni:ance o# the instantcase$Q&2


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-ppropr-te6 the latter ha!ing "urisdiction concurrent with this Court o!er the Case6 and this Court ha!ingbeen cited to no special and important reason #or it to take cogni:ance o# said case in the #irst instance$+0

8ased thereon6 this Court agrees with the ruling o# the C( that said resolution ga!e the C( discretion andlatitude to decide the petition as it ma deem proper$ The resolution is clear that the petition was re#erredto the C( #or consideration and ad"udication on the merits oran other action as it ma deem appropriate$Thus6 no error can be attributed to the C( when the action it deemed appropriate was to dismiss the

petition #or ha!ing a!ailed o# an improper remed$ o# Supreme Court Circular +-2, which pro!ides that Qan appeal taken to either theSupreme Court or the Court o# (ppeals b the wrong mode or inappropriate mode shall be dismissed$Q

$ x x x+2

Section &3c46 Rule 15 o# the Rules o# Court de#ines who are incompetent to ser!e as executors6 to witB

Section &$ Hho are incompetent to ser!e as executors or administrators$ No person is competent to ser!eas executor or administrator whoB

x x x x

3c4 I' ( t5e op(o( o6 t5e +ort un#it to execute the duties o# trust b reason o# drunkenness6impro!idence6 or:-(to6understanding or (te;rt*6 or b reason o# +o(+to( o6 -( o66e('e (o(;mor- trpt)e$ 37mphasis Supplied4

In the case at bar6 petitioner anchored its opposition to the grant o# letters testamentar to respondents6speci#icall on the #ollowing groundsB 3&4 want o# integrit6 and 3+4 con!iction o# an o##ense in!ol!ingmoral turpitude$ /etitioner contends that respondents ha!e been con!icted o# a number o# cases),and6hence6 should be characteri:ed as one without integrit6 or at the least6 with uestionable integrit$)&

The RTC6 howe!er6 in its *anuar &&6 &22; Order6 made the #ollowing #indingsB

?owe!er6 except #or petitioner Republics allegation o# want o# integrit on the part o# Imelda TrinidadRomualde:-


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There#ore6 since respondent Ferdinand 0 o# the NIRC6 the same should not ser!e as a basis to disuali# him to be appointed as anexecutor o# the will o# his #ather$ 0, are hereb AFFIRME%$

The Regional Trial Court o# /asig Cit6 8ranch &0;6 acting as a probate court in Special /roceeding No$&,+126 is hereb ORD7R7D to issue letters testamentar6 insolidum,to Imelda Romualde:-


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RAFAEL ARSENIO S. %ION, ( 5' + -p-+t* -' t5e &)+- A)m('tr-tor o6 t5e E't-te o6 t5e)e+e-'e) &OSE $. FERNAN%E,petitioner6!s$CO!RT OF TAK A$$EALS -() COMMISSIONER OF INTERNAL REEN!E,respondents$

% E C I S I O N

NAC"!RA,J.3

8e#ore this Court is a /etition #or Re!iew on Certiorari&under Rule >0 o# the Rules o# Ci!il /rocedureseeking the re!ersal o# the Court o# (ppeals 3C(4 Decision+dated (pril ),6 &222 which a##irmed theDecision)o# the Court o# Tax (ppeals 3CT(4 dated *une &16 &221$>

The Facts

On No!ember 16 &2516 *ose /$ Fernande: 3*ose4 died$ Therea#ter6 a petition #or the probate o# his will0was#iled with 8ranch 0& o# the Regional Trial Court 3RTC4 o# +5$)&46 8anue de9Indochine et$ de Sue: 3ESW>65+562,0$2, as o# *anuar )&6 &25546 6&226&;,$>; as o# Februar +56 &2524 and State In!estment ?ouse6 Inc$ 3/;6+5,6,,;$+&4$ /etitionermani#ested that


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records4@

>$ (ttachment to 7xh$ QCQ which is the detailed and complete listing o# theproperties o# the deceased 3pp$ 52-&,06 8IR rec$4@

QC-&Q to QC-&1Q

0$ Claims against the estate #iled b 7uitable 8anking Corp$ with theprobate Court in the amount o#/&2610;6>+5$)& as o# -556 8IR records4@

QDQ to QD-+>Q

;$ Claim #iled b 8anue de 9 Indochine et de Sue: with the probate Court

in the amount o# ES W>65+562,0$2, as o# *anuar )&6 &255 3pp$ +;+-+;068IR records4@

Q7Q to Q7-)Q

1$ Claim o# the 6&226&;,$>;@ together with the demand letter#rom -&216 8IR records4@

QFQ to QF-)Q

5$ Demand letter o# ,6>126;2)$&1 as o# Februar +56 &252 3pp$ &5;-&516 8IRrecords4@

Q.Q Q.-&Q

2$ Claim o# State In!estment ?ouse6 Inc$ #iled with the RTC6 8ranch VII o#


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.ross Con"ugal 7state )56,5>6,&0$2)

9essB Deductions +;6+0,6,,,$,,

Net Con"ugal 7state / &&65)>6,&0$2)

9essB Share o# Sur!i!ing Spouse 062&16,,1$2;

Net Share in Con"ugal 7state / 062&16,,1$2;

(ddB Capital/araphernal

/roperties />>6;0+65&)$;;

9essB Capital/araphernal Deductions >>6;0+65&)$;;

Net Taxable 7state / 0,60;265+&$;+GGGGGGGGGGGG

7state Tax Due / +262)06)>+$21

(ddB +0= Surcharge #or 9ate Filing 16>5)65)0$1>

(ddB /enalties #or-No notice o# death &0$,,

No C/( certi#icate ),,$,,

Total de#icienc estate tax / )16>&26>2)$1&GGGGGGGGGGGG

exclusi!e o# +,= interest #rom due date o# its pament until #ull pament thereo#

%Sec$ +5) 3b46 Tax Code o# &251'$+0

Thus6 the CT( disposed o# the case in this wiseB

"EREFORE6 !iewed #rom all the #oregoing6 the Court #inds the petition unmeritorious and denies thesame$ /etitioner andor the heirs o# *ose /$ Fernande: are hereb ordered to pa to respondent the amount

o# /)16>&26>2)$1& plus +,= interest #rom the due date o# its pament until #ull pament thereo# as estatetax liabilit o# the estate o# *ose /$ Fernande: who died on No!ember 16 &251$

SO OR%ERE%$+;

(ggrie!ed6 petitioner6 on


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SEC. ,)' citing%eole v. *ate%&,) SCR( >5>'6 :e re-e) t5e6ore;o(; re -() -o:e) e)e(+e (ot 6orm-* o66ere) to be -)mtte) -() +o(')ere) b* t5e tr-

+ort pro)e) t5e 6oo:(; rereme(t' -re pre'e(t, .3 6r't, t5e '-me m't 5-e bee( )*)e(t6e) b* te'tmo(* )* re+or)e) -(), 'e+o(), t5e '-me m't 5-e bee( (+orpor-te) ( t5ere+or)' o6 t5e +-'e$>,

From the #oregoing declaration6 howe!er6 it is clear that Vda$ de OXate is merel an exception to thegeneral rule$ 8eing an exception6 it ma be applied onl when there is strict compliance with the reuisitesmentioned therein@ otherwise6 the general rule in Section )> o# Rule &)+ o# the Rules o# Court should

pre!ail$

In this case6 we #ind that these reuirements ha!e not been satis#ied$ The assailed pieces o# e!idence werepresented and marked during the trial particularl when (lberto took the witness stand$ (lberto identi#iedthese pieces o# e!idence in his direct testimon$>&?e was also sub"ected to cross-examination and re-crossexamination b petitioner$>+8ut (lbertos account and the exchanges between (lberto and petitioner didnot su##icientl describe the contents o# the said pieces o# e!idence presented b the 8IR$ In #act6

petitioner sought that the lead examiner6 one )The lead examiner ne!er

testi#ied$ >

Hhile the CT( is not go!erned strictl b technical rules o# e!idence6>0as rules o# procedure are not endsin themsel!es and are primaril intended as tools in the administration o# "ustice6 the presentation o# the

