Philippine Health Care Providers v CIR G.R. No. 167330 June 12, 2008Facts:The petitioner, a prepaid health-care organization offering benefits to its members. The CIR found that the organization had a deficiency in the payment of the DST under Section 185 of the 1997 Tax Code which stipulated its implementation:“On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance)”The CIR sent a demand for the payment of deficiency taxes, including surcharges and interest, for 1996-1997 in the total amount of P224,702,641.18.The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to go to the CTA. The latter declared judgment against them and reduced the taxes. It ordered them to pay 22 million pesos for deficiency VAT for 1997 and 31 million deficiency VAT for 1996.CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.

Issues: WON a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)

Held: Yes. Petition dismissed.

Ratio:The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability.Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in the nature of a non-life insurance policy.Its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the sameIt is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.

Roxas vs. CTAFacts:· Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their grandchildren by hereditary succession the following properties:a. Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas- Tenants who have been tilling the lands expressed their desire to purchase from Roxas y Cia, the parcels which they actually occupied- The govt, in line with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings- The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and subdivision expenses- Unfortunately, the govt did not have funds- A special arrangement was made with the Rehabilitation Finance Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan- Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the RFC to pay its loan from the proceeds of the yearly amortizations paid by the farmers

FactsCOA dire

- In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Sec. 34 of the Tax Code

b. Residential house and lot at Wright St., Malate, Manila- After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals of 8K/year to Roxas y Cia

c. Shares of stocks in different corporations

· To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a partnership called Roxas y Compania· On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus P10.00 compromise penalty for late payment.- Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax· The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955, resulting from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers· The brothers protested the assessment but was denied, thus appealing to the CTA· CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa

Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the business of selling real estate

Ruling: NO, being an isolated transaction· Real estate dealer: any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year:· Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals· The fact that there were hundreds of vendees and them being paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period· the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless· It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. But due to the lack of funds, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself· The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly· Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%

As to the deductionsa. P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer given as gifts to various persons – representation expenses· Representation expenses: deductible from gross income as expenditures incurred in carrying on a trade or business· In this case, the evidence does not show such link between the expenses and the business of Roxas y Ciab. Contributions to the Pasay police and fire department and other police departments as Christmas funds· Contributions to the Christmas funds are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities

· Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes· As to the contribution to the Manila Police trust fund, such is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.c. Contributions to the Philippines Herald's fund for Manila's neediest families· The contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes· There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Coded. Contribution to Our Lady of Fatima chapel at the FEU· University gives dividends to its stockholders· Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization· The contributions belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders

No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively

CIR vs. TOKYO SHIPPINGFacts: Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Inc. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. On December 23, 1980 Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and common carrier’s taxes in the sum total of P107,142.75 based on the expected gross receipts of the vessel. Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private respondent’s agent mutually agreed to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier’s taxes as erroneous since no receipt was realized from the charter agreement private respondent instituted a claim for tax credit or refund of the sum of P107,142,75 before petitioner commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review before public respondent CTA.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected and the taxpayer’s failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed strictly against tax claimants.

After trial, respondent tax court decided in favor of the private respondent.

Issue: Whether or not tax claimants has the burden of proof to support its claim of refund.

Held: A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. Likewise, there can be no disagreement with petitioner’s stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund.CIR vs. CENTRAL LUZON DRUGFacts:

Respondent is a domestic corporation engaged in the retailing of medicines and other pharmaceutical products. In 1996 it operated six (6) drugstores under the business name and style “Mercury Drug.” From January to December 1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines pursuant to RA 7432. For said period respondent granted a total of 904,769.₱

On April 15, 1997, respondent filed its annual ITR for taxable year 1996 declaring therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of 904,769.00 alledgedly arising from the 20% sales discount.₱ Unable to obtain affirmative response from petitioner, respondent elevated its claim to the CTA via Petition for Review. CTA

dismissed the same but on MR, CTA reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there are other situations which may warrant a tax credit/refund.

CA affirmed CTA decision reasoning that RA 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

ISSUE: W/N respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

RULING:Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on their purchase of medicine from any private establishment in the country. The latter may then claim the cost of the discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an “allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the government. A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is subtraction “from income for tax purposes,” or an amount that is “allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due.” In other words, whereas a tax credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable income.

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be applied. Without that liability, any tax credit application will be useless. There will be no reason for deducting the latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While the grant is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability against which any tax credit can be applied. For the establishment to choose the immediate availment of a tax credit will be premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted without conditions a tax credit benefit to all covered establishments. However, for the losing establishment to immediately apply such credit, where no tax is due, will be an improvident usance.

In addition, while a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been previously paid.

Petition is denied.CALTEX vs. COAFACTS:In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs. COA denied the same.ISSUE:Whether or not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement.

