FIRST DIVISION

G.R. No. 222837, July 23, 2018

MACARIO LIM GAW, JR., Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

DECISION

TIJAM, J.:

Before Us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed
by Macario Lim Gaw, Jr. (petitioner) assailing the Decision2 dated December 22, 2014
and Resolution3 dated February 2, 2016 of the Court of Tax  Appeals (CTA) En Banc in
CTA EB Criminal Case No. 026.

Antecedent Facts

Sometime in November 2007, petitioner acquired six (6) parcels of land. To finance its
acquisition, petitioner applied for, and was granted a Short Term Loan (STL) Facility
from Banco De Oro (BDO) in the amount of P2,021,154,060.00.4

From April to June 2008, petitioner acquired four (4) more parcels of land. Again,
petitioner applied for and was granted an STL Facility from BDO in the amount of
P2,732,666,785.5

Petitioner entered into an Agreement to Sell6 with Azure Corporation for the sale and
transfer of real properties to a joint venture company, which at the time was still to be
formed and incorporated. Then on July 11, 2008, petitioner conveyed the 10 parcels of
land to Eagle I Landholdings, Inc. (Eagle I), the joint venture company referred to in
the Agreement to Sell.7

In compliance with Revenue Memorandum Order No. 15-2003,8 petitioner requested

the Bureau of Internal Revenue (BIR)-Revenue District Office (RDO) No. 52 for the
respective computations of the tax liabilities due on the sale of the 10 parcels of land to
Eagle I.9

In accordance with the One Time Transactions (ONETT) Computation sheets, petitioner
paid Capital Gains Tax amounting to P505,177,213.8110 and Documentary Stamp Tax
amounting to P330,390.00.11

On July 23, 2008, the BIR-RDO No. 52 issued the corresponding Certificates Authorizing
Registration and Tax Clearance Certificates.12

Two years later, Commissioner of Internal Revenue (respondent) opined that petitioner
was not liable for the 6% capital gains tax but for the 32% regular income tax and 12%
value added tax, on the theory that the properties petitioner sold were ordinary assets
and not capital assets. Further, respondent found petitioner to have misdeclared his
income, misclassified the properties and used multiple tax identification numbers to
avoid being assessed the correct amount of taxes.13

Thus, on August 25, 2010, respondent issued a Letter of Authority14 to commence

investigation on petitioner's tax account.

The next day, respondent filed before the Department of Justice (DOJ) a Joint
Complaint Affidavit15 for tax evasion against petitioner for violation of Sections
25416 and 25517 of the National Internal Revenue Code (NIRC).

The DOJ then filed two criminal informations for tax evasion against petitioner docketed
as CTA Criminal Case Nos. O-206 and O-207.18 At the time the Informations were filed,
the respondent has not issued a final decision on the deficiency assessment against
petitioner. Halfway through the trial, the respondent issued a Final Decision on Disputed
Assessment (FDDA)19 against petitioner, assessing him of deficiency income tax and
VAT covering taxable years 2007 and 2008.

With respect to the deficiency assessment against petitioner for the year 2007,
petitioner filed a petition for review with the CTA, docketed as CTA Case No. 8502. The
clerk of court of the CTA assessed petitioner for filing fees which the latter promptly
paid.20

However, with respect to the deficiency assessment against petitioner for the year
2008, the same involves the same tax liabilities being recovered in the pending criminal
cases. Thus, petitioner was confused as to whether he has to separately file an appeal
with the CTA and pay the corresponding filing fees considering that the civil action for
recovery of the civil liability for taxes and penalties was deemed instituted in the
criminal case.21

Thus, petitioner filed before the CTA a motion to clarify as to whether petitioner has to
file a separate petition to question the deficiency assessment for the year 2008.22

On June 6, 2012, the CTA issued a Resolution23 granting petitioner's motion and held
that the recovery of the civil liabilities for the taxable year 2008 was deemed instituted
with the consolidated criminal cases, thus:

WHEREFORE, in light of the foregoing considerations, the prosecution's Motion for

Leave of Court to Amend Information and Admit Attached Amended Information filed on
May 16, 2012 is GRANTED. Accordingly, the Amended Information for CTA Crim. No.
O-206 attached thereto is hereby ADMITTED. Re-arraignment of [petitioner] in said
case is set on June 13, 2012 at 9:00 a.m.

As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that the
Civil Action for Recovery of Civil Liability for Taxes and Penalties is Deemed Instituted in
the Consolidated Criminal Cases) filed on May 30, 2012, the same is
hereby GRANTED. The civil action for recovery of the civil liabilities of [petitioner] for
taxable year 2008 stated in the [FDDA] dated May 18, 2012 is DEEMED
INSTITUTED with the instant consolidated criminal cases, without prejudice to the
right of the [petitioner] to avail of whatever additional legal remedy he may have, to
prevent the said FDDA from becoming final and executory for taxable year 2008.
Additionally, [petitioner] is not precluded from instituting a Petition for Review to assail
the assessments for taxable year 2007, as reflected in the said FDDA dated May 18,
2012.

SO ORDERED.24

However, as a caution, petitioner still filed a Petition for Review Ad Cautelam (with

Motion for Consolidation with CTA Criminal Case Nos. O-206 and O-207).25 Upon filing
of the said petition, the clerk of court of the CTA assessed petitioner with "zero filing
fees."26

Meanwhile, the CTA later acquitted petitioner in Criminal Case Nos. O-206 and O-207
and directed the litigation of the civil aspect in CTA Case No. 8503 in its
Resolution27 dated January 3, 2013, to wit:

WHEREFORE, all the foregoing considered, the [petitioner's] "DEMURRER TO

EVIDENCE" is hereby GRANTED and CTA Crim. Case Nos. O-206 and O-207 are
hereby DISMISSED. Accordingly, [petitioner] is hereby ACQUITTED on reasonable
doubt in said criminal cases.

As regards CTA Case No. 8503, an Answer having been filed in this case on August 17,
2012, let this case be set for Pre-Trial on January 23, 2013 at 9:00 a.m.

SO ORDERED.28

Thereafter, respondent filed a Motion to Dismiss29 the Petition for Review Ad

Cautelam on the ground that the CTA First Division lacks jurisdiction to resolve the case
due to petitioner's non-payment of the filing fees.

On March 1, 2013, the CTA First Division issued a Resolution30 granting the Motion to
Dismiss. His motion for reconsideration being denied, petitioner elevated the case to
the CTA En Banc.  The latter however affirmed the dismissal of the case in its
Decision31 dated December 22, 2014, thus:

WHEREFORE, premises considered, the instant Petition for Review is DENIED for lack

of merit. The Resolutions of the First Division of this Court promulgated on 01 March
2013 and 24 June 2013 are hereby AFFIRMED.

Costs against the petitioner.

SO ORDERED.32

Petitioner's motion for reconsideration was likewise denied by the CTA En Banc in its
Resolution33 dated February 2, 2016.

Hence, this petition.

 Issues

Petitioner raises the following arguments:

IN RESOLVING CTA EB CRIM. CASE NO. 026, THE CTA EN BANC  HAS NOT ONLY
DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THIS HONORABLE COURT, BUT HAS ALSO DEPRIVED
PETITIONER OF HIS RIGHT TO DUE PROCESS AS TO CALL FOR AN EXERCISE OF
SUPERVISION, CONSIDERING THAT:

THE CTA EN BANC  COMMITTED SERIOUS REVERSIBLE ERROR AND EFFECTIVELY

DENIED PETITIONER DUE PROCESS BY DISMISSING THE PETITION FOR REVIEW AD
CAUTELAM SUPPOSEDLY FOR LACK OF JURISDICTION DUE TO PETITIONER'S FAILURE
TO PAY DOCKET AND OTHER LEGAL FEES.