8IRs e!idence is not a mere procedural technicalit which ma be disregarded considering that it is theonl means b which the CT( ma ascertain and !eri# the truth o# 8IRs claims against the 7state$>;The8IRs #ailure to #ormall o##er these pieces o# e!idence6 despite CT(s directi!es6 is #atal to itscause$>1Such #ailure is aggra!ated b the #act that not e!en a single reason was ad!anced b the 8IR to

"usti# such #atal omission$ This6 we take against the 8IR$

/er the records o# this case6 the 8IR was directed to present its e!idence>5in the hearing o# Februar +&6&22;6 but 8IRs counsel #ailed to appear$>2The CT( denied petitioners motion to consider 8IRs

presentation o# e!idence as wai!ed6 with a warning to 8IR that such presentation would be consideredwai!ed i# 8IRs e!idence would not be presented at the next hearing$ (gain6 in the hearing o#


16/127

QClaims against the estate6Q as allowable deductions #rom the gross estate under Section 12 o# the TaxCode6 are basicall a reproduction o# the deductions allowed under Section 52 3a4 3&4 3C4 and 374 o#Commonwealth (ct No$ >;; 3C( >;;46 otherwise known as the National Internal Re!enue Code o# &2)26and which was the #irst codi#ication o# /hilippine tax laws$ /hilippine tax laws were6 in turn6 based on the#ederal tax laws o# the Enited States$ Thus6 pursuant to established rules o# statutor construction6 thedecisions o# (merican courts construing the #ederal tax code are entitled to great weight in theinterpretation o# our own tax laws$;,

It is noteworth that e!en in the Enited States6 there is some dispute as to whether the deductible amount#or a claim against the estate is #ixed as o# the decedents death which is the general rule6 or the sameshould be ad"usted to re#lect post-death de!elopments6 such as where a settlement between the parties

results in the reduction o# the amount actuall paid$;&

On one hand6 the E$S$ court ruled that theappropriate deduction is the Q!alueQ that the claim had at the date o# the decedents death$;+(lso6 as held in/ropstra !$ E$S$6;)where a lien claimed against the estate was certain and en#orceable on the date o# thedecedents death6 the #act that the claimant subseuentl settled #or lesser amount did not preclude theestate #rom deducting the entire amount o# the claim #or estate tax purposes$ These pronouncementsessentiall con#irm the general principle that post-death de!elopments are not material in determining theamount o# the deduction$

On the other hand6 the Internal Re!enue Ser!ice 3Ser!ice4 opines that post-death settlement should betaken into consideration and the claim should be allowed as a deduction onl to the extent o# the amountactuall paid$;>Recogni:ing the dispute6 the Ser!ice released /roposed Regulations in +,,1 mandating thatthe deduction would be limited to the actual amount paid$;0

In announcing its agreement with%rostra6;;the E$S$ 0thCircuit Court o# (ppeals heldB

He are persuaded that the Ninth Circuits decision$$$in%rostracorrectl appl the+thaca Trustdate-o#-

death !aluation principle to en#orceable claims against the estate$ (s we interpret+thaca Trust6 when theSupreme Court announced the date-o#-death !aluation principle6 it was making a "udgment about thenature o# the #ederal estate tax speci#icall6 that it is a tax imposed on the act o# trans#erring propert bwill or intestac and6 because the act on which the tax is le!ied occurs at a discrete time6 i.e.6 the instanceo# death6 the net !alue o# the propert trans#erred should be ascertained6 as nearl as possible6 as o# thattime$ This analsis supports broad application o# the date-o#-death !aluation rule$;1

He express our agreement with the date-o#-death !aluation rule6 made pursuant to the ruling o# the E$S$Supreme Court in+thaca Trust Co. v. 6nited States$;5First$ There is no law6 nor do we discern anlegislati!e intent in our tax laws6 which disregards the date-o#-death !aluation principle and particularl

pro!ides that post-death de!elopments must be considered in determining the net !alue o# the estate$ Itbears emphasis that tax burdens are not to be imposed6 nor presumed to be imposed6 beond what thestatute expressl and clearl imports6 tax statutes being construedstrictissimi 7urisagainst thego!ernment$;2(n doubt on whether a person6 article or acti!it is taxable is generall resol!ed againsttaxation$1,Second$ Such construction #inds rele!ance and consistenc in our Rules on Special /roceedingswherein the term QclaimsQ reuired to be presented against a decedents estate is generall construed to

mean debts or demands o# a pecuniar nature which could ha!e been en#orced against the deceased in hisli#etime6 or liabilit contracted b the deceased be#ore his death.1&There#ore6 the claims existing at the timeo# death are signi#icant to6 and should be made the basis o#6 the determination o# allowable deductions$

"EREFORE6 the instant /etition is GRANTE%$ (ccordingl6 the assailed Decision dated (pril ),6&222 and the Resolution dated No!ember )6 &222 o# the Court o# (ppeals in C(-.$R$ S$/$ No$ >;2>1are REERSE% and SET ASI%E$ The 8ureau o# Internal Re!enues de#icienc estate tax assessmentagainst the 7state o# *ose /$ Fernande: is hereb N!LLIFIE%$ No costs$

SO OR%ERE%$

16
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17/127

S7COND DIVISION G.R. No. 144B=< A;'t 28, 2001

#AN OF T"E $"ILI$$INE ISLAN%S,petitioner6

!s$

COMMISSIONER OF INTERNAL REEN!E,respondents$

MEN%OA,J.3

This is a petition #or re!iew on certiorari o# the decision6 dated (pril &>6 +,,,6 o# the Court o# (ppeals6&a##irming the decision o# the Court o# Tax (ppeals 3which denied petitioner 8ank o# the /hilippine Islandsclaim #or tax re#und #or &25046 and the appeals courts resolution6 dated (ugust +&6 +,,,6 deningreconsideration$

The #acts are as #ollowsB

/rior to its merger with petitioner 8ank o# the /hilippine Islands 38/I4 on *ul &2506 The Famil 8ankand Trust Co$ 3F8TC4 earned income consisting o# rentals #rom its leased properties and interest #rom itstreasur notes #or the period *anuar & to *une ),6 &250$ (s reuired b the 7xpanded Hithholding TaxRegulation6 the lessees o# F8TC withheld 0 percent o# the rental income6 in the amount o# /&&56;,2$&16while the Central 8ank6 #rom which the treasur notes were purchased b F8TC6 withheld /006>0;$;,#rom the interest earned thereon$ Creditable withholding taxes in the total amount o# /&1>6,;0$11 wereremitted to respondent Commissioner o# Internal Re!enue$

F8TC6 howe!er6 su##ered a new loss o# about /;>6,,,6,,,$,, during the period in uestion$ It also had anexcess credit o# /+6&>;6,1+$01 #rom the pre!ious ear$ Thus6 upon its dissolution in &2506 F8TC had are#undable o# /+6)+,6&)5$)>6 representing that ears tax credit o# /&1>6,;0$11 and the pre!ious earsexcess credit o# /+6&>;6,1+$01$

(s F8TCs successor-in-interest6 petitioner 8/I claimed this amount as tax re#und6 but respondentCommissioner o# Internal Re!enue re#unded onl the amount o# /+6&>;6,1+$016 lea!ing a balance o#/&1>6,;0$11$ (ccordingl6 petitioner #iled a petition #or re!iew in the Court o# Tax (ppeals on December+26 &2516 seeking the re#und o# the a#oresaid amount$+?owe!er6 in its decision rendered on *ul &26 &22>6the Court o# Tax (ppeals dismissed petitioners petition #or re!iew and denied its claim #or re#und on theground that the claim had alread prescribed$)In its resolution6 dated (ugust >6 &2206 the Court o# Tax(ppeals denied petitioners motion #or reconsideration$>

