Marcos v. CA

G.R. No. 120880, June 5, 1997

FACTS: Former President Ferdinand Marcos died in Honolulu, Hawaii, USA. A Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and obligations of the late president, as well as that of his family, associates and "cronies". The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an estate tax returns, as well as several income tax returns covering the years 1982 to 1986, - all in violation of the NIRC.

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner Bongbong Marcos for the years 1982 to 1985. Then, the BIR issued 3 tax assessments representing his deficiency income taxes for the years 1982 to 1985.

The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments were all personally and constructively served within the period provided by law upon Mrs. Imelda Marcos through her caretaker Mr. Martinez at her last known address and to petitioner Bongbong Marcos him through his caretaker on the allowed period at his last known address. The deficiency tax assessments were not protested administratively within 30 days from service of said assessments.

 The BIR Commissioner issued a total of 30  notices of levy on real property against certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).

Notices of sale at public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.

Then, petitioner filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an application for writ of preliminary injunction and/or temporary restraining order

The Court of Appeals ruled that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the deceased President Marcos have already become final and unappealable, and may thus be enforced by the summary remedy of levying upon the properties of the late President, as was done by the respondent Commissioner of Internal Revenue.

Unperturbed, petitioner the instant petition for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary injunction.

ISSUES/RULING:

1. Whether the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is a mandatory requirement in the collection of estate taxes. 

No. The assessment of an inheritance tax does not directly involve the administration of a decedent's estate, although it may be viewed as an incident to the complete settlement of an estate, and, under some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the estate as such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the property formerly held by decedent.

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.

2. Whether the assessment of the estate tax and their issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.

No. The deficiency tax assessment, having already become final, executory, and demandable, the same can now be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC. Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes.

3. Numerous pending court cases questioning the late President's ownership or interests in several properties renders the estate tax incapable of exact pecuniary determination.

No. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.

4. Whether the Notices of Levy on Real Property were issued beyond the period provided in the Revenue Memorandum Circular No. 38-68.

No. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states that written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question.

5. Whether there is impropriety on the assessments made because the BIR's total assessment deviates from the findings of the Department of Justice's Panel of Prosecutors.

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed.

CIR v. REYES

G.R. No. 159694, January 27, 2006

FACTS: In 1997, The Regional District Office of South Makati conducted an investigation on the estate left by Maria C. Tancinco who died in 1993. Based on the old Tax Code, a Letter of Authority was issued to Reyes, a heir, without the submission of preliminary findings. In 1998, the CIR issued a Final Assessment Notice (FAN) demanding a payment of 14.9M of taxes including surcharge and interest. The new Tax Reform Act was also made effective in 1998.

In 1999, a Warrant of Distraint was issued due to nonpayment. In 1999 and 2000, Reyes offered compromises but both were rejected. As the estate failed to pay its tax liability within the deadline, the Chief, Collection Enforcement Division, BIR, notified Reyes that the subject property would be sold at public auction. Reyes filed a protest assailing the scheduled auction sale, she asserted that the assessment, letter of demand and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. Without acting on the protest and offer, the CIR instructed the Collection Enforcement Division to proceed with the auction sale. Consequently, Reyes filed a Petition for Review with the CTA.

During the pendency of the Petition for Review with the CTA, however, the BIR issued a Revenue Regulation and Revenue Memorandum Order offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability.

Reyes moved for a 2nd postponement of the hearing set, this time on the ground that she had already paid the compromise amount but was still awaiting approval of the National Evaluation Board The CTA granted the motion and reset the hearing. Then, Reyes filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. Commenting on the motion, the CIR countered that without the approval of the NEB, the application for compromise with the BIR cannot be considered a perfected or consummated compromise.

The CTA denied the motion, prompting Reyes to file a Motion for Reconsideration Ad Cautelam which was denied but Reyes was told to file a Supplemental Petition for Review, setting forth the new issue of whether there was already a perfected compromise.

Reyes filed a Supplemental Petition for Review with the CTA. Answering the Supplemental Petition, the CIR averred that an application for compromise of a tax liability under the RR No. and RMO requires the evaluation and approval of either the NEB or the Regional Evaluation Board as the case may be. Reyes filed a Motion for Judgment on the Pleadings; the motion was granted.