BASED ON APPLICABLE LAWS AND JURISPRUDENCE, AS AFFIRMED BY THE CTA IN ITS

PAST PRONOUNCEMENTS IN THE CONSOLIDATED CASES, IT HAD ALREADY ACQUIRED
JURISDICTION OVER CTA CASE NO. 8503, AND THEREFORE COULD NOT BE DIVESTED
OF SUCH JURISDICTION UNTIL FINAL JUDGMENT.

THE ZERO-FILING-FEE ASSESSMENT IN CTA CASE NO. 8503 ISSUED BY THE CLERK OF
COURT OF THE CTA WAS CONSISTENT WITH APPLICABLE LAWS AND JURISPRUDENCE,
AS AFFIRMED BY THE CTA IN ITS PAST PRONOUNCEMENTS IN THE CONSOLIDATED
CASES.

PETITIONER WAS DEPRIVED OF DUE PROCESS WHEN HIS PETITION WAS DISMISSED
WITHOUT FIRST BEING AFFORDED A FAIR OPPORTUNITY TO PAY PROPERLY ASSESSED
FILING FEES.

II

THE CTA EN BANC  COMMITTED SERIOUS REVERSIBLE ERROR IN DEPRIVING

PETITIONER OF HIS RIGHT TO ASSAIL THE DEFICIENCY ASSESSMENTS AGAINST HIM
FOR TAXABLE YEAR 2008 AND SANCTIONING RESPONDENT'S DENIAL OF
PETITIONER'S RIGHT TO DUE PROCESS DESPITE THE FOLLOWING FACTUAL
CIRCUMSTANCES WHICH RENDER THE ASSESSMENTS NULL AND VOID:

THE LETTER OF AUTHORITY NO. 2009-00044669 WHICH COVERS THE AUDIT OF

"UNVERIFIED PRIOR YEARS" IS INVALID, BEING IN DIRECT CONTRAVENTION OF
SECTION C OF REVENUE MEMORANDUM ORDER NO. 43-90.

THE FORMAL LETTER OF DEMAND DATED 08 APRIL 2011 AND FINAL DECISION ON
DISPUTED ASSESSMENT NO. 2012-0001 DATED 18 MAY 2012 WERE IMPROPERLY
SERVED ON PETITIONER.

RESPONDENT DISREGARDED PETITIONER'S PROTEST LETTER DATED 07 JUNE 2011

AND ADDITIONAL SUBMISSIONS IN SUPPORT OF HIS PROTEST.

THE DEFICIENCY TAX ASSESSMENTS AGAINST PETITIONER FOR TAXABLE YEAR 2008
HAVE NO FACTUAL AND LEGAL BASES.

IT HAS BEEN A CASE OF PERSECUTION RATHER THAN PROSECUTION ON THE PART OF

THE RESPONDENT AGAINST PETITIONER, WARRANTING NOT ONLY AN ACQUITTAL BUT
ALSO THE DISMISSAL OF THE CIVIL ASPECT OF CTA CRIMINAL CASE NOS. O-206 AND
O-207.

III

IN THE INTEREST OF THE EXPEDITIOUS ADMINISTRATION OF JUSTICE, THIS

HONORABLE COURT MAY ALREADY RESOLVE THE CIVIL ASPECT OF CTA CRIMINAL
CASE NOS. O-206 AND O-207 ON THE MERITS.34

Ultimately, the issues for Our resolution are: 1) whether the CTA erred in dismissing
CTA Case No. 8503 for failure of the petitioner to pay docket fees; 2) in the event that
the CTA erred in dismissing the case, whether this Court can rule on the merits of the
case; and 3) whether the petitioner is liable for the assessed tax deficiencies.