/etitioner appealed to the Court o# (ppeals6 but6 in its decision rendered on (pril &>6 +,,,6 the appealscourt a##irmed the decision o# the CT($0The appeals court subseuentl denied petitioners motion #orreconsideration$;?ence this petition$

The sole issue in this case is whether petitioners claim is barred b prescription$ The resolution o# thisuestion reuires determination o# when the two-ear period o# prescription under Y+2+ o# the Tax Codestarted to run$ This pro!ision statesB

2ecover of tax erroneousl or illegall collected$ No suit or proceedings shall be maintained in ancourt #or the reco!er o# an national internal re!enue tax herea#ter alleged to ha!e been erroneousl orillegall assessed or collected6 or o# an penalt claimed to ha!e been collected without authorit6 or o#an sum alleged to ha!e been excessi!e or in an manner wrong#ull collected6 until a claim #or re#und orcredit has been dul #iled with the Commissioner@ but such suit or proceeding ma be maintained6 whetheror not such tax6 penalt6 or sum has been paid under protest or duress$

In an case6 no such suit or proceeding shall be begun a#ter the expiration o# two ears #rom the date o#pament o# the tax or penalt regardless o# an super!ening cause that ma arise a#ter pamentB%rovided,ho1ever,That the Commissioner ma6 e!en without a written claim there#or6 re#und or credit an tax6where on the #ace o# the return upon which pament was made6 such pament appears clearl to ha!e beenerroneousl paid$

There is no dispute that F8TC ceased operations on *une ),6 &250 upon its merger with petitioner 8/I$The merger was appro!ed b the Securities and 7xchange Commission on *ul &6 &250$ /etitioner

contends6 howe!er that its claim #or re#und has et prescribed because the two-ear prescripti!e periodcommenced to run onl a#ter it had #iled F8TCs Final (d"ustment Return on (pril &0 &25;6 pursuant to

Y>;3a4 o# the National Internal Re!enue Code o# &211 3the law applicable at the time o# this transaction4which pro!ided that

Cororation returns$ 3a42e(uirement$ 7!er corporation6 sub"ect to the tax herein imposed6 except#oreign corporations not engaged in trade or business in the /hilippines shall render6 in duplicate6 a trueand accurate uarterl income tax return and #inal or ad"ustment return in accordance with the pro!isionso# Chapter L o# this Title$ The return shall be #iled b the president6 !ice-president6 or other principalo##icer6 and shall be sworn to b such o##icer and b the treasurer or assistant treasurer$

On the other hand6 the Court o# Tax (ppeals ruled that the prescripti!e period should be counted #rom *ul)&6 &2506 ), das a#ter the appro!al b the S7C o# the plan o# dissolution in !iew o# Y15 o# the Codewhich pro!ided that

7!er corporation shall6 within thirt das a#ter the adoption b the corporation o# a resolution or plan #orthe dissolution o# the corporation or #or the liuidation o# the whole or an part o# its capital stock6including corporations which ha!e been noti#ied o# the possible in!oluntar dissolution b the Securitiesand 7xchange Commission6 render a correct return to the Commission o# Internal Re!enue6 !eri#ied underoath6 setting #orth the terms o# such resolution or plan and such other in#ormation as the


18/127

a Final ad"ustment Return because there was nothing #or it to ad"ust or to audit$ (#ter it ceased operationson *une ),6 &2506 its taxable ear was shortened to six months6 #rom *anuar &6 &250 to *une ),6 &250 Thesituation o# F8TC is precisel what was contemplated under Y15 o# the Tax Code$ It thus becamenecessar #or F8TC to #ile its income tax return within ), das a#ter appro!al b the S7C o# its plan orresolution o# dissolution$ Indeed6 it would be absurd #or F8TC to wait until the #i#teenth da o# (pril6 oralmost &, months a#ter it ceased its operations6 be#ore #iling its income tax return$

Thus6 Y>;3a4 o# the Tax Code applies onl to instances in which the corporation remains subsisting and itsbusiness operations are continuing$ In instances in which the corporation is contemplating dissolution6 Y15o# the Tax Code applies$ It is a rule o# statutor construction that Q%w'here there is in the same statute a

particular enactment and also a general one which in its most comprehensi!e sense would include what is

embraced in the #ormer6 the particular enactment must be operati!e6 and the general enactment must betaken to a##ect onl such cases within its general language as are not within the pro!isions o# the particularenactment$ &,

/etitioner argues that to hold6 as the Court o# Tax (ppeals and the Court o# (ppeals do6 that Y15 applies incase a corporation contemplates dissolution would lead to absurd results$ It contends that it is not #easible#or the certi#ied public accountants to complete their report and audited #inancial statements6 which arereuired to be submitted together with the plan o# dissolution to the S7C6 within the period contemplated

b Y15$ It maintains that6 in turn6 the S7C would not ha!e su##icient time to process the papers consideringthat Y15 also reuires the submission o# a tax clearance certi#icate be#ore the S7C can appro!e the plan o#dissolution$

(s the Court o# Tax (ppeals obser!ed6 howe!er6 petitioner could ha!e asked #or an extension o# time o##ile its income tax return under Y>1 o# the NIRC which pro!idesB

xtension of time to file returns$ The Commissioner o# Internal Re!enue ma6 in meritorious cases6 granta reasonable extension o# time #or #iling returns o# income 3or #inal and ad"ustment returns in the case o#corporations46 sub"ect to the pro!isions o# section #i#t-one o# this Code$

/etitioner #urther argues that the #iling o# a Final (d"ustment Return would #all due on *ul ),6 &2506 e!enbe#ore the due date #or #iling the uarterl return$ This argument begs the uestion$ It assumes that auarterl return was reuired when the #act is that6 because its taxable ear was shortened6 the F8TC didnot ha!e to #ile a uarterl return$ In #act6 petitioner presented no e!idence that the F8TC e!er #iled suchuarterl return in &250$

Finall6 petitioner cites a hpothetical situation wherein the directors o# a corporation would con!ene on*une ),6 +,,, to plan the dissolution o# the corporation on December )&6 +,,,6 but would submit the plan#or dissolution earlier with the S7C6 which6 in turn6 would appro!e the same on October &6 +,,,$Following Y15 o# the Tax Code6 the corporation would be reuired to submit its complete return onOctober )&6 +,,,6 although its actual dissolution would take place onl on December )&6 +,,,$

Su##ice it to sa that such a situation ma likewise be remedied b resort to Y>1 o# the Tax Code$ Thecorporation can ask #or an extension o# time to #ile a complete income tax return until December )&6 +,,,6when it would cease operations$ This would ob!iate an di##icult which ma arise out o# thediscrepancies not co!ered b Y15 o# the Tax Code$

In an case6 as held in Commissioner of +nternal 2evenue v. Santos6&&QDebatable uestions are #or thelegislature to decide$ The courts do not sit to resol!e the merits o# con#licting issues$Q

Se+o()./etitioner contends that what Y15 reuired was an in#ormation return6 not an income tax return$ Itcites Re!enue -506 o# then (cting Commissioner o# Internal Re!enue Ruben8$ (ncheta6 re#erring to an Qin#ormation returnQ in interpreting 7xecuti!e Order No$ &,+;6 which amendedY15$&+