The CTA rendered a Decision denying the petition. 

Aggrieved, Reyes brought a petition to the CA. In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The appellate court added, that it was premature to declare as perfected and consummated the compromise of the estate’s tax liability. 

Hence, this Petition.

ISSUES:

1. Whether petitioner’s assessment against the estate is valid.

2. Whether the compromise entered into is also valid.

RULING: The Petition is unmeritorious.

1. No. The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides that taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void.

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

2. It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the National Evaluation Board composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. 

LORENZO v. POSADAS

G.R. No. 43082, June 18, 1937

FACTS: Thomas Hanley died, leaving a will and a considerable amount of real and personal properties. Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the CFI of Zamboanga. The will was admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real properties which, under the will, were to pass to nephew Matthew ten years after the two executors named in the will was appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (Posadas) assessed against the estate an inheritance tax, together with the penalties for delinquency in payment consisting of a 1% monthly interest from July 1, 1931 to the date of payment and a surcharge of 25% on the tax. Lorenzo paid said amount under protest, notifying Posadas at the same time that unless the amount was promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzo’s protest and refused to refund the said amount. Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and Posadas’ counterclaim. Both parties appealed to this court.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that from the time, the latter became the owner thereof.

II. In holding, in effect, that there was delinquency in the payment of inheritance tax due on the estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years after which, according to the testator's will, the property could be and was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns that the lower court erred in not ordering the plaintiff to pay to the defendant the sum representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley.

There were various issues decided by the court:

1st, when does the inheritance tax accrue and when must it be satisfied?

The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow:

SEC. 1543 (b) provides that the transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. SEC. 1544 (a) provides that the tax for SEC. 1543 (b) shall be paid before entrance into possession of the property. The tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

2nd, should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later?

The court ruled that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.

3rd, in determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees?

The court ruled that while a trustee is entitled to receive a fair compensation for his services it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. 

4th, what law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect?

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent 

Lastly, has there been delinquency in the payment of the inheritance tax?

Yes, the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date. The provisions cases is mandatory and neither the Collector of Internal Revenue or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.

ELEGARDO v. CTA

G.R. No. L-68385, May 12, 1989

FACTS: Warren Taylor Graham, an American national formerly resident in the Philippines, died in Oregon, U.S.A. As he left certain shares of stock in the Philippines, his son, Ward Graham, filed an estate tax return with the Philippine Revenue Representative in San Francisco, U.S.A.

The respondent CIR assessed the decedent's estate an estate tax in the amount of P96,509.35. This assessment was protested by the law firm of Bump, Young and Walker on behalf of the estate. The protest was denied by the Commissioner. No further action was taken by the estate in pursuit of that protest.

The decedent's will had been admitted to probate in the Circuit Court of Oregon. Ward Graham, the designated executor, then appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for the allowance of the will in the Philippines.

Petitioner commenced probate proceedings and the will was allowed, with the petitioner as ancillary administrator. As such, he filed a second estate tax return with the BIR.

On the basis of this second return, the Commissioner imposed an assessment on the estate in the amount of P72,948.87 which was protested on behalf of the estate by the Agrava, Lucero and Gineta Law Office.

While this protest was pending, the Commissioner filed in the probate proceedings a motion for the allowance of the basic estate tax of P96,509.35 as previously assessed. He said that this liability had not yet been paid although the assessment had long become final and executory.

The petitioner regarded this motion as an implied denial of the protest against the second assessment of P72,948.87. On this understanding, he filed a petition for review with the Court of Tax Appeals challenging the said assessment.

The Commissioner did not immediately answer (in fact, as the petitioner stressed, no answer was filed during a delay of 195 days) and in the end instead canceled the protested assessment. This cancellation was notified to the Court of Tax Appeals in a motion to dismiss on the ground that the protest had become moot and academic.

The motion was granted and the petition dismissed. The petitioner then came to this Court on certiorari under Rule 45 of the Rules of Court.

