Govt Remedies

G.R. No.
215957
COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
FITNESS BY DESIGN, INC., Respondent
DECISION
LEONEN, J.:
To avail of the extraordinary period of assessment in Section 222(a) of the National Internal Revenue Code, the
Commissioner of Internal Revenue should show that the facts upon which the fraud' is based is communicated to
the taxpayer. The burden of proving that the facts exist in any subsequent proceeding is with the Commissioner.
Furthermore, the Final Assessment Notice is not valid if it does not contain a definite due date for payment by the
taxpayer.
This resolves a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue, which assails the
Decision2 dated July 14, 2014 and Resolution3 dated December 16, 2014 of the Court of Tax Appeals. The Court of
Tax Appeals En Banc affirmed the Decision of the First Division, which declared the assessment issued against
Fitness by Design, Inc. (Fitness) as invalid.4
On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of 1995.5 According to Fitness, it
was still in its pre-operating stage during the covered period.6
On June 9, 2004, Fitness received a copy of the Final Assessment Notice dated March 17, 2004.7 The Final
Assessment Notice was issued under Letter of Authority No. 00002953.8 The Final Assessment Notice assessed
that Fitness had a tax deficiency in the amount of ₱10,647,529.69.9 It provides:
FINAL ASSESSMENT NOTICE
March 17, 2004
FITNESS BY DESIGN, INC

169 Aguirre St., BF Homes,
Paranaque City
Gentlemen:
Please be informed that after investigation of your Internal revenue Tax Liabilities for the year 1995 pursuant to
Letter of Authority No. 000029353 dated May 13, 2002, there has been found due deficiency taxes as shown
hereunder:
Assessment No. _____________
Income Tax
Taxable Income per return ₱

Add: Unreported Sales 7,156,336.08
Taxable Income per audit 7,156,336.08
Tax Due (35%) 2,504,717.63

Add: Surcharge (50%) ₱ 1,252,358.81
Interest (20%/annum) until 4-15-04 4,508,491. 73 5, 760,850.54
Deficiency Income Tax ₱ 8,265,568.17
Value Added Tax
Unreported Sales ₱ 7,156,336.08

Output Tax (10%) 715,633.61
Add: Surcharge (50%) ₱ 357,816.80
Interest (20%/ annum) until 4-15-04 1,303,823.60 1,661,640.41
Deficiency VAT ₱ 2,311,214.02
Documentary Stamp Tax
Subscribe Capital Stock ₱ 375,000.00

DST due (2/200) 3,750.00
Add: Surcharge (25%) 937.50
Deficiency DST ₱ 4,687.50
Total Deficiency Taxes ₱ 10,647,529.69
The complete details covering the aforementioned discrepancies established during the investigation of this case
are shown in the accompanying Annex 1 of this Notice. The 50% surcharge and 20% interest have been imposed
pursuant to Sections 248 and 249(B) of the [National Internal Revenue Code], as amended. Please note, however,
that the interest and the total amount due will have to be adjusted if paid prior or beyond April 15, 2004.
In view thereof, you are requested to pay your aforesaid deficiency internal revenue taxes liabilities through the duly
authorized agent bank in which you are enrolled within the time shown in the enclosed assessment
notice.10 (Emphasis in the original)
Fitness filed a protest to the Final Assessment Notice on June 25, 2004. According to Fitness, the Commissioner's
period to assess had already prescribed. Further, the assessment was without basis since the company was only
incorporated on May 30, 1995.11
On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy with Reference No. OCN WDL-
95-05-005 dated February 1, 2005 to Fitness.12
Fitness filed before the First Division of the Court of Tax Appeals a Petition for Review (With Motion to Suspend
Collection of Income Tax, Value Added Tax, Documentary Stamp Tax and Surcharges and Interests) on March 1,
2005.13
On May 17, 2005, the Commissioner of Internal Revenue filed an Answer to Fitness' Petition and raised special and
affirmative defenses.14 The Commissioner posited that the Warrant of Distraint and/or Levy was issued in
accordance with law.15 The Commissioner claimed that its right to assess had not yet prescribed under Section
222(a)16 of the National Internal Revenue Code.17 Because the 1995 Income Tax ,Return filed by Fitness was false
and fraudulent for its alleged intentional failure to reflect its true sales, Fitness' respective taxes may be assessed at
any time within 10 years from the discovery of fraud or omission.18
The Commissioner asserted further that the assessment already became final and executory for Fitness' failure , to
file a protest within the reglementary period.19 The Commissioner denied that there was a protest to the Final
Assessment Notice filed by Fitness on June 25, 2004.20 According to the Commissioner, the alleged protest was
"nowhere to be found in the [Bureau of Internal Revenue] Records nor reflected in the Record Book of the Legal
Division as normally done by [its]' receiving clerk when she received [sic] any document."21 Therefore, the
Commissioner had sufficient basis to collect the tax deficiency through the Warrant of Distraint and/or Levy.22
The alleged fraudulent return was discovered through a tip from a confidential informant.23 The revenue officers'
investigation revealed that Fitness had been operating business with sales operations amounting to ₱7,156,336.08
in 1995, which it neglected toreport in its income tax return.24 Fitness' failure to report its income resulted in
deficiencies to its income tax and value-added tax of ₱8,265,568.17 and ₱2,377,274.02 respectively, as well as the
documentary stamp tax with regard to capital stock subscription.25
Through the report, the revenue officers recommended the filing of a civil case for collection of taxes and a criminal
case for failure to declare Fitness' purported sales in its 1995 Income Tax Return.26 Hence, a criminal complaint
against Fitness was filed before the Department of Justice.27
The Court of Tax Appeals First Division granted Fitness' Petition on the ground that the assessment has already
prescribed.28 It cancelled and set aside the Final Assessment Notice dated March 1 7, 2004 as well as the Warrant
of Distraint and/or Levy issued by the Commissioner.29 It ruled that the Final Assessment Notice is invalid for failure
to comply with the requirements of Section 22830 of the National Internal Revenue Code. The dispositive portion of
the Decision reads:
WHEREFORE, the Petition for Review dated February 24, 2005 filed by petitioner Fitness by Design, Inc., is
hereby GRANTED. Accordingly, the Final Assessment Notice dated 'March 17, 2004, finding petitioner liable for
deficiency income tax, documentary stamp tax and value-added tax for taxable year 1995 in the total amount of
₱10,647,529.69 is hereby CANCELLED and SET ASIDE. The Warrant of Distraint and Levy dated February 1,
2005 is 'likewise CANCELLED and SET ASIDE.
SO ORDERED.31 (Emphasis in the original)
The Commissioner's Motion for Reconsideration and its Supplemental Motion for Reconsideration were denied by
the Court of Tax Appeals First Division.32
Aggrieved, the Commissioner filed an appeal before the Court of Tax Appeals En Banc.33 The Commissioner
asserted ,that it had 10 years to make an assessment due to the fraudulent income tax return filed by Fitness.34 It
also claimed that the assessment already attained finality due to Fitness' failure to file its protest within the period
provided by law.35
Fitness argued that the Final Assessment Notice issued to it could not be claimed as a valid deficiency assessment
that could justify the issuance of a warrant of distraint and/or levy.36 It asserted that it was a mere request for
payment as it did not provide the period within which to pay the alleged liabilities.37
The Court of Tax Appeals En Banc ruled in favor of Fitness. It affirmed the Decision of the Court of Tax Appeals
First Division, thus:
WHEREFORE, the instant Petition for Review is DENIED for lack of merit. Accordingly, both the Decision and
Resolution in CTA Case No. 7160 dated July 10, 2012 and November 21, 2012 respectively are AFFIRMED in
toto.38 (Emphasis in the original)
The Commissioner's Motion for Reconsideration was denied by the Court of Tax Appeals En Banc in the
Resolution39 dated December 16, 2014.
Hence, the Commissioner of Internal Revenue filed before this Court a Petition for Review.
Petitioner Commissioner of Internal Revenue raises the sole issue of whether the Final Assessment Notice issued
against respondent Fitness by Design, Inc. is a valid assessment under Section 228 of the National Internal
Revenue Code and Revenue Regulations No. 12-99.40
Petitioner argues that the Final Assessment Notice issued to respondent is valid since it complies with Section 228
of the National Internal Revenue Code and Revenue Regulations No. 12-99.41 The law states that the taxpayer shall
be informed in writing of the facts, jurisprudence, and law on which the assessment is based.42 Nothing in the law
provides that due date for payment is a substantive requirement for the validity of a final assessment notice.43
Petitioner further claims that a perusal of the Final Assessment Notice shows that April 15, 2004 is the due date for
payment.44 The pertinent portion of the assessment reads:
pursuant to Sections 248 and 249(B) of the [National Internal Revenue Code], as amended. Please note, however,
that the interest and the total amount due will have to be adjusted if paid prior or beyond April 15, 2004.45 (Emphasis
supplied)
This Court, through the Resolution46 dated July 22, 2015, required respondent to comment on the Petition for
Review.
In its Comment,47 respondent argues that the Final Assessment Notice issued was merely a request and not a
demand for payment of tax liabilities.48 The Final Assessment Notice cannot be considered as a final deficiency
assessment because it deprived respondent of due process when it failed to reflect its fixed tax
liabilities.49 Moreover, it also gave respondent an indefinite period to pay its tax liabilities.50
Respondent points out that an assessment should strictly comply with the law for its validity.51 Jurisprudence
provides that "not all documents coming from the [Bureau of Internal Revenue] containing a computation of the tax
liability can be deemed assessments[,] which can attain finality."52 Therefore, the Warrant of Distraint and/or Levy
cannot be enforced since it is based on an invalid assessment.53
Respondent likewise claims that since the Final Assessment Notice was allegedly based on fraud, it must show the
details of the fraudulent acts imputed to it as part of due process.54
The Petition has no merit.

An assessment "refers to the determination of amounts due from a person obligated to make payments."55 "In the
context of national internal revenue collection, it refers to the determination of the taxes due from a taxpayer under
the National Internal Revenue Code of 1997."56
The assessment process starts with the filing of tax return and payment of tax by the taxpayer.57 The initial
assessment evidenced by the tax return is a self-assessment of the taxpayer.58 The tax is primarily computed and
voluntarily paid by the taxpayer without need of any demand from government.59 If tax obligations are properly paid,
the Bureau of Internal Revenue may dispense with its own assessment.60
After filing a return, the Commissioner or his or her representative may allow the examination of any taxpayer for
assessment of proper tax liability.61 The failure of a taxpayer to file his or her return will not hinder the Commissioner
from permitting the taxpayer's examination.62 The Commissioner can examine records or other data relevant to his or
her inquiry in order to verify the correctness of any return, or to make a return in case of noncompliance, as well as
to determine and collect tax liability.63
The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear definite
requirement.64 Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99, as
amended, transparently outline the procedure in tax assessment.65
Section 3 of Revenue Regulations No. 12-99,66 the then prevailing regulation regarding the due process requirement
in the issuance of a deficiency tax assessment, requires a notice for informal conference.67 The revenue officer who
audited the taxpayer's records shall state in his or her report whether the taxpayer concurs with his or her findings of
liability for deficiency taxes.68 If the taxpayer does not agree, based on the revenue officer's report, the taxpayer shall
be informed in writing69 of the discrepancies in his or her payment of internal revenue taxes for "Informal
Conference."70 The informal conference gives the taxpayer an opportunity to present his or her side of the case.71
The taxpayer is given 15 days from receipt of the notice of informal conference to respond.72 If the taxpayer fails to
respond, he or she will be considered in default.73 The revenue officer74 endorses the case with the least possible
delay to the Assessment Division of the Revenue Regional Office or the Commissioner or his or her authorized
representative.75 The Assessment Division of the Revenue Regional Office or the Commissioner or his or her
authorized representative is responsible for the "appropriate review and issuance of a deficiency tax assessment, if
warranted."76
If, after the review conducted, there exists sufficient basis to assess the taxpayer with deficiency taxes, the officer
'shall issue a preliminary assessment notice showing in detail the facts, jurisprudence, and law on which the
assessment is based.77 The taxpayer is given 15 days from receipt of the pre-assessment notice to respond.78 If the
taxpayer fails to respond, he or she will be considered in default, and a formal letter of demand and assessment
notice will be issued.79
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on which the
assessment was based; otherwise, these shall be void.80 The taxpayer or the authorized representative may
administratively protest the formal letter of demand and assessment notice within 30 days from receipt of the
notice.81
II
The word "shall" in Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99 means
the act of informing the taxpayer of both the legal and factual bases of the assessment is mandatory.82 The law
requires that the bases be reflected in the formal letter of demand and assessment notice.83 This cannot be
presumed.84 Otherwise, the express mandate of Section 228 and Revenue Regulations No. 12-99 would be
nugatory.85 The requirement enables the taxpayer to make an effective protest or appeal of the assessment or
decision.86
The rationale behind the requirement that taxpayers should be informed of the facts and the law on which the
assessments are based conforms with the constitutional mandate that no person shall be deprived of his or her
property without due process of law.87 Between the power of the State to tax and an individual's right to due process,
the scale favors the right of the taxpayer to due process.88
The purpose of the written notice requirement is to aid the taxpayer in making a reasonable protest, if
necessary.89 Merely notifying the taxpayer of his or her tax liabilities without details or particulars is not enough.90
Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.91 held that a final assessment notice
that only contained a table of taxes with no other details was insufficient:
In the present case, a mere perusal of the [Final Assessment Notice] for the deficiency EWT for taxable year
1994 will show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the
assessment was provided by petitioner. Only the resulting interest, surcharge and penalty were anchored with legal
basis. Petitioner should have at least attached a detailed notice of discrepancy or stated an explanation why the
amount of P48,461.76 is collectible against respondent and how the same was arrived at.92
Any deficiency to the mandated content of the assessment or its process will not be tolerated.93 In Commissioner of
Internal Revenue v. Enron,94 an advice of tax deficiency from the Commissioner of Internal Revenue to an employee
of Enron, including the preliminary five (5)-day letter, were not considered valid substitutes for the mandatory written
notice of the legal and factual basis of the assessment.95 The required issuance of deficiency tax assessment notice
to the taxpayer is different from the required contents of the notice.96 Thus:
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the
1âwphi1
[National Internal Revenue Code] and [Revenue Regulations] No. 12-99 would be rendered nugatory. The alleged
"factual bases" in the advice, preliminary letter and "audit working papers" did not suffice. There was no going
around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.97 (Emphasis supplied)
However, the mandate of giving the taxpayer a notice of the facts and laws on which the assessments are based
should not be mechanically applied.98 To emphasize, the purpose of this requirement is to sufficiently inform the
taxpayer of the bases for the assessment to enable him or her to make an intelligent protest.99
In Samar-I Electric Cooperative v. Commissioner of Internal Revenue,100 substantial compliance with Section 228 of
the National Internal Revenue Code is allowed, provided that the taxpayer would be later apprised in writing of the
factual and legal bases of the assessment to enable him or her to prepare for an effective protest.101 Thus:
Although the [Final Assessment Notice] and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records
showed that respondent in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest,
explaining at length the factual and legal bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, we find that the
requirement of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of
the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest,
much unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus not violated.102
A final assessment notice provides for the amount of tax due with a demand for payment.103 This is to determine the
amount of tax due to a taxpayer.104 However, due process requires that taxpayers be informed in writing of the facts
and law on which the assessment is based in order to aid the taxpayer in making a reasonable protest.105 To
immediately ensue with tax collection without initially substantiating a valid assessment contravenes the principle in
administrative investigations "that taxpayers should be able to present their case and adduce supporting
evidence."106
Respondent filed its income tax return in 1995.107 Almost eight (8) years passed before the disputed final assessment
notice was issued. Respondent pleaded prescription as its defense when it filed a protest to the Final Assessment
Notice. Petitioner claimed fraud assessment to justify the belated assessment made on respondent.108 If fraud was
indeed present, the period of assessment should be within 10 years.109 It is incumbent upon petitioner to clearly state
the allegations of fraud committed by respondent to serve the purpose of an assessment notice to aid respondent in
filing an effective protest.
III
The prescriptive period in making an assessment depends upon whether a tax return was filed or whether the tax
return filed was either false or fraudulent. When a tax return that is neither false nor fraudulent has been filed, the
1âw phi 1
Bureau of Internal Revenue may assess within three (3) years, reckoned from the date of actual filing or from the
last day prescribed by law for filing.110 However, in case of a false or fraudulent return with intent to evade tax,
Section 222(a) provides:
Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for
the collection thereof. (Emphasis supplied)
In Aznar v. Court of Tax Appeals,111 this Court interpreted Section 332112 (now Section 222[a] of the National Internal
Revenue Code) by dividing it in three (3) different cases: first, in case of false return; second, in case of a fraudulent
return with intent to evade; and third, in case of failure to file a return.113 Thus:
Our stand that the law should be interpreted to mean a separation of the three different situations of false return,
fraudulent return with intent to evade tax and failure to file a return is strengthened immeasurably by the last portion
of the provision which aggregates the situations into three different classes, namely "falsity'', "fraud" and
"omission."114
This Court held that there is a difference between "false return" and a "fraudulent return."115 A false return simply
involves a "deviation from the truth, whether intentional or not" while a fraudulent return "implies intentional or
deceitful entry with intent to evade the taxes due."116
Fraud is a question of fact that should be alleged and duly proven.117 "The willful neglect to file the required tax return
or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal
consequences, cannot be presumed."118 Fraud entails corresponding sanctions under the tax law. Therefore, it is
indispensable for the Commissioner of Internal Revenue to include the basis for its allegations of fraud in the
assessment notice.
During the proceedings in the Court of Tax Appeals First Division, respondent presented its President, Domingo C.
Juan Jr. (Juan, Jr.), as witness.119 Juan, Jr. testified that respondent was, in its pre-operating stage in 1995.120 During
that period, respondent "imported equipment and distributed them for market testing in the Philippines without
earning any profit."121 He also confirmed that the Final Assessment Notice and its attachments failed to substantiate
the Commissioner's allegations of fraud against respondent, thus:
More than three (3) years from the time petitioner filed its 1995 annual income tax return on April 11, 1996,
respondent issued to petitioner a [Final Assessment Notice] dated March 17, 2004 for the year 1995, pursuant to the
Letter of Authority No. 00002953 dated May 13, 2002. The attached Details of discrepancy containing the
assessment for income tax (IT), value-added tax (VAT) and documentary stamp tax (DST) as well as the Audit
Result/ Assessment Notice do not impute fraud on the part of petitioner. Moreover, it was obtained on information
and documents illegally obtained by a [Bureau of Internal Revenue] informant from petitioner's accountant Elnora
Carpio in 1996.122 (Emphasis supplied)
Petitioner did not refute respondent's allegations. For its defense, it presented Socrates Regala (Regala), the Group
Supervisor of the team, who examined respondent's tax liabilities.123 Regala confirmed that the investigation was
prompted by a tip from an informant who provided them with respondent's list of sales.124 He admitted125 that the
gathered information did not show that respondent deliberately failed to reflect its true income in 1995.126
IV
The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes.127 Neither the National
Internal Revenue Code nor the revenue regulations provide for a "specific definition or form of an assessment."
However, the National Internal Revenue Code defines its explicit functions and effects."128 An assessment does not
only include a computation of tax liabilities; it also includes a demand for payment within a period prescribed.129 Its
main purpose is to determine the amount that a taxpayer is liable to pay.130
A pre-assessment notice "do[es] not bear the gravity of a formal assessment notice."131 A pre-assessment notice
merely gives a tip regarding the Bureau of Internal Revenue's findings against a taxpayer for an informal conference
or a clarificatory meeting.132
A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment
thereof."133 This demand for payment signals the time "when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies[.]"134 Thus, it must be "sent to and received by the
taxpayer, and must demand payment of the taxes described therein within a specific period."135
The disputed Final Assessment Notice is not a valid assessment.
First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a
demand for payment of tax due, which a final assessment notice should supposedly be. An assessment, in the
context of the National Internal Revenue Code, is a "written notice and demand made by the [Bureau of Internal
Revenue] on the taxpayer for the settlement of a due tax liability that is there: definitely set and fixed."136 Although
the disputed notice provides for the computations of respondent's tax liability, the amount remains indefinite. It only
provides that the tax due is still subject to modification, depending on the date of payment. Thus:
pursuant to Sections 248 and 249 (B) of the [National Internal Revenue Code], as amended. Please note, however,
that the interest and the total amount due will have to be adjusted if prior or beyond April 15, 2004.137 (Emphasis
Supplied)
Second, there are no due dates in the Final Assessment Notice. This negates petitioner's demand for
payment.138 Petitioner's contention that April 15, 2004 should be regarded as the actual due date cannot be
accepted. The last paragraph of the Final Assessment Notice states that the due dates for payment were
supposedly reflected in the attached assessment:
In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities through the duly
authorized agent bank in which you are enrolled within the time shown in the enclosed assessment
notice.139 (Emphasis in the original)
However, based on the findings of the Court of Tax Appeals First Division, the enclosed assessment pertained to
remained unaccomplished.140
Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and surcharges and not
the due date for payment of tax liabilities. The total amount depended upon when respondent decides to pay. The
1avv phi 1
notice, therefore, did not contain a definite and actual demand to pay.
Compliance with Section 228 of the National Internal Revenue Code is a substantative requirement.141 It is not a
mere formality.142 Providing the taxpayer with the factual and legal bases for the assessment is crucial before
proceeding with tax collection. Tax collection should be premised on a valid assessment, which would allow the
taxpayer to present his or her case and produce evidence for substantiation.143
The Court of Tax Appeals did not err in cancelling the Final Assessment Notice as well as the Audit
Result/Assessment Notice issued by petitioner to respondent for the year 1995 covering the "alleged deficiency
income tax, value-added tax and documentary stamp tax amounting to ₱10,647,529.69, inclusive of surcharges and
interest"144 for lack of due process. Thus, the Warrant of Distraint and/or Levy is void since an invalid assessment
bears no valid effect.145
Taxes are the lifeblood of government and should be collected without hindrance.146 However, the collection of taxes
should be exercised "reasonably and in accordance with the prescribed procedure."147
The essential nature of taxes for the existence of the State grants government with vast remedies to ensure its
collection. However, taxpayers are guaranteed their fundamental right to due process of law, as articulated in
various ways in the process of tax assessment. After all, the State's purpose is to ensure the well-being of its
citizens, not simply to deprive them of their fundamental rights.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Tax Appeals En Banc dated July 14, 2014 and
Resolution dated December 16, 2014 in CTA EB Case No. 970 (CTA Case No. 7160) are hereby AFFIRMED.
SO ORDERED.
MARVIC M.V.F. LEONEN

Associate Justice
G.R. No. L-19727 May 20, 1965
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PHOENIX ASSURANCE CO., LTD., respondent.
-----------------------------
G.R. No. L-19903 May 20, 1965
PHOENIX ASSURANCE, CO., LTD., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Office of the Solicitor General for petitioner-respondent Commissioner of Internal Revenue.