The contention has no merit$ The circular in uestion must be considered merel as an administrati!einterpretation o# the law which in no case is binding on the courts$&)The opinion in uestion cannot begi!en an e##ect inasmuch as it is contrar to +>> o# Re!enue Regulation No$ +6 as amended6 which wasissued b the >$2eturn of cororations contemlating dissolution or retiring from business. 8 (ll corporations6

partnership "oint accounts and associations6 contemplating dissolution or retiring #rom business without#ormal dissolution shall6 within ), das a#ter the appro!al o# such resolution authori:ing their dissolution6and within the same period a#ter their retirement #rom business6 #ile their income tax returns co!ering the

pro#it earned or business done b them #rom the beginning o# the ear up to the date o# such dissolution orretirement and pa the corresponding income tax due thereon upon demand b the Commissioner o#Internal Re!enue P

This regulation pre!ails o!er the memorandum circular o# the (cting Commissioner o# Internal Re!enue6which petitioner in!okes$

Thus6 as reuired b Y+>> o# Re!enue Regulation No$ +6 an corporation contemplating dissolution mustsubmit tax return on the income earned b it #rom the beginning o# the ear up to the date o# its dissolutionor retirement and pa the corresponding tax due upon demand b the Commissioner o# Internal Re!enue$

Nothing in Y15 o# the Tax Code limited the return to be #iled b the corporation concerned to a merein#ormation return$

It is noteworth that Y15 o# the Tax Code was substantiall reproduced #irst in Y>0 3c46 o# the amendmentsto the same tax Code6 and later in Y0+ 3C4 o# the National Internal Re!enue Code o# &221$ Through all there-enactments o# the law6 there has been no change in the authorit granted to the Secretar 3#ormerl> o# Re!enue Regulation No$ + applies toF8TC6 the two-ear prescripti!e period should be counted #rom *ul ),6 &2506 i$e$6 ), das a#ter theappro!al b the S7C o# its plan #or dissolution$ In accordance with Y+2+ o# the Tax Code6 *ul ),6 &250should be considered the date o# pament b F8TC o# the taxes withheld on the earned income$Conseuentl6 the two-ear period o# prescription ended on *ul ),6 &251$ (s petitioners claim #or taxre#und be#ore the Court o# Tax (ppeals was #iled onl on December +26 &2516 it is clear that the claim is

barred b prescription$

H?7R7FOR76 the petition is D7NI7D #or lack o# merit$/91hi/.n:t

SO ORD7R7D$

18


19/127

T?IRD DIVISION G.R. No. 17840 &* 7, 200

COMMISSIONER OF INTERNAL REEN!E,/etitioner6!s$#AN OF T"E $"ILI$$INE ISLAN%S,Respondent$

D 7 C I S I O N

C"ICO/NAARIO,J.:

This is a /etition #or Re!iew assailing the Decision&dated +2 (pril +,,0 and the Resolution dated +, (pril+,,1 o# the Court o# (ppeals in C(-.$R$ S/ No$ 11;006 which annulled and set aside the Decision dated

&+ ;1$,,6or the eui!alent o#/;6&2,6,&>$>;6 on the operations o# #ormers New Mork 8ranch$ Finall6 respondent8/I had carried o!er excess tax credit #rom the prior ear6 &2216 amounting to /026>+>6+++$,,$

Crediting the a#orementioned amounts against the total tax due #rom it at the end o# &2256 8/I computedan o!erpament to the 8IR o# income taxes in the amount o# /))62>16&,&$,,$ The computation o# 8/I isreproduced belowB

Total Income Taxes Due /;,+62,,6>2)$,,

9essB Tax CreditsB

/rior ears tax credits /026>+>6+++$,,

uarterl paments 0;)60>16>1,$>;

Creditable taxes withheld 16;506551$2,

Foreign tax credit ;6&2,6,&>$,, ;);65>1602>$,,

Net Tax /aable3Re#undable4 /3))62>16&,&$,,4

8/I opted to carr o!er its &225 excess tax credit6 in the amount o# /))62>16&,&$,,6 to the succeedingtaxable ear ending )& December &222$)For &2226 howe!er6 respondent 8/I ended up with 3&4 a net lossin the amount o# /;&061>+6&,+$,,@ 3+4 its still unapplied excess tax credit carried o!er #rom &2256 in theamount o#/))62>16&,&$,,@ and 3)4 more excess tax credit6 acuired in &2226 in the sum o# /&+6210610,$,,$So in &2226 the total excess tax credits o# 8/I increased to />;62++650&$,,6 which it once more opted tocarr o!er to the #ollowing taxable ear$

For the taxable ear ending )& December +,,,6 respondent 8/I declared in its Corporate (nnual ITRB 3&4

:ero taxable income@ 3+4 excess tax credit carried o!er #rom &225 and &2226 amounting to />;62++650&$,,@and 3)4 e!en more excess tax credit6 gained in +,,,6 in the amount o# /+06+,162)2$,,$ This time6 8/I

#ailed to indicate in its ITR its choice o# whether to carr o!er its excess tax credits or to claim the re#undo# or issuance o# a tax credit certi#icate #or the amounts thereo#$

On ) (pril +,,&6 8/I # iled with petitioner Commissioner o# Internal Re!enue 3CIR4 an administrati!eclaim #or re#und in the amount o# /))62>16&,&$,,6 representing its excess creditable income tax #or &225$

The CIR #ailed to act on the claim #or tax re#und o# 8/I$ ?ence6 8/I #iled a /etition #or Re!iew be#ore theCT(6 docketed as CT( Case No$ ;+1;$

The CT( promulgated its Decision in CT( Case No$ ;+1; on &+

In the end6 the CT( decreedB

IN VI7H OF (99 T?7 FOR7.OIN.6 the instant petition #or re!iew is hereb D7NI7D #or lack o#merit$0

8/I #iled a


20/127

The Court o# (ppeals #urther reasoned that the go!ernment would be un"ustl enriched should theappellate court hold that the irre!ocabilit rule barred the claim #or re#und o# a taxpaer6 who pre!iouslopted to carr-o!er its excess tax credit6 but was not able to use the same because it su##ered a net loss inthe succeeding ear$

Finall6 the appellate court cited 8/I-Famil Sa!ings 8ank6 Inc$ !$ Court o# (ppeals;wherein this Courtheld that i# a taxpaer su##ered a net loss in a ear6 thus6 incurring no tax liabilit to which the tax credit#rom the pre!ious ear could be applied6 there was no reason #or the 8IR to withhold the tax re#und whichright#ull belonged to the taxpaer$1

In a Resolution dated +, (pril +,,16 the Court o# (ppeals denied the shall #ile a #inalad"ustment return co!ering the total net income #or the preceding calendar or #iscal ear$ I# the sum o# theuarterl tax paments made during the said taxable ear is not eual to the total tax due on the entiretaxable net income o# that ear the corporation shall eitherB

3a4 /a the excess tax still due@ or

3b4 8e re#unded the excess amount paid6 as the case ma be$

In case the corporation is entitled to a re#und o# the excess estimated uarterl income taxes-paid6 there#undable amount shown on its #inal ad"ustment return ma be credited against the estimated uarterlincome tax liabilities #or the taxable uarters o# the succeeding taxable ear$ 37mphases ours$4

8 !irtue o# the a#ore-uoted pro!ision6 the taxpaer with excess income tax was gi!en the option to either3&4 re#und the amount@ or 3+4 credit the same to its tax liabilit #or succeeding taxable periods$

Section 12 o# the NIRC o# &250 was reproduced as Section 1; o# the NIRC o# &2216&&with the addition o#one important sentence6 which laid down the irre!ocabilit ruleB

Section 1;$Final !d7ustment 2eturn$ - 7!er corporation liable to tax under Section +> shall #ile a #inalad"ustment return co!ering the total net income #or the preceding calendar or #iscal ear$ I# the sum o# theuarterl tax paments made during the said taxable ear is not eual to the total tax due on the entiretaxable net income o# that ear the corporation shall eitherB