RULING:It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.The oil companies merely acted as agents for the government in the latter’s collection since taxes are passed unto the end-users, the consuming public.

PHIL AIRLINES vs. EDUFACTS:The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the case to the Supreme Court.

ISSUE: Whether or not motor vehicle registration fees are considered as taxes.

RULING:Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

Kapatiran vs. TanFacts: These four (4) petitions seek to nullify Executive Order No. 273 issued by the President of the Philippines, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax, for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.

Issue: Whether or not EO 273 is unconstitutional

Held: No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and

the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened."

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication.

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers.

At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.

YMCA vs. CIRFacts: The main question in this case is: “is the income derived from rentals of real property owned by Young Men’s Christian Association of the Philippines (YMCA) – established as “a welfare, educational and charitable non-profit corporation” – subject to income tax under the NIRC and the Constitution? In 1980, YMCA earned an income of P676,829 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators and P44k form parking fees.

Issue: Is the rental income of the YMCA taxable?

Held: Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Sec. 27 of the NIRC; court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. The said provision mandates that the income of exempt organizations (such as YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Private respondent is exempt from the payment of property tax, but nit income tax on rentals from its property.

DAVAO GULF vs. CIRFACTS: 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.CIR vs. CTA

MARCOS II vs. CAFacts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the State’s authority to collect internal revenue taxes is paramount.

Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. 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.

Issue: Is the contention of Marcos correct?

Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceased’s estate, is not a mandatory requirement in the collection of estate taxes.

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.

The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the existence of government itself.

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. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.

PHILEX MINING vs. CIRFACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of TaxAppeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2ndquarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant toSections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilitiesstating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 inthe amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against thetax 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 thegovernment and so should be collected without unnecessary hindrance. Evidently, to countenance Philex'swhimsical 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 apending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot besubject to compensation for the simple reason that the government and the taxpayer are not creditors anddebtors of each other. There is a material distinction between a tax and debt. Debts are due to the Governmentin its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be nooff-setting of taxes against the claims that the taxpayer may have against the government. A person cannotrefuse to pay a tax on the ground that the government owes him an amount equal to or greater than the taxbeing collected. The collection of a tax cannot await the results of a lawsuit against the government.

Napocor vs. City of Cabanatuan Facts: City of Cabanatuan filed a collection suit against NAPOCOR, a government-owned and controlled corporation demanding that the latter pay the assessed franchise tax due, plus surcharge and interest. It alleged that NAPOCOR’s exemption from local taxes has already been withdrawn by the Local Government Code. NAPOCOR submitted that it is not liable to pay an annual franchise because the city’s taxing power is limited to private entities that are engaged in trade or occupation for profit, and that the NAPOCOR Charter, being a valid exercise of police power, should prevail over the LGC.

Issue: Whether NAPOCOR is liable to pay annual franchise tax to the City of Cabanatuan

Held: Yes. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. Nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.

A franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. It may be construed in two senses: the right vested in the individuals composing the corporation and the right and privileges conferred upon the corporation. A franchise tax is understood in the second sense; it is not levied on the corporation simply for existing as a corporation but on its exercise of the rights or privileges granted to it by the government. NAPOCOR is covered by the franchise tax because it exercises a franchise in the second sense and it is exercising its rights or privileges under this franchise within the territory of the City.

Mactan Cebu International vs. MarcosFacts:Petitioner Mactan Cebu International Airport Authority was created by virtue of R.A. 6958, mandated to principally undertake the economical, efficient, and effective control, management, and supervision of the Mactan International Airport and Lahug Airport, and such other airports as may be established in Cebu.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its charter. However, on October 11, 1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of the Treasurer of the City of Cebu, demanded payment from realty taxes in the total amount of P2229078.79. Petitioner objected to such demand for payment as baseless and unjustified claiming in its favor the afore cited Section 14 of R.A. 6958. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991.

Section 133. Common limitations on the Taxing Powers of Local Government Units.

The exercise of the taxing powers of the provinces, cities, barangays, municipalities shall not extend to the levi of the following:

xxx Taxes, fees or charges of any kind in the National Government, its agencies and instrumentalities, and LGU’s. xxx

Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of Labor Code that took effect on January 1, 1992.

Issue:Whether or not the petitioner is a “taxable person”

Rulings:

Taxation is the rule and exemption is the exception. MCIAA’s exemption from payment of taxes is withdrawn by virtue of Sections 193 and 234 of Labor Code. Statutes granting tax exemptions shall be strictly construed against the taxpayer and liberally construed in favor of the taxing authority.

The petitioner cannot claim that it was never a “taxable person” under its Charter. It was only exempted from the payment of realty taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.

CIR vs. ALGUEFACTS: Private respondent corporation Algue Inc. 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.