Sycip, Salazar, Luna & Associates and A. S. Monzon, B. V. Abela & J. M. Castillo for respondent-petitioner Phoenix
Assurance Co., Ltd.
BENGZON, J.P., J.:
From a judgment of the Court of Tax Appeals in C.T.A. Cases Nos. 305 and 543, consolidated and jointly heard
therein, these two appeals were taken. Since they involve the same facts and interrelated issues, the appeals are
herein decided together.
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is licensed
to do business in the Philippines with head office in London. Through its head office, it entered in London into
worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a portion of premiums
received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the
world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability
from such original insurances. 1äwphï1.ñët
Pursuant to such reinsurance treaties, Phoenix Assurance Co., Ltd., ceded portions of the premiums it earned from
its underwriting business in the Philippines, as follows:
Year Amount Ceded

1952 P316,526.75
1953 P246,082.04
1954 P203,384.69
upon which the Commissioner of Internal Revenue, by letter of May 6, 1958, assessed the following withholding tax:
Year Withholding Tax

1952 P 75,966.42
1953 59,059.68
1954 48,812.32
Total P183,838.42
=============
On April 1, 1951, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1950, claiming therein,
among others, a deduction of P37,147.04 as net addition to marine insurance reserve equivalent to 40% of the
gross marine insurance premiums received during the year. The Commissioner of Internal Revenue disallowed
P11,772.57 of such claim for deduction and subsequently assessed against Phoenix Assurance Co., Ltd. the sum of
P1,884.00 as deficiency income tax. The disallowance resulted from the fixing by the Commissioner of the net
addition to the marine insurance reserve at 100% of the marine insurance premiums received during the last three
months of the year. The Commissioner assumed that "ninety and third, days are approximately the length of time
required before shipments reach their destination or before claims are received by the insurance companies."
On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1952, declaring therein a
deduction from gross income of P35,912.25 as part of the head office expenses incurred for its Philippine business,
computed at 5% on its gross Philippine income.
On August 30, 1955 it amended its income tax return for 1952 by excluding from its gross income the amount of
P316,526.75 representing reinsurance premiums ceded to foreign reinsurers and further eliminating deductions
corresponding to the coded premiums. The amended return showed an income tax due in the amount of P2,502.00.
The Commissioner of Internal Revenue disallowed P15,826.35 of the claimed deduction for head office expenses
and assessed a deficiency tax of P5,667.00 on July 24, 1958.
On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1953 and claimed therein a
deduction from gross income of P33,070.88 as head office expenses allocable to its Philippine business, equivalent
to 5%, of its gross Philippine income. On August 30, 1955 it amended its 1953 income tax return to exclude from its
gross income the amount of P246,082.04 representing reinsurance premiums ceded to foreign reinsurers. At the
same time, it requested the refund of P23,409.00 as overpaid income tax for 1953. To avoid the prescriptive period
provided for in Section 306 of the Tax Code, it filed a petition for review on April 11, 1956 in the Court of Tax
Appeals praying for such refund. After verification of the amended income tax return the Commissioner of Internal
Revenue disallowed P12,304.10 of the deduction representing head office expenses allocable to Philippine
business thereby reducing the refundable amount to P20,180.00.
On April 29, 1955, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1954 claiming therein,
among others, a deduction from gross income of P99,624.75 as head office expenses allocable to its Philippine
business, computed at 5% of its gross Philippine income. It also excluded from its gross income the amount of
P203,384.69 representing reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines.
On August 1, 1958 the Bureau of Internal Revenue released the following assessment for deficiency income tax for
the years 1952 and 1954 against Phoenix Assurance Co., Ltd.:
1952
Net income per audited return P 12,511.61
Unallowable deduction & additional income:
Overclaimed Head Office expenses:
Amount claimed . . . . . . . . . . . . P 35,912.25
Amount allowed . . . . . . . . . . . . 20,085.90 P 15,826.35
Net income per investigation P 28,337.96
Tax due thereon P 5,667.00

===========
1954
Net income per audited P160,320.21
Unallowable deduction & additional income:
Overclaimed Head Office expenses:
Amount claimed . . . . . . . . . . . . P29,624.73
Amount allowed . . . . . . . . . . . . 19,455.50 10,16.23
Net income per investigation P170,489.41
Tax due thereon P 39,737.00

Less: amount already assessed 36,890.00
DEFICIENCY TAX DUE P 2,847.00

===========
The above assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance
Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the
net Philippine income instead of 5% of the gross Philippine income as claimed in the returns.
Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income
tax. However, the Commissioner of Internal Revenue denied such protest. Subsequently, Phoenix Assurance Co.,
Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court of Tax Appeals allowed
in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve;
determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the
Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to
have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of
withholding tax return; and, rendered the following judgment:
WHEREFORE, petitioner Phoenix Assurance Company, Ltd. is hereby ordered to pay the Commissioner of
Internal Revenue the respective amounts of P75,966.42, P59,059.68 and P48,812.32, as withholding tax for
the years 1952, 1953 and 1954, and P2,847.00 as income tax for 1954, or the total sum of P186,685.42
within thirty (30) days from the date this decision becomes final. Upon the other hand, the respondent
Commissioner is ordered to refund to petitioner the sum of P20,180.00 as overpaid income tax for 1953,
which sum is to be deducted from the total sum of P186,685.42 due as taxes.
If any amount of the tax is not paid within the time prescribed above, there shall be collected a surcharge of
5% of the tax unpaid, plus interest at the rate of 1% a month from the date of delinquency to the date of
payment, provided that the maximum amount that may be collected as interest shall not exceed the amount
corresponding to a period of three (3) years. Without pronouncement as to costs.
Phoenix Assurance Co., Ltd. and the Commissioner of Internal Revenue have appealed to this Court raising the
following issues: (1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines pursuant to reinsurance contracts executed abroad are subject to withholding tax; (2) Whether or not the
right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1952 against Phoenix
Assurance Co., Ltd., has prescribed; (3) Whether or not the deduction of claimed by the Phoenix Assurance Co.,
Ltd.as net addition to reserve for the year 1950 is excessive; (4) Whether or not the deductions claimed by Phoenix
Assurance Co., Ltd. for head office expenses allocable to Philippine business for the years 1952, 1953 and 1954 are
excessive.
The question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines pursuant to contracts executed abroad are income from sources within the Philippines subject to
withholding tax under Sections 53 and 54 of the Tax Code has already been resolved in the affirmative in British
Traders' Insurance Co., Ltd.v. Commisioner of Internal Revenue, L-20501, April 30, 1965. 1
We come to the issue of prescription. Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1,
1953 showing a loss of P199,583.93. It amended said return on August 30, 1955 reporting a tax liability of
P2,502.00. On July 24, 1958, after examination of the amended return, the Commissioner of Internal Revenue
assessed deficiency income tax in the sum of P5,667.00. The Court of Tax Appeals found the right of the
Commissioner of Internal Revenue barred by prescription, the same having been exercised more than five years
from the date the original return was filed. On the other hand, the Commissioner of Internal Revenue insists that his
right to issue the assessment has not prescribed inasmuch as the same was availed of before the 5-year period
provided for in Section 331 of the Tax Code expired, counting the running of the period from August 30, 1955, the
date when the amended return was filed.
Section 331 of the Tax Code, which limits the right of the Commissioner of Internal Revenue to assess income tax
within five years from the Filipino of the income tax return, states:
SEC. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding
section internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases
already investigated prior to the approval of this Code.
The question is: Should the running of the prescriptive period commence from the filing of the original or amended
return?
The Court of Tax Appears that the original return was a complete return containing "information on various items of
income and deduction from which respondent may intelligently compute and determine the tax liability of petitioner,
hence, the prescriptive period should be counted from the filing of said original return. On the other hand, the
Commissioner of Internal Revenue maintains that:
"... the deficiency income tax in question could not possibly be determined, or assessed, on the basis of the
original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93, the
mere disallowance of part of the head office expenses could not probably result in said loss being
completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on
August 30, 1955 could the Commissioner assess the deficiency income tax in question."
Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the amended return.
To our mind, the Commissioner's view should be sustained. The changes and alterations embodied in the amended
income tax return consisted of the exclusion of reinsurance premiums received from domestic insurance companies
by Phoenix Assurance Co., Ltd.'s London head office, reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines and various items of deduction attributable to such excluded reinsurance premiums
thereby substantially modifying the original return. Furthermore, although the deduction for head office expenses
allocable to Philippine business, whose disallowance gave rise to the deficiency tax, was claimed also in the original
return, the Commissioner could not have possibly determined a deficiency tax thereunder because Phoenix
Assurance Co., Ltd. declared a loss of P199,583.93 therein which would have more than offset such disallowance of
P15,826.35. Considering that the deficiency assessment was based on the amended return which, as aforestated, is
substantially different from the original return, the period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was
filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the
Commissioner to assess the deficiency tax on such amended return has not prescribed.
To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for taxpayers to evade the
payment of taxes by simply reporting in their original return heavy losses and amending the same more than five
years later when the Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder.
The object of the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its
prejudice.
We next consider Phoenix Assurance Co., Ltd.'s claim for deduction of P37,147.04 for 1950 representing net
addition to reserve computed at 40% of the marine insurance premiums received during the year. Treating said said
deduction to be excessive, the Commissioner of Internal Revenue reduced the same to P25,374.47 which is
equivalent to 100% of all marine insurance premiums received during the last months of the year.
Paragraph (a) of Section 32 of the Tax Code states:
SEC. 32. Special provisions regarding income and deductions of insurance companies, whether domestic or
foreign. — (a) Special deductions allowed to insurance companies. — In the case of insurance companies,
except domestic life insurance companies and foreign life insurance companies doing business in the
Philippines, the net additions, if any, required by law to be made within the year to reserve funds and the
sums other than dividends paid within the year on policy and annuity contracts may be deducted from their
gross income: Provided, however, That the released reserve be treated as income for the year of release.
Section 186 of the Insurance Law requires the setting up of reserves for liability on marine insurance:
SEC. 186. ... Provided, That for marine risks the insuring company shall be required to charge as the liability
for reinsurance fifty per centum of the premiums written in the policies upon yearly risks, and the full
premiums written in the policies upon all other marine risks not terminated (Emphasis supplied.)
The reserve required for marine insurance is determined on two bases: 50% of premiums under policies on yearly
risks and 100% of premiums under policies of marine risks not terminated during the year. Section 32 (a) of the Tax
Code quoted above allows the full amount of such reserve to be deducted from gross income.
It may be noteworthy to observe that the formulas for determining the marine reserve employed by Phoenix
Assurance Co., Ltd. and the Commissioner of Internal Revenue — 40% of premiums received during the year and
100% of premiums received during the last three months of the year, respectively — do not comply with Section
186. Said determination runs short of the requirement. For purposes of the Insurance Law, this Court therefore
cannot countenance the same. The reserve called for in Section 186 is a safeguard to the general public and should
be strictly followed not only because it is an express provision but also as a matter of public policy. However, for
income tax purposes a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any
deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized
therein.
Phoenix Assurance Co., Ltd.'s claim for deduction of P37,147.04 being less than the amount required in Section 186
of the Insurance Law, the same cannot be and is not excessive, and should therefore be fully allowed. *
We come now to the controversy on the taxpayer's claim for deduction on head office expenses incurred during
1952, 1953, and 1954 allocable to its Philippine business computed at 5% of its gross income in the Philippines The
Commissioner of Internal Revenue redetermined such deduction at 5% on Phoenix Assurance Co., Ltd's net
income thereby partially disallowing the latter's claim. The parties are agreed as to the percentage — 5% — but
differ as to the basis of computation. Phoenix Assurance Co. Lt. insists that the 5% head office expenses be
determined from the gross income, while the Commissioner wants the computation to be made on the net income.
What, therefore, needs to be resolved is: Should the 5% be computed on the gross or net income?
The record shows that the gross income of Phoenix Assurance Co., Ltd. consists of income from its Philippine
business as well as reinsurance premiums received for its head office in London and reinsurance premiums ceded
to foreign reinsurance. Since the items of income not belonging to its Philippine business are not taxable to its
Philippine branch, they should be excluded in determining the head office expenses allowable to said Philippine
branch. This conclusion finds support in paragraph 2, subsection (a), Section 30 of the Tax Code, quoted
hereunder:
(2) Expenses allowable to non-resident alien individuals and foreign corporations. In the case of a non-
resident alien individual or a foreign corporation, the expenses deductible are the, necessary expenses paid
or incurred in carrying on any business or trade conducted within the Philippines exclusively. (Emphasis
supplied.)
Consequently, the deficiency assessments for 1952, 1953 and 1954, resulting from partial disallowance of deduction
representing head office expenses, are sustained.
Finally, the Commissioner of Internal Revenue assails the dispositive portion of the Tax Court's decision limiting the
maximum amount of interest collectible for deliquency of an amount corresponding to a period of three years. He
contends that since such limitation was incorporated into Section 51 of the Tax Code by Republic Act 2343 which
took effect only on June 20, 1959, it must not be applied retroactively on withholding tax for the years 1952, 1953
and 1954.
The imposition of interest on unpaid taxes is one of the statutory penalties for tax delinquency, from the payments of
which the Court of Tax Appeals absolved the Phoenix Assurance Co., Ltd. on the equitable ground that the latter's
failure to pay the withholding tax was due to the Commissioner's opinion that no withholding tax was due.
Consequently, the taxpayer could be held liable for the payment of statutory penalties only upon its failure to comply
with the Tax Court's judgment rendered on February 14. 1962, after Republic Act 2343 took effect. This part of the
ruling of the lower court ought not to be disturbed.
WHEREFORE, the decision appealed from is modified, Phoenix Assurance Co., Ltd. is hereby ordered to pay the
Commissioner, of Internal Revenue the amount of P75,966.42, P59,059.68 and P48,812.32 as withholding tax for
the years 1952, 1953 and 1954, respectively, and the sums of P5,667.00 and P2,847.00 as income tax for 1952 and
1954 or a total of P192,352.42. The Commissioner of Internal Revenue is ordered to refund to Phoenix Assurance
Co., Ltd. the amount of P20,180.00 as overpaid income tax for 1953, which should be deducted from the amount of
P192,352.42.
If the amount of P192,352.42 or a portion thereof is not paid within thirty (30) days from the date this judgment
becomes final, there should be collected a surcharge and interest as provided for in Section 51(c) (2) of the Tax
Code. No costs. It is so ordered.
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased, Matias H. Aznar, petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.
Sato, Enad Garcia for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney Librada R.
Natividad for respondents.
ESGUERRA, J.:p
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the Court of Tax Appeals in C.T.A.
Case No. 109, modifying the decision of respondent Commissioner of Internal Revenue and ordering the petitioner to pay the government the sum of P227,691.77
representing deficiency income taxes for the years 1946 to 1951, inclusive, with the condition that if the said amount is not paid within thirty days from the date the
decision becomes final, there shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per annum from the date of delinquency to
the date of payment, in accordance with Section 51 of the National Internal Revenue Code, plus costs against the petitioner.
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner,
during his lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis,
reporting therein the following:
Year Net Income Amount Exhibit

of Tax
Paid
1945 P12,822.00 P114.66 pp.
85-88
B.I.R.
rec.
1946 9,910.94 114.66 38-A
(pp.
329-
332
B.I.R
rec.)
1947 10,200.00 132.00 39
(pp.
75-78
B.I.R
rec.)
1948 9,148.34 68.90 40
(pp.
70-73
B.I.R.
rec.)
1949 8,990.66 59.72 41
(pp.
64-67
B.I.R.
rec.)
1950 8,364.50 28.22 42
(pp.
59-62,
BIR
rec.)
1951 6,800.00 none 43
(pp.
54-57
BIR
rec.).
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously
wealthy, pursuant to the authority granted him by Section 38 of the National Internal Revenue Code, caused B.I.R.
Examiner Honorio Guerrero to ascertain the taxpayer's true income for said years by using the net worth and
expenditures method of tax investigation. The assets and liabilities of the taxpayer during the above-mentioned
years were ascertained and it was discovered that from 1946 to 1951, his net worth had increased every year, which
increases in net worth was very much more than the income reported during said years. The findings clearly
indicated that the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid
years.
Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated November 28,
1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency to the amount of P723,032.66, plus
compromise penalty. The taxpayer requested a reinvestigation which was granted for the purpose of verifying the
merits of the various objections of the taxpayer to the deficiency income tax assessment of November 28, 1952.
After the reinvestigation, another deficiency assessment to the reduced amount of P381,096.07 dated February 16,
1955, superseded the previous assessment and notice thereof was received by Matias H. Aznar on March 2, 1955.
The new deficiency assessment was based on the following computations:
1946
Net income per return ........................ P9,910.94

Add: Under declared income .............. 22,559.94
Net income per investigation............... 32,470.45
Deduct: Income tax liability

per return as assessed ...................................................... 114.66
Balance of tax due ........................................................... P3,687.10
Add: 50% surcharge ........................................................ 1,843.55
DEFICIENCY INCOME TAX ...................................... P5,530.65
1947
Net income per return ..................................................... P10,200.00

Add: Under declared income ............................................ 90,413.56
Net income per reinvestigation ....................................... P100,613.56
Deduct: Personal and additional exemption ...................... 7,000.00
Amount of income subject to tax ...................................... P93,613.56
Total tax liability ............................................................... P24,753.15
Deduct: Income tax liability per return as assessed ............ 132.00
Add: 50% surcharge ........................................................ 12,310.58 DEFICIENCY INCOME TAX
...................................... P36,931.73
1948
Net income per return ...................................................... P9,148.34

Add: Under declared income ............................................. 15,624.63
Net income per reinvestigation .......................................... P24,772.97
Deduct: Personal and additional exemptions ...................... 7,000.00
Amount of income subject to tax ....................................... P17,772.97
Total tax liability ............................................................... 2,201.40
Deduct: Income tax liability per return as assessed ............ 68.90
Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY INCOME TAX
...................................... P3,198.75
1949
Net income per return ....................................................... P9,990.66

Net income per reinvestigation .......................................... 114,409.19
Deduct: Personal and additional exemptions ...................... P7,000.00
Deduct: Income tax liability per return as assessed ............. 59.72
Balance of tax due ............................................................ P30,083.96
Add: 50% surcharge ......................................................... 15,041.98 DEFICIENCY INCOME TAX
....................................... P45,125.94
1950
Net income per return ....................................................... P8,364.50
Net income per reinvestigation .......................................... P373,943.26
Deduct: Personal and additional exemptions ...................... 7,800.00
Deduct: Income tax liability per return as assessed ............. 28.00
Balance of tax due ............................................................ P185,855.00
Add: 50% surcharge ......................................................... 92,928.00 DEFICIENCY INCOME TAX
....................................... P278,783.00
1951
Net income per return ........................................................ P6,800.00

Add: Under declared income ............................................... 33,355.80
Net income per reinvestigation ............................................ P40,155.80
Deduct: Personal and additional exemptions ........................ 7,200.00
Amount of income subject to tax ......................................... P32,955.80
Total tax liability .................................................................. P7,684.00
Deduct: Income tax liability per return as assessed ............... - o - .
Balance of tax due .............................................................. P7,684.00
Add: 50% surcharge ........................................................... 3,842.00 DEFICIENCY INCOME TAX
.......................................... P11,526.00
SUMMARY
1946
.... P5,530.65
1947 .... 36,931.73
1948 .... 3,198.75
1949 .... 45,125.94
1950 .... 278,783.00
1951 .... 11,526.00
Total .... P381,096.07
In determining the unreported income, the respondent Commissioner of Internal Revenue resorted to the networth
method which is based on the following computations:
1945
Real estate inventory ................................ P64,738.00

Other assets ............................................. 37,606.87
Total assets ............................................ P102,344.87
Less: Depreciation allowed ...................... 2,027.00
Networth as of Dec. 31, 1945 ................ P100,316.97
1946
Real estate inventory ................................. P86,944.18

Other assets ............................................. 60,801.65
Total assets ............................................. P147,745.83
Less: Depreciation allowed ...................... 4,875.41
Net assets ................................................ P142,870.42
Less: Liabilities .................. P17,000.00
Net Worth as of
Jan. 1, 1946 ................... P100,316.97 P117,316.97
Increase in networth ................................. 25,553.45
Add: Estimated living expenses ................. 6,917.00
Net income .............................................. P32,470.45
1947
Real estate inventory .................................. P237,824.18

Other assets ............................................... 54,495.52
Total assets ............................................... P292,319.70
Less: Depreciation allowed ......................... 12,835.72
Net assets .................................................. 279,483.98
Less: Liabilities ................... P60,000.00
Networth as of
Jan. 1, 1947 ........................ 125,870.42 P185,870.42
Increase in networth ................................... P93,613.56
Add: Estimated living expenses ................... 7,000.00
Net income ................................................P100,613.56
1948

Other assets .............................................. 118,720.60
Total assets ............................................... P363,544.78
Less: Depreciation allowed ........................ 20,936.03
Net assets ................................................. P342,608.75
Less: Liabilities ................... P105,351.80
Networth as of
Jan. 1, 1948 ...................... 219,483.98 P324,835.78
Net income ................................................ P24,772.97
1949
Real estate inventory ................................. P400,515.52

Investment in schools and other colleges .... 23,105.29
Other assets ............................................. 70,311.00
Total assets ............................................... P493,931.81
Less: Depreciation allowed ........................ 32,657.08
Net assets ................................................. P461.274.73
Less; Liabilities .................. P116,608.59
Networth as of
Jan. 1, 1949 ...................... 237,256.95 P353,865.54
Increase in networth .................................. P107,409.19
Add: Estimated living expenses .................. 7,000.00
Net income ............................................... P114,409.19
1950

Investment in Schools and
other colleges ................................ 193,460.99
October assets .......................................... 310,788.87
Total assets ............................................... P916,715.38
Less; Depreciation allowed ........................ 47,561.99
Net assets ................................................. P869,153.39
Less: Liabilities .................. P158,343.99
Networth as of Jan. 1, 1950 ... 344,666.14 P503,010.13
Net income ................................................. P373,943.26
1951
Real estate inventory ................................... P412,465.52