3a4 /a the excess tax still due@ or

3b4 8e re#unded the excess amount paid6 as the case ma be$

In case the corporation is entitled to a re#und o# the excess estimated uarterl income taxes paid6 there#undable amount shown on its #inal ad"ustment return ma be credited against the estimated uarterlincome tax liabilities #or the taxable uarters o# the succeeding taxable ears$ Once the option to carr-o!er and appl the excess uarterl income tax against income tax due #or the taxable uarters o# thesucceeding taxable ears has been made6 such option shall be considered irre!ocable #or that taxable

period and no application #or tax re#und or issuance o# a tax credit certi#icate shall be allowed there#or$37mphases ours$4

Hhen 8/I-Famil was decided b this Court6 it did n ot et ha!e the irre!ocabilit rule to consider$ ?ence68/I-Famil cannot be cited as a precedent #or this case$

The #actual background o# /hilam (sset


21/127

collection$

One cannot get a tax re#und and a tax credit at the same time #or the same excess income taxes paid$&)x xx

The Court categoricall declared in /hilam thatB QSection 1; remains clear and uneui!ocal$ Once thecarr-o!er option is taken6 actuall or constructi!el6 it becomes irre!ocable$Q It mentioned no exceptionor uali#ication to the irre!ocabilit rule$

?ence6 the controlling #actor #or the operation o# the irre!ocabilit rule is that the taxpaer chose anoption@ and once it had alread done so6 it could no longer make another one$ Conseuentl6 a#ter thetaxpaer opts to carr-o!er its excess tax credit to the #ollowing taxable period6 the uestion o# whether or

not it actuall gets to appl said tax credit is irrele!ant$ Section 1; o# the NIRC o# &221 is explicit instating that once the option to carr o!er has been made6 Qno application #or tax re#und or issuance o# a taxcredit certi#icate shall be allowed there#or$Q

The last sentence o# Section 1; o# the NIRC o# &221 r eadsB QOnce the option to carr-o!er and appl theexcess uarterl income tax against income tax due #or the taxable uarters o# the succeeding taxableears has been made6 such option shall be considered irre!ocable #or that taxable period and noapplication #or tax re#und or issuance o# a tax credit certi#icate shall be allowed there#or$Q The phrase Q#orthat taxable periodQ merel identi#ies the excess income tax6 sub"ect o# the option6 b re#erring to thetaxable period when it was acuired b the taxpaer$ In the present case6 the excess income tax credit6which 8/I opted to carr o!er6 was acuired b the said bank during the taxable ear &225$ The option o#8/I to carr o!er its &225 excess income tax credit is irre!ocable@ it cannot later on opt to appl #or are#und o# the !er same &225 excess income tax credit$

The Court o# (ppeals mistakenl understood the phrase Q#or that taxable periodQ as a prescripti!e period#or the irre!ocabilit rule$ This would mean that since the tax credit in this case was acuired in &2256 and

8/I opted to carr it o!er to &2226 then the irre!ocabilit o# the option to carr o!er expired b the end o#&2226 lea!ing 8/I #ree to again take another option as regards its &225 excess income tax credit$ Thisconstrual e##ecti!el renders nugator the irre!ocabilit rule$ The e!ident intent o# the legislature6 inadding the last sentence to Section 1; o# the NIRC o# &2216 is to keep the taxpaer #rom #lip-#lopping onits options6 and a!oid con#usion and complication as regards said taxpaers excess tax credit$ Theinterpretation o# the Court o# (ppeals onl delas the #lip-#lopping to the end o# each succeeding taxable

period$

The Court similarl disagrees in the declaration o# the Court o# (ppeals that to den the claim #or re#undo# 8/I6 because o# the irre!ocabilit rule6 would be tantamount to un"ust enrichment on the part o# thego!ernment$ The Court addressed the !er same argument in /hilam6 where it elucidated that there would

be no un"ust enrichment in the e!ent o# denial o# the claim #or re#und under such circumstances6 becausethere would be no #or#eiture o# an amount in #a!or o# the go!ernment$ The amount being claimed as are#und would remain in the account o# the taxpaer until utili:ed in succeeding taxable ears6&>as pro!idedin Section 1; o# the NIRC o# &221$ It is worth to note that unlike the option #or re#und o# excess income

tax6 which prescribes a#ter two ears #rom the #iling o# the F(R6 there is no prescripti!e period #or thecarring o!er o# the same$ There#ore6 the excess income tax credit o# 8/I6 which it acuired in &225 andopted to carr o!er6 ma be repeatedl carried o!er to succeeding taxable ears6 i$e$6 to &2226 +,,,6 +,,&6and so on and so #orth6 until actuall applied or credited to a tax liabilit o# 8/I$

Finall6 while the Court6 in /hilam6 was #irm in its position that the choice o# option as regards the excessincome tax shall be irre!ocable6 it was less rigid in the determination o# which option the taxpaer actuallchose$ It did not limit itsel# to the indication b the taxpaer o# its option in the ITR$

Thus6 #ailure o# the taxpaer to make an appropriate marking o# its option in the ITR does notautomaticall mean that the taxpaer has opted #or a tax credit$ The Court ratiocinated in .$R$ No$&0;;)1&0o# /hilamB

One cannot get a tax re#und and a tax credit at the same time #or the same excess income taxes paid$Failure to signi# ones intention in the F(R does not mean outright barring o# a !alid reuest #or a r e#und6should one still choose this option later on$ ( tax credit should be construed merel as an alternati!eremed to a tax re#und under Section 1;6 sub"ect to prior !eri#ication and appro!al b respondent$

The reason #or reuiring that a choice be made in the F(R upon its #iling is to ease tax administration6

particularl the sel#-assessment and collection aspects$ ( taxpaer that makes a choice expresses certaintor pre#erence and thus demonstrates clear diligence$ Con!ersel6 a taxpaer that makes no choiceexpresses uncertaint or lack o# pre#erence and hence shows simple negligence or plain o!ersight$

x x x x

x x x Despite the #ailure o# %/hilam' to make the appropriate marking in the 8IR #orm6 the #iling o# itswritten claim e##ecti!el ser!es as an expression o# its choice to reuest a tax re#und6 instead o# a taxcredit$ To assert that an #uture claim #or a tax re#und will be instantl hindered b a #ailure to signi#ones intention in the F(R is to render nugator the clear pro!ision that allows #or a two-ear prescripti!e

period$&;37mphases ours$4

/hilam re!eals a meticulous consideration b the Court o# the e!idence submitted b the parties and thecircumstances surrounding the taxpaers option to carr o!er or claim #or re#und$ Hhen circumstancesshow that a choice has been made b the taxpaer to carr o!er the excess income tax as credit6 it should

be respected@ but when indubitable circumstances clearl show that another choice a tax re#und is inorder6 it should be granted$ QTechnicalities and legalisms6 howe!er exalted6 should not be misused b thego!ernment to keep mone not belonging to it and thereb enrich itsel# at the expense o# its law-abidingciti:ens$Q

There#ore6 as to which option the taxpaer chose is generall a matter o# e!idence$ It is axiomatic that aclaimant has the burden o# proo# to establish the #actual basis o# his or her claim #or tax credit or re#und$Tax re#unds6 like tax exemptions6 are construed strictl against the taxpaer$&1

In the /etition at bar6 8/I was unable to discharge the burden o# proo# necessar #or the grant o# a re#und$8/I expressl indicated in its ITR #or &225 that it was carring o!er6 instead o# re#unding6 the excessincome tax it paid during the said taxable ear$ 8/I consistentl reported the said amount in its ITRs #or&222 and +,,, as credit to be applied to an tax liabilit the bank ma incur@ onl6 no such opportunit

arose because it su##ered a net loss in &222 and incurred :ero tax liabilit in +,,,$ In .$R$ No$ &;+,,> o#/hilam6 the Court #oundB