ISSUES/RULING:

1) Whether or not the respondent Court of Tax Appeals erred in dismissing the petitioner's appeal on grounds of jurisdiction and lack of a cause of action?

NO. It is obvious from the express cancellation of the second assessment for P72,948.87 that the petitioner had been deprived of a cause of action as it was precisely from this assessment that he was appealing. The petitioner argues that the issuance of the second assessment had the effect of cancelling the first assessment and that the subsequent cancellation of the second assessment did not have the effect of automatically reviving the first. It is noted that in the letter imposing the second assessment of P72,948.87, the Commissioner made it clear that the  amount is considered provisional only. It is illogical to suggest that a provisional assessment can supersede an earlier assessment which had clearly become final and executory.

2) Whether the appeal filed with the respondent court should be considered moot and academic?

YES. The respondent court was on surer ground, however, when it followed with the finding that the said cancellation had rendered the petition moot and academic. There was really no more assessment to review.

If indeed the Commissioner of Internal Revenue committed an error in the computation of the estate tax, as the petitioner insists, that error can no longer be rectified because the original assessment has long become final and executory. If that assessment was not challenged on time and in accordance with the prescribed procedure, that error - for error it was - was committed not by the respondents but by the decedent's estate itself which the petitioner represents.

DIZON v. CA

G.R. No. 140944, April 30, 2008

FACTS: After the death of Jose P. Fernandez died in November 7, 1987.  Thereafter, a petition for the probate of his will was filed.  The probate court appointed Justice Dizon and petitioner, Atty. Rafael Arsenio P. Dizon as Special and Assistant Special Administrator, respectively, of the Estate of Jose. Then, in a letter, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate. 

Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to represent the same in securing a Certificate of Tax Clearance. Eventually, an estate tax return was filed which showed no estate tax liability. BIR thereafter issued a deficiency estate tax assessment. Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However, the BIR Commissioner denied the request and reiterated that the estate is liable for the deficiency estate tax. Then, petitioner filed a petition for review before respondent CTA. 

The CTA denied the said petition for review. Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency estate tax which is less than the original assessment. Aggrieved, petitioner went to the CA via a petition for review. The CA affirmed the CTA's ruling. 

Petitioner filed a Motion for Reconsideration which the CA denied. Hence, the instant Petition.

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate tax was due.  On the other hand, respondents argue that since the claims of the Estate’s creditors have been condoned, such claims may no longer be deducted from the gross estate of the decedent.

ISSUE: One of the ultimate issue which require resolution in this case is whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the Estate. 

**** The specific question is whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.

HELD: Yes. The Court, in adopting the date-of-death valuation principle in the US Supreme Court’s ruling in Ithaca Trust Co. v. United States, explained that:

• First. Post-death developments are not material in determining the amount of deduction. This is because in estate tax the tax levied occurs at the instance of death, for that reason, the net value of the property transferred should be ascertained, as nearly as possible, as of the that time.

• Second. In our Rules on Special Proceedings the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death.

Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.

AZNAR v. CA

G.R. No. L-20569, August 23, 1974

FACTS: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the Court of Tax Appeals ordering the petitioner to pay the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951.

The case roots from the time when the CIR had doubts regarding the tax returns of Matias Aznar, a person known to be wealthy. An investigation by the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much more than the income reported during said years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years. The CIR wants to collect an additional 50% surcharges on the reported income and even had the properties placed under distraint and levy to secure the payment of such deficiency income tax which totaled to P723, 032.

Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there being a five year limitation upon assessment and collection from the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: "(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission". Petitioner argues said provision does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax. 

ISSUES:

1. Whether the imposition of the 50% fraud penalty is proper; and

2. Whether the right if the CIR to assess deficiency income taxes has prescribed.

HELD: 

1. No. The respondent CTA concluded that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." The Supreme Court found this wrong. It was seen that the petitioner and the CIR incurred errors in their assessment and reporting of the net income and tax due. On the petitioner’s part, there were erroneous entries on the books. On the CIR, there was an error of the accounting method used to determine the tax liability (for example: two buildings should have been eliminated in the list of the petitioner’s assets because they were destroyed in the fire).

The two must be differentiated. False returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). In addition, it is a well-established doctrine that fraud cannot be presumed since it must be proven. Fraudulent intent cannot be deduced from the mistakes, though how frequent it may be. It was seen that the petitioner did not have the intention to report fraudulent returns and they were even very cooperative during the BIR investigations.

2. No. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file returns, the period of ten years from the time of the discovery of the falsity, fraud or omission even seems to be inadequate. There being undoubtedly false tax returns in this case, Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made.

SAN AGUSTIN v. CIR

G.R. No. 138485, September 10, 2011

FACTS: Atty. Jose San Agustin died on June 27, 1990 a holographic will executed on April 21, 1980 giving all his estate to his widow.

Probate proceedings were instituted. Pursuantly, notice of decedents death was sent to the Commissioner of Internal Revenue. An estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an extension of two years for the payment of the tax. BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the National Internal Revenue Code, as amended.

In the probate proceedings, the RTC allowed the will and appointed Jose Feria as Executor of the estate. The executor submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such authority was granted. Thereafter, the executor paid the estate tax in the amount of P1,676,432 within the six (6) months extension period granted by the BIR.

The widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice from the BIR, showing a deficiency estate tax of P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.

Within the ten-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax but requesting that the surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the extension period.

The Commissioner issued an Assessment Notice reiterating the demand in the pre-assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.

The executor requested the Commissioner a reconsideration of the assessment of P976,549.00 and waiver of the surcharge, interest, etc. which was denied stating that there was no legal justification for the waiver. However, the payment of the basic deficiency tax in the amount of P538,509.50 was accepted.

In view thereof, the respondent estate paid the amount of the penalties under protest.

A Petition for Review was then filed by the executor with the CTA with the prayer that the Commissioners letter/decision be reversed and that a refund of the amount of the amount paid be ordered. The Commissioner opposed the said petition, alleging that the CTAs jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National Internal Revenue Code. 

Upholding its jurisdiction over the dispute, the CTA rendered its Decision modifying the CIRs assessment for surcharge, interests and other penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the balance excess payment.

The decision of the Court of Tax Appeals was appealed by the Commissioner of Internal Revenue to the Court of Appeals. In its decision, the Court of Appeals granted the petition of the Commissioner of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void.

Hence, the instant petition.

ISSUES:

1. Whether the filing of a claim for refund is essential before the filing of the petition for review.

2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in accord with the law and therefore illegal.

 

HELD: The Court finds the petition partly meritorious.

1. No. Citing the case of Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The court held the to require the taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, despite the fact that said taxpayer already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. 

2. No. The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent of which is P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of twenty percent (20%) per annum. In this case the interest is P13,462.74  In sum, the tax liability of the estate is the total of the surcharge and interest which is P148,090.00 not P438,040.38. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. 

Rappler Holdings Corp. vs. Trial Court of Pasig

DOCTRINE: The right to travel is guaranteed by the Constitution and a cyber libel conviction alone is not sufficient justification for a court a quo to prevent a person from attending to professional engagements outside the country. However, the right to travel may be impaired in the interest of public health under Section 6, Article III of the 1987 Constitution and to add to that, the Bayanihan to Heal as One Act and the Bayanihan to Recover as One Act have restricted local and foreign travels.

FACTS: This case is a motion for certiorari against Pasig Regional Trial Court (RTC) Branch 157 Judge Ana Teresa Cornejo-Tomacruz for alleged grave abuse of discretion  amounting to lack or excess of jurisdiction for having rejected Maria Ressa’s, Rappler’s Chief Executive Officer, request to travel.

Ressa, who is facing several tax evasion charges, requested permission to leave the country from August 1 to 30, 2020 to support the release of the documentary “A Thousand Cuts,” to attend as a speaker in various journalism and filmmaking conferences, to record promotional materials for the Public Broadcasting Service (PBS) and other interviews, and to attend film festival panels in Boston. The request was denied by the Pasig RTC. After the local court’s initial denial, Ressa moved the dates for her travel to August 23 to September 10. The investigative reporter argued that the RTC decision violated her constitutional right to travel.

ISSUES:

1. Whether or not Judge Ana Teresa Cornejo-Tomacruz committed grave abuse of discretion  amounting to lack or excess of jurisdiction in denying Ressa’s request to travel.

2. Whether the denial violated her constitutional right to travel.

RULING: NO to both. The CTA held that as of the filing of the last pleading on October 19, the case is already moot and the necessity of the travel raised has already lapsed. It also held that Ressa failed to establish that the RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction, noting that the Pasig court’s denial of the motion to travel is not unfounded.

The CTA stressed that the right to travel is not absolute and may be impaired in the interest of public health under Section 6, Article III of the 1987 Constitution and maybe curtailed by law, citing two laws that were enacted in response to the pandemic: the Bayanihan to Heal as One Act on March 24, 2020 and the Bayanihan to Recover as One Act on September 11, 2020. The said laws granted sweeping powers that are necessary and proper to carry out the declared national policy to President Rodrigo Duterte, which paved the way for the regulation and limitation of the operation of all sectors of transportation. 

It also noted that from December 2018 until March 2020, Ressa was allowed to attend professional engagements abroad, but circumstances changed and travel restrictions were implemented because of the pandemic.

It said the RTC resolution pertains to a limited and specific period and does not prohibit her from filing the same motion when the health crisis subsides.

CA vs. CTA – CONTRASTING RULINGS

The CTA ruling differs from the Court of Appeals’ previous denial of Ressa’s bid to travel for the same period. 

The CA is handling Ressa’s appeal of her June 15 conviction for cyber libel.

In affirming its ruling not to allow Ressa to travel, the CA Special Fourteenth Division, through Associate Justice Geraldine Fiel-Macaraig, said in August that her bail operates as a valid restriction” to her right to travel and her conviction warrants the exercise of greater caution even if it is not yet final.

In contrast, the CTA said to withhold permission to travel throughout the duration of the trial or the case is certainly excessive. Petitioner’s conviction in the Cyber Libel case alone is not sufficient justification for the court a quo to prevent her from attending to her professional engagements outside the country.

The CTA also noted that Ressa submitted herself to the trial court’s jurisdiction when she posted bail. Trial of the case can also proceed through videoconference, following the Supreme Court’s circular issued amid the pandemic. It went on and said that Ressa may be abroad but can still attend a virtual hearing.

Despite these pronouncements, the CTA did not overturn the Pasig court’s decision to deny the travel plea.

But it clarified that Ressa could still be allowed to travel on other occasions when the travel restrictions ease up, depending on the trial court’s assessment of the evolving situation.

Marubeni Corporation vs. CIR

Resident Foreign Corporation, defined. — Under the Tax Code, a resident foreign corporation is one that is "engaged in trade or business" within the Philippines.

A single corporation cannot be both resident and non-resident corporation. — A single corporate entity cannot be both a resident and a non-resident corporation depending on the nature of the particular transaction involved. Accordingly, whether the dividends are paid directly to the head office or coursed through its local branch is of no moment for after all, the head office and the office branch constitute but one corporate entity, the Marubeni Corporation, which, under both Philippine tax and corporate laws, is a resident foreign corporation because it is transacting business in the Philippines.

Each tax has a different tax basis; Case at bar. — But while public respondents correctly concluded that the dividends in dispute were neither subject to the 15% profit remittance tax nor to the 10% intercorporate dividend tax, the recipient being a non-resident stockholder, they grossly erred in holding that no refund was forthcoming to the petitioner because the taxes thus withheld totaled the 25% rate imposed by the Philippine-Japan Tax Convention pursuant to Article 10 (2) (b). To simply add the two taxes to arrive at the 25% tax rate is to disregard a basic rule in taxation that each tax has a different tax basis. While the tax on dividends is directly levied on the dividends received, "the tax base upon which the 15% branch profit remittance tax is imposed is the profit actually remitted abroad." 