Investment in schools and other colleges ..... 214,016.21
Other assets ............................................... 320,209.40
Total assets ................................................ P946,691.13
Less: Depreciation allowed ......................... 62,466.90
Net assets .................................................. P884,224.23
Less: Liabilities ........................................... P140,459.03
Networth as of
Jan. 1, 1951 ................ 710,809.40 P851,268.43
Increase in networth .................................... P32,955.80
Add: Estimated living expenses .................... 7,200.00
Net income ................................................. P40,155.80
(Exh. 45-B, BIR rec. p. 188)

On February 20, 1953, respondent Commissioner of Internal Revenue, thru the City Treasurer of Cebu, placed the
properties of Matias H. Aznar under distraint and levy to secure payment of the deficiency income tax in question.
Matias H. Aznar filed his petition for review of the case with the Court of Tax Appeals on April 1, 1955, with a
subsequent petition immediately thereafter to restrain respondent from collecting the deficiency tax by summary
method, the latter petition being granted on February 8, 1956, per C.T.A. resolution, without requiring petitioner to
file a bond. Upon review, this Court set aside the C.T.A. resolution and required the petitioner to deposit with the
Court of Tax Appeals the amount demanded by the Commissioner of Internal Revenue for the years 1949 to 1951
or furnish a surety bond for not more than double the amount.
On March 5, 1962, in a decision signed by the presiding judge and the two associate judges of the Court of Tax
Appeals, the lower court concluded that the tax liability of the late Matias H. Aznar for the year 1946 to 1951,
inclusive should be P227,788.64 minus P96.87 representing the tax credit for 1945, or P227,691.77, computed as
follows:
1946
Net income per return .............................................. P9,910.94

Add: Under declared income ..................................... 22,559.51
Net income ............................................................ P32,470.45
Less: Personal and additional exemptions .................. 6,917.00
Income subject to tax ............................................. P25,553.45
Tax due thereon ...................................................... P3,801.76
Less: Tax already assessed ...................................... 114.66
Balance of tax due .................................................... P3,687.10
Add: 50% surcharge ................................................. 1,843.55
Deficiency income tax ................................................ P5,530.65
1947
Net income per return ............................................ P10,200.00

Add: Under declared income .................................. 57,551.19
Net income ........................................................... P67,751.19
Less: Personal and additional exemptions ............... 7,000.00
Income subject to tax ............................................. P60,751.19
Tax due thereon ..................................................... P13,420.38
Less: Tax already assessed ..................................... P132.00
Balance of tax due ................................................... P13,288.38
Add: 50% surcharge ................................................ 6,644.19
Deficiency income tax .............................................. P19,932.57
1948
Net income per return .............................................. P9,148.34

Add: Under declared income ..................................... 8,732.10
Net income ............................................................ P17,880.44
Less: Personal and additional exemptions ................. 7,000.00
Income subject to tax .............................................. P10,880.44
Tax due thereon ...................................................... P1,029.67
Less: Tax already assessed ....................................... 68.90
Balance of tax due .................................................... 960.77
Add: 50% surcharge ................................................. 480.38
Deficiency income tax ............................................... P1,441.15
1949
Net income per return ................................................. P8,990.66

Add: under declared income ......................................... 43,718.53
Net income ............................................................... P52,709.19
Less: Personal and additional exemptions .................... 7,000.00
Income subject to tax ................................................. P45,709.19
Tax due thereon ......................................................... P8,978.57
Less: Tax already assessed ......................................... 59.72
Balance of tax due ....................................................... P8,918.85
Add: 50% surcharge .................................................... 4,459.42
Deficiency income tax ................................................. P13,378.27
1950
Net income per return .................................................. P6,800.00
Add: Under declared income ......................................... 33,355.80
Net income ................................................................. P40,155.80
Less: Personal and additional exemptions ...................... 7,200.00
Income subject to tax .................................................. P32,955.80
Tax due thereon ........................................................... P7,684.00
Less: Tax already assessed ........................................... -o- .
Balance of tax due ........................................................ P7,684.00
Add: 50% surcharge .................................................... 3,842.00
Deficiency income tax .................................................. P11,526.00
1951
Net income per return ................................................... P8,364.50

Add: Under declared income ........................................ 246,449.06
Net income ............................................................... P254.813.56
Less: Personal and additional exemptions .................... 7,800.00
Income subject to tax ................................................ P247,013.56
Tax due thereon ........................................................ P117,348.00
Less: Tax already assessed ........................................ 28.00
Balance of tax due ..................................................... P117,320.00
Add: 50% surcharge .................................................. 58,660.00
Deficiency income tax ................................................ P175 980.00
SUMMARY
1946 P5,530.65
1947 19,932.57
1948 1,441.15
1949 13,378.27
1950 175,980.00
1951 11,526.00
P227,788.64.
The first vital issue to be decided here is whether or not the right of the Commissioner of Internal Revenue to assess
deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at
the time the assessment was made on November 28, 1952.
Petitioner's contention is that the provision of law applicable to this case is the period of five years limitation upon
assessment and collection from the filing of the returns provided for in See. 331 of the National Internal Revenue
Code. He argues that since the 1946 income tax return could be presumed filed before March 1, 1947 and the
notice of final and last assessment was received by the taxpayer on March 2, 1955, a period of about 8 years had
elapsed and the five year period provided by law (Sec. 331 of the National Internal Revenue Code) had already
expired. The same argument is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and
the return for 1948, which was filed on February 28, 1949. Respondents, on the other hand, are of the firm belief
that regarding the prescriptive period for assessment of tax returns, Section 332 of the National Internal Revenue
Code should apply because, as in this case, "(a) In the case of a false or fraudulent return with intent to evade tax or
of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission" (Sec.
332 (a) of the NIRC).
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent
returns with intent to evade tax, while respondent Commissioner of Internal Revenue insists contrariwise, with
respondent Court of Tax Appeals concluding that the very "substantial under declarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade
the payment of tax."
To our minds we can dispense with these controversial arguments on facts, although we do not deny that the
findings of facts by the Court of Tax Appeals, supported as they are by very substantial evidence, carry great
weight, by resorting to a proper interpretation of Section 332 of the NIRC. We believe that the proper and
reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2)
fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation
of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the situations into three different
classes, namely "falsity", "fraud" and "omission". That there is a difference between "false return" and "fraudulent
return" cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the
second implies intentional or deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC
should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to
evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the
time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax
Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess
petitioner's tax liability had not expired at the time said assessment was made.
II
As to the alleged errors committed by the Court of Tax Appeals in not deducting from the alleged undeclared income
of the taxpayer for 1946 the proceeds from the sale of jewelries valued at P30,000; in not excluding from other
schedules of assets of the taxpayer (a) accounts receivable from customers in the amount of P38,000 for 1948,
P126,816.50 for 1950, and provisions for doubtful accounts in the amount of P41,810.56 for 1950; (b) over valuation
of hospital and dental buildings for 1949 in the amount of P32,000 and P6,191.32 respectively; (c) investment in
hollow block business in the amount of P8,603.22 for 1949; (d) over valuation of surplus goods in the amount of
P23,000 for the year 1949; (e) various lands and buildings included in the schedule of assets for the years 1950 and
1951 in the total amount of P243,717.42 for 1950 and P62,564.00 for 1951, these issues would depend for their
resolution on determination of questions of facts based on an evaluation of evidence, and the general rule is that the
findings of fact of the Court of Tax Appeals supported by substantial evidence should not be disturbed upon review
of its decision (Section 2, Rule 44, Rules of Court).
On the question of the alleged sale of P30,000 worth of jewelries in 1946, which amount petitioner contends should
be deducted from the taxpayer's net worth as of December 31, 1946, the record shows that Matias H. Aznar, when
interviewed by B.I.R. Examiner Guerrero, stated that at the beginning of 1945 he had P60,000 worth of jewelries
inherited from his ancestors and were disposed off as follows: 1945, P10,000; 1946, P20,000; 1947, P10,000; 1948,
P10,000; 1949, P7,000; (Report of B.I.R. Examiner Guerrero, B.I.R. rec. pp. 90-94).
During the hearing of this case in the Court of Tax Appeals, petitioner's accountant testified that on January 1, 1945,
Matias H. Aznar had jewelries worth P60,000 which were acquired by purchase during the Japanese occupation
(World War II) and sold on various occasions, as follows: 1945, P5,000 and 1946, P30,000. To corroborate the
testimony of the accountant, Mrs. Ramona Agustines testified that she bought from the wife of Matias H. Aznar in
1946 a diamond ring and a pair of earrings for P30,000; and in 1947 a wrist watch with diamonds, together with
antique jewelries, for P15,000. Matias H. Aznar, on the other hand testified that in 1945, his wife sold to Sards
Parino jewelries for P5,000 and question, Mr. Aznar stated that his transaction with Sards Parino, with respect to the
sale of jewelries, amounted to P15,000.
The lower court did not err in finding material inconsistencies in the testimonies of Matias H. Aznar and his
witnesses with respect to the values of the jewelries allegedly disposed off as stated by the witnesses. Thus, Mr.
Aznar stated to the B.I.R. examiner that jewelries worth P10,000 were sold in 1945, while his own accountant
testified that the same jewelries were sold for only P5,000. Mr. Aznar also testified that Mrs. Agustines purchased
from his wife jewelries for P35,000, and yet Mrs. Agustines herself testified that she bought jewelries for P30,000
and P15,000 on two occasions, or a total of P45,000.
We do not see any plausible reason to challenge the fundamentally sound basis advanced by the Court of Tax
Appeals in considering the inconsistencies of the witnesses' testimony as material, in the following words:
We do not say that witnesses testifying on the same transaction should give identical testimonies.
Because of the frailties and the limitations of the human mind, witnesses' statements are apt to be
inconsistent in certain points, but usually the inconsistencies refer to the minor phases of the
transaction. It is the insignificance of the detail of an occurrence that fails to impress the human
mind. When that same mind, made to recall what actually happened, the significant point which it
failed to take note is naturally left out. But it is otherwise as regards significant matters, for they leave
indelible imprints upon the human mind. Hence, testimonial inconsistencies on the minor details of
an occurrence are dismissed lightly by the courts, while discrepancies on significant points are taken
seriously and weigh adversely to the party affected thereby.
There is no sound basis for deviating from the lower court's conclusion that: "Taxwise in view of the aforesaid
inconsistencies, which we deem material and significant, we dismiss as without factual basis petitioner's allegation
that jewelries form part of his inventory of assets for the purpose of establishing his net worth at the beginning of
1946."
As to the accounts receivable from the United States government for the amount of P38,254.90, representing a
claim for goods commandered by the U.S. Army during World War II, and which amount petitioner claimed should
be included in his net worth as of January 1, 1946, the Court of Tax Appeals correctly concluded that the
uncontradicted evidence showed that "the collectible accounts of Mr. Aznar from the U.S. Government in the sum of
P38,254.90 should be added to his assets (under accounts receivable) as of January 1, 1946. As of December 31,
1947, and December 31, 1948, the years within which the accounts were paid to him, the 'accounts receivable shall
decrease by P31,362.37 and P6,892.53, respectively."
Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165) which was listed as an asset during the
years 1945 and 1947 to 1951, but which was not listed as an asset in 1946 because of a notation in the tax
declaration that it was reconstructed in 1947, the lower court correctly concluded that the reconstruction of the
property did not render it valueless during the time it was being reconstructed and consequently it should be listed
as an asset as of January 1, 1946, with the same valuation as in 1945, that is P1,500.
On the question of accounts receivable from customers in the amount of P38,000 for 1948, and P123,816.58 for the
years 1950 and 1951, which were included in the assets of Mr. Aznar for those years by the respondent
Commissioner of Internal Revenue, it is very clear that those figures were taken from the statements (Exhs. 31 and
32) filed by Mr. Matias H. Aznar with the Philippine National Bank when he was intending to obtain a loan. These
statements were under oath and the natural implication is that the information therein reflected must be the true and
accurate financial condition of the one who executed those statements. To believe the petitioner's argument that the
late Mr. Aznar included those figures in his sworn statement only for the purpose of obtaining a bigger credit from
the bank is to cast suspicion on the character of a man who can no longer defend himself. It would be as if pointing
the finger of accusation on the late Mr. Aznar that he intentionally falsified his sworn statements (Exhs. 31 and 32) to
make it appear that there were non-existent accounts receivable just to increase his assets by fictitious entries so
that his credit with the Philippine National Bank could be enhanced. Besides, We do not lose sight of the fact that
those statements (Exhs. 31 and 32) were executed before this tax controversy arose and the disputable
presumptions that a person is innocent of crime or wrong; that a person intends the ordinary consequences of his
voluntary act; that a person takes ordinary care of his concerns; that private transaction have been fair and regular;
that the ordinary course of business has been followed; that things have happened according to the ordinary course
of nature and the ordinary habits of life; that the law has been obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff), Rule 131
of the Rules of Court), together with the conclusive presumption that "whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it" (Sec. 3
(a), Rule 131, Rules of Court), convincingly indicate that the accounts receivable stated by Mr. Aznar in Exhibits 31
and 32 were true, in existence, and accurate to the very amounts mentioned.
There is no merit to petitioners argument that those statements were only for the purpose of obtaining a bigger
credit from the bank (impliedly stating that those statements were false) and those accounts were allegedly back
accounts of students of the Southwestern Colleges and were worthless, and if collected, would go to the funds of
the school. The statement of the late Mr. Aznar that they were accounts receivable from customers should prevail
over the mere allegation of petitioner, unsupported as they are by convincing evidence. There is no reason to
disturb the lower court's conclusion that the amounts of P38,000 and P123,816.58 were accounts receivable from
customers and as such must be included as petitioner's assets for the years indicated.
As to the questions of doubtful accounts (bad debts), for the amount of P41,810.56, it is clear that said amount is
taken from Exhibit 31, the sworn statement of financial condition filed by Mr. Matias H. Aznar with the Philippine
National Bank. The lower court did not commit any error in again giving much weight to the statement of Mr. Aznar
and in concluding that inasmuch as this is an item separate and apart from the taxpayer's accounts receivable and
non-deductible expense, it should be reverted to the accounts receivable and, consequently, considered as an asset
in 1950.
On the alleged over valuation of two buildings (hospital building which respondent Commissioner of Internal
Revenue listed as an asset from 1949-1951 at the basic valuation of P130,000, and which petitioner claims to be
over valued by P32,000; dentistry building valued by respondent Commissioner of Internal Revenue at P36,191.34,
which petitioner claims to be over valued by P6,191.34), We find no sufficient reason to alter the conclusion of
respondent Court of Tax Appeals sustaining the respondent Commissioner of Internal Revenue's valuation of both
properties.
Respondent Commissioner of Internal Revenue based his valuation of the hospital building on the representation of
Mr. Matias H. Aznar himself who, in his letter (Exh. 35) to the Philippine National Bank dated September 5, 1949,
stated that the hospital building cost him P132,000. However in view of the effect of a typhoon in 1949 upon the
building, the value allowed was P130,000. Exhibit 35, contrary to petitioner's contention, should be given probative
value because, although it is an unsigned plain copy, that exhibit was taken by the investigating examiner of the
B.I.R. from the files of the Southwestern Colleges and formed part of his report of investigation as a public official.
The estimates of an architect and a civil engineer who agreed that a value of P84,240 is fair for the hospital building,
made years after the building was constructed, cannot prevail over the petitioner's own estimate of his property's
value.
Respondent Commissioner of Internal Revenue's valuation of P36,191.34 of the Dentistry Building is based on the
letter of Mr. and Mrs. Matias H. Aznar to the Southwestern Colleges, dated December 15, 1950, which is embodied
in the minutes of the meeting of the Board of Trustees of the Southwestern Colleges held on May 7, 1951 (Exhibit
G-1). In Exhibit 26 A, which is the cash book of the Southwestern Colleges, this building was listed as of the same
amount. Petitioner's estimate of P30,000 for this building, based on Architect Paca's opinion, cannot stand against
the owner's estimate and that which appears in the cash book of the Southwestern Colleges, if we take into
consideration that the owner's (Mr. Matias H. Aznar) letter was written long before this tax proceeding was initiated,
while architect Paca's estimate was made upon petitioner's request solely for the purpose of evidence in this tax
case.
In the inventory of assets of petitioner, respondent Commissioner of Internal Revenue included the administrative
building valued at P19,200 for the years 1947 and 1948, and P16,700 for the years 1949 to 1951; and a high school
building valued at P48,000 for 1947 and 1948, and P45,000 for 1949, 1950 and 1951. The reduced valuation for the
latter years are due to allowance for partial loss resulting from the 1949 typhoon. Petitioner did not question the
inclusion of these buildings in the inventory for the years prior to 1950, but objected to their inclusion as assets as of
January 1, 1950, because both buildings were destroyed by a typhoon in November of 1949. There is sufficient
evidence (Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City Assessor of Cebu City, Exh. 18, Mr.
Intan's testimony, a copy of a letter of the City Assessor of Cebu City) to prove that the two buildings were really
destroyed by typhoon in 1949 and, therefore, should be eliminated from the petitioner's inventory of assets
beginning December 31, 1949.
On the issue of investment in the hollow blocks business, We see no compelling reason to alter the lower court's
conclusion that "whatever was spent in the hollow blocks business is an investment, and being an investment, the
same should be treated as an asset. With respect to the amount representing the value of the building, there is no
duplication in the listing as the inventory of real property does not include the building in question."
Respondent Commissioner of Internal Revenue included in the inventory, under the heading of other asset, the
amount of P8,663.22, treated as investment in the hollow block business. Petitioner objects to the inclusion of
P1,683.42 which was spent on the building and in the business and of P674.35 which was spent for labor, fuel, raw
materials, office supplies etc., contending that the former amount is a duplication of inventory (included among the
list of properties) and the latter is a business expense which should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow block business is sanctioned in the
inventory method of tax verification. It is a sound accounting practice to include raw materials that will be used for
future manufacture. Inclusion of direct labor is also proper, as all these items are to be embodied in a summary of
assets (investment by the taxpayer credited to his capital account as reflected in Exhibit 72-A, which is a working
sheet with entries taken from the journal of the petitioner concerning his hollow blocks business). There is no
evidence to show that there was duplication in the inclusion of the building used for hollow blocks business as part
of petitioner's investment as this building was not included in the listing of real properties of petitioner (Exh. 45-C p.
187 B.I.R. rec.).
As to the question of the real value of the surplus goods purchased by Mr. Matias H. Aznar from the U.S. Army, the
best evidence, as observed correctly by the lower court, is the statement of Mr. Matias H. Aznar, himself, as
appearing Exh. 35 (copy of a letter dated September 5, 1949 to the Philippine National Bank), to the effect "as part
of my assets I have different merchandise from Warehouse 35, Tacloban, Leyte at a total cost of P43,000.00 and
valued at no less than P20,000 at present market value." Petitioner's claim that the goods should be valued at only
P20,000 in accordance with an alleged invoice is not supported by evidence since the invoice was not presented as
exhibit. The lower court's act in giving more credence to the statement of Mr. Aznar cannot be questioned in the light
of clear indications that it was never controverted and it was given at a time long before the tax controversy arose.
The last issue on propriety of inclusion in petitioner's assets made by respondent Commissioner of Internal Revenue
concerns several buildings which were included in the list of petitioner's assets as of December 31, 1950. Petitioner
contends that those buildings were conveyed and ceded to Southwestern Colleges on December 15, 1950, in
consideration of P100,723.99 to be paid in cash. The value of the different buildings are listed as: hospital building,
P130,000; gymnasium, P43,000; dentistry building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of
law, P10,950; laboratory building, P8,164; home economics, P5,621; morgue, P2,400; science building, P23,600;
faculty house, P5,760. It is suggested that the value of the buildings be eliminated from the real estate inventory and
the sum of P100,723.99 be included as asset as of December 31, 1950.
The lower court could not find any evidence of said alleged transfer of ownership from the taxpayer to the
Southwestern Colleges as of December 15, 1950, an allegation which if true could easily be proven. What is evident
is that those buildings were used by the Southwestern Colleges. It is true that Exhibit G-1 shows that Mr. and Mrs.
Matias H. Aznar offered those properties in exchange for shares of stocks of the Southwestern Colleges, and Exhibit
"G" which is the minutes of the meeting of the Board of Trustees of the Southwestern Colleges held on August 6,
1951, shows that Mr. Aznar was amenable to the value fixed by the board of trustees and that he requested to be
paid in cash instead of shares of stock. But those are not sufficient evidence to prove that transfer of ownership
actually happened on December 15, 1950. Hence, the lower court did not commit any error in sustaining the
respondent Commissioner of Internal Revenue's act of including those buildings as part of the assets of petitioner as
of December 31, 1950.
Petitioner also contends that properties allegedly ceded to the Southwestern Colleges in 1951 for P150,000 worth of
shares of stocks, consisting of: land, P22,684; house, P13,700; group of houses, P8,000; building, P12,000; nurses
home, P4,100; nurses home, P2,080, should be excluded from the inventory of assets as of December 31, 1951.
The evidence (Exh. H), however, clearly shows that said properties were formally conveyed to the Southwestern
Colleges only on September 25, 1952. Undoubtedly, petitioner was the owner of those properties prior to September
25, 1952 and said properties should form part of his assets as of December 31, 1951.
The uncontested portions of the lower court's decision consisting of its conclusions that library books valued at
P7,041.03, appearing in a journal of the Southwestern Colleges marked as' Exhibit 25-A, being an investment,
should be treated as an asset beginning December 31, 1950; that the expenses for construction to the amount of
P113,353.70, which were spent for the improvement of the buildings appearing in Exhibit 24 are deemed absorbed
in the increased value of the buildings as appraised by respondent Commissioner of Internal Revenue at cost after
improvements were made, and should be taken out as additional assets; that the amount receivable of P5,776 from
a certain Benito Chan should be treated as petitioner's asset but the amount of P5,776 representing the value of a
house and lot given as collateral to secure said loan should not be considered as an asset of petitioner since to do
so would result in a glaring duplication of items, are all affirmed. There seems to be no controversy as to the rest of
the items listed in the inventory of assets.
III
The second issue which appears to be of vital importance in this case centers on the lower court's imposition of the
fraud penalty (surcharge of 50% authorized in Section 72 of the Tax Code). The petitioner insists that there might
have been false returns by mistake filed by Mr. Matias H. Aznar as those returns were prepared by his accountant
employees, but there were no proven fraudulent returns with intent to evade taxes that would justify the imposition of
the 50% surcharge authorized by law as fraud penalty.
The lower court based its conclusion that the 50% fraud penalty must be imposed on the following reasoning: .
It appears that Matias H. Aznar declared net income of P9,910.94, P10,200, P9,148.34, P8,990.66,
P8,364.50 and P6,800 for the years 1946, 1947, 1948, 1949, 1950 and 1951, respectively. Using the
net worth method of determining the net income of a taxpayer, we find that he had net incomes of
P32,470.45, P67,751.19, P17,880.44, P52,709.11, P254,813.56 and P40,155.80 during the
respective years 1946, 1947, 1948, 1949, 1950, and 1951. In consequence, he underdeclared his
income by 227% for 1946, 564% for 1947, 95%, for 1948, 486% for 1949, 2,946% for 1950 and
490% for 1951. These substantial under declarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax return with an intent to evade the payment
of tax. Hence, the imposition of the fraud penalty is proper (Perez vs. Court of Tax Appeals, G.R. No.
L-10507, May 30, 1958). (Emphasis supplied)
As could be readily seen from the above rationalization of the lower court, no distinction has been made between
false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). The
lower court based its conclusion on the petitioner's alleged fraudulent intent to evade taxes on the substantial
difference between the amounts of net income on the face of the returns as filed by him in the years 1946 to 1951
and the net income as determined by the inventory method utilized by both respondents for the same years. The
lower court based its conclusion on a presumption that fraud can be deduced from the very substantial disparity of
incomes as reported and determined by the inventory method and on the similarity of consecutive disparities for six
years. Such a basis for determining the existence of fraud (intent to evade payment of tax) suffers from an inherent
flaw when applied to this case. It is very apparent here that the respondent Commissioner of Internal Revenue,
when the inventory method was resorted to in the first assessment, concluded that the correct tax liability of Mr.
Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in
another assessment dated February 16, 1955, concluded that the tax liability should be reduced to P381,096.07.
This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use of the
inventory method can commit a glaring mistake in the assessment of petitioner's tax liability. When the respondent
Court of Tax Appeals reviewed this case on appeal, it concluded that petitioner's tax liability should be only
P227,788.64. The lower court in three instances (elimination of two buildings in the list of petitioner's assets
beginning December 31, 1949, because they were destroyed by fire; elimination of expenses for construction in
petitioner's assets as duplication of increased value in buildings, and elimination of value of house and lot in
petitioner's assets because said property was only given as collateral) supported petitioner's stand on the wrong
inclusions in his lists of assets made by the respondent Commissioner of Internal Revenue, resulting in the very
substantial reduction of petitioner's tax liability by the lower court. The foregoing shows that it was not only Mr.
Matias H. Aznar who committed mistakes in his report of his income but also the respondent Commissioner of
Internal Revenue who committed mistakes in his use of the inventory method to determine the petitioner's tax
liability. The mistakes committed by the Commissioner of Internal Revenue which also involve very substantial
amounts were also repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud.
From the above exposition of facts, we cannot but emphatically reiterate the well established doctrine that fraud
cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent intent could not be
deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries
or erroneous classification of items in accounting methods utilized for determination of tax liabilities The predecessor
of the petitioner undoubtedly filed his income tax returns for "the years 1946 to 1951 and those tax returns were
prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and during the
investigation of his tax liabilities cooperated readily with the B.I.R. and there is no indication in the record of any act
of bad faith committed by him.
The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based
merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to
warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to
give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the
tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the
assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the
mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith.
We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code should not be
imposed, but eliminated from the income tax deficiency for each year from 1946 to 1951, inclusive. The tax liability
of the petitioner for each year should, therefore, be:
1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
1951 7,684.00
P151,859.10
The total sum of P151,859.10 should be decreased by P96.87 representing the tax credit for 1945, thereby leaving a
balance of P151,762.23.
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of the 50% fraud
penalty is concerned, and affirmed in all other respects. The petitioner is ordered to pay to the Commissioner of
Internal Revenue, or his duly authorized representative, the sum of P151,762.23, representing deficiency income
taxes for the years 1946 to 1951, inclusive, within 30 days from the date this decision becomes final. If the said
amount is not paid within said period, there shall be added to the unpaid amount the surcharge of 5%, plus interest
at the rate of 12% per annum from the date of delinquency to the date of payment, in accordance with Section 51 of
the National Internal Revenue Code.
With costs against the petitioner.
[ G.R. No. 230861. February 14, 2022 ]
ASIAN TRANSMISSION CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT.
RESOLUTION
INTING, J.:
This resolves the Motion for Reconsideration1 of the Court Decision2 dated September 19, 2018 denying Asian
Transmission Corporation's (ATC) Petition for Review on Certiorari3 thereby affirming the Court of Tax Appeals
(CTA) En Banc Decision4 dated August 9, 2016 in CTA EB No. 1289.
The Antecedents
The crux of the present controversy lies in the validity of eight Waivers of the Defense of Prescription under the
Statute of Limitations of the National Internal Revenue Code5 (Waivers) executed successively by ATC, through
Roderick M. Tan, ATC Vice President for Personnel and Legal Affairs.6
Previously, on the strength of a Letter of Authority7 (LOA) dated August 9, 2004, the Bureau of Internal Revenue
(BIR) commenced its audit and investigation of ATC's books of account and other accounting records pertaining to
taxable year 2002, including those in connection with the following documents filed by ATC: (a) Annual Information
Return of Income Taxes Withheld on Compensation and Final Withholding Taxes filed on January 30, 2003; and (b)
Annual Information Return of Creditable Income Taxed Withheld (Expanded)/Income Payments Exempt from
Withholding Tax filed on March 3, 2003.8
Based on these filing dates, the Commissioner of Internal Revenue's (CIR) right to assess ATC for the relevant
taxes was due to prescribe in the first quarter of 2006.9 However, the Waivers' execution extended until December
31, 2018: (a) the BIR's investigation period; and (b) the CIR's assessment period.10 Consequently, this allowed the
CIR to serve a Formal Letter of Demand11 (FLD) on July 15, 2008 assessing ATC for deficiency withholding tax on
compensation (WTC), expanded withholding tax (EWT), and final withholding tax (FWT).12
In its administrative protest,13 ATC raised only two main objections: first, the BIR violated ATC's right to due
process when it failed to indicate in the Preliminary Assessment Notice14 (PAN) and accompanying details of
discrepancies "the surrounding circumstances supporting the assessment that will allow the taxpayer the opportunity
to dispute the assessment;"15 and second, the BIR's details of discrepancies in the FLD, which set out to compute
the deficiency WTC, EWT, and FWT are erroneous and must be reconsidered.16 The CIR denied ATC's
protest,17 and its subsequent request for reconsideration.18
Subsequently, the ATC proceeded to file a judicial protest19 before the CTA where it introduced the following
arguments: first, the LOA became invalid due to lack of revalidation;20 and second, the first, second, and third
Waivers were defective; thus, these did not validly extend the assessment period.21
The Rulings of the CTA
At first instance, the CTA Second Division (CTA Division) ruled in ATC's favor and canceled the tax assessments
on account of prescription. It found that the subject Waivers were defective and, at the same time, that ATC was not
estopped from assailing the Waivers' validity.22
However, on appeal at the CIR's instance, the CTA En Banc reinstated the assessments and remanded the case
to the CTA Division for further proceedings to determine ATC's tax liability.23
Aggrieved, ATC assailed the CTA En Banc ruling before the Court.
Our Main Decision
In the decision sought to be reconsidered, the Court affirmed the CTA En Banc.24 The Court recounted the
defects found in the Waivers, viz.:
1. The notarization of the Waivers was not in accordance with the 2004 Rules on Notarial Practice;
2. Several waivers clearly failed to indicate the date of acceptance by the Bureau of Internal Revenue;
3. The Waivers were not signed by the proper revenue officer; and
4. The Waivers failed to specify the type of tax and the amount of tax due.25
Stated differently, both parties were at fault. On the one hand, the BIR failed to observe the procedures in the
execution of a valid waiver, as prescribed by Revenue Delegation Authority Order No. (RDAO) 05-01. However, ATC
was also remiss in its responsibility of preparing the waiver prior to submission to and filing before the BIR.26
Further, the Court explained that ATC benefited from the Waivers. They are estopped from assailing its validity.
Thus, the CTA En Banc was correct in applying the equitable principles of in pari delicto, unclean hands, and
estoppel.27
Hence, ATC filed the present motion.28
Motion for Reconsideration
ATC grounds the present motion on the following arguments: first, the Court focused solely on the first defect
which had been attributed to it and failed to address the issues arising from the three other defects which had been
attributed to the BIR. Second, the principles of in pari delicto, unclean hands, and estoppel do not apply with respect
to the second, third, and fourth defects. Third, all defects were attributable to the BIR, rendering them fatal to the
waivers' validity. A waiver is a bilateral agreement between the BIR and the taxpayer. When the tax authorities failed
to indicate properly their acceptance of the waivers executed by ATC, no valid agreement arose between the
parties.29
Our Ruling
The Court denies the Motion for Reconsideration.

ATC's proposition seeks to divest the CIR of its right to assess and collect deficiency taxes on account of alleged
defects caused by the BIR that outnumber the one caused by ATC. It makes much out of the singular defect that had
been attributable to it and how this pales in comparison when juxtaposed against the three defects attributable to the
tax authorities.
The Court rejects this reasoning. If a waiver suffers from defects on account of both parties, the waiver's validity
in relation to the timeliness of the CIR's subsequent issuance of a tax assessment is not determined by a mere
plurality of the defects committed between the BIR and the taxpayer.
In Commissioner of Internal Revenue v. Next Mobile, Inc.30 (Next Mobile), which was relied upon in the Main
Decision, the taxpayer's representative who signed the waivers had no authority to execute the same on behalf of the
corporation (i.e., no notarized written authority).31 On the other hand, the responsible revenue officer: (a) failed to
verify the taxpayer representative's authority to execute the waivers; (b) accepted the documents despite not having
received any proof of the taxpayer representative's authority; and (c) signed the waivers upon submission by the
taxpayer but failed to indicate clearly the date of acceptance.32
More recently, in Commissioner of Internal Revenue v. Transitions Optical Philippines, Inc.,33 the circumstances
were similar to those under consideration in Next Mobile. On the one hand, the taxpayer failed to attach a
corresponding notarized written authority to each of the waivers executed. On the other, the responsible revenue
officer also failed to signify properly the BIR's receipt and acceptance of the waivers (i.e., no dates of
receipt/acceptance).34
Verily, both parties in those cases contributed flaws to the waivers. However, the Court upheld the waivers as
effective because, although both parties caused separate defects, the taxpayer contested the waivers' validity only on
appeal.35
A more circumspect appreciation of the relevant jurisprudence reveals that the taxpayer's contributory fault or
negligence coupled with estoppels36 will render effective an otherwise flawed waiver, regardless of the physical
number of mistakes attributable to a party.
In other words, while a waiver may have been deficient in formalities, the taxpayer's belated action on questioning
its validity tilts the scales in favor of the tax authorities.
In the present case, the Court considers the following:
First, it is no longer disputed that the subject defects were the result of both parties failure to observe diligence in
performing what is incumbent upon them, respectively, relative to the execution of a valid waiver, particularly the
requirements outlined in applicable BIR issuances.37 That the defects attributable to one party had been greater in
number cannot diminish the seriousness of the counter-party's fault or negligence.
Second, ATC issued eight successive Waivers over the course of four years (2004-2008).38 The Waivers had
always been marred by defects and, yet, ATC continued to correspond with the tax authorities and allowed them to
proceed with their investigation, as extended by the Waivers in question. 1âшphi 1
Third, when the CIR issued the FLD, ATC did not question the Waivers' validity. It raised this argument for the
first time in its appeal to the CTA, after obtaining an unfavorable CIR decision on their administrative protest.
That ATC acquiesced to the BIR's extended investigation and failed to assail the Waivers' validity at the earliest
opportunity gives rise to estoppel. Moreover, ATC's belated attempt to cast doubt over the Waivers' validity could only
be interpreted as a mere afterthought to resist possible tax liability.39
Verily, it has been held that the doctrine of estoppel, as a bar to the statute of limitations protecting a taxpayer
from prolonged investigations,40 must be applied sparingly.41
However, the number of successive Waivers executed by ATC is telling. Certainly, no taxpayer may be allowed
to execute haphazard waivers deliberately, go through the motions that the waivers are effective, and lead the tax
authorities to believe that the assessment period has been extended, only to deny the validity thereof when it becomes
unfavorable to him. Otherwise, it would create a dangerous situation – "open to abuse by unscrupulous taxpayers
who intend to escape their responsibility to pay taxes by mere expedient of hiding behind technicalities."42
WHEREFORE, the present Motion for Reconsideration is DENIED for lack of merit.
The Court shall not entertain further pleadings or motions in the case. Let entry of judgment be
issued.
SO ORDERED.
G.R. No. 178087 May 5, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and the taxpayer.1 Exceptions
extending the period to assess must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30, 2007 of the Court of Tax
Appeals (CTA) affirming the cancellation of the assessment notices for having been issued beyond the prescriptive
period and the Resolution3 dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable
year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon
respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the
BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by
respondent’s President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the Defense of
Prescription,4 which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31,
2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February 18, 2003,
notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by
Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated
September 26, 2003 which was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on December 3, 2003
and its "Legal Arguments and Documents in Support of Protests against Various Assessments" on February 2,
2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the immediate payment of the
following tax liabilities:
Kind of Tax Amount
Income Tax ₱ 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total ₱25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition
for Review7 with the CTA. Petitioner in turn filed his Answer.8
On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the Issue on Prescription."9
On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the assessment notices issued
against respondent for having been issued beyond the prescriptive period. It found the first Waiver of the Statute of
Limitations incomplete and defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves
more than ₱1,000,000.00. In this regard, only the Commissioner is authorized to enter into agreement with the
petitioner in extending the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary to determine
whether the acceptance was made within the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but also of
the acceptance by the BIR and the perfection of the agreement. 1avv phi1
The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period was not tolled
or extended and continued to run. x x x11
Petitioner moved for reconsideration but the CTA Second Division denied the motion in a Resolution12 dated April
18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled that the
Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation Authority Order (RDAO)
No. 05-01, it found that the first waiver was still invalid based on the second and third grounds stated by the CTA
Second Division. Pertinent portions of the Decision read as follows:
While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it finds that the
Assistant Commissioner of the Enforcement Service is authorized to sign the waiver pursuant to RDAO No. 05-01,
which provides in part as follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling under Subsection B
hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain legal issues prior to
prescription and for issuance/compliance of Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or approval by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign waivers in tax fraud
cases. A perusal of the records reveals that the investigation of the subject deficiency taxes in this case was
conducted by the National Investigation Division of the BIR, which was formerly named the Tax Fraud Division.
Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the Court in Division.
Hence, it did not extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating Section 222(b)
of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the statute can still be extended
by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon.
As previously discussed, the exceptions to the law on prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002. The second
waiver in the instant case which was supposed to extend the period to assess to December 31, 2003 was executed
on February 18, 2003 and was notarized on February 19, 2003. Clearly, the second waiver was executed after the
expiration of the first period agreed upon. Consequently, the same could not have tolled the 3-year prescriptive
period to assess.13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT’S RIGHT TO ASSESS
UNPAID TAXES OF RESPONDENT PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the two waivers
executed by respondent, through its accountant, effectively tolled or extended the period within which the
assessment can be made. In disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously taken. Petitioner insists that by
acquiescing to the audit during the period specified in the waivers, respondent led the government to believe that
the "delay" in the process would not be utilized against it. Thus, respondent may no longer repudiate the validity of
the waivers and raise the issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the waivers executed by Pasco, who
executed the same without any written authority from it, in clear violation of RDAO No. 5-01. As to the doctrine of
estoppel by acquiescence relied upon by petitioner, respondent counters that the principle of equity comes into play
only when the law is doubtful, which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal
revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date
of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive
period is no longer valid and effective. Exceptions however are provided under Section 22216 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period within which the assessment can be
made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but
claims that the period was extended by the two waivers executed by respondent’s accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a
written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO
20-9017 issued on April 4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19
___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated
by the taxpayer to a representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver
is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt
by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was
notified of the acceptance of the BIR and the perfection of the agreement.19
A perusal of the waivers executed by respondent’s accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the
assessments were issued by the BIR beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from claiming prescription since by executing
the waivers, it was the one which asked for additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of estoppel prevented the
taxpayer from raising the defense of prescription against the efforts of the government to collect the assessed tax.
However, it must be stressed that in the said case, estoppel was applied as an exception to the statute of limitations
on collection of taxes and not on the assessment of taxes, as the BIR was able to make an assessment within the
prescribed period. More important, there was a finding that the taxpayer made several requests or positive acts to
convince the government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second final return filed on November 28,
1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year
within which to pay the amount assessed although it reserved its right to question the correctness of the assessment
before actual payment. Petitioner granted an extension of only three months. When it failed to pay the tax within the
period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the
assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952,
which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by
the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these various negotiations, the
assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted
negotiation on the ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in
court within the 5-year period from the filing of the second amended final return due to the several requests of
respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the
correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was
even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the
record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the
prejudice of the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not
have the effect of suspending the running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer
may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as
when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons,
that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several
precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable
principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the
nonperformance which he has himself occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified."’ "(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could
have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now
estopped and should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].21
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is no showing that
respondent made any request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the
BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right.22 As such, the doctrine of estoppel cannot give
validity to an act that is prohibited by law or one that is against public policy.23 It should be resorted to solely as a
means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they
originate.24 Simply put, the doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and
RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by
the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It
cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the
taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly
construed.25
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against
respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the three-year period
because with or without the required documents, the CIR has the power to make assessments based on the best
evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution dated May 18,
2007 of the Court of Tax Appeals are hereby AFFIRMED.
SO ORDERED.
G.R. No. 212825, December 07, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEXT MOBILE, INC. (FORMERLY

NEXTEL COMMUNICATIONS PHILS., INC.), Respondent.
DECISION
VELASCO JR., J.:
This is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse and set aside the
Decision of the Court of Tax Appeals En Banc affirming the earlier decision of its First Division in CTA
Case No. 7965, cancelling and withdrawing petitioner's formal letter of demand and assessment
notices to respondent for having been issued beyond the prescriptive period provided by law.
The Facts
On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax
Return (ITR) for taxable year ending December 31, 2001. Respondent also filed its Monthly
Remittance Returns of Final Income Taxes Withheld (BIR Form No. 1601-F), its Monthly Remittance
Returns of Expanded Withholding Tax (BIR Form No. 1501-E) and its Monthly Remittance Return of
Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for year ending December 31,
2001.
On September 25, 2003, respondent received a copy of the Letter of Authority dated September 8,
2003 signed by Regional Director Nestor S. Valeroso authorizing Revenue Officer Nenita L. Crespo of
Revenue District Office 43 to examine respondent's books of accounts and other accounting records
for income and withholding taxes for the period covering January 1, 2001 to December 31, 2001.
Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently executed several
waivers of the statute of limitations to extend the prescriptive period of assessment for taxes due in
taxable year ending December 31, 2001 (Waivers), the details of which are summarized as follows:
Extended Date of Date of
Waiver Date of Execution BIR Signatory
Prescription Acknowledgment
Revenue District
First Waiver March 30, 2005 August 26, 2004 August 30, 2004
Officer
Revenue District
Second Waiver June 30, 2005 October 22, 2004 October 22, 2004
Officer
Revenue District
Third Waiver September 30, 2005 January 12,2005 January 18, 2005
Officer
Revenue District
Fourth Waiver September 30, 2005 None May 3, 2005
Officer
Revenue District
Fifth Waiver October 31, 2005 March 17, 2005 May 3, 2005
Officer
On September 26, 2005, respondent received from the BIR a Preliminary Assessment Notice dated
September 16, 2005 to which it filed a Reply.
On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and Assessment
Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR, demanding payment of
deficiency income tax, final withholding tax (FWT), expanded withholding tax (EWT), increments for
late remittance of taxes withheld, and compromise penalty for failure to file returns/late filing/late
remittance of taxes withheld, in the total amount of P313,339,610.42 for the taxable year ending
December 31, 2001.
On November 23, 2005, respondent filed its protest against the FLD and requested the
reinvestigation of the assessments. On July 28, 2009, respondent received a letter from the BIR
denying its protest. Thus, on August 27, 2009, respondent filed a Petition for Review before the CTA
docketed as CTA Case No. 7965.
Ruling of the CTA Former First Division
On December 11, 2012, the former First Division of the CTA (CTA First Division) rendered a Decision
granting respondent's Petition for Review and declared the FLD dated October 17, 2005 and
Assessment Notices/Demand No. 43-734 dated October 17, 2005 cancelled and withdrawn for being
issued beyond the three-year prescriptive period provided by law.
It was held that based on the date of filing of respondent's Annual ITR as well as the dates of filing of
its monthly BIR Form Nos. 1601-F, 1601-E and 1601-C, it is clear that the adverted FLD and the
Final Assessment Notices both dated October 17, 2005 were issued beyond the three-year
prescriptive period provided under Section 203 ot the 1997 National Internal Revenue Code (NIRC),
as amended.
The tax court also rejected petitioner's claim that this case falls under the exception as to the three-
year prescriptive period for assessment and that the 10-year prescriptive period should apply on the
ground of filing a false or fraudulent return. Under Section 222(a) of the 1997 NIRC, as amended, in
case a taxpayer filed a false or fraudulent return, the Commissioner of Internal Revenue (CIR) may
assess a taxpayer for deficiency tax within ten (10) years after the discovery of the falsity or the
fraud. The tax court explained that petitioner failed to substantiate its allegation by clear and
convincing proof that respondent filed a false or fraudulent return.
Furthermore, the CTA First Division held that the Waivers executed by Sarmiento did not validly
extend the three-year prescriptive period to assess respondent for deficiency income tax, FWT, EWT,
increments for late remittance of tax withheld and compromise penalty, for, as found, the Waivers
were not properly executed according to the procedure in Revenue Memorandum Order No. 20-90
(RMO 20-90)1 and Revenue Delegation Authority Order No. 05-01 (RDAO 05-01).2
The tax court declared that, in this case, the Waivers have no binding effect on respondent for the
following reasons: chanRoblesvirt ual Lawlib rary
First, Sarmiento signed the Waivers without any notarized written authority from respondent's Board
of Directors. Petitioner's witness explicitly admitted that he did not require Sarmiento to present any
notarized written authority from the Board of Directors of respondent, authorizing her to sign the
Waivers. Petitioner's witness also confirmed that Revenue District Officer Raul Vicente L. Recto (RDO
Recto) accepted the Waivers as submitted.
Second, even assuming that Sarmiento had the necessary board authority, the Waivers are still
invalid as the respective dates of their acceptance by RDO Recto are not indicated therein.
Third, records of this case reveal additional irregularities in the subject Waivers:
(1) The fact of receipt by respondent of its copy of the Second Waiver was not indicated on the face of the
original Second Waiver;
(2) Respondent received its copy of the First and the Third Waivers on the same day, May 23, 2005; and
(3) Respondent received its copy of the Fourth and the Fifth Waivers on the same day, May 13, 2005.
Finally, the CTA held that estoppel does not apply in questioning the validity of a waiver of the
statute of limitations. It stated that the BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01.
Petitioner's Motion for Reconsideration was denied on March 14, 2013.
Petitioner filed a Petition for Review before the CTA En Banc.
On May 28, 2014, the CTA En Banc rendered a Decision denying the Petition for Review and affirmed
that of the former CTA First Division.
It held that the five (5) Waivers of the statute of limitations were not valid and binding; thus, the
three-year period of limitation within which to assess deficiency taxes was not extended. It also held
that the records belie the allegation that respondent filed false and fraudulent tax returns; thus, the
extension of the period of limitation from three (3) to ten (10) years does not apply.
Issue
Petitioner has filed the instant petition on the issue of whether or not the CIR's right to assess
respondent's deficiency taxes had already prescribed.
Our Ruling
The petition has merit.
Section 2033 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years
from the last day prescribed by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive
period is not valid and effective. Exceptions to this rule are provided under Section 2224 of the NIRC.
Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-015 issued on
August 2, 2001 provide the procedure for the proper execution of a waiver. RMO 20-90 reads:
April 4, 1990
REVENUE MEMORANDUM ORDER NO. 20-90
Subject: Proper Execution of the Waiver of the Statute of Limitations under the National
Internal Revenue Code
To: All Internal Revenue Officers and Others Concerned
Pursuant to Section 223 of the Tax Code, internal revenue taxes may be assessed or collected after
the ordinary prescriptive period, if before its expiration, both the Commissioner and the taxpayer
have agreed in writing to its assessment and/or collection after said period. The period so agreed
upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon. This written agreement between the Commissioner and the taxpayer is the
so-called Waiver of the Statute of Limitations. In the execution of said waiver, the following
procedures should be followed: chanRoblesvi rtual Lawli bra ry
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office
concerned but there should be no deviation from such form. The phrase "but not after ______
19____" should be filled up. This indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription. The period agreed upon
shall constitute the time within which to effect the assessment/collection of the tax in addition to the
ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the
case of a corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue .or the
revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the
Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be
indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period agreed upon in
case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver: chanRoblesvi rt ualLaw lib rary
xxxx
4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of
the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver.
The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with.
This Revenue Memorandum Order shall take effect immediately.
(SGD.)JOSEU. ONG
Commissioner of Internal Revenue
The Court has consistently held that a waiver of the statute of limitations must faithfully comply with
the provisions of RMO No. 20-90 and RDAO 05-01 in order to be valid and binding.
In Philippine Journalists, Inc. v. Commissioner of Internal Revenue6 the Court declared the waiver
executed by petitioner therein invalid because: (1) it did not specify a definite agreed date between
the BIR and petitioner within which the former may assess and collect revenue taxes; (2) it was
signed only by a revenue district officer, not the Commissioner; (3) there was no date of acceptance;
and (4) petitioner was not furnished a copy of the waiver.
Philippine Journalists tells us that since a waiver of the statute of limitations is a derogation of the
taxpayer's right to security against prolonged and unscrupulous investigations, waivers of this kind
must be carefully and strictly construed. Philippine Journalists also clarifies that a waiver of the
statute of limitations is not a waiver of the right to invoke the defense of prescription but rather an
agreement between the taxpayer and the BIR that the period to issue an assessment and collect the
taxes due is extended to a date certain. It is not a unilateral act by the taxpayer of the BIR but is a
bilateral agreement between two parties.
In Commissioner of Internal Revenue v. FMF Development Corporation7 the Court found the waiver in
question defective because: (1) it was not proved that respondent therein was furnished a copy of
the BIR-accepted waiver; (2) the waiver was signed by a revenue district officer instead of the
Commissioner as mandated by the NIRC and RMO 20-90 considering that the case involved an
amount of more than P1,000,000.00, and the period to assess was not yet about to prescribe; and
(3) it did not contain the date of acceptance by the CIR. The Court explained that the date of
acceptance by the CIR is a requisite necessary to determine whether the waiver was validly accepted
before the expiration of the original period.8
In CIR v. Kudos Metal Corporation,9 the waivers executed by Kudos were found ineffective to extend
the period to assess or collect taxes because: (1) the accountant who executed the waivers had no
notarized written board authority to sign the waivers in behalf of respondent corporation; (2) there
was no date of acceptance indicated on the waivers; and (3) the fact of receipt by respondent of its
file copy was not indicated in the original copies of the waivers.
The Court rejected the CIR's argument that since it was the one who asked for additional time, Kudos
should be considered estopped from raising the defense of prescription. The Court held that the BIR
cannot hide behind the doctrine of estoppel to cover its failure to comply with its RMO 20-90 and
RDAO 05-01. Having caused the defects in the waivers, the Court held that the BIR must bear the
consequence.10 Hence, the BIR assessments were found to be issued beyond the three-year period
and declared void.11 Further, the Court stressed that there is compliance with RMO 20-90 only after
the taxpayer receives a copy of the waiver accepted by the BIR, viz:
The flaw in the appellate court's reasoning stems from its assumption that the waiver is a unilateral
act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR.
When the petitioner's comptroller signed the waiver on September 22, 1997, it was not yet complete
and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90
only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.12 ChanRoblesVirtualawli bra ry
The deficiencies of the Waivers in this case are the same as the defects of the waiver in Kudos. In the
instant case, the CTA found the Waivers because of the following flaws: (1) they were executed
without a notarized board authority; (2) the dates of acceptance by the BIR were not indicated
therein; and (3) the fact of receipt by respondent of its copy of the Second Waiver was not indicated
on the face of the original Second Waiver.
To be sure, both parties in this case are at fault.
Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner. However, her
authority to sign these Waivers was not presented upon their submission to the BIR. In fact, later on,
her authority to sign was questioned by respondent itself, the very same entity that caused her to
sign such in the first place. Thus, it is clear that respondent violated RMO No. 20-90 which states that
in case of a corporate taxpayer, the waiver must be signed by its responsible officials13 and RDAO
01-05 which requires the presentation of a written and notarized authority to the BIR. 14
Similarly, the BIR violated its own rules and was careless in performing its functions with respect to
these Waivers. It is very clear that under RDAO 05-01 it is the duty of the authorized revenue
official to ensure that the waiver is duly accomplished and signed by the taxpayer or his
authorized representative before affixing his signature to signify acceptance of the same. It also
instructs that in case the authority is delegated by the taxpayer to a representative, the
concerned revenue official shall see to it that such delegation is in writing and duly
notarized. Furthermore, it mandates that the waiver should not be accepted by the concerned
BIR office and official unless duly notarized.15
Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for five times, to perform
its duties in relation thereto: to verify Ms. Sarmiento's authority to execute them, demand the
presentation of a notarized document evidencing the same, refuse acceptance of the Waivers when
no such document was presented, affix the dates of its acceptance on each waiver, and indicate on
the Second Waiver the date of respondent's receipt thereof.
Both parties knew the infirmities of the Waivers yet they continued dealing with each other on the
strength of these documents without bothering to rectify these infirmities. In fact, in its Letter Protest
to the BIR, respondent did not even question the validity of the Waivers or call attention to their
alleged defects.
In this case, respondent, after deliberately executing defective waivers, raised the very same
deficiencies it caused to avoid the tax liability determined by the BIR during the extended
assessment period. It must be remembered that by virtue of these Waivers, respondent was given
the opportunity to gather and submit documents to substantiate its claims before the CIR during
investigation. It was able to postpone the payment of taxes, as well as contest and negotiate the
assessment against it. Yet, after enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor. In other words, respondent's act of
impugning these Waivers after benefiting therefrom and allowing petitioner to rely on the same is an
act of bad faith.
On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in place precisely
because the BIR put them there. Yet, instead of strictly enforcing its provisions, the BIR defied the
mandates of its very own issuances. Verily, if the BIR was truly determined to validly assess and
collect taxes from respondent after the prescriptive period, it should have been prudent enough to
make sure that all the requirements for the effectivity of the Waivers were followed not only by its
revenue officers but also by respondent. The BIR stood to lose millions of pesos in case the Waivers
were declared void, as they eventually were by the CTA, but it appears that it was too negligent to
even comply with its most basic requirements.
The BIR's negligence in this case is so gross that it amounts to malice and bad faith. Without doubt,
the BIR knew that waivers should conform strictly to RMO 20-90 and RDAO 05-01 in order to be
valid. In fact, the mandatory nature of the requirements, as ruled by this Court, has been recognized
by the BIR itself in its issuances such as Revenue Memorandum Circular No. 6-2005,16 among others.
Nevertheless, the BIR allowed respondent to submit, and it duly received, five defective Waivers
when it was its duty to exact compliance with RMO 20-90 and RDAO 05-01 and follow the procedure
dictated therein. It even openly admitted that it did not require respondent to present any notarized
authority to sign the questioned Waivers.17 The BIR failed to demand respondent to follow the
requirements for the validity of the Waivers when it had the duty to do so, most especially because it
had the highest interest at stake. If it was serious in collecting taxes, the BIR should have
meticulously complied with the foregoing orders, leaving no stone unturned.
The general rule is that when a waiver does not comply with the requisites for its validity specified
under RMO No. 20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period
to assess taxes. However, due to its peculiar circumstances, We shall treat this case as an exception
to this rule and find the Waivers valid for the reasons discussed below.
First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the
two parties to a controversy are equally culpable or guilty and they shall have no action against each
other. However, although the parties are in pari delicto, the Court may interfere and grant relief at
the suit of one of them, where public policy requires its intervention, even though the result may be
that a benefit will be derived by one party who is in equal guilt with the other.18
Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the
principle that taxes are the lifeblood of the government, and their prompt and certain availability is
an imperious need.19 Taxes are the nation's lifeblood through which government agencies continue to
operate and which the State discharges its functions for the welfare of its constituents. 20 As between
the parties, it would be more equitable if petitioner's lapses were allowed to pass and consequently
uphold the Waivers in order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean
hands.21 Parties who do not come to court with clean hands cannot be allowed to benefit from their
own wrongdoing.22 Following the foregoing principle, respondent should not be allowed to benefit
from the flaws in its own Waivers and successfully insist on their invalidity in order to evade its
responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the
Court has repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to
the statute of limitations for assessment of taxes, the Court finds that the application of the doctrine
is justified in this case. Verily, the application of estoppel in this case would promote the
administration of the law, prevent injustice and avert the accomplishment of a wrong and undue
advantage. Respondent executed five Waivers and delivered them to petitioner, one after the other.
It allowed petitioner to rely on them and did not raise any objection against their validity until
petitioner assessed taxes and penalties against it. Moreover, the application of estoppel is necessary
to prevent the undue injury that the government would suffer because of the cancellation of
petitioner's assessment of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the
one hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same
defects it caused. On the other hand, the BIR miserably failed to exact from respondent compliance
with its rules. The BIR's negligence in the performance of its duties was so gross that it amounted to
malice and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to the
mistakes in the Waivers. Such a situation is dangerous and open to abuse by unscrupulous taxpayers
who intend to escape their responsibility to pay taxes by mere expedient of hiding behind
technicalities.
It is true that petitioner was also at fault here because it was careless in complying with the
requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be
addressed by enforcing the provisions imposing administrative liabilities upon the officers responsible
for these errors.23 The BIR's right to assess and collect taxes should not be jeopardized merely
because of the mistakes and lapses of its officers, especially in cases like this where the taxpayer is
obviously in bad faith.24
As regards petitioner's claim that the 10-year period of limitation within which to assess deficiency
taxes provided in Section 222(a) of the 1997 NIRC is applicable in this case as respondent allegedly
filed false and fraudulent returns, there is no reason to disturb the tax court's findings that records
failed to establish, even by prima facie evidence, that respondent Next Mobile filed false
and fraudulent returns on the ground of substantial underdeclaration of income in
respondent Next Mobile's Annual ITR for taxable year ending December 31, 2001.25 cralaw red
While the Court rules that the subject Waivers are valid, We, however, refer back to the tax court the
determination of the merits of respondent's petition seeking the nullification of the BIR Formal Letter
of Demand and Assessment Notices/Demand No. 43-734.
WHEREFORE, premises considered, the Court resolves to GRANT the petition. The Decision of the
Court of Tax Appeals En Banc dated May 28, 2014 in CTA EB Case No. 1001 is
hereby REVERSED and SET ASIDE. Accordingly, let this case be remanded to the Court of Tax
Appeals for further proceedings in order to determine and rule on the merits of respondent's petition
seeking the nullification of the BIR Formal Letter of Demand and Assessment Notices/Demand No.
43-734, both dated October 17, 2005.
SO ORDERED. chanroblesv irtuallaw lib rary
G.R. No. 196596

vs.
DE LA SALLE UNIVERSITY, INC., Respondent
x-----------------------x
G.R. No. 198841
DE LA SALLE UNIVERSITY INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 198941

vs.
DE LA SALLE UNIVERSITY, INC., Respondent.
DECISION
BRION, J.:
Before the Court are consolidated petitions for review on certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal Revenue (Commissioner) to assail the December 10,
2010 decision and March 29, 2011 resolution of the Court of Tax Appeals (CTA) in En Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the June 8, 2011 decision and October 4,
2011 resolution in CTA En Banc Case No. 671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision and October 4, 2011 resolution in
CTA En Banc Case No. 671.4
G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First Division (CTA Division) Case No.
7303. G.R. No. 196596 stemmed from CTA En Banc Case No. 622 filed by the Commissioner to challenge CTA
Case No. 7303. G.R. No. 198841 and 198941 both stemmed from CTA En Banc Case No. 671 filed by DLSU to
also challenge CTA Case No. 7303.
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794
authorizing its revenue officers to examine the latter's books of accounts and other accounting records for all
internal revenue taxes for the period Fiscal Year Ending 2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6
Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the following
deficiency taxes: (1) income tax on rental earnings from restaurants/canteens and bookstores operating within the
campus; (2) value-added tax (VAI) on business income; and (3) documentary stamp tax (DSI) on loans and lease
contracts. The BIR demanded the payment of ₱17,303,001.12, inclusive of surcharge, interest and penalty
for taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU filed on August 3, 2005
a petition for review with the CTA Division.8
DLSU, a non-stock, non-profit educational institution, principally anchored its petition on Article XIV, Section 4
(3) of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU's petition for review. The dispositive portion of the
decision reads:
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST assessment on the loan transactions of
[DLSU] in the amount of ₱1,1681,774.00 is hereby CANCELLED. However, [DLSU] is ORDERED TO
PAY deficiency income tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years 2001, 2002
and 2003 in the total amount of ₱18,421,363.53 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the total amount due computed from
September 30, 2004 until full payment thereof pursuant to Section 249(C)(3) of the [National Internal Revenue
Code]. Further, the compromise penalties imposed by [the Commissioner] were excluded, there being no
compromise agreement between the parties.
SO ORDERED.9
Both the Commissioner and DLSU moved for the reconsideration of the January 5, 2010 decision.10 On April 6,
2010, the CTA Division denied the Commissioner's motion for reconsideration while it held in abeyance the
resolution on DLSU's motion for reconsideration.11
On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En Banc Case No. 622) arguing that
DLSU's use of its revenues and assets for non-educational or commercial purposes removed these items from the
exemption coverage under the Constitution.12
On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces of documentary evidence to
prove that its rental income was used actually, directly and exclusively for educational purposes.13 The
Commissioner did not promptly object to the formal offer of supplemental evidence despite notice.14
On July 29, 2010, the CTA Division, in view of the supplemental evidence submitted, reduced the amount of DLSU's
tax deficiencies. The dispositive portion of the amended decision reads:
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY GRANTED. [DLSU] is
hereby ORDERED TO PAY for deficiency income tax, VAT and DST plus 25% surcharge for the fiscal years 2001,
2002 and 2003 in the total adjusted amount of ₱5,506,456.71 ... xxx.
In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency interest on the ... basic deficiency taxes ...
until full payment thereof pursuant to Section 249(B) of the [National Internal Revenue Code] ... xxx.
Further, [DLSU] is hereby held liable to pay 20% per annum delinquency interest on the deficiency taxes, surcharge
and deficiency interest which have accrued ... from September 30, 2004 until fully paid.15
Consequently, the Commissioner supplemented its petition with the CTA En Banc and argued that the CTA Division
erred in admitting DLSU's additional evidence.16
Dissatisfied with the partial reduction of its tax liabilities, DLSU filed a separate petition for review with the CTA En
Banc (CTA En Banc Case No. 671) on the following grounds: (1) the entire assessment should have been cancelled
because it was based on an invalid LOA; (2) assuming the LOA was valid, the CTA Division should still have
cancelled the entire assessment because DLSU submitted evidence similar to those submitted by Ateneo De Manila
University (Ateneo) in a separate case where the CTA cancelled Ateneo's tax assessment;17 and (3) the CTA
Division erred in finding that a portion of DLSU's rental income was not proved to have been used actually, directly
and exclusively for educational purposes.18
The CTA En Banc Rulings
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for review and sustained the findings of the CTA Division.19
Tax on rental income
Relying on the findings of the court-commissioned Independent Certified Public Accountant (Independent CPA), the
CTA En Banc found that DLSU was able to prove that a portion of the assessed rental income was used actually,
directly and exclusively for educational purposes; hence, exempt from tax.20 The CTA En Banc was satisfied with
DLSU's supporting evidence confirming that part of its rental income had indeed been used to pay the loan it
obtained to build the university's Physical Education – Sports Complex.21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its income that was not shown by
supporting documents to have been actually, directly and exclusively used for educational purposes, must be
subjected to income tax and VAT.22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU froved its remittance of the DST due on its loan and mortgage
documents.23 The CTA En Banc found that DLSU's DST payments had been remitted to the BIR, evidenced by the
stamp on the documents made by a DST imprinting machine, which is allowed under Section 200 (D) of the National
Internal Revenue Code (Tax Code)24 and Section 2 of Revenue Regulations (RR) No. 15-2001.25
Admissibility of DLSU's supplemental evidence
The CTA En Banc held that the supplemental pieces of documentary evidence were admissible even if DLSU
formally offered them only when it moved for reconsideration of the CTA Division's original decision. Notably, the
law creating the CTA provides that proceedings before it shall not be governed strictly by the technical rules of
evidence.26
The Commissioner moved but failed to obtain a reconsideration of the CTA En Banc's December 10, 2010
decision.27 Thus, she came to this court for relief through a petition for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review and further reduced its tax liabilities
to ₱2,554,825.47 inclusive of surcharge.28
On the validity of the Letter of Authority
The issue of the LOA' s validity was raised during trial;29 hence, the issue was deemed properly submitted for
decision and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable period and that the practice of
issuing a LOA covering audit of unverified prior years is prohibited.30 The prohibition is consistent with Revenue
Memorandum Order (RMO) No. 43-90, which provides that if the audit includes more than one taxable period, the
other periods or years shall be specifically indicated in the LOA.31
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. Hence, the
assessments for deficiency income tax, VAT and DST for taxable years 2001 and 2002 are void, but the
assessment for taxable year 2003 is valid.32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid precedent because it involved different parties, factual
settings, bases of assessments, sets of evidence, and defenses.33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of DLSU' s evidence. It held that while DLSU
successfully proved that a portion of its rental income was transmitted and used to pay the loan obtained to fund the
construction of the Sports Complex, the rental income from other sources were not shown to have been actually,
directly and exclusively used for educational purposes.34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the Commissioner (G.R. No.
198941) came to this Court for relief.
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First, DLSU's rental income is taxable regardless of how such income is derived, used or disposed of.35 DLSU's
operations of canteens and bookstores within its campus even though exclusively serving the university community
do not negate income tax liability.36
The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must be harmonized with Section 30
(H) of the Tax Code, which states among others, that the income of whatever kind and character of [a non-stock and
non-profit educational institution] from any of [its] properties, real or personal, or from any of [its] activities conducted
for profit regardless of the disposition made of such income, shall be subject to tax imposed by this Code.37
The Commissioner argues that the CTA En Banc misread and misapplied the case of Commissioner of Internal
Revenue v. YMCA38 to support its conclusion that revenues however generated are covered by the constitutional
exemption, provided that, the revenues will be used for educational purposes or will be held in reserve for such
purposes.39
On the contrary, the Commissioner posits that a tax-exempt organization like DLSU is exempt only from property tax
but not from income tax on the rentals earned from property.40 Thus, DLSU's income from the leases of its real
properties is not exempt from taxation even if the income would be used for educational purposes.41
Second, the Commissioner insists that DLSU did not prove the fact of DST payment42 and that it is not qualified to
use the On-Line Electronic DST Imprinting Machine, which is available only to certain classes of taxpayers under
RR No. 9-2000.43
Finally, the Commissioner objects to the admission of DLSU's supplemental offer of evidence. The belated
submission of supplemental evidence reopened the case for trial, and worse, DLSU offered the supplemental
evidence only after it received the unfavorable CTA Division's original decision.44 In any case, DLSU's submission of
supplemental documentary evidence was unnecessary since its rental income was taxable regardless of its
disposition.45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication of unverified prior years. A LOA
issued contrary to RMO No. 43-90 is void, thus, an assessment issued based on such defective LOA must also be
void.46
DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and Unverified Prior Years. On the
basis of this defective LOA, the Commissioner assessed DLSU for deficiency income tax, VAT and DST for taxable
years 2001, 2002 and 2003.47 DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year
2003. According to DLSU, when RMO No. 43-90 provides that:
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby prohibited.
it refers to the LOA which has the format "Base Year + Unverified Prior Years." Since the LOA issued to DLSU
follows this format, then any assessment arising from it must be entirely voided.48
Second, DLSU invokes the principle of uniformity in taxation, which mandates that for similarly situated parties,
the same set of evidence should be appreciated and weighed in the same manner.49 The CTA En Banc erred when
it did not similarly appreciate DLSU' s evidence as it did to the pieces of evidence submitted by Ateneo, also a non-
stock, non-profit educational institution.50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R. No. 198941 petition are exactly the same as those
she raised in her: (1) petition docketed as G.R. No. 196596 and (2) comment on DLSU's petition docketed as G.R.
No. 198841.51
Counter-arguments
DLSU's Comment on G.R. No. 196596
First, DLSU questions the defective verification attached to the petition.52
Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of
non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes are
exempt from taxes and duties.53
On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit educational institutions is novel to
the 1987 Constitution and that Section 30 (H) of the 1997 Tax Code cannot amend the 1987 Constitution;54 (2)
Section 30 of the 1997 Tax Code is almost an exact replica of Section 26 of the 1977 Tax Code -with the addition of
non-stock, non-profit educational institutions to the list of tax-exempt entities; and (3) that the 1977 Tax Code was
promulgated when the 1973 Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private educational institution under the 1973 Constitution was
only for real property tax. Back then, the special tax treatment on income of private educational institutions only
emanates from statute, i.e., the 1977 Tax Code. Only under the 1987 Constitution that exemption from tax of all
the assets and revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes, was expressly and categorically enshrined.55
DLSU thus invokes the doctrine of constitutional supremacy, which renders any subsequent law that is contrary to
the Constitution void and without any force and effect.56 Section 30 (H) of the 1997 Tax Code insofar as it subjects to
tax the income of whatever kind and character of a non-stock and non-profit educational institution from any of its
properties, real or personal, or from any of its activities conducted for profit regardless of the disposition made of
such income, should be declared without force and effect in view of the constitutionally granted tax exemption on "all
revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes."57
DLSU further submits that it complies with the requirements enunciated in the YMCA case, that for an exemption to
be granted under Article XIV, Section 4 (3) of the Constitution, the taxpayer must prove that: (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation
is used actually, directly and exclusively for educational purposes.58 Unlike YMCA, which is not an educational
institution, DLSU is undisputedly a non-stock, non-profit educational institution. It had also submitted evidence to
prove that it actually, directly and exclusively used its income for educational purposes.59
DLSU also cites the deliberations of the 1986 Constitutional Commission where they recognized that the tax
exemption was granted "to incentivize private educational institutions to share with the State the responsibility of
educating the youth."60
Third, DLSU highlights that both the CTA En Banc and Division found that the bank that handled DLSU' s loan and
mortgage transactions had remitted to the BIR the DST through an imprinting machine, a method allowed under RR
No. 15-2001.61 In any case, DLSU argues that it cannot be held liable for DST owing to the exemption granted under
the Constitution.62
Finally, DLSU underscores that the Commissioner, despite notice, did not oppose the formal offer of supplemental
evidence. Because of the Commissioner's failure to timely object, she became bound by the results of the
submission of such supplemental evidence.63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from questioning the LOA's validity because it failed to raise this
issue in both the administrative and judicial proceedings.64 That it was asked on cross-examination during the trial
does not make it an issue that the CTA could resolve.65 The Commissioner also maintains that DLSU's rental income
is not tax-exempt because an educational institution is only exempt from property tax but not from tax on the income
earned from the property.66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed above.67 In addition, DLSU prays that the Court award
attorney's fees in its favor because it was constrained to unnecessarily retain the services of counsel in this
separate petition.68
Issues
Although the parties raised a number of issues, the Court shall decide only the pivotal issues, which we summarize
as follows:
I. Whether DLSU' s income and revenues proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes;
II. Whether the entire assessment should be voided because of the defective LOA;
III. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence; and
IV. Whether the CTA's appreciation of the sufficiency of DLSU's evidence may be disturbed by the Court.
Our Ruling
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit educational institutions proved to have been
used actually, directly and exclusively for educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of supplemental evidence; and
IV. The CTA's appreciation of evidence is conclusive unless the CTA is shown to have manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify
a different conclusion.
The parties failed to convince the Court that the CTA overlooked or failed to consider relevant facts. We thus sustain
the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used actually, directly and exclusively for educational
purposes; and
b. DLSU proved the payment of the DST through its bank's on-line imprinting machine.
I. The revenues and assets of non-stock,

non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation
of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law including restrictions on dividends and provisions for
reinvestment. [underscoring and emphasis supplied]
Before fully discussing the merits of the case, we observe that:
First, the constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions.69
Second, DLSU falls under the first category. Even the Commissioner admits the status of DLSU as a non-stock,
non-profit educational institution.70
Third, while DLSU's claim for tax exemption arises from and is based on the Constitution, the Constitution, in the
same provision, also imposes certain conditions to avail of the exemption. We discuss below the import of the
constitutional text vis-a-vis the Commissioner's counter-arguments.
Fourth, there is a marked distinction between the treatment of non-stock, non-profit educational institutions and
proprietary educational institutions. The tax exemption granted to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes.
While tax exemptions may also be granted to proprietary educational institutions, these exemptions may be subject
to limitations imposed by Congress.
As we explain below, the marked distinction between a non-stock, non-profit and a proprietary educational institution
is crucial in determining the nature and extent of the tax exemption granted to non-stock, non-profit educational
institutions.
The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30 (H) of the Tax Code. The
relevant text reads:
The following organizations shall not be taxed under this Title [Tax on
Income] in respect to income received by them as such:
xxxx
(H) A non-stock and non-profit educational institution
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income shall be subject to tax imposed under this
Code. [underscoring and emphasis supplied]
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to non-stock, non-profit
educational institutions such that the revenues and income they derived from their assets, or from any of their
activities conducted for profit, are taxable even if these revenues and income are used for educational purposes.
Did the 1997 Tax Code qualify the tax exemption constitutionally-granted to non-stock, non-profit educational
institutions?
We answer in the negative.
While the present petition appears to be a case of first impression,71 the Court in the YMCA case had in fact already
analyzed and explained the meaning of Article XIV, Section 4 (3) of the Constitution. The Court in that case made
doctrinal pronouncements that are relevant to the present case.
The issue in YMCA was whether the income derived from rentals of real property owned by the YMCA, established
as a "welfare, educational and charitable non-profit corporation," was subject to income tax under the Tax Code and
the Constitution.72
The Court denied YMCA's claim for exemption on the ground that as a charitable institution falling under Article VI,
Section 28 (3) of the Constitution,73 the YMCA is not tax-exempt per se; " what is exempted is not the institution
itself... those exempted from real estate taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes."74
The Court held that the exemption claimed by the YMCA is expressly disallowed by the last paragraph of then
Section 27 (now Section 30) of the Tax Code, which mandates that the income of exempt organizations from any of
their properties, real or personal, are subject to the same tax imposed by the Tax Code, regardless of how that
income is used. The Court ruled that the last paragraph of Section 27 unequivocally subjects to tax the rent income
of the YMCA from its property.75
In short, the YMCA is exempt only from property tax but not from income tax.
As a last ditch effort to avoid paying the taxes on its rental income, the YMCA invoked the tax privilege granted
under Article XIV, Section 4 (3) of the Constitution.
The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the Constitution holding that the
term educational institution, when used in laws granting tax exemptions, refers to the school system (synonymous
with formal education); it includes a college or an educational establishment; it refers to the hierarchically structured
and chronologically graded learnings organized and provided by the formal school system.76
The Court then significantly laid down the requisites for availing the tax exemption under Article XIV, Section 4 (3),
namely: (1) the taxpayer falls under the classification non-stock, non-profit educational institution; and (2)
the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational
purposes.77
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to non-stock, non-profit
educational institutions, provided, that the non-stock, non-profit educational institutions prove that its assets and
revenues are used actually, directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is not subject to

limitations imposed by law.
The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions is conditioned only
on the actual, direct and exclusive use of
their assets, revenues and income78 for
educational purposes.
We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to charitable institutions, churches,
parsonages or convents, mosques, and non-profit cemeteries), which exempts from tax only the assets,
i.e., "all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes ... ," Article XIV, Section 4 (3) categorically states that "[a]ll revenues and assets ... used
actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties."
The addition and express use of the word revenues in Article XIV, Section 4 (3) of the Constitution is not without
significance.
We find that the text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986
Constitutional Commission79 to provide broader tax privilege to non-stock, non-profit educational institutions as
recognition of their role in assisting the State provide a public good. The tax exemption was seen as beneficial to
students who may otherwise be charged unreasonable tuition fees if not for the tax exemption extended
to all revenues and assets of non-stock, non-profit educational institutions.80
Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced from educational activities or activities related to the purposes
of an educational institution. The phrase all revenues is unqualified by any reference to the source of revenues.
Thus, so long as the revenues and income are used actually, directly and exclusively for educational purposes, then
said revenues and income shall be exempt from taxes and duties.81
We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.
Revenues consist of the amounts earned by a person or entity from the conduct of business operations.82 It may
refer to the sale of goods, rendition of services, or the return of an investment. Revenue is a component of the tax
base in income tax,83 VAT,84 and local business tax (LBT).85
Assets, on the other hand, are the tangible and intangible properties owned by a person or entity.86 It may refer to
real estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any property
from which the person or entity may derive income or use to generate the same. In Philippine taxation, the fair
market value of real property is a component of the tax base in real property tax (RPT).87 Also, the landed cost of
imported goods is a component of the tax base in VAT on importation88 and tariff duties.89
Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand, when
it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from
RPT.
To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the
entity shall be exempted from shall depend on whether the item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school building to a bookstore or cafeteria, the leased portion is not
actually, directly and exclusively used for educational purposes, even if the bookstore or canteen caters only to
university students, faculty and staff.
The leased portion of the building may be subject to real property tax, as held in Abra Valley College, Inc. v.
Aquino.90 We ruled in that case that the test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution. We also held that the exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.
In concrete terms, the lease of a portion of a school building for commercial purposes, removes such asset from
the property tax exemption granted under the Constitution.91 There is no exemption because the asset is not used
actually, directly and exclusively for educational purposes. The commercial use of the property is also not incidental
to and reasonably necessary for the accomplishment of the main purpose of a university, which is to educate its
students.
However, if the university actually, directly and exclusively uses for educational purposes the revenues earned from
the lease of its school building, such revenues shall be exempt from taxes and duties. The tax exemption no longer
hinges on the use of the asset from which the revenues were earned, but on the actual, direct and exclusive use of
the revenues for educational purposes.
Parenthetically, income and revenues of non-stock, non-profit educational institution not used actually, directly and
exclusively for educational purposes are not exempt from duties and taxes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly and exclusively for educational purposes the revenues or income
sought to be exempted.
The crucial point of inquiry then is on the use of the assets or on the use of the revenues. These are two things
that must be viewed and treated separately. But so long as the assets or revenues are used actually, directly and
exclusively for educational purposes, they are exempt from duties and taxes.
The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.
That the Constitution treats non-stock, non-profit educational institutions differently from proprietary educational
institutions cannot be doubted. As discussed, the privilege granted to the former is conditioned only on the actual,
direct and exclusive use of their revenues and assets for educational purposes. In clear contrast, the tax privilege
granted to the latter may be subject to limitations imposed by law.
We spell out below the difference in treatment if only to highlight the privileged status of non-stock, non-profit
educational institutions compared with their proprietary counterparts.
While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section
30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by
Section 27 (Rates of Income Tax on Domestic Corporations).
To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational institutions shall
not be taxed on income received by them as such.
Section 27 (B), on the other hand, states that "[p]roprietary educational institutions ... which are nonprofit shall pay a
tax of ten percent (10%) on their taxable income .. . Provided, that if the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational
institutions ... [the regular corporate income tax of 30%] shall be imposed on the entire taxable income ... "92
By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit
and (2) its gross income from unrelated trade, business or activity does not exceed 50% of its total gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock, non-profit
educational institutions.
Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational institutions
used actually, directly and exclusively for educational purpose. We make this declaration in the exercise of and
consistent with our duty93 to uphold the primacy of the Constitution.94
Finally, we stress that our holding here pertains only to non-stock, non-profit educational institutions and does not
cover the other exempt organizations under Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues of DLSU proven to have been used actually, directly
and exclusively for educational purposes are exempt from duties and taxes.
II. The LOA issued to DLSU is

not entirely void. The
assessment for taxable year
2003 is valid.
DLSU objects to the CTA En Banc 's conclusion that the LOA is valid for taxable year 2003 and insists that the
entire LOA should be voided for being contrary to RMO No. 43-90, which provides that if tax audit includes more
than one taxable period, the other periods or years shall be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to examine the books of account and other
accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities95 and for
the purpose of collecting the correct amount of tax,96 in accordance with Section 5 of the Tax Code, which gives the
CIR the power to obtain information, to summon/examine, and take testimony of persons. The LOA commences the
audit process97 and informs the taxpayer that it is under audit for possible deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely nullify the LOA issued to DLSU, and consequently,
disregard the BIR and the CTA's findings of tax deficiency for taxable year 2003?
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:
3. A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The practice of issuing
[LO As] covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than
one taxable period, the other periods or years shall be specifically indicated in the [LOA].98
What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years. RMO 43-
90 does not say that a LOA which contains unverified prior years is void. It merely prescribes that if the audit
includes more than one taxable period, the other periods or years must be specified. The provision read as a whole
requires that if a taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or
taxable period on separate LOAs.
Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer
of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can
unduly burden the taxpayer by demanding random accounting records from random unverified years, which may
include documents from as far back as ten years in cases of fraud audit.99
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The LOA
does not strictly comply with RMO 43-90 because it includes unverified prior years. This does not mean, however,
that the entire LOA is void.
As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is specified in
the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily, the assessments for
taxable years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No.
43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA' s validity at the CTA Division, and
thus, should not have been entertained on appeal, is not accurate.
On the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the trial.100 DLSU then
raised the issue in its memorandum and motion for partial reconsideration with the CTA Division. DLSU raised it
again on appeal to the CTA En Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of the
LOA.101 Besides, the Commissioner had the opportunity to argue for the validity of the LOA at the CTA En Banc but
she chose not to file her comment and memorandum despite notice.102
III.The CTA correctly admitted

the supplemental evidence
formally offered by DLSU.
The Commissioner objects to the CTA Division's admission of DLSU's supplemental pieces of documentary
evidence.
To recall, DLSU formally offered its supplemental evidence upon filing its motion for reconsideration with the CTA
Division.103 The CTA Division admitted the supplemental evidence, which proved that a portion of DLSU's rental
income was used actually, directly and exclusively for educational purposes. Consequently, the CTA Division
reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental evidence on distinct but mutually reinforcing grounds,
to wit: (1) the Commissioner failed to timely object to the formal offer of supplemental evidence; and (2) the CTA is
not governed strictly by the technical rules of evidence.
First, the failure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard
such evidence.104
The Court has held that if a party desires the court to reject the evidence offered, it must so state in the form of a
timely objection and it cannot raise the objection to the evidence for the first time on appeal.105 Because of a party's
failure to timely object, the evidence offered becomes part of the evidence in the case. As a consequence, all the
parties are considered bound by any outcome arising from the offer of evidence properly presented.106
As disclosed by DLSU, the Commissioner did not oppose the supplemental formal offer of evidence despite
notice.107 The Commissioner objected to the admission of the supplemental evidence only when the case was on
appeal to the CTA En Banc. By the time the Commissioner raised her objection, it was too late; the formal offer,
admission and evaluation of the supplemental evidence were all fait accompli.
We clarify that while the Commissioner's failure to promptly object had no bearing on the materiality or sufficiency of
the supplemental evidence admitted, she was bound by the outcome of the CTA Division's assessment of the
evidence.108
Second, the CTA is not governed strictly by the technical rules of evidence. The CTA Division's admission of the
formal offer of supplemental evidence, without prompt objection from the Commissioner, was thus justified.
Notably, this Court had in the past admitted and considered evidence attached to the taxpayers' motion for
reconsideration.1âw phi 1
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund claimant attached to its motion for
reconsideration with the CT A its Final Adjustment Return. The Commissioner, as in the present case, did not
oppose the taxpayer's motion for reconsideration and the admission of the Final Adjustment Return.110 We thus
admitted and gave weight to the Final Adjustment Return although it was only submitted upon motion for
reconsideration.
We held that while it is true that strict procedural rules generally frown upon the submission of documents after the
trial, the law creating the CTA specifically provides that proceedings before it shall not be governed strictly by the
technical rules of evidence111 and that the paramount consideration remains the ascertainment of truth. We ruled that
procedural rules should not bar courts from considering undisputed facts to arrive at a just determination of a
controversy.112
We applied the same reasoning in the subsequent cases of Filinvest Development Corporation v. Commissioner of
Internal Revenue113 and Commissioner of Internal Revenue v. PERF Realty Corporation,114 where the taxpayers also
submitted the supplemental supporting document only upon filing their motions for reconsideration.
Although the cited cases involved claims for tax refunds, we also dispense with the strict application of the technical
rules of evidence in the present tax assessment case. If anything, the liberal application of the rules assumes
greater force and significance in the case of a taxpayer who claims a constitutionally granted tax exemption. While
the taxpayers in the cited cases claimed refund of excess tax payments based on the Tax Code,115 DLSU is claiming
tax exemption based on the Constitution. If liberality is afforded to taxpayers who paid more than they should have
under a statute, then with more reason that we should allow a taxpayer to prove its exemption from tax based on the
Constitution.
Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence not only because the
Commissioner failed to promptly object, but more so because the strict application of the technical rules of evidence
may defeat the intent of the Constitution.
IV. The CTA's appreciation of

evidence is generally binding on
the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of
its function of being dedicated exclusively to the resolution of tax problems, has developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority.116 We thus accord the findings of
fact by the CTA with the highest respect. These findings of facts can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the CTA. In the
absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a
decision which is valid in every respect.117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb the CTA's findings that DLSU had used actually, directly
and exclusively for educational purposes a portion of its assessed income and that it had remitted the DST
payments though an online imprinting machine.
a. DLSU used actually, directly, and exclusively for educational purposes a portion of its assessed income.
To see how the CTA arrived at its factual findings, we review the process undertaken, from which it deduced that
DLSU successfully proved that it used actually, directly and exclusively for educational purposes a portion of its
rental income.
The CTA reduced DLSU' s deficiency income tax and VAT liabilities in view of the submission of the supplemental
evidence, which consisted of statement of receipts, statement of disbursement and fund balance and statement of
fund changes.118
These documents showed that DLSU borrowed ₱93.86 Million,119 which was used to build the university's Sports
Complex. Based on these pieces of evidence, the CTA found that DLSU' s rental income from its concessionaires
were indeed transmitted and used for the payment of this loan. The CTA held that the degree of preponderance of
evidence was sufficiently met to prove actual, direct and exclusive use for educational purposes.
The CTA also found that DLSU's rental income from other concessionaires, which were allegedly deposited to
a fund (CF-CPA Account),120 intended for the university's capital projects, was not proved to have been used
actually, directly and exclusively for educational purposes. The CTA observed that "[DLSU] ... failed to fully
account for and substantiate all the disbursements from the [fund]." Thus, the CTA "cannot ascertain whether rental
income from the [other] concessionaires was indeed used for educational purposes."121
To stress, the CTA's factual findings were based on and supported by the report of the Independent CPA who
reviewed, audited and examined the voluminous documents submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's functions include: (a) examination and verification of receipts,
invoices, vouchers and other long accounts; (b) reproduction of, and comparison of such reproduction with, and
certification that the same are faithful copies of original documents, and pre-marking of documentary exhibits
consisting of voluminous documents; (c) preparation of schedules or summaries containing a chronological listing of
the numbers, dates and amounts covered by receipts or invoices or other relevant documents and the amount(s) of
taxes paid; (d) making findings as to compliance with substantiation requirements under pertinent tax laws,
regulations and jurisprudence; (e) submission of a formal report with certification of authenticity and veracity of
findings and conclusions in the performance of the audit; (f) testifying on such formal report; and (g) performing such
other functions as the CTA may direct.122
Based on the Independent CPA's report and on its own appreciation of the evidence, the CTA held that only
the portion of the rental income pertaining to the substantiated disbursements (i.e., proved by receipts, vouchers,
etc.) from the CF-CPA Account was considered as used actually, directly and exclusively for educational purposes.
Consequently, the unaccounted and unsubstantiated disbursements must be subjected to income tax and VAT.123
The CTA then further reduced DLSU's tax liabilities by cancelling the assessments for taxable years 2001 and 2002
due to the defective LOA.124
The Court finds that the above fact-finding process undertaken by the CTA shows that it based its ruling on the
evidence on record, which we reiterate, were examined and verified by the Independent CPA. Thus, we see no
persuasive reason to deviate from these factual findings.
However, while we generally respect the factual findings of the CTA, it does not mean that we are bound by
its conclusions. In the present case, we do not agree with the method used by the CTA to arrive at DLSU' s
unsubstantiated rental income (i.e., income not proved to have been actually, directly and exclusively used for
educational purposes).
To recall, the CTA found that DLSU earned a rental income of ₱l0,610,379.00 in taxable year 2003.125 DLSU earned
this income from leasing a portion of its premises to: 1) MTG-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide
Food Corp., 5) Capri International, and 6) MTO Bookstore.126
To prove that its rental income was used for educational purposes, DLSU identified the transactions where the
rental income was expended, viz.: 1) ₱4,007,724.00127 used to pay the loan obtained by DLSU to build the Sports
Complex; and 2) ₱6,602,655.00 transferred to the CF-CPA Account.128
DLSU also submitted documents to the Independent CPA to prove that the ₱6,602,655.00 transferred to the CF-
CPA Account was used actually, directly and exclusively for educational purposes. According to the Independent
CPA' findings, DLSU was able to substantiate disbursements from the CF-CPA Account amounting
to ₱6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA concluded that out of the ₱l0,610,379.00 rental
income, ₱4,841,066.65 was unsubstantiated, and thus, subject to income tax and VAT.129
The CTA then concluded that the ratio of substantiated disbursements to the total disbursements from the CF-CPA
Account for taxable year 2003 is only 26.68%.130 The CTA held as follows:
However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp., Capri International and MTO
Bookstore, which were transmitted to the CF-CPA Account, petitioner again failed to fully account for and
substantiate all the disbursements from the CF-CPA Account; thus failing to prove that the rental income derived
therein were actually, directly and exclusively used for educational purposes. Likewise, the findings of the Court-
Commissioned Independent CPA show that the disbursements from the CF-CPA Account for fiscal year 2003
amounts to ₱6,259,078.30 only. Hence, this portion of the rental income, being the substantiated disbursements of
the CF-CPA Account, was considered by the Special First Division as used actually, directly and exclusively for
educational purposes. Since for fiscal year 2003, the total disbursements per voucher is ₱6,259,078.3 (Exhibit "LL-
25-C"), and the total disbursements per subsidiary ledger amounts to ₱23,463,543.02 (Exhibit "LL-29-C"), the ratio
of substantiated disbursements for fiscal year 2003 is 26.68% (₱6,259,078.30/₱23,463,543.02). Thus, the
substantiated portion of CF-CPA Disbursements for fiscal year 2003, arrived at by multiplying the ratio of 26.68%
with the total rent income added to and used in the CF-CPA Account in the amount of ₱6,602,655.00 is
₱1,761,588.35.131 (emphasis supplied)
For better understanding, we summarize the CTA's computation as follows:
1. The CTA subtracted the rent income used in the construction of the Sports Complex (₱4,007,724.00) from the
rental income (₱10,610,379.00) earned from the abovementioned concessionaries. The difference (₱6,602,655.00)
was the portion claimed to have been deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated portion of CF-CPA disbursements (₱1,761,308.37) from the
₱6,602,655.00 to arrive at the supposed unsubstantiated portion of the rental income (₱4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements (₱l,761,308.37)133 was derived by multiplying the rental
income claimed to have been added to the CF-CPA Account (₱6,602,655.00) by 26.68% or the ratio
of substantiated disbursements to total disbursements (₱23,463,543.02).
4. The 26.68% ratio134 was the result of dividing the substantiated disbursements from the CF-CPA Account as found
by the Independent CPA (₱6,259,078.30) by the total disbursements (₱23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does not truly give effect to the constitutional grant of tax
exemption to non-stock, non-profit educational institutions. The CTA's reasoning is flawed because it required DLSU
to substantiate an amount that is greater than the rental income deposited in the CF-CPA Account in 2003.
To reiterate, to be exempt from tax, DLSU has the burden of proving that the proceeds of its rental income (which
amounted to a total of ₱10.61 million)135 were used for educational purposes. This amount was divided into two
parts: (a) the ₱4.0l million, which was used to pay the loan obtained for the construction of the Sports Complex; and
(b) the ₱6.60 million,136 which was transferred to the CF-CPA account.
For year 2003, the total disbursement from the CF-CPA account amounted to ₱23 .46 million.137 These figures, read
in light of the constitutional exemption, raises the question: does DLSU claim that the whole total CF-CPA
disbursement of ₱23.46 million is tax-exempt so that it is required to prove that all these disbursements had
been made for educational purposes?
The records show that DLSU never claimed that the total CF-CPA disbursements of ₱23.46 million had been for
educational purposes and should thus be tax-exempt; DLSU only claimed ₱10.61 million for tax-exemption and
should thus be required to prove that this amount had been used as claimed.
Of this amount, ₱4.01 had been proven to have been used for educational purposes, as confirmed by the
Independent CPA. The amount in issue is therefore the balance of ₱6.60 million which was transferred to the CF-
CPA which in turn made disbursements of ₱23.46 million for various general purposes, among them the ₱6.60
million transferred by DLSU.
Significantly, the Independent CPA confirmed that the CF-CPA made disbursements for educational purposes in
year 2003 in the amount ₱6.26 million. Based on these given figures, the CT A concluded that the expenses for
educational purposes that had been coursed through the CF-CPA should be prorated so that only the portion that
₱6.26 million bears to the total CF-CPA disbursements should be credited to DLSU for tax exemption.
This approach, in our view, is flawed given the constitutional requirement that revenues actually and directly
used for educational purposes should be tax-exempt. As already mentioned above, DLSU is not claiming that the
whole ₱23.46 million CF-CPA disbursement had been used for educational purposes; it only claims that ₱6.60
million transferred to CF-CPA had been used for educational purposes. This was what DLSU needed to prove to
have actually and directly used for educational purposes.
That this fund had been first deposited into a separate fund (the CF -CPA established to fund capital projects) lends
peculiarity to the facts of this case, but does not detract from the fact that the deposited funds were DLSU revenue
funds that had been confirmed and proven to have been actually and directly used for educational purposes via the
CF-CPA. That the CF-CPA might have had other sources of funding is irrelevant because the assessment in the
present case pertains only to the rental income which DLSU indisputably earned as revenue in 2003. That the
proven CF-CPA funds used for educational purposes should not be prorated as part of its total CF-CPA
disbursements for purposes of crediting to DLSU is also logical because no claim whatsoever had been made that
the totality of the CF-CPA disbursements had been for educational purposes. No prorating is necessary; to state the
obvious, exemption is based on actual and direct use and this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be liable only for the difference between what it claimed and
what it has proven. In more concrete terms, DLSU only had to prove that its rental income for taxable year 2003
(₱10,610,379.00) was used for educational purposes. Hence, while the total disbursements from the CF-CPA
Account amounted to ₱23,463,543.02, DLSU only had to substantiate its Pl0.6 million rental income, part of which
was the ₱6,602,655.00 transferred to the CF-CPA account. Of this latter amount, ₱6.259 million was substantiated
to have been used for educational purposes.
To summarize, we thus revise the tax base for deficiency income tax and VAT for taxable year 2003 as follows:
CTA
Decision138
Revised
Rental income 10,610,379.00 10,610,379.00
4,007,724.00 4,007,724.00
Less: Rent income used in construction of the Sports
Complex
Rental income deposited to the CF-CPA Account 6,602,655.00 6,602,655.00
1,761,588.35 6,259,078.30
Less: Substantiated portion of CF-CPA
disbursements
Tax base for deficiency income tax and VAT 4,841,066.65 343.576.70
On DLSU' s argument that the CTA should have appreciated its evidence in the same way as it did with the
evidence submitted by Ateneo in another separate case, the CTA explained that the issue in the Ateneo case was
not the same as the issue in the present case.
The issue in the Ateneo case was whether or not Ateneo could be held liable to pay income taxes and VAT under
certain BIR and Department of Finance issuances139 that required the educational institution to own and operate the
canteens, or other commercial enterprises within its campus, as condition for tax exemption. The CTA held that the
Constitution does not require the educational institution to own or operate these commercial establishments to avail
of the exemption.140
Given the lack of complete identity of the issues involved, the CTA held that it had to evaluate the separate sets of
evidence differently. The CTA likewise stressed that DLSU and Ateneo gave distinct defenses and that its wisdom
"cannot be equated on its decision on two different cases with two different issues."141
DLSU disagrees with the CTA and argues that the entire assessment must be cancelled because it submitted
similar, if not stronger sets of evidence, as Ateneo. We reject DLSU's argument for being non sequitur. Its reliance
on the concept of uniformity of taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency and materiality of the
evidence supporting their respective claims for tax exemption would necessarily differ because their
attendant issues and facts differ.
To state the obvious, the amount of income received by DLSU and by Ateneo during the taxable years they were
assessed varied. The amount of tax assessment also varied. The amount of income proven to have been used for
educational purposes also varied because the amount substantiated varied.142 Thus, the amount of tax assessment
cancelled by the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency of ₱17,303,001.12 for taxable years 2001, 2002
and 2003. On the other hand, the BIR assessed Ateneo a total deficiency tax of ₱8,864,042.35 for the same period.
Notably, DLSU was assessed deficiency DST, while Ateneo was not.143
Thus, although both Ateneo and DLSU claimed that they used their rental income actually, directly and exclusively
for educational purposes by submitting similar evidence, e.g., the testimony of their employees on the use of
university revenues, the report of the Independent CPA, their income summaries, financial statements, vouchers,
etc., the fact remains that DLSU failed to prove that a portion of its income and revenues had indeed been used for
The CTA significantly found that some documents that could have fully supported DLSU's claim were not produced
in court. Indeed, the Independent CPA testified that some disbursements had not been proven to have been used
actually, directly and exclusively for educational purposes.144
The final nail on the question of evidence is DLSU's own admission that the original of these documents had not in
fact been produced before the CTA although it claimed that there was no bad faith on its part.145 To our mind, this
admission is a good indicator of how the Ateneo and the DLSU cases varied, resulting in DLSU's failure to
substantiate a portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the Revised
Rules on Evidence, that the contents of the missing supporting documents were proven by its recital in some other
authentic documents on record,146 can no longer be entertained at this late stage of the proceeding. The CTA did not
rule on this particular claim. The CTA also made no finding on DLSU' s assertion of lack of bad faith. Besides, it is
not our duty to go over these documents to test the truthfulness of their contents, this Court not being a trier of facts.
Second, DLSU misunderstands the concept of uniformity of taxation.
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate.147 A tax is uniform when it operates with the same force and effect in every place where the
subject of it is found.148 The concept requires that all subjects of taxation similarly situated should be treated alike
and placed in equal footing.149
In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated them alike because their
income proved to have been used actually, directly and exclusively for educational purposes were exempted from
taxes. The CTA equally applied the requirements in the YMCA case to test if they indeed used their revenues for
DLSU can only assert that the CTA violated the rule on uniformity if it can show that, despite proving that it used
actually, directly and exclusively for educational purposes its income and revenues, the CTA still affirmed the
imposition of taxes. That the DLSU secured a different result happened because it failed to fully prove that it used
actually, directly and exclusively for educational purposes its revenues and income.
On this point, we remind DLSU that the rule on uniformity of taxation does not mean that subjects of taxation
similarly situated are treated in literally the same way in all and every occasion. The fact that the Ateneo and DLSU
are both non-stock, non-profit educational institutions, does not mean that the CTA or this Court would similarly
decide every case for (or against) both universities. Success in tax litigation, like in any other litigation, depends to a
large extent on the sufficiency of evidence. DLSU's evidence was wanting, thus, the CTA was correct in not fully
cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The CTA affirmed DLSU's claim that the DST due on its mortgage and loan transactions were paid and remitted
through its bank's On-Line Electronic DST Imprinting Machine. The Commissioner argues that DLSU is not allowed
to use this method of payment because an educational institution is excluded from the class of taxpayers who can
use the On-Line Electronic DST Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's argument lacks basis in both the Tax Code and the
relevant revenue regulations.
DST on documents, loan agreements, and papers shall be levied, collected and paid for by the person making,
signing, issuing, accepting, or transferring the same.150 The Tax Code provides that whenever one party to the
document enjoys exemption from DST, the other party not exempt from DST shall be directly liable for the tax. Thus,
it is clear that DST shall be payable by any party to the document, such that the payment and compliance by one
shall mean the full settlement of the DST due on the document.
In the present case, DLSU entered into mortgage and loan agreements with banks. These agreements are subject
to DST.151 For the purpose of showing that the DST on the loan agreement has been paid, DLSU presented its
agreements bearing the imprint showing that DST on the document has been paid by the bank, its counterparty. The
imprint should be sufficient proof that DST has been paid. Thus, DLSU cannot be further assessed for deficiency
DST on the said documents.
Finally, it is true that educational institutions are not included in the class of taxpayers who can pay and remit DST
through the On-Line Electronic DST Imprinting Machine under RR No. 9-2000. As correctly held by the CTA, this is
irrelevant because it was not DLSU who used the On-Line Electronic DST Imprinting Machine but the bank that
handled its mortgage and loan transactions. RR No. 9-2000 expressly includes banks in the class of taxpayers that
can use the On-Line Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU proved the
payment of the assessed DST deficiency, except for the unpaid balance of
₱13,265.48.152
WHEREFORE, premises considered, we DENY the petition of the Commissioner of Internal Revenue in G.R. No.
196596 and AFFIRM the December 10, 2010 decision and March 29, 2011 resolution of the Court of Tax
Appeals En Banc in CTA En Banc Case No. 622, except for the total amount of deficiency tax liabilities of De La
Salle University, Inc., which had been reduced.
We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841 and the petition of the
Commissioner of Internal Revenue in G.R. No. 198941 and thus AFFIRM the June 8, 2011 decision and October 4,
2011 resolution of the Court of Tax Appeals En Banc in CTA En Banc Case No. 671, with the MODIFICATION that
the base for the deficiency income tax and VAT for taxable year 2003 is ₱343,576.70.
SO ORDERED.
G.R. No. 221590

vs.
ASALUS CORPORATION, Respondent
DECISION
MENDOZA, J.:
This petition for review on certiorari seeks to reverse and set aside the July 30, 2015 Decision1 and the November 6,
2015 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1191, which affirmed the April 2, 2014
Decision3 of the CTA Third Division (CTA Division).
The Antecedents
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from
Revenue District Office (RDO) No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the
investigation conducted by Revenue Officer Fidel M. Bañares II (Bañares) on the Value-Added
Tax (VAT) transactions of Asalus for the taxable year 2007.4 Asalus filed its Letter-Reply,5 dated December 29,
2010, questioning the basis of Bañares' computation for its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary Assessment
Notice (PAN) finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of ₱413, 378, 058.11,
inclusive of surcharge and interest. Asalus filed its protest against the PAN but it was denied by the CIR. 6
On August 26, 2011, Asalus received the Formal Assessment Notice (FAN) stating that it was liable for deficiency
VAT for 2007 in the total amount of ₱95,681,988.64, inclusive of surcharge and interest. Consequently, it filed its
protest against the FAN, dated September 6, 2011. Thereafter, Asal us filed a supplemental protest stating that the
deficiency VAT assessment had prescribed pursuant to Section 203 of the National Internal Revenue Code (NIRC).7
On October 16, 2012, Asal us received the Final Decision on Disputed Assessment8 (FDDA) showing VAT
deficiency for 2007 in the aggregate amount of ₱106,761,025.17, inclusive of surcharge and interest and
₱25,000.00 as compromise penalty. As a result, it filed a petition for review before the CTA Division.
The CTA Division Ruling
In its April 2, 2014 Decision, the CT A Division ruled that the VAT assessment issued on August 26, 2011 had
prescribed and consequently deemed invalid. It opined that the ten (10)-year prescriptive period under Section 222
of the NIRC was inapplicable as neither the FAN nor the FDDA indicated that Asalus had filed a false VAT return
warranting the application of the ten (10)-year prescriptive period. It explained that it was only in the PAN where an
allegation of false or fraudulent return was made. The CTA stressed that after Asalus had protested the PAN, the
CIR never mentioned in both the FAN and the FDDA that the prescriptive period would be ten (10) years. It further
pointed out that the CIR failed to present evidence regarding its allegation of fraud or falsity in the returns.
The CTA wrote that "the three instances where the three-year prescriptive period will not apply must always be
alleged and established by clear and convincing evidence and should not be anchored on mere conjectures and
speculations,9 before the ten (10) year prescriptive period could be considered. Thus, it disposed:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, the deficiency VAT assessment
for taxable year 2007 and the compromise penalty are hereby CANCELLED and WITHDRAWN, on ground of
prescription.
SO ORDERED.10
The CIR moved for reconsideration but its motion was denied.
The CTA En Banc Ruling
In its July 30, 2015 Decision, the CTA En Banc sustained the assailed decision of the CT A Division and dismissed
the petition for review filed by the CIR. It explained that there was nothing in the FAN and the FDDA that would
indicate, the non-application of the three (3) year prescriptive period under Section 203 of the NIRC. It found that the
CIR did not present any evidence during the trial to substantiate its claim of falsity in the returns and again missed
its chance to do so when it failed to file its memorandum before the CTA Division.
The CTA En Banc further explained that the PAN alone could not be used as a basis because it was not the
assessment contemplated by law. Consequently, the allegation of falsity in Asalus' tax returns could not be
considered as it was not reiterated in the FAN. The dispositive portion thus reads:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and accordingly,
DISMISSED for lack of merit.
SO ORDERED.11
The CIR sought the reconsideration of the decision of the CTA En Banc, but the latter upheld its decision in its
November 6, 2015 resolution.
Hence, this petition.
ISSUES
WHETHER PETITIONER HAD SUFFICIENTLY APPRISED RESPONDENT THAT THE FAN AND FDDA ISSUED
AGAINST THE LATTER FALLS UNDER SECTION 222(A) OF THE 1997 NIRC, AS AMENDED;
II
WHETHER RESPONDENT'S FAILURE TO REPORT IN ITS VAT RETURNS ALL THE FEES IT COLLECTED
FROM ITS MEMBERS APPLYING FOR HEALTHCARE SERVICES CONSTITUTES "FALSE" RETURN UNDER
SECTION 222(A) OF THE 1997 NIRC, AS AMENDED; AND
II
WHETHER PETITIONER'S RIGHT TO ASSESS RESPONDENT FOR ITS DEFICIENCY VAT FOR TAXABLE
YEAR 2007 HAD ALREADY PRESCRIBED.12
The CIR, through the Office of the Solicitor General (OSG), argues that the VAT assessment had yet to prescribe as
the applicable prescriptive period is the ten (10)-year prescriptive period under Section 222 of the NIRC, and not the
three (3) year prescriptive period under Section 203 thereof. It claims that Asalus was informed in the PAN of the ten
(10)-year prescriptive period and that the FAN made specific reference to the PAN. In turn, the FDDA made
reference to the FAN. Asalus, on the other hand, only raised prescription in its supplemental protest to the FAN. The
CIR insists that Asalus was made fully aware that the prescriptive period under Section 222 would apply.
Moreover, the CIR asserts that there was substantial understatement in Asalus' income, which exceeded 30% of
what was declared in its VAT returns as appearing in its quarterly VAT returns; and the underdeclaration was
supported by the judicial admission of its lone witness that not all the membership fees collected from members
applying for healthcare services were reported in its VAT returns. Thus, the CIR concludes that there was prima
facie evidence of a false return.
The Position of Asalus
In its Comment/Opposition,13 dated April 22, 2016, Asalus countered that the present petition involved a question of
fact, which was beyond the ambit of a petition for review under Rule 45. Moreover, it asserted that the findings of
fact of the CT A Division, which were affirmed by the CTA En Banc, were conclusive and binding upon the Court. It
posited that the CIR could not raise for the first time on appeal a new argument that "the FDDA and the FAN need
not explicitly state the applicability of the ten-year prescriptive period and the bases thereof as long as the totality of
the circumstances show that the taxpayer was 'sufficiently informed' of the facts in support of the assessment.
Based on the totality of the circumstances, it was informed of the facts in support of the assessment." 14
Asalus reiterated that the CIR, either in the FAN or the FDDA, failed to show that it had filed false returns warranting
the application of the extraordinary prescriptive period under Section 222 of the NIRC. It insisted that it was not
informed of the facts and law on which the assessment was based because the FAN did not state that it filed false
or fraudulent returns. For this reason, Asalus averred that the assessment had prescribed because it was made
beyond the three (3)-year period as provided in Section 203 of the NIRC.
The Reply of the CIR
In its Reply, 15 dated August 15, 2016, the CIR argued that the findings of the CT A might be set aside on appeal if
they were not supported with substantial evidence or if there was a showing of gross error or abuse. It repeated that
there was presumption of falsity in light of the 30% underdeclaration of sales. The CIR emphasized that even
Asalus' own witness testified that not all the membership fees collected were reported in its VAT returns. It insisted
that Asalus was sufficiently informed of its assessment based on the prescriptive period under Section 222 of the
NIRC as early as when the PAN was issued.
On another note, the CIR manifested that Asalus' counsels made use of insulting words in its Comment, which could
have been dispensed with. Particularly, it highlighted the use of the following phrases as insulting: "even to the
uninitiated," "petitioner's habit of disregarding firmly established rules of procedure," "twist establish facts to suit her
ends," "just to indulge petitioner," and "she then tried to calculate, on her own but without factual basis." It asserted
that "[w]hile a lawyer has a complete discretion on what legal strategy to employ in a case, the overzealousness in
protecting his client's interest does not warrant the use of insulting and profane language in his pleadings xxx." 16
The Court's Ruling
There is merit in the petition.
It is true that the findings of fact of the CT A are, as a rule, respected by the Court, but they can be set aside in
exceptional cases. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of
Internal Revenue, this Court in Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal
Revenue, 17 explicitly pronounced-
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest
respect. In Sea-Land Service, Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446],
this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively
to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will
not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be
disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error
or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.18 [Emphasis supplied]
After a review of the records and applicable laws and jurisprudence, the Court finds that the CTA erred in concluding
that the assessment against Asalus had prescribed.
Generally, internal revenue taxes shall be assessed within three (3) years after the ,last day prescribed by law for
the filing of the return, or where the return is filed beyond the period, from the day the return was actually
filed. 19 Section 222 of the NIRC, however, provides for exceptions to the general rule. It states that in the case of a
false or fraudulent return with intent to evade tax or of failure to file a return, the assessment may be made within
ten (10) years from the discovery of the falsity, fraud or omission.
In the oft-cited Aznar v. CTA,20the Court compared a false return to a fraudulent return in relation to the applicable
prescriptive periods for assessments, to wit:
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and fraudulent
returns with intent to' evade tax, while respondent Commissioner of Internal Revenue insists contrariwise, with
respondent Court of Tax Appeals concluding that the very "substantial under declarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade
the payment of tax."
xxxx
xxx We believe that the proper and reasonable interpretation of said provision should be that in the three different
cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be begun without assessmeμt, at any time
within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be
interpreted to mean a separation of the three different situations of false return, fraudulent return with intent
to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision
which seggregates the situations into three different classes, namely "falsity", "fraud" and "omission." That
there is a difference between "false return" and "fraudulent return" cannot be denied. While the first merely
implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry
with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC
should be applicable to normal circumstances, but whenever the government is placed, at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to
evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the
time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax
Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess
petitioner's tax liability had not expired at the time said assessment was made. (Emphasis supplied)
Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to
defraud, is sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the
NIRC.
Presumption of Falsity of Returns
In the present case, the CTA opined that the CIR failed to substantiate with clear and convincing evidence its claim
that Asalus filed a false return. As it noted that the CIR never presented any evidence to prove the falsity in the
returns that Asalus filed, the CTA ruled that the assessment was subject to the three (3) year ordinary prescriptive
period.
The Court is of a different view.
Under Section 248(B) of the NIRC,21 there is a prima facie evidence of a false return if there is a substantial
underdeclaration of taxable sales, receipt or income. The failure to report sales, receipts or income in an amount
exceeding 30% what is declared in the returns constitute substantial underdeclaration. A prima facie evidence is one
which that will establish a fact or sustain a judgment unless contradictory evidence is produced. 22
In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income,
there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to
support the falsity of the return, unless the taxpayer fails to overcome the presumption against it.
Applied in this case, the audit investigation revealed that there were undeclared VA Table sales more than 30% of
that declared in Asalus' VAT returns. Moreover, Asalus' lone witness testified that not all membership fees,
particularly those pertaining to medical practitioners and hospitals, were reported in Asalus' VAT returns. The
testimony of its witness, in trying to justify why not all of its sales were included in the gross receipts reflected in the
VAT returns, supported the presumption that the return filed was indeed false precisely because not all the sales of
Asalus were included in the VAT returns.
Hence, the CIR need not present further evidence as the presumption of falsity of the returns was not overcome.
Asalus was bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns.
Its failure to overcome the same warranted the application of the ten (10)-year prescriptive period for assessment
under Section 222 of the NIRC. To require the CIR to present additional evidence in spite of the presumption
provided in Section 248(B) of the NIRC would render the said provision inutile.
Substantial Compliance of Notice Requirement
The CTA also posited that the ordinary prescriptive period of three (3) years applied in this case because there was
no mention in the FAN or the FDDA that what would apply was the extraordinary prescriptive period and that the
CIR did not present any evidence to support its claim of false returns.
Again, the Court disagrees.
It is true that neither the FAN nor the FDDA explicitly stated that the applicable prescriptive period was the ten (10)-
year period set in Section 222 of the NIRC. They, however, made reference to the PAN, which categorically stated
that "[t]he running of the three-year statute of limitation I as provided un4er Section 203 of the 1997 National Internal
Revenue Code (NIRC) is not i applicable xxx but rather to the ten (10) year prescriptive period pursua11t to Section
222(A) of the tax code xxx." 23 In Samar-I Electric Cooperative v. COMELEC,24the Court ruled that it sufficed that the
taxpayer was substantially informed of the legal and factual bases of the assessment enabling him to file an
effective protest, to wit:
Although, the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the
legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed that respondent
in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the
factual and legal bases of the deficiency tax assessments and denying the protest.
Considerirg the foregoing exchange of correspondence and Document between the parties, we find that the
requirement of Section 228 was substantially complied with. Respondent had fully informed I petitioner in
writing of the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an
"effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus not
violated. [Emphasis supplied]
Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC suffices, for what is
important is that the taxpayer has been sufficiently informed of the factual and legal bases of the assessment so that
it may file an effective protest against the assessment. In the case at bench, Asalus was sufficiently informed that
with respect to its tax liability, the extraordinary period laid down in Section 222 of the NIRC would apply. This was
categorically stated in the PAN and all subsequent communications from the CIR made reference to the PAN.
Asalus was eventually able to file a protest addressing the issue on prescription, although it was done only in its
supplemental protest to the FAN.
Considering the existing circumstances, the assessment was timely made because the applicable prescriptive
period was the ten (10)-year prescriptive period under Section 222 of the NIRC. To reiterate, there was a prima
facie showing that the returns filed by Asalus were false, which it failed to controvert. Also, it was adequately
informed that it was being assessed within the extraordinary prescriptive period.
A Reminder
A lawyer is indeed expected to champion the cause of his client with utmost zeal and competence. Such
exuberance, however, must be tempered to meet the standards of civility and decorum. Rule 8.01 of the Code of
Professional Responsibility mandates that "[a] lawyer shall not, in his professional dealings, use language which is
abusive, offensive or otherwise improper." In Noble v. Atty. Ailes, 25 the Court cautioned lawyers to be careful in their:
choice of words as not to unduly malign the other party, to wit:
Though a lawyer's language may be forceful and emphatic, it should always be dignified and respectful, befitting the
dignity of the legal profession. The use of intemperate language and unkind ascriptions has no place in the dignity
1âwphi1
of the judicial forum. In Buatis Jr. v. People, the Court treated a lawyer's use of the words "lousy," "inutile," "carabao
English," "stupidity," and "satan" in a letter addressed to another colleague as defamatory and injurious which
effectively maligned his integrity. Similarly, the hurling of insulting language to describe the opposing counsel is
considered conduct unbecoming of the legal profession.
xxx
On this score, it must be emphasized that membership in the bar is a privilege burdened with conditions
such that a lawyer's words and actions directly affect the public's opinion of the legal profession. Lawyers
are expected to observe such conduct of nobility and uprightness which should remain with them, whether
in their public or private lives, and may be disciplined in the event their conduct falls short of the standards imposed
upon them. Thus, in this case, it is inconsequential that the statements were merely relayed to Orlando's brother in
private. As a member of the bar, Orlando should have been more circumspect in his words, being fully
aware that they pertain to another lawyer to whom fairness as well as candor is owed. It was highly improper
for Orlando to interfere and insult Maximino to his client.
Indulging in offensive personalities in the course of judicial proceedings, as in this case, constitutes unprofessional
conduct which subjects a lawyer to disciplinary action. While a lawyer is entitled to. present his case with vigor
and courage, such enthusiasm does not justify the use of offensive and abusive language. The Court has
consistently reminded the members of the bar to abstain from all offensive personality and to advance no fact
prejudicial to the honor and reputation of a party. xxx26 [Emphases supplied]
While the Court recognizes and appreciates the passion of Asalus' counsels in promoting and protecting its interest,
they must still be reminded that they should be more circumspect in their choice of words to argue their client's
position. As much as possible, words which undermine the integrity, competence and ability of the opposing party,
or are otherwise offensive, must be avoided especially if the message may be delivered in a respectful, yet equally
emphatic manner. A counsel's mettle will not be viewed any less should he choose to pursue his cause without
denigrating the other party.
WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution of the
Court of Tax Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED to the Court of
Tax Appeals for the determination of the Value Added Tax liabilities of the Asalus Corporation.
SO ORDERED.
G.R. No. L-35668-72, L-35683 August 10, 1983
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
REPUBLIC CEMENT CORPORATION, FILIPINAS CEMENT CORPORATION, APO CEMENT CORPORATION,
BACNOTAN CONSOLIDATED INDUSTRIES, INC., RIZAL CEMENT COMPANY, INC., PHILIPPINE PORTLAND
CEMENT CO., INC., and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-35677. August 10, 1983.*
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CEPOC INDUSTRIES, INC, and THE COURT OF TAX APPEALS, respondents,
The Solicitor General for petitioner.
Artemio M. Lobrin for respondents.
PLANA, J.:
The sales tax assessments involved in these cases run to a magnitude of about P38.5 million. 1
Briefly put, the crucial issue is whether cement is a "mineral product" the sale of which is exempt from sales tax, or a
"manufactured product "which is subject to sales tax.
Petitioner Commissioner of Internal Revenue had ruled that cement is a "manufactured product" and therefore
subject to sales tax.
On appeal, this ruling was overruled by the Court of Tax Appeals (CTA) which adjudged cement to be a "mineral
product" within the meaning of Section 246 of the Tax Code and consequently exempt from sales tax under Section
188 (c) of the same Code, as said laws stood at the time of the questioned assessments.
The undisputed facts are narrated in the Petitioners 'brief in G.R. Nos. 35668-72 and 35683:
Respondents are domestic corporations engaged in the manufacture of cement . . .
On separate dates, petitioner Commissioner of Internal Revenue issued assessments against the
respondents for deficiency sales tax and surcharge due as manufacturers of cement, to wit:
Date Years Amount