First6 the #act that it #illed out the portion Q/rior Mears 7xcess CreditsQ in its &222 F(R means that itcategoricall a!ailed itsel# o# the carr-o!er option$ In #act6 the line that precedes that phrase in the 8IR#orm clearl states Q9essB Tax Credits/aments$Q The contention that it merel #illed out that portion

because it was a reuirement and that to ha!e done otherwise would ha!e been tantamount to #alsi#ingthe F(R is a long shot$

The F(R is the most reliable #irsthand e!idence o# corporate acts pertaining to income taxes$ In it are#ound the itemi:ation and summar o# additions to and deductions #rom income taxes due$ These entriesare not without rhme or reason$ The are reuired6 because the #acilitate the tax administration

process$&5

8/I itsel# ne!er denied that its original intention was to carr o!er the excess income tax credit it acuiredin &2256 and onl chose to re#und the said amount when it was unable to appl the same to an tax liabilit

in the succeeding taxable ears$ There can be no doubt that 8/I opted to carr o!er its excess income taxcredit #rom &225@ it onl subseuentl changed its mind which it was barred #rom doing b theirre!ocabilit rule$

The choice b 8/I o# the option to carr o!er its &225 excess income tax credit to succeeding taxableears6 which it explicitl indicated in its &225 ITR6 is irre!ocable6 regardless o# whether it was able toactuall appl the said amount to a tax liabilit$ The reiteration b 8/I o# the carr o!er option in its ITR#or &222 was alread a super#luit6 as #ar as its &225 excess income tax credit was concerned6 gi!en theirre!ocabilit o# the initial choice made b the bank to carr o!er the said amount$ For the same reason6the #ailure o# 8/I to indicate an option in its ITR #or +,,, was alread immaterial to its &225 excessincome tax credit$

H?7R7FOR76 the instant /etition #or Re!iew o# the Commissioner #or Internal Re!enue is .R(NT7D$The Decision dated +2 (pril +,,0 and the Resolution dated +, (pril +,,1 o# the Court o# (ppeals in C(-.$R$ S/ No$ 11;00 are R7V7RS7D and S7T (SID7$ The Decision dated &+


22/127

FIRST DIVISION

G.R. No. 14B71 &* 21, 200B

COMMISSIONER OF INTERNAL REEN!E, petitioner6!s$SEIS!I &!S"I $"ILI$$INES, INC.,respondent$

D 7 C I S I O N

$ANGANI#AN, C.J.3

8usiness enterprises registered with the /hilippine 7xport one (uthorit 3/7(4 ma choose between

two #iscal incenti!e schemesB 3&4 to pa a # i!e percent pre#erential tax rate on its gross income and thus beexempt #rom all other taxes@ or 3b4 to en"o an income tax holida6 in which case it is not exempt #romapplicable national re!enue taxes including the !alue-added tax 3V(T4$ The present respondent6 whicha!ailed itsel# o# the second tax incenti!e scheme6 has pro!en that all its transactions were export sales$?ence6 the should be V(T :ero-rated$

T5e C-'e

8e#ore us is a /etition #or Re!iew&under Rule >0 o# the Rules o# Court6 challenging the (ugust &;6 +,,&Decision+o# the Court o# (ppeals 3C(4 in C(-.R S/ No$ ;>;12$ The assailed Decision upheld the (pril+;6 +,,& Decision)o# the Court o# Tax (ppeals 3CT(4 in CT( Case No$ 010&$ The C( Decision disposedas #ollowsB

QH?7R7FOR76 premises considered6 the present petition #or re!iew is hereb D7NI7D DE7 COERS7and accordingl DIS4 the burden o# proo# is on the taxpaer to establish his right to a re#und in an action #ortax re#und$ Failure to discharge such dut is #atal to his action@ 304 respondent should show that itcomplied with the pro!isions o# Section +,> in relation to Section ++2 o# the &221 Tax Code@ and 3;4claims #or re#und are strictl construed against the taxpaer as it partakes o# the nature o# a tax exemption$?ence6 petitioner praed #or the denial o# respondents petition$Q1

R(; o6 t5e Cort o6 T- Appe-'

The CT( ruled that respondent was entitled to the re#und$ Hhile the compan was registered with the

/7( as an eco:one and was6 as such6 exempt #rom income tax6 it a!ailed itsel# o# the #iscal incenti!eunder 7xecuti!e Order No$ ++;$ It thereb sub"ected itsel# to other internal re!enue taxes like theV(T$5The CT( then #ound that onl input taxes amounting to />6)116&,+$+; were dul substantiated bin!oices and O##icial Receipts62while those amounting to /+0>6)&)$>) had not been su##icientl pro!enand were thus disallowed$&,

R(; o6 t5e Cort o6 Appe-'

The Court o# (ppeals upheld the Decision o# the CT($ (ccording to the C(6 respondent had compliedwith the procedural and substanti!e reuirements #or a claim b &4 submitting receipts6 in!oices6 andsupporting papers as e!idence@ +4 paing the sub"ect input taxes on capital goods@ )4 not appling the inputtaxes against an output tax liabilit@ and >4 #iling the claim within the two-ear prescripti!e period underSection ++2 o# the &221 Tax Code$&&

?ence6 this /etition$&+

T5e I''e/etitioner raises this sole issue #or our considerationB

QHhether or not respondent is entitled to the re#und or issuance o# tax credit certi#icate in the amounto#/>6)116&,+$+; as alleged unutili:ed input taxes paid on domestic purchase o# capital goods and ser!ices#or the period co!ering *anuar & to *une ),6 &221$Q&)

T5e Cort' R(;

The /etition has no merit$

Soe I''e3Entitlement to Re!und

To support the issue raised6 petitioner ad!ances the #ollowing argumentsB

QI$ The Court o# (ppeals erred in not holding that respondent being registered with the /hilippine

7conomic one (uthorit 3/7(4 as an %e'co:one %e'xport %e'nterprise6 its business is not sub"ect to V(Tpursuant to Section +> o# Republic (ct No$ 12&; in relation to Section &,) 3now Sec$ &,24 o# the TaxCode6 as amended b R$($ 11&;$

QII$ The Court o# (ppeals erred in not holding that since respondent is 7L7$&,;-& o# Re!enue Regulations No$ 1-206 and o# input taxes paid on ser!ices pursuant to Section>$&,)-& o# the same regulations$

QIII$ The Court o# (ppeals erred in n ot holding that tax re#unds being in the nature o# tax exemptions areconstruedstrictissimi 7uris against claimants$Q&>

These issues ha!e pre!iousl been addressed b this Court in Commissioner of +nternal 2evenue v.Toshiba +nformation (uiment ;%hils.


