Digested Cases in Taxation Law

CIR v. PINEDA
GR No. L-22734, September 15, 1967
21 SCRA 105

FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
  All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes?

HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel.

CIR v. CA, CITY TRUST BANKING CORP.
GR No. 86785, November 21, 1991
234 SCRA 348

FACTS:  Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by which the latter denied on the ground of prescription. Citytrust filed a petition for review before the CTA. The case was submitted for decision based solely on the pleadings and evidence submitted by the respondent because the CIR could not present any evidence by reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to grant the respondent's request for tax refund amounting to P 13.3 million.

ISSUE:  Failure of the CIR to present evidence to support the case of the government, should the respondent's claim be granted?

HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents.  In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect.
  Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for further proceedings and reception of evidence.

COMMISSIONER v. ALGUE, INC.
GR No. L-28896, February 17, 1988

FACTS: Privaterespondent corporation Algue Ince filed its income tax returns for 1958 and 1959showing deductions, for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary expense.

ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the government?

HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an xperimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
  It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
  But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

CIR v. YMCA
GR No. 124043, October 14, 1998
298 SCRA 83

FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various programs beneficial to the public pursuant to its religious, educational and charitable objectives--leases out a portion of its premises to small shop owners, like restaurants and canteen operators, deriving substantial income for such. Seeing this, the commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of the provisions of Section 27 of NIRC which provides that civic league or organizations not organized for profit but operate exclusively for promotion of social welfare and those organized exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed.

ISSUE: Is the contention of YMCA tenable?

HELD: No. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken.

DAVAO GULF LUMBER CORP v. CIR
GR No. 117359, July 23, 1998
293 SCRA 77

FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.

ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies?

HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

MARCOS II v. CA
GR No. 120880, June 5, 1997
293 SCRA 77

FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated.

ISSUE: Is the contention of Bongbong Marcos correct?

HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government.
  The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected.
  On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.

REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed.
  Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.

PHIL. BANK OF COMMUNICATIONS v. CIR
GR No. 112024, January 28, 1999
302 SCRA 250

FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code.

ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC?

HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.
  Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.
  From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
  The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998
294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.
  To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

NORTH CAMARINES LUMBER CO., INC. v. CIR
GR No. L-12353, September 30, 1960
109 PHIL 511

FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955. Twice did the petitioner filed a request for reconsideration before finally submitting the denied request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30, 1955.

ISSUE: Is the contention of the petitioner tenable?

HELD: No. This contention is untenable. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need."

LUTZ v. ARANETA
GR No. L-7859, December 22, 1955
98 PHIL 148

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry?

HELD: Yes. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power.

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden.
  The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause.

PUNSALAN v. MUN. BOARD OF CITY OF MANILA
GR No. L-23645, October 29, 1968
95 PHIL 46

FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and a pharmacist--sought the annulment of Ordinance No.3398 of the City of Manila which imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax, contending in substance that this ordinance and the law authorizing it constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation. The burden of plaintiffs' complaint is not that the professions  to which they respectively belong have been singled out for the imposition of this municipal occupation tax, but that while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention municipalities.

ISSUE: Does the law constitute a class legislation? Is it for the Court to determine which political unit should impose taxes and which should not?

HELD: No. It is not for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is peculiarly within the domain of the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with a population and volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces.