CIR v. PINEDAGR No. L-22734, September 15, 196721 SCRA 105

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

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

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

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

FACTS: Private respondent corporation Algue Inc filed its income tax returns for 1958 and 1959 showing 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 experimental 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.

Francia vs. Intermediate Appellate CourtGR L-67649, 28 June 1988Third Division, Gutierrez Jr. (J): 4 concur

Facts: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City.Issue: Whether the expropriation payment may compensate for the real estate taxes due.Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit agianst the government. Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Progressive Development Corporation vs. Quezon City GR 36081, 24 April 1989 Third Division, Feliciano (J): 4 concurFacts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owned and operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose.

Issue: Whether the supervision fee / license tax is a tax on income.

Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulations for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to the city to cover the latter’s administrative expenses. The use of the gross amount of stall rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate

volume of foodstuffs and related items sold in the privately owned market; and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public.

Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City GR 47252, 18 April 1941 En Banc, Imperial (J): 4 concur

Facts: The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and with residence in Baguio, The City imposed a special assessment against properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect contends that its properties should be free of tax.

Issue: Whether the Apostolic Prefect, as a religious entity, is exempt from the payment of the special assessment.

Held: In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt the Apostolic Prefect from payment of said special assessment. Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect cannot claim exemption as it has not proven the property in question is used exclusively for religious purposes; but that it appears that the same is being used to other non-religious purposes. Thus, the Apostolic Prefect is required to pay the special assessment.

Diaz vs. Secretary of Finance (2011)

Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts.

Issue: May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is subject to VAT)?

Ruling: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section108 who allow others to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be p r o p e r l y t r e a t e d a s a t a x . T a x e s m a y b e i m p o s e d o n l y b y t h e g o v e r n m e n t u n d e r i t s s o v e r e i g n authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

Hydro Resources Contractors Corporation v CTAFacts:National Irrigation Administration (NIA) entered into an agreement with Hydro Resources for the construction of the Magat River Multipurpose Project in Isabela. Under their contract, Hydro was allowed to procure new construction equipment, the payment for which will be advanced by NIA. Hydro shall repay NIA the costs incurred and the manner of repayment shall be through deductions from each monthly payment due to Hydro. Hydro shall repay NIA the full value of the construction before the eventual transfer of ownership.Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid under protest. The Collector of Customs then ordered for the refund of the ad valorem duty in the form of tax credit. This was then reversed by the Deputy Minister of Finance.Issue:Whether or not the imposition of the 3% ad valorem tax on importations is valid.Held:No. EO 860 which was the basis for the imposition of the ad valorem duty took effect December 1982. The importations were effected in 1978 and 1979 by NIA. It is a cardinal rule that laws shall have no retroactive effect unless contrary is provided. EO 860 does not provide for its retroactivity. The Deputy Minister of Finance even clarified that letters of credit opened prior to the effectivity of EO 860 are not subject to its provisions.In the case, the procurement of the equipment was not on a tax exempt basis as the import liabilities have been secured to paid under a financial scheme. It is a matter of implementing a pre-existing agreement, hence, the imported articles can only be subject to the rates of import duties prevailing at the time of entry or withdrawal from the customs’ custody.

CIR v Ayala Securities Corp

Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955. Attached to its ITR was the audited financial statements showing a surplus of P2M+. Income tax due on the return was duly paid w/in the period prescribed by law. CIR then advised Ayala for the assessment of P758k unpaid tax on its accumulated surplus. Ayala protested ate assessment and sought reconsideration given that the accumulation was 1) for a bona fide

business purpose and not to avoid imposition of tax, and 2) assessment was issued beyond 5 yrs.

CTA and SC both held that the assessment was made beyond the 5-year period and thus had no binding force and effect.

I: W/n the assessment was done beyond the prescriptive period R: YES. In this case, the applicable provision is NOT Sec 332a but Sec 331. Sec 332 should apply when there is fraud / falsity on the return with intent to evade payment of tax. There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to avoid

payment. Fraud is a question of fact, circumstances must be proven and alleged. In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961, was made BEYOND

the 5 year period prescribed under Sec331 (Ayala could file its income tax on or before Jan 1956 thus, assessment must be made NOT later than Jan 1961). Thus, it was no longer binding on Ayala Securities.

Villanueva vs. Iloilo City GR L-26521, 28 December 1968 En Banc, Castro (J): 8 concurFacts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license tax fees upon tenement house (P25); tenemen house partly engaged or wholly engaged in and dedicated to business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and tenement house, padtly or wholly engaged in business in other streets (P12 per apartment). The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tenement houses containing 34 apartments. The Supreme Court held the ordinance to be ultra vires. On 15 January 1960, however, the municipal board, believing that it acquired authority to enact an ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios Villaniueva assailed the ordinance anew.

Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.

Held: The Court has ruled that tenement houses constitute a distinct class of property; and that taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity is accomplished. The presumption that tax statutes are intended to operate uniformly and equally was not overthrown herein

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double Taxation

FACTS:

Respondent paid the local business tax only as a manufacturers as it was expressly exempted from the business tax under a different section and which applied to businesses subject to excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under the latter section if they have already paid taxes under a different section in the ordinance. This amending ordinance was later declared by the Supreme Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the

Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition.

ISSUES:

(1) Has Petitioner’s the right to appeal with the CTA lapsed?(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD:

(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007, they were able to comply with the period for filing such a petition.

(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business.

ESTATE TAX Case: COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista (G.R. No. 147188)Date: September 14, 2004 Ponente: DAVIDE, JR.,C.J .FACTS:Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued andoutstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not lessthan P90 million. Toda purportedly sold the property to Rafael A. Altonaga, who, in turn, sold the same property on the same day toRoyal Match Inc. (RMI). For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.CIC filed itscorporate annual income tax return for the year 1989, declaring, among other things, its gain from the sale of real property in theamount of P75,728.021. Toda then sold his entire shares of stocks in CIC to Le Hun T. Choa, as evidenced by a Deed of Sale of Shares of Stocks. Three and a half years later Toda died.The Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to the CIC for deficiency income tax for theyear 1989.The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not againstthe new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989. The Estate of Benigno P. Toda, Jr., represented byspecial co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the Commissioner of InternalRevenue for deficiency income tax for the year 1989.The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest, stating that a fraudulent scheme wasdeliberately perpetuated by the CIC

wholly owned and controlled by Toda by covering up the additional gain of P100 million, whichresulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%.The Estate filed a petition for review with the CTA alleging that the Commissioner erred in holding the Estate liable for income taxdeficiency.In its decision, the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of thetaxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance,and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency income tax and, accordingly, cancelled and setaside the assessment issued by the Commissioner. Court of Appeals affirmed the decision of the CTA.ISSUE: WON respondent Estate is liable for the 1989 deficiency income tax of Cibeles Insurance Corporation.HELD: Yes.RATIO: A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the l iabil it ies of a corporation and vice versa. There are,however, certain instances in which personal l iabil ity may arise. It has been held in a number of cases that personal l iabil ity of acorporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when:1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith fi le with thecorporate secretary his written objection thereto;3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by specific provision of law, to personally answer for his corporate action.

It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:“xxx

SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988 and 1989.”

When the late Toda undertook and agreed “to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989,” he thereby voluntarily held himself personally l iable therefor. Respondent estate cannot,therefore, deny liability for CIC’s deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC, since itsobligation arose from Toda’s contractual undertaking, as contained in theDeed of Sale of Shares of Stock.T h e d e c i s i o n o f t h e C o u r t o f A p p e a l s i s r e v e r s e d a n d r e s p o n d e n t E s t a t e o f B e n i g n o P . T o d a J r . w a s o r d e r e d t o pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989

DOCTRINE OF IMPRESCRIPTIBILTY

As a rule, taxes are imprescriptible as they are the lifeblood of the government. However, tax statutes may provide for statute of limitations.

The rules that have been adopted are as follows:

a.) National Internal Revenue Code The statute of limitation for assessment of tax if a return is filed is within three (3) years from the last day prescribed by law for the filling of the return or if filed after the last day, within three years from date of actual

filling. If no return is filed or the return filed is false or fraudulent, the period to assess is within ten years from discovery of the omission, fraud or falsity.

The period to collect tax is within three years from date of assessment. In the case, however, of omission to file or if the return filed is false or fraudulent, the period to collect is within ten years from discovery without need of an assessment.

b.) Tariff and customs code It does not express any general statute of limitation; it provided, however, that ‘’ when articles have entered

and passed free of duty or final adjustment of duties made, with subsequent delivery, such entry and passage free of duty or settlement of duties will, after the expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of import entry was merely tentative.” (Sec 1603,TCC)

c.) Local Government Code

Local Taxes, fees, or charges shall be assessed within five (5) years from the date they became due. In case of fraud or intent to evade the payment of taxes, fees or charges the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment. They shall also be collected either by administrative or judicial action within five (5) years from date of assessment (Sec. 194. LGC)