Philippine-Japan Treaty; 25% maximum rate, imposable only when local taxes exceed the same. — Public respondents likewise erred in automatically imposing the 25% rate under Article 10 (2) (b) of the Tax Treaty as if this were a flat rate. A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as reflected in the phrase "shall not exceed." This means that any tax imposable by the contracting state concerned should not exceed the 25% limitation and that said rate would apply only if the tax imposed by our laws exceeds the same. In other words, by reason of our bilateral negotiations with Japan, we have agreed to have our right to tax limited to a certain extent to attain the goals set forth in the Treaty.

Non-residents corporation is taxed 35% of its gross income from all sources within the Philippines. — Petitioner, being a non-resident foreign corporation with respect to the transaction in question, the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan Treaty of 1980. Proceeding to apply the above section to the case at bar, Petitioner, being a non-resident foreign corporation, as a general rule, is taxed 35% of its gross income from all sources within the Philippines.

Discounted rate of 15% granted where tax credit of not less that 20% of the dividends received is extended to out domestic corporation. — A discounted rate of 15% is given to petitioner on dividends received from a domestic corporation (AG&P) on the condition that its domicile state (Japan) extends in favor of petitioner, a tax credit of not less than 20% of the dividends received. This 20% represents the difference between the regular tax of 35% on non-resident foreign corporations which petitioner would have ordinarily paid, and the 15% special rate on dividends received from a domestic corporation.

Tax refund proper where a foreign non-resident corporation paid income tax on branch profit remittance within the maximum ceiling rate decreed in the tax treaty. — Petitioner is entitled to a refund on the transaction in question. It is readily apparent that the 15% tax rate imposed on the dividends received by a foreign non-resident stockholder from a domestic corporation under Section 24 (b) (1) (iii) is easily within the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10 (2) (b) of the Tax Treaty.

CIR vs. De La Salle University

Constitution; All assets and revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes are exempt from taxes and duties. — Article XIV, Section 4 (3) categorically states that "[a]ll revenues and assets... used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. The text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986 Constitutional Commission to provide broader tax privilege to non-stock, non-profit educational institutions as recognition of their role in assisting the State provide a public good. The tax exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition fees if not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational institutions. Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues and income must have also been sourced from educational activities or activities related to the purposes of an educational institution. The phrase all revenues is unqualified by any reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and duties.

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and exclusively for educational purposes, it shall be exempted from income tax, Value Added Tax, and Local Business Tax. On the other hand, when it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from RPT.

To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the entity shall be exempted from shall depend on whether the item is an item of revenue or asset.

A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year if the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the [LOA]. ¬— LOA which contains unverified prior years is NOT void. It merely prescribes that if the audit includes more than one taxable period, the other periods or years must be specified. The provision read as a whole requires that if a taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records from random unverified years, which may include documents from as far back as ten years in cases of fraud audit.

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes unverified prior years. This does not mean, however, that the entire LOA is void. As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily, the assessments for taxable years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90.

CIR vs. Covanta Energy Philippine Holdings Inc.

Tax Amnesty. — Taxpayers are eligible to the immunities of the government tax amnesty program once all the suspensive conditions imposed under the law and implementing rules were complied by the taxpayer.

A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of conditions one suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a condition may be classified as suspensive when the fulfillment of the condition results in the acquisition of rights. On the other hand, a condition may be considered resolutory when the fulfillment of the condition results in the extinguishment of rights. In the context of tax amnesty, the rights referred to are those arising out of the privileges and immunities granted under the applicable tax amnesty law.

In the case, the Bureau of Internal Revenue questioned the entitlement of Covanta Energy Philippines Holding, Inc. to tax amnesty for failure to sufficiently comply with documentary requirements under the tax amnesty law. The Court pointed out that while the immunities and privileges granted under the tax amnesty law is not absolute, the immunities only cease upon proof of underdeclaration of the taxpayer’s net worth by 30% and ruled that the documentary requirements were sufficiently complied by the taxpayer. Considering that CEPHI completed the requirements and paid the corresponding amnesty tax, it is considered to have totally complied with the tax amnesty program. As a matter of course, CEPHI is entitled to the immediate enjoyment of the immunities and privileges of the tax amnesty program. Nonetheless, the Court emphasizes that the immunities and privileges granted to taxpayers under R.A. No. 9480 is not absolute. It is subject to a resolutory condition insofar as the taxpayers' enjoyment of the immunities and privileges of the law is concerned. These immunities cease upon proof that they underdeclared their net worth by 30%.