Arguments of the Petitioner

Petitioner claims that since the FDDA covering the year 2008 was also the subject of
the tax evasion cases, the civil action for the recovery of civil liability for taxes and
penalties was deemed instituted in the consolidated criminal cases as a matter of law.
Thus, if the civil liability for recovery of taxes and penalties is deemed instituted in the
criminal case, it is the State, not the taxpayer that files the Information and pays the
filing fee. Petitioner claims that there is no law or rule that requires petitioner to pay
filing fees in order for the CTA to rule on the civil aspect of the consolidated criminal
cases filed against him.35
Petitioner likewise asserts that when they filed the Petition for Review Ad Cautelam the
clerk of court made a "zero filing fee" assessment. It is therefore a clear evidence that
the civil action for recovery of taxes was deemed instituted in the criminal actions.
Thus, the CTA has long acquired jurisdiction over the civil aspect of the consolidated
criminal cases.36  Therefore, the CTA erred in dismissing the case for nonpayment of
docket fees.

Petitioner further argues that in order not to prolong the resolution of the issues and
considering that the records transmitted to this Court are sufficient to determine and
resolve whether petitioner is indeed liable for deficiency income tax, this Court can
exercise its prerogative to rule on the civil aspect of the CTA Criminal Case Nos. O-206
and O-207.37

Arguments of the Respondent

Respondent, through the Office of the Solicitor General (OSG) argues that the tax
evasion cases filed against petitioner were instituted based on Sections 254 and 255 of
the NIRC, that in all criminal cases instituted before the CTA, the civil aspect of said
cases, which constitutes the recovery by the government of the taxes and penalties
relative to the criminal action shall not be subject to reservation for a separate civil
action.38 On the other hand, the civil remedy to contest the correctness or validity of
disputed tax assessment is covered by Section 939 of Republic Act (R.A.) No.
9282.40 The difference between the criminal case for tax evasion filed by the
government for the imposition of criminal liability on the taxpayer and the Petition for
Review filed by the petitioner for the purpose of questioning the FDDA is glaringly
apparent. The mere appearance of the word "civil action" does not give rise to the
conclusion that all "civil" remedies pertain to the same reliefs. The petitioner cannot
simultaneously allege that the petition for review is the civil action that is deemed
instituted with the criminal action and at the same time avail of the separate taxpayer's
remedy to contest the FDDA through a petition for review.41

Respondent further argues that in ruling upon the merits of the Petition for Review Ad
Cautelam  would prompt this Court to become a trier of facts, which is improper,
especially in a Petition for Review under Rule 45 of the Rules of Court. Additionally,
assuming that the CTA En Banc erred in affirming the dismissal ordered by the CTA
First Division due to non-payment of docket fees, the correct remedy is to remand the
case and order the CTA to compute the required docket fees and reinstate the case
upon payment of the same.42

Ruling of the Court

The petition is partly granted.

The civil action filed by the

petitioner to question the FDDA is
not deemed instituted with the
criminal case for tax evasion
Rule 9, Section 11 of A.M. No. 05-11-07-CTA,43 otherwise known as the Revised Rules
of the Court of Tax Appeals (RRCTA), states that:

SEC. 11. Inclusion of civil action in criminal action. –  In cases within the jurisdiction of
the Court, the criminal action and the corresponding civil action for the recovery of civil
liability for taxes and penalties shall be deemed jointly instituted in the same
proceeding. The filing of the criminal action shall necessarily carry with it the filing of
the civil action. No right to reserve the filing of such civil action separately from the
criminal action shall be allowed or recognized.

Petitioner claimed that by virtue of the above provision, the civil aspect of the criminal
case, which is the Petition for Review Ad Cautelam,  is deemed instituted upon the filing
of the criminal action. Thus, the CTA had long acquired jurisdiction over the civil aspect
of the consolidated criminal cases. Therefore, the CTA erred in dismissing the case.

We do not agree.
Rule 111, Section 1(a)44 of the Rules of Court provides that what is deemed instituted
with the criminal action is only the action to recover civil liability arising from the
crime.45 Civil liability arising from a different source of obligation, such as when the
obligation is created by law, such civil liability is not deemed instituted with the criminal
action.