23/127

Republic (ct 12&;6 as amended6 gi!es a /7(-registered enterprise the option to choose between two#iscal incenti!esB a4 a #i!e percent pre#erential tax rate on its gross income under the said law@ or b4 anincome tax holida pro!ided under 7xecuti!e Order No$ ++; or the Omnibus In!estment Code o# &2516 asamended$ I# the entit a!ails itsel# o# the #i!e percent pre#erential tax rate under the #irst scheme6 it isexempt #rom all taxes6 including the V(T@&2under the second6 it is exempt #rom income taxes #or a numbero# ears6+,but not #rom other national internal re!enue taxes like the V(T$+&

The C( and CT( #ound that respondent had a!ailed itsel# o# the #iscal incenti!e o# an income tax holidaunder 7xecuti!e Order No$ ++;$ This Court respects that #actual #inding$ (bsent a su##icient showing o#error6 #indings o# the CT( as a##irmed b the C( are deemed conclusi!e$++and is regarded in law as #oreign soil$+0Sales b suppliers #rom outside the borders o# theeco:one to this separate customs territor are deemed as exports +;and treated as export sales$+1These salesare :ero-rated or sub"ect to a tax rate o# :ero percent$+5

Notwithstanding the #act that its purchases should ha!e been :ero-rated6 respondent was able to pro!e thatit had paid input taxes in the amount o# />6)116&,+$+;$ The CT( #ound6 and the C( a##irmed6 that thisamount was substantiall supported b in!oices and O##icial Receipts@+2and petitioner has not challengedthe computation$ (ccordingl6 this Court upholds the #indings o# the CT( and the C($

On the other hand6 since &,, percent o# the products o# respondent are exported6),all its transactions aredeemed export sales and are thus V(T :ero-rated$ It has been shown that respondent has no output tax withwhich it could o##set its paid input tax$)&Since the sub"ect input tax it paid #or its domestic purchases o#capital goods and ser!ices remained unutili:ed6 it can claim a re#und #or the input V(T pre!iousl charged

b its suppliers$)+The amount o# />6)116&,+$+; is excess input taxes that "usti# a re#und$

"EREFORE6 the /etition isDE"IEDand the assailed DecisionAFFIR#ED$ No costs6 as petitioneris a go!ernment agenc$

SO OR%ERE%$

%anganiban, C.#., Ynares-Santiago, !ustria-*artine", Calle7o, Sr., Chico-&a"ario, #.#.,concur$

23
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24/127

S7COND DIVISION

G.R. No. 178B7 Noember 17, 2010

COMMISSIONER OF INTERNAL REEN!E,/etitioner6!s$SOND $"ILI$$INES, INC.,Respondent$

D 7 C I S I O N

MEN%OA,J.:

This petition #or re!iew on certiorariseeks to set aside the Said details o# the de#icienc taxes and penalties #or late remittance o#internal re!enue taxes are as #ollowsB

%EFICIENCD AL!E /A%%E% TAK @AT @A''e''me(t No. ST/AT/7/0124/2000 8asic Tax Due / 1620561,,$,,(ddB /enaltiesInterest up to )-)&-+,,, / )6&016)&>$>

&

Compromise +06,,,$,, )6&5+6)&>$>&De#icienc V(T Due / &&6&>&6,&>$>&%EFICIENCD EK$AN%E% IT""OL%ING TAK@ET

@A''e''me(t No. ST/ET/7/012=/2000 8asic Tax Due / &6>&;621;$2,

(ddB /enaltiesInterest up to )-)&-+,,, / 00,6>50$5+Compromise +06,,,$,, 0106>50$5+De#icienc 7HT Due / &622+6>;+$1+%EFICIENCD OF AT ON RODALTD $ADMENTS @A''e''me(t No. ST/LR1/7/012B/2000 8asic Tax Due /(ddB /enaltiesSurcharge / )026&11$5,Interest up to )-)&-+,,, 51605,$)>Compromise &;6,,,$,, >;+6105$&>/enalties Due / >;+6105$&>LATE REMITTANCE OF FINAL IT""OL%ING

TAK

@A''e''me(t No. ST/LR2/7/0127/2000

8asic Tax Due /(ddB /enaltiesSurcharge / &61+26;2,$1

&

Interest up to )-)&-+,,, 0,5615)$,1Compromise 0,6,,,$,, +6+556>1)$15/enalties Due / +6+556>1)$15LATE REMITTANCE OF INCOME $ADMENTS @A''e''me(t No. ST/LRInterest up to )-)&-+,,, 05$+2Compromise +6,,,$,, &,62+)$;,/enalties Due / &,62+)$;,

GRAN% TOTAL / 1=,8=,B6 +,,,6 within ), das a#ter the lapse o# &5, das #rom submission o# the said supportingdocuments to the CIR6 Son #iled a petition #or re!iew be#ore the CT($1

(#ter trial6 the CT(-First Di!ision disallowed the de#icienc V(T assessment because the subsidi:edad!ertising expense paid b Son which was dul co!ered b a V(T in!oice resulted in an input V(Tcredit$ (s regards the 7HT6 the CT(-First Di!ision maintained the de#icienc 7HT assessment on Sonsmotor !ehicles and on pro#essional #ees paid to general pro#essional partnerships$ It also assessed theamounts paid to sales agents as commissions with #i!e percent 30=4 7HT pursuant to Section &3g4 o#Re!enue Regulations No$ ;-50$ The CT(-First Di!ision6 howe!er6 disallowed the 7HT assessment onrental expense since it #ound that the total rental deposit o# /&,60+)65+&$22 was incurred #rom *anuar to$ 7xcept #or the compromise penalties6the CT(-First Di!ision also upheld the penalties #or the late pament o# V(T on roalties6 #or lateremittance o# #inal withholding tax on roalt as o# December &221 and #or the late remittance o# 7HT bsome o# Sons branches$5In sum6 the CT(-First Di!ision partl granted Sons petition b cancelling thede#icienc V(T assessment but upheld a modi#ied de#icienc 7HT assessment as well as the penalties$Thus6 the dispositi!e portion readsB

H?7R7FOR76 the petition #or re!iew is hereb /(RTI(99M .R(NT7D$ Respondent is ORD7R7D to

C(NC79 and HIT?DR(H the de#icienc assessment #or !alue-added tax #or &221 #or lack o# merit$?owe!er6 the de#icienc assessments #or expanded withholding tax and penalties #or late remittance o#internal re!enue taxes are E/?79D$

(ccordingl6 petitioner is DIR7CT7D to /(M the respondent the de#icienc expanded withholding tax inthe amount o# /&6,)06512$1, and the #ollowing penalties #or late remittance o# internal re!enue taxes inthe sum o#/&6+;2602)$2,B

&$ V(T on Roalt / >+26+>+$,1

+$ Hithholding Tax on Roalt 5)&6>+5$+,

)$ 7HT o# /etitioners 8ranches 562+)$;)

Total / &6+;2602)$2,

/lus +,= delinuenc interest #rom *anuar &16 +,,, until #ull paid pursuant to Section +>23C43)4 o# the

&221 Tax Code$ SO ORD7R7D$2

24
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The CIR sought a reconsideration o# the abo!e decision and submitted the #ollowing grounds in supportthereo#B

($ The ?onorable Court committed re!ersible error in holding that petitioner is not liable #or thede#icienc V(T in the amount o# /&&6&>&6,&>$>&@8$ The ?onorable court committed re!ersible error in holding that the commission expense in the amounto# /+652>6121$,, should be sub"ected to 0= withholding tax instead o# the &,= tax rate@C$ The ?onorable Court committed a re!ersible error in holding that the withholding tax assessment withrespect to the 0= withholding tax on rental deposit in the amount o# /&,60+)65+&$22 should be cancelled@andD$ The ?onorable Court committed re!ersible error in holding that the remittance o# #inal withholding tax

on roalties co!ering the period *anuar to &6,&>$>&@+$ Hhether or not the commission expense in the amount o# /+652>6121$,, should be sub"ected to &,=withholding tax instead o# the 0= tax r ate@)$ Hhether or not the withholding assessment with respect to the 0= withholding tax on rental deposit inthe amount o# /&,60+)65+&$22 is proper@ and>$ Hhether or not the remittance o# #inal withholding tax on roalties co!ering the period *anuar to IT""OL%ING TAK ON RENTAL %E$OSIT IN T"E AMO!NT OF $"$10,=2


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Section &,; o# the Tax Code explains when V(T ma be imposed or exacted$ ThusB

S7C$ &,;$ Value-added Tax on Sale o# .oods or /roperties$

3(4 Rate and 8ase o# Tax$ There shall be le!ied6 assessed and collected on e!er sale6 barter or exchangeo# goods or properties6 !alue-added tax eui!alent to ten percent 3&,=4 o# the gross selling price or gross!alue in mone o# the goods or properties sold6 bartered or exchanged6 such tax to be paid b the seller ortrans#eror$

Thus6 there must be a sale6 barter or exchange o# goods or properties be#ore an V(T ma be le!ied$Certainl6 there was no such sale6 barter or exchange in the subsid gi!en b SIS to Son$ It was but a doleout b SIS and not in pament #or goods or properties sold6 bartered or exchanged b Son$

In the case o# C+2 v. Court of !eals ;C!6121$,,$+;

The Court agrees with the CT(-78 when it a##irmed the CT(-First Di!ision decision$ Indeed6 theapplicable rule is Re!enue Regulations No$ ;-506 as amended b Re!enue Regulations No$ &+-2>6 whichwas the applicable rule during the sub"ect period o# examination and assessment as speci#ied in the 9O($Re!enue Regulations No$ +-256 cited b the CIR6 was onl adopted in (pril &225 and6 there#ore6 cannot beapplied in the present case$ 8esides6 the withholding tax on brokers and agents was onl increased to &,=much later or b the end o# *ul +,,& under Re!enue Regulations No$ ;-+,,&$+1Entil then6 the rate wasonl 0=$

The Court also a##irms the #indings o# both the CT(-First Di!ision and the CT(-78 on the de#icienc7HT assessment on the rental deposit$ (ccording to their #indings6 Son incurred the sub"ect rentaldeposit in the amount o# /&,60+)65+&$22 onl #rom *anuar to


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T?IRD DIVISION G.R. No. 14B84 &* 28, 200B

COMMISSIONER OF INTERNAL REEN!E,petitioner6

!s$

MAGSADSAD LINES, INC., #ALIAG NAIGATION, INC., FIM LIMITE% OF T"E MAR%ENGRO!$ @" -() NATIONAL %EELO$MENT COM$AND,respondents$

D 7 C I S I O N

TINGA,J.3

The issue in this present petition is whether the sale b the National De!elopment Compan 3NDC4 o# #i!e304 o# its !essels to the pri!ate respondents is sub"ect to !alue-added tax 3V(T4 under the National InternalRe!enue Code o# &25; 3Tax Code4 then pre!ailing at the time o# the sale$ The Court o# Tax (ppeals 3CT(4and the Court o# (ppeals commonl ruled that the sale is not sub"ect to V(T$ He a##irm6 though on a moreuneui!ocal rationale than that utili:ed b the rulings under re!iew$ The #act that the sale was not in thecourse o# the trade or business o# NDC is su##icient in itsel# to declare the sale as outside the co!erage o#V(T$

The #acts are culled primaril #rom the ruling o# the CT($

/ursuant to a go!ernment program o# pri!ati:ation6 NDC decided to sell to pri!ate enterprise all o# itsshares in its wholl-owned subsidiar the National


28/127

course o# trade or business ma in!ariabl contribute to the production chain6 but the do so onl as amatter o# accident or incident$ (s the sales o# goods or ser!ices do not occur within the course o# trade or

business6 the pro!iders o# such goods or ser!ices would hardl6 i# at all6 ha!e the opportunit toappropriatel credit an V(T liabilit as against their own accumulated V(T collections since theaccumulation o# output V(T arises in the #irst place onl through the ordinar course o# trade or business$

That the sale o# the !essels was not in the ordinar course o# trade or business o# NDC was appreciated bboth the CT( and the Court o# (ppeals6 the latter doing so e!en in its #irst decision which it e!entuallreconsidered$+,He cite with appro!al the CT(s explanation on this pointB

In Imper- . Coe+tor o6 I(ter(- Ree(e 6 .$R$ No$ 9-12+>6 September ),6 &200 321 /hil$ 22+46 theterm Qcarring on businessQ does not mean the per#ormance o# a single disconnected act6 but means

conducting6 prosecuting and continuing business b per#orming progressi!el all the acts normallincident thereo#@ while Q)o(; b'(e''Q con!es the idea o# business being done6 not #rom time to time6

but all the time$ %*$ (ranas6 E/D(T7D N(TION(9 INT7RN(9 R7V7NE7 COD7 3HIT?(NNOT(TIONS46 p$ ;,5-2 3&2554'$ QCor'e o6 b'(e''Q is what is usuall done in the management o#trade or business$ %I)m . ee' R''e6 22 So$ 1;&6 1;>6 &)0 4'$

Hhat is clear there#ore6 based on the a#orecited "urisprudence6 is that Qcourse o# businessQ or QdoingbusinessQ connotes regularit o# acti!it$ In the instant case6 the sale was an isolated transaction$ The salewhich was in!oluntar and made pursuant to the declared polic o# .o!ernment #or pri!ati:ation could nolonger be repeated or carried on with regularit$ It should be emphasi:ed that the normal V(T-registeredacti!it o# NDC is leasing personal propert$+&

This #inding is con#irmed b the Re!ised Charter++o# the NDC which bears no indication that the NDCwas created #or the primar purpose o# selling real propert$+)

The conclusion that the sale was not in the course o# trade or business6 which the CIR does not disputebe#ore this Court6+>should ha!e de#initi!el settled the matter$ (n sale6 barter or exchange o# goods orser!ices (ot ( t5e +or'e o6 tr-)e or b'(e'' is not sub"ect to V(T$

Section &,, o# the Tax Code6 which is implemented b Section >3743i4 o# R$R$ No$ 0-51 now relied uponb the CIR6 is captioned QValue-added tax on sale o# goods6Q and it expressl states that Q%t'here shall bele!ied6 assessed and collected on e!er sale6 barter or exchange o# goods6 a !alue added tax x x x$Q Section&,, should be read in light o# Section 226 which las down the general rule on which persons are liable #orV(T in the #irst place and on what transaction i# at all$ It ma e!en be noted that Section 22 is the !er#irst pro!ision in Title IV o# the Tax Code6 the Title that co!ers V(T in the law$ 8e#ore an portion o#Section &,,6 or the rest o# the law #or that matter6 ma be applied in order to sub"ect a transaction to V(T6it must #irst be satis#ied that the taxpaer and transaction in!ol!ed is liable #or V(T in the #irst place underSection 22$

It would ha!e been a di##erent matter i# Section &,, purported to de#ine the phrase Qin the course o# tradeor businessQ as expressed in Section 22$ I# that were so6 re#erence to Section &,, would ha!e been

necessar as a means o# ascertaining whether the sale o# the !essels was Qin the course o# trade orbusiness6Q and thus sub"ect to

V(T$ 8ut that is not the case$ Hhat Section &,, and Section >3743i4 o# R$R$ No$ 0-51 elaborate on is notthe meaning o# Qin the course o# trade or business6Q but instead the identi#ication o# the transactions whichma be deemed as sale$ It would become necessar to ascertain whether under those two pro!isions thetransaction ma be deemed a sale6 onl i# it is settled that the transaction occurred in the course o# trade or

business in the #irst place$ I# the transaction transpired outside the course o# trade or business6 it would beirrele!ant #or the purpose o# determining V(T liabilit whether the transaction ma be deemed sale6 sinceit anwa is not sub"ect to V(T$

(ccordingl6 the Court rules that gi!en the undisputed #inding that the transaction in uestion was notmade in the course o# trade or business o# the seller6 NDC that is6 the sale is not sub"ect to V(T pursuant toSection 22 o# the Tax Code6 no matter how the said sale ma hew to those transactions deemed sale asde#ined under Section &,,$

In an e!ent6 e!en i# Section &,, or Section > o# R$R$ No$ 0-51 were to #ind application in this case6 theCourt #inds the discussions o##ered on this point b the CT( and the Court o# (ppeals 3in its subseuent

Resolution4 essentiall correct$ Section > 3743i4 o# R$R$ No$ 0-51 does classi# as among the tran

cases tax 2

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