Landbank vs. Cacayuran

Requisites of Taxpayer’s Suit. — For a taxpayer’s suit to prosper, two requisites must be met namely, (1) public funds derived from taxation are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and (2) the petitioner is directly affected by the alleged act.

Land Bank claims that Cacayuran did not have any standing to contest the construction of the APC as it was funded through the proceeds coming from the Subject Loans and not from public funds. Besides, Cacayuran was not even a party to any of the Subject Loans and is thus, precluded from questioning the same.

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is wastage of public funds through the enforcement of an invalid or unconstitutional law. A person suing as a taxpayer, however, must show that the act complained of directly involves the illegal disbursement of public funds derived from taxation. I

Although the construction of the APC would be primarily sourced from the proceeds of the Subject Loans, which Land Bank insists are not taxpayer’s money, there is no denying that public funds derived from taxation are bound to be expended as the Municipality assigned a portion of its IRA as a security for the foregoing loans. Needless to state, the Municipality’s IRA, which serves as the local government unit’s just share in the national taxes is in the nature of public funds derived from taxation. It is observed that the proceeds from the Subject Loans had already been converted into public funds by the Municipality’s receipt thereof. Funds coming from private sources become impressed with the characteristics of public funds when they are under official custody. As a resident-taxpayer of the Municipality, Cacayuran is directly affected by the conversion of the Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well-settled that public plazas are properties for public use and therefore, belongs to the public dominion.

Commissioner of Internal Revenue vs. Next Mobile, Inc.

Waiver of Prescription. — Section 203 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is not valid and effective. Exceptions to this rule are provided under Section 222 of the NIRC.

Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. This written agreement between the Commissioner and the taxpayer is the so-called Waiver of the Statute of Limitations. In the execution of said waiver, the following procedures should be strictly followed:

(1) it must specify a definite agreed date between the BIR and petitioner within which the former may assess and collect revenue taxes; (2) signed by the Commissioner; (3) signed by the taxpayer himself or his duly authorized representative, in the case of a corporation, the waiver must be signed by any of its responsible officials; (4) date of such acceptance by the Bureau should be indicated; (5) both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed; and (6) taxpayer and office accepting the waiver must be furnished a copy of the waiver.

While the Supreme Court reiterated that a waiver must strictly comply with the requirements prescribed by the regulations, it qualified and held that a taxpayer cannot impugn the validity of the waiver on the basis of the defects he himself has caused after benefiting from it, as he will be deemed estopped by his bad faith. Despite the waiver’s non-compliance with the requirements in the regulations, the Supreme Court ruled in favor of the BIR and treated the waiver as valid and binding upon the taxpayer since the defect was attributable to the latter’s deliberate acts.

There is no hard-and-fast rule on the issuance of waivers, which is why taxpayers need to take all factors into consideration. While executing a waiver may allow more time for a taxpayer to gather and submit relevant documents before an assessment is finalized, it also prolongs the tax audit taking a toll on the taxpayer’s time and resources, not to mention the continuous running of the interest penalty should the assessment be found valid.

Tolentino vs. Secretary of Finance

Constitutional Law; Bill Drafting; All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must “originate exclusively in the House of Representatives” but the Senate may propose or concur with amendments. — In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must “originate exclusively in the House of Representatives,” it also adds, “but the Senate may propose or concur with amendments.” In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of the following: (1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to make no report at all.

The press is not exempt from the taxing power of the State. —VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and RA. No. 7716 is none of these.

By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. — Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, “even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional.” With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.

In withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. — Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press Co.,297 U.S. 233, 80 L.Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000 with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident.

The VAT is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. — The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation. — The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the “homeless poor” and the “homeless less poor” in the example given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. “It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. —Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. 