It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is
created by law and does not arise from the offense of tax evasion, as such, the same is
not deemed instituted in the criminal case.46

In the case of Republic of the Philippines v. Patanao, 47 We held that:

Civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed
by him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation principles of the two
cases is one of the reasons for not imposing civil indemnity on the criminal infractor of
the income tax law. x x x Considering that the Government cannot seek satisfaction of
the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise
stated, since the said civil liability is not deemed included in the criminal action,
acquittal of the taxpayer in the criminal proceeding does not necessarily entail
exoneration from his liability to pay the taxes. It is error to hold, as the lower court has
held that the judgment in the criminal cases Nos. 2089 and 2090 bars the action in the
present case. The acquittal in the said criminal cases cannot operate to
discharge defendant appellee from the duty of paying the taxes which the law
requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal
proceeding nor is it a mere civil liability arising from crime that could be wiped
out by the judicial declaration of non existence of the criminal acts charged. x
x x.48(Citations omitted and emphasis ours)
Further, in a more recent case of Proton Pilipinas Corp. v. Republic of the Phils., 49 We
ruled that:

While it is true that according to the aforesaid Section 4, of Republic Act No. 8249, the
institution of the criminal action automatically carries with it the institution of the civil
action for the recovery of civil liability, however, in the case at bar, the civil case for
the collection of unpaid customs duties and taxes cannot be simultaneously
instituted and determined in the same proceedings as the criminal cases
before the Sandiganbayan, as it cannot be made the civil aspect of the criminal
cases filed before it. It should be borne in mind that the tax and the obligation to
pay the same are all created by statute; so are its collection and payment
governed by statute. The payment of taxes is a duty which the law requires to
be paid. Said obligation is not a consequence of the felonious acts charged in
the criminal proceeding nor is it a mere civil liability arising from crime that
could be wiped out by the judicial declaration of non-existence of the criminal
acts charged. Hence, the payment and collection of customs duties and taxes
in itself creates civil liability on the part of the taxpayer. Such civil liability to
pay taxes arises from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him. 50 (Citations
omitted and emphasis ours)

The civil action for the recovery of

civil liability for taxes and penalties
that is deemed instituted with the
criminal action is not the Petition
for Review Ad Cautelam filed by
petitioner

Under Sections 254 and 255 of the NIRC, the government can file a criminal case for
tax evasion against any taxpayer who willfully attempts in any manner to evade or
defeat any tax imposed in the tax code or the payment thereof. The crime of tax
evasion is committed by the mere fact that the taxpayer knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all of the tax. It is therefore
not required that a tax deficiency assessment must first be issued for a criminal
prosecution for tax evasion to prosper.51

While the tax evasion case is pending, the BIR is not precluded from issuing a final
decision on a disputed assessment, such as what happened in this case. In order to
prevent the assessment from becoming final, executory and demandable, Section 9 of
R.A. No. 9282 allows the taxpayer to file with the CTA, a Petition for Review within 30
days from receipt of the decision or the inaction of the respondent.

The tax evasion case filed by the government against the erring taxpayer has, for its
purpose, the imposition of criminal liability on the latter. While the Petition for Review
filed by the petitioner was aimed to question the FDDA and to prevent it from becoming
final. The stark difference between them is glaringly apparent. As such, the Petition for
Review Ad Cautelam  is not deemed instituted with the criminal case for tax evasion.
In fact, in the Resolution52 dated June 6, 2012, the CTA recognized the separate and
distinct character of the Petition for Review from the criminal case, to wit:

As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation that the
Civil Action for Recovery of Civil Liability for Taxes and Penalties is Deemed Instituted in
the Consolidated Criminal Cases) filed on May 30, 2012, the same is
hereby GRANTED. The civil action for recovery of the civil liabilities of [petitioner] for
taxable year 2008 stated in the [FDDA] dated May 18, 2012 is DEEMED
INSTITUTED with the instant consolidated criminal cases, without prejudice to the
right of the [petitioner] to avail of whatever additional legal remedy he may
have, to prevent the said FDDA from becoming final and executory for taxable
year 2008.53 (Emphasis ours)

In the said resolution, what is deemed instituted with the criminal action is only the
government's recovery of the taxes and penalties relative to the criminal case. The
remedy of the taxpayer to appeal the disputed assessment is not deemed instituted
with the criminal case. To rule otherwise would be to render nugatory the procedure in
assailing the tax deficiency assessment.

The CTA En Banc erred in

affirming the dismissal of the case
for nonpayment of docket fees

While it is true that the Petition for Review Ad Cautelam is not deemed instituted with
the criminal case, We hold that the CTA En Banc still erred in affirming the dismissal of
the case.

Rule 6, Section 3 of the RRCTA provides that:

SEC. 3. Payment of docket fees.  – The Clerk of Court shall not receive a petition for
review for filing unless the petitioner submits proof of payment of the docket fees. Upon
receipt of the petition or the complaint, it will be docketed and assigned a number,
which shall be placed by the parties on all papers thereafter filed in the proceeding. The
Clerk of Court will then issue the necessary summons to the respondent or defendant.

Basic is the rule that the payment of docket and other legal fees is both mandatory and
jurisdictional. The court acquires jurisdiction over the case only upon the payment of
the prescribed fees.54

However, the mere failure to pay the docket fees at the time of the filing of the
complaint, or in this case the Petition for Review Ad Cautelam, does not necessarily
cause the dismissal of the case. As this Court held in Camaso v. TSM Shipping (Phils.),
Inc.,55 while the court acquires jurisdiction over any case only upon the payment of the
prescribed docket fees, its nonpayment at the time of filing of the initiatory pleading
does not automatically cause its dismissal so long as the docket fees are paid within a
reasonable period; and that the party had no intention to defraud the government.56
In this case, records reveal that petitioner has no intention to defraud the government
in not paying the docket fees. In fact, when he appealed the FDDA insofar as the
taxable year 2007 was concerned, he promptly paid the docket fees when he filed his
Petition for Review.

Confusion resulted when the FDDA also covered tax deficiencies pertaining to taxable
year 2008 which was also the subject of the consolidated criminal cases for tax evasion.
To guide the petitioner, he sought the advise of the CTA First Division on whether he
was still required to pay the docket fees. The CTA First Division issued its
Resolution57 dated June 6, 2012 ruling that the civil action for recovery of the civil
liabilities of petitioner for taxable year 2008 stated in the FDDA was deemed instituted
with the consolidated criminal cases. Pursuant to said CTA Resolution, the Clerk of
Court issued a computed "zero filing fees"58 when petitioner filed his Petition for
Review Ad Cautelam.

Petitioner merely relied on good faith on the pronouncements of the CTA First Division
that he is no longer required to pay the docket fees. As such, the CTA cannot just
simply dismiss the case on the ground of nonpayment of docket fees. The CTA should
have instead directed the clerk of court to assess the correct docket fees and ordered
the petitioner to pay the same within a reasonable period. It should be borne in mind
that technical rules of procedure must sometimes give way, in order to resolve the case
on the merits and prevent a miscarriage of justice.

This Court will not however rule on

the merits of the CTA Case No.
8503

Rule 4, Section 3(a), paragraph 1 of the RRCTA provides that the CTA First Division has
exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue
on disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the NIRC or other laws
administered by the BIR, to wit:

SEC. 3. Cases within the jurisdiction of the Court in Divisions.  – The Court in Divisions
shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the

following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of
Internal Revenue;

The above provision means that the CTA exercises exclusive appellate jurisdiction to
resolve decisions of the commissioner of internal revenue. There is no other court that
can exercise such jurisdiction. "[I]t should be noted that the CTA has developed an
expertise on the subject of taxation because it is a specialized court dedicated
exclusively to the study and resolution of tax problems."59 Thus, this Court has no
jurisdiction to review tax cases at the first instance without first letting the CTA to study
and resolve the same.