Congress shall “evolve a progressive system of taxation” has been interpreted to mean that “direct taxes are to be preferred and as much as possible indirect taxes should be minimized.” —The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of taxation.” The constitutional provision has been interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized’ Indeed, the mandate to Congress is not to prescribe, but to revolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102(b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).

Charitable institutions, churches and parsonages by reason of Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4(3) which under the Constitution are the only exempt from taxation. — Indeed, petitioner’s theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28(3), and non-stock, non-profit educational institutions, by reason of Art. XIV, §4(3).

Nursery Care Corp. vs. Acevedo and the City of Manila

Double taxation. — Double Taxation means taxing the same property twice when it should be taxed only once; that is, “taxing the same person twice by the same jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

The Court holds that all the elements of double taxation concurred upon the City of Manila’s assessment on and collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.

Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and services in the course of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise imposed the tax on a person who sold goods and services in the course of trade or business but only identified such person with particularity, namely, the wholesaler, distributor or dealer (Section 15), and the retailer (Section 17), all the taxes – being imposed on the privilege of doing business in the City of Manila in order to make the taxpayers contribute to the city’s revenues – were imposed on the same subject matter and for the same purpose.

Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the same jurisdiction in the same taxing period (i.e., per calendar year).

Thirdly, the taxes were all in the nature of local business taxes.

Yutivo Sons Hardware vs. CA

Corporations; Piercing the veil of corporate fiction. —A corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, merge them into one. When the corporation is the mere alter ego or business conduit of a person, it may be disregarded.

Taxation; Sales tax; Tax evasion. —A corporation cannot be said to have been organized as a tax evasion device when there was no tax to evade.

Evidence; Fraudulent tax evasion. —The intention to minimize taxes, when used in the context of fraud, must be proven by clear and convincing evidence amounting to more than mere preponderance. It cannot be justified by mere speculation. This is because fraud is never lightly to be presumed.

Concept of tax evasion. —Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes.

Tax avoidance. —A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. Any legal means used by the taxpayer to reduce taxes are all right. Therefore, a man may perform an act that he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient.

Where two corporations were treated as one for tax purposes. —Where it appears that SM was a mere subsidiary, instrumentality or department of Yutivo, the Tax Court correctly disregarded the alleged separate corporate personality of SM in order to arrive at the true tax liability of Yutivo.

When the taxpayer is estopped to invoke prescription. — Estoppel has been employed to prevent the application of the statute of limitations against the government in certain instances in which the taxpayer has taken some affirmative action to prevent the collection of the tax within the statutory period. It is generally held that a taxpayer is estopped to repudiate waivers of the statute of limitations upon which the government relied. Where the taxpayer made several requests for reinvestigation of a tax assessment, it may be considered to have waived the defense of prescription.

Gross selling price does not include the sales tax billed as a separate item. — lf a manufacturer, producer, or importer, infixing the gross selling price of an article sold by him, has included an amount intended to cover the sales tax in the gross selling price of the articles, the sales tax should be based on the gross selling price less the amount intended to cover the tax, if the same is billed as a separate item. Unless billed to the purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross selling price of the articles sold, and deduction thereof will not be allowed

Delpher Trades Co. vs. IAC

Tax Avoidance; The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. — The conveyance of property to a family corporation for shares do not point to anything wrong or objectionable about this “estate planning” scheme resorted to by the owners of the property. The “Deed of Exchange” of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. “The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.” 

Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.

Tax Avoidance Distinguished from Tax Evasion. — Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Factors to Determine Tax Evasion. — Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful. 

Domingo vs. Garlitos

Compensation in taxation. — There can be no off-setting of taxes against the claims that the taxpayer may have against the government. Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. EXCEPT when both taxes and claim against the government is overdue, demandable and fully liquidated. Government has been recognized and an amount has already been appropriated for the purpose by a corresponding law. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 

Coconut Oil Refiners Assn. vs. Torres

Transcendental Importance. — In cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review.

In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the exercise of its discretion, brushes aside these technicalities and takes cognizance of the petition considering the importance to the public of the present case and in keeping with the duty to determine whether the other branches of the government have kept themselves within the limits of the Constitution.