Under Rule 16, Section 160 of the RRCTA, this Court's review of the decision of the
CTA En Banc  is limited in determining whether there is grave abuse of discretion on the
part of the CTA in resolving the case. Basic is the rule that delving into factual issues in
a petition for review on certiorari is not a proper recourse, since a Rule 45 petition is
only limited to resolutions on questions of law.61

Here, petitioner insists that the 10 parcels of idle land he sold on July 11, 2008 in a
single transaction to Eagle I are capital assets. Thus, the said parcels of land are
properly subject to capital gains tax and documentary stamp tax and not to the regular
income tax and value-added tax. The CIR, on the other hand argues that the 10 parcels
of land sold by petitioner are ordinary assets, hence should be subject to income tax
and value-added tax. The CIR reasoned that the sole purpose of petitioner in acquiring
the said lots was for the latter to make a profit. Further, the buying and selling of the
said lots all occurred within the period of eight months and it involved sale transactions
with a ready buyer.62

Section 39(A)(1) of the National Internal Revenue Code (NIRC) provides that:

(1) Capital Assets. - the term 'capital assets' means property held by the taxpayer

(whether or not connected with his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of his trade
or business, or property used in the trade or business, of a character which is subject to
the allowance for depreciation provided in Subsection (F) of Section 34; or real property
used in trade or business of the taxpayer.

The distinction between capital asset and ordinary asset was further defined in Section
2(a) and (b) Revenue Regulations No. 7-2003,63 thus:

a. Capital assets shall refer to all real properties held by a taxpayer, whether or not
connected with his trade or business, and which are not included among the real
properties considered as ordinary assets under Sec. 39(A)(1) of the Code.
b. Ordinary assets shall refer to all real properties specifically excluded from the
definition of capital assets under Sec. 39(A)(1) of the Code, namely:
1. Stock in trade of a taxpayer or other real property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year; or

2. Real property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business; or

3. Real property used in trade or business (i.e., buildings and/or improvements) of a

character which is subject to the allowance for depreciation provided for under Sec.
34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.

The statutory definition of capital assets is negative in nature. Thus, if the property or
asset is not among the exceptions, it is a capital asset; conversely, assets falling within
the exceptions are ordinary assets.64

To determine as to whether the transaction between petitioner and Eagle I is an

isolated transaction or whether the 10 parcels of land sold by petitioner is classified as
capital assets or ordinary assets should properly be resolved by the CTA. Thus, it would
be more prudent for Us to remand the case to CTA for the latter to conduct a full-blown
trial where both parties are given the chance to present evidence of their claim. Well-
settled is the rule that this Court is not a trier of facts.

Considering Our foregoing disquisitions, the proper remedy is to remand the case to the
CTA First Division and to order the Clerk of Court to assess the correct docket fees for
the Petition for Review Ad Cautelam  and for petitioner to pay the same within ten (10)
days from receipt of the correct assessment of the clerk of court.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED.  The Decision dated

December 22, 2014 and Resolution dated February 2, 2016 of the Court of Tax
Appeals En Banc  in CTA EB Criminal Case No. 026 are REVERSED and SET
ASIDE. The case is REMANDED to the Court of Tax Appeals First Division to conduct
futher proceedings in CTA Case No. 8503 and to ORDER the Clerk of Court to assess
the correct docket fees. Petitioner Mariano Lim Gaw, Jr., is likewise ORDERED to pay
the correct docket fees within ten (10) days from the receipt of the correct assessment
of the Clerk of Court.

SO ORDERED.

Leonardo-De Castro, (Chairperson),  Peralta,*Del Castillo, and Gesmundo,**JJ., concur.