Respondent Issued Covered Assessed
Rep. 11-20- 1963- P10,969,166.45
Cement 68 1967
Corp.
Filipinas 5-15- 1964- 6,275,134.95
Cement 69 1967
Corp.
Apo Cement 2-20- 10-30- 1,341,814.78
Corp. 68 63 to
6-30-65
Bacnotan 4-23- 1963- 7,066,651.56
Consolidated 69 1967
Industries
Inc.
Rizal 3-12- 1964- 1,156,518,49 2
Cement 68 1967
Company,
Inc.
Phil. 2-10- 1963- 893,341.92
Portland 69 1967
Cement Co.,
Inc.
based on the ruling of this Honorable Court in the case between the same parties, entitled 'Republic Cement
Corporation vs. The Commissioner of Internal Revenue, et al.' (G.R. No. L-20660 dated June 13, 1968, and the
other cases of 'Cebu Portland Cement Company vs. Commissioner of Internal Revenues (G.R. No. L-18649)
decision promulgated on February 27, 1965, and resolution in the same case dated December 29, 1967; G.R. No.
L-22605 dated January 17, 1968 and in G.R. No. L- 20563 dated October 29, 1968. The aforementioned cases
involved claims for refund of overpaid ad valorem taxes. In the aforesaid cases, this Honorable Court ruled that
cement is a manufactured product.
The foregoing assessments were protested by the respective cement companies...
xxx xxx xxx
In a letter to counsel for the cement companies dated July 9, 1969 . . ., petitioner herein denied the
joint protest of the respondent cement companies, and from the aforesaid decision of the petitioner,
respondents interposed separate appeals with the respondent Court of Tax Appeals by filing
amended petitions for review on July 24, 1969,
After the filing of the responsive pleadings by the petitioner, respondent cement companies in a
motion dated November 7, 1970, moved for a summary judgment, which motion was, however,
opposed by the petitioner, but was acceded to by the respondent Court in a resolution dated March
12, 1971.
On June 28, 1972, the Tax Court rendered a joint decision in these cases reversing the rulling of the
petitioner Commissioner of Internal Revenue.
We are called upon to construe Section 246 of the Tax Code, particularly after it was amended by Republic Act
1299, in relation to Section 188 (c) of the same Code.
Petitioner recounts the history of the said Section 246:
The original text of Section 246 of the Tax Code heretofore stated provides as follows:
Sec. 246. Definition of the term 'gross output — The term 'gross output' shall be
interpreted as the actual market value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a separate entity without any deduction
from mining, milling, refining, transporting, handling, marketing, or any other
expenses: Provided, however, that if the minerals or mineral products are sold or
consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual
cost of ocean freight and insurance shall be deducted. The output of any group of
contiguous mining claims shall not be subdivided. All the royalties or ad
valorem taxes herein provided shall accrue to the National Treasury
The foregoing provisions of Section 246 of Commonwealth Act No. 466 were subsequently amended
by the following amendatory acts:
1. Republic Act No. 834, sections 1 and 2, approved on March 6, 1953;
2. Republic Act No. 1299, sections 1 and 2, approved on June 16, 1955;
3. Republic Act No. 1510, sections 1 and 2, approved on June 16, 1956.
It will be noted that the provisions of Section 246 of Commonwealth Act No. 466, as amended by
Republic Act No. 834, approved on March 6, 1953, defines only the term 'gross output' but does not
define the words 'minerals' and 'mineral products', thus, resulting in confusion among the taxpayers
and the tax-collecting agencies in the fixing of the proper ad valorem tax due from the miners and/or
owners of mineral lands. (Congressional Record, House of Representatives, Vol. I I, No. 50, p. 1573,
April 12, 1955)
In order to remedy the apparent vacuum in the provisions of Section 246 of the Tax Code, Congress
enacted Republic Act No. 1299 (House Bill No. 3251) on June 16, 1955, for the sole purpose of
clarifying the collection of royalties and ad valorem taxes.
This is borne out by the explanatory note to House Bill No. 3251, reproduced as follows:
EXPLANATORY NOTE
See. 246 of the National Internal Revenue Code, as amended by Republic Act No.
834, fails to define the words 'minerals' and 'mineral products' used therein, although
the phrase 'gross output' is clearly delimited. This ommission has caused
considerable difficulty in the collection of mining royalties and ad valorem taxes and
confusion among taxpayers.
The attached bill seeks to remedy the situation by giving clear-cut definitions of
'minerals' and 'mineral products'. Citing the American case of McCombs vs.
Stephenson 44 So. 867, and the English case of Hext vs. Gill, L.R. 7 Ch. App. 699
and Johnstone vs. Crompton L.R. 2 Ch. 197. Soto and Morrison define mineral as
'any form of earth, rock or metal of greater value while in place than the enclosing
country or the superficial soil', Soto and Morrison Mining Rights, 16th Edition, p. 250.
But since the word 'minerals' has been defined by prior legislation, the definition in
Section 7 of Commonwealth Act No. 137 is herein substantially adopted to preserve
consistency in the concept of the nomenclature in our statutes. In defining the phrase
'mineral products', due weight has been given to its construction in the case of Spiller
vs. McGehee 68 S.W. 2d 1093, and the usual acceptation of its significance among
local miners and mining businessmen.
It is believed that the approval of this bill will not only accelerate the collection of
mining royalties and ad valorem taxes but also clarify the doubt of the taxpaying
public on the interpretative scope of the two terms.
(Sgd.)
ISIDR
O C.
KINTA
NAR
Congre
ssman,
4th
District
Cebu
As it stood after the amendment by Republic Act No. 1299, Section 246 reads as follows:
Sec. 246. Definitions of the terms 'gross output, minerals and 'mineral products
— Disposition of royalties and ad valorem taxes. — The term 'gross output' shall be
interpreted as the actual market value of minerals or mineral products, or of bullion
from each mine or mineral lands operated as a separate entity without any deduction
from mining, milling, refining transporting, handling, marketing, or any other
expenses: Provided, however, that if the minerals or mineral products are sold or
consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual
cost of ocean freight and insurance shall be deducted. The output of any group of
contiguous mining claims shall not be subdivided. The word 'minerals' shall mean all
inorganic substances found in nature whether in solid, liquid, gaseous, or any
intermediate state. The term 'mineral products' shall mean things produced by the
lessee, concessionaire or owner of mineral lands, at least eighty per cent of which
things must be minerals extracted by such lessee, concessionaire or owner of
mineral lands. Five per centum of the royalties and ad valorem taxes herein provided
shall accrue to the municipality where the mines are situated, and ninety-five per
centum to the National Treasury
The question whether cement is a mineral product within the purview of Section 246 of the Tax Code, as amended
by Republic Act No. 1299 as of June 16, 1955, has already been answered in the negative in several decisions of
this Court beginning with Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, L-18649, February 27,
1965, 13 SCRA 333.
The Court held that cement is not a mineral product (rather it is a manufactured product); but the quarried minerals
used in the production of cement are mineral products. The latter therefore are subject to ad valorem tax which
should be computed on the basis of the value of the quarried minerals, and not the selling price or value of the
cement. On this basis, the Court declared that there was an overpayment of ad valorem tax which should be
refunded because it was assessed on the basis of the selling price of the cement, instead of the quarried limestone,
shale, etc. which were used in the production of cement. Said the Court:
There can be no question that quarried minerals have their own market value. The dispute here
arose, however, from the construction given to the term mineral products, which was defined in
Section 246 of the Tax Code as 'things produced by the lessee, concessionaire, or owner of mineral
lands, at least eighty per cent of which things must be minerals extracted by such lessee,
concessionaire or owner of mineral lands.' Respondent argues that since the portland cement
produced by petitioner consists of 80% minerals quarried from its mines, such cement falls within the
definition of a mineral product and the imposable ad valorem tax should be based on its selling price
which is its actual market value.
This line of argument suffers from two infirmities First, while cement is composed of 80% minerals, it
is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the
result of a definite process — the crushing of minerals, grinding, mixing, calcining cooling, adding of
retarder or raw gypsum. In short before cement reaches its saleable for the minerals had already
undergone a chemical change through manufacturing process. This could not have been the state of
'mineral products' that the law contemplates for purposes of imposing the ad valorem tax. It must be
remembered that, as aforestated, this tax is imposed on the privilege of extracting or severing the
minerals from the mines, To our mind, therefore, the inclusion of the term mineral products is
intended to comprehend cases where the mined or quarried elements may not be usable in its
original state without application of simple treatments, such as washing, or cutting them into sizes,
which process does not necessarily involve the change or transformation of the raw materials into a
composite, distinct product. Secondly, respondent cannot use the selling price of the product in this
case as gauge of its actual market value. The cement here is manufactured by petitioner itself out of
materials quarried from its mines. While the selling price of cement may reflect the actual market
value of cement, said selling price cannot be taken as the market value also of the minerals
composing the cement. And it was not the cement that was mined, only the minerals composing the
finished product. (13 SCRA 333 at 336-338.)
The above ruling clearly indicates that cement as such is a manufactured product (although unaccompanied by a
pronouncement that it is subject to sales tax, because this was not in issue), and is not a mineral product within the
meaning of' the law imposing the ad valorem tax.
That cement is a product of a manufacturing process, finds support in the definition of "manufacturer" in Section 194
(x) of the Tax Code:
Manufacturer' includes every person who by physical or chemical process alters the exterior texture
or form or inner substance of any raw material or manufactured or partially manufactured product in
such manner as to prepare it for a special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it
for any of the uses of industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials or products of the same or of
different kinds and in such manner that the finished product of such process of manufacture can be
put to a special use or uses to which such raw material or manufactured or partially manufactured
product in their original condition could not have been put, and who in addition alters such raw
materials or manufactured or partially manufactured products, or combines the same to produce
such finished products for the purpose of their sale or distribution to others and not for his own use
or consumption.
In the subsequent case of CEPOC vs. Commissioner of Internal Revenue, L-22605, Jan. 17, 1968 (22 SCRA 56),
this Court had occasion to reiterate its previous ruling:
The issue tendered concerns the correct basis of the 1-1/2 ad valorem tax under Sec. 243, in
connection with Sec. 246, of the Tax Code when made to apply on cement. (Sec. 243 levies 'on the
actual market value of the annual gross output of the minerals or mineral products extracted or
produced from all mineral lands, not covered by lease, an ad valorem tax, payable to the Collector of
Internal Revenue, in the amount of one and one- half per centum of the value of said output while
Sec. 246 defines the term 'mineral product' as 'things produced by the lessee, concessionaire, or
owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such
lessee, concessionaire or owner of mineral lands.') The State says it is the gross selling price of
cement qua cement. Petitioner insists that it cannot be the gross selling price.
The parties here have assumed that cement is a mineral product within the purview of Sec. 243 of
the Tax Code, Our view is otherwise. As we expressed it in Cebu Portland Cement Co. vs.
Commissioner, L-18649, February 27, 1965, cement qua cement is no longer a mineral product in
the condition envisaged by the Tax law. Very recently We reiterated and reaffirmed this stand thru
Justice J.B.L. Reyes when We denied a plea to reconsider the original decision rendered therein.
(Cebu Portland Cement v. Commissioner, L- 18649, Dec. 29,1967)
It results that Sec. 243 of the Tax Code cannot be applied directly to cement. What is taxable
thereunder are the minerals constituting cement, i.e., limestone, silica and shale. (Gypsum though
also a constituent of cement, cannot be included since it is imported from abroad.) Hence, the
correct basis of the 1 1/2 ad valorem tax is the market value of the quarried raw materials. (22 SCRA
56 at 57. Emphasis supplied.)
Still later, in Republic Cement Corp. vs. Commissioner of Internal Revenue (June 13, 1968), 23 SCRA 967, the
issue once again was whether the ad valorem tax should be based on the value of the finished product (cement) or
upon the value of the raw materials or minerals used in the manufacture of said finished product. Speaking for the
Court, the then Chief Justice Concepcion said:
The first question is far from being one of first impression. It has already been settled adversely to
respondent herein. In CEPOC v. Commissioner of Int. Revenue, (L 18649, Feb. 27, 1965) this Court,
speaking through Mr. Justice Barrera, held: Ad valorem tax is a tax not on the minerals, but upon the
privilege of severing or extracting the same from the earth, the government's right to exact the said
impost springing from the Regalian theory of State ownership of its natural resources. ...
... While cement is composed of 80% minerals, it is not merely an admixture or blending of raw
materials, as lime, silica shale and others. It is the result of a definite process — the crushing of
minerals, grinding, mixing, calcining cooling, adding of retarder or raw gypsum. In short, before
cement reaches its saleable form, the minerals had already undergone a chemical change through
manufacturing process. This could not have been the state of 'mineral products that the law
contemplates for purposes of imposing the ad valorem tax. ... this tax is imposed on the privilege of
extracting or severing the minerals from the mines. To our minds, therefore, the inclusion of the term
mineral products is intended to comprehend cases where the mined or quarried elements may not
be usable in its original state without application of simple treatments ... which process does not
necessarily involve the change or transformation of the raw materials into a composite distinct
product. ... While the selling price of cement may reflect the actual market value of cement, said
selling price cannot be taken as the market value also of the minerals composing the cement. And it
was not the cement that was mined only the minerals composing the finished product.
We ratified this view in denying the motion for reconsideration of our decision in the same case. It
the language of Mr. Justice Reyes, J.B.L.:
... The ad valorem tax in question should be based on the actual market value of the quarried
minerals used in producing cement, ... the law intended to impose the ad valorem tax upon the
market value of the component mineral products in their original state before processing into
cement. ... The law does not impose a tax on cement qua cement, but on minerals products, at least
80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands.
The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for
the reason that such liability had never been litigated by the parties. What it did declare is that, while
cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence
the market value of the cement could not be the basis for computing the ad valorem tax, since the ad
valorem tax is a severance tax, i.e., a charge upon the privilege of severing or extracting minerals
from the earth, (Dec. p. 4) and is due and payable, upon removal of the mineral product from its bed
or mine.
Soon later, we had occasion to reiterate that view. (CEPOC v. Comm. of Int. Rev. L-22605, Jan. 17,
1968.)" (23 SCRA 967 at 969-970.)
From all the foregoing cases, it is clear that cement qua cement was never considered as a mineral product within
the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its components are minerals, for
the simple reason that cement is the product of a manufacturing process and is no longer the mineral product"
contemplated in the Tax Code (i.e., minerals subjected to simple treatments) for the purpose of imposing the ad
valorem tax.
What has apparently encouraged the herein respondents to maintain their present posture is the case of
Cebu Portland Cement Co. vs. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789) penned by
Justice Eugenio Angeles. For some portions of that decision give the impression that Republic Act 1299, which
amended Section 246, re-classified cement as a mineral product that was not subject to sales tax:
This case involves petitioner's claim for refund of P458,241,45 sales tax paid from November 1,
1954 to March, 1955, and P427,552.95 ad valorem tax paid from April 1955 to September 30, 1956
from the sale of APO Portland cement produced by the petitioner. 'Prior to the effectivity of Republic
Act No. 1299 on June 16, 1955, (An Act amending further section 246 of the Internal Revenue Code,
as amended, by defining the words 'minerals' and 'mineral products'), the petitioner had been paying
the sales tax (known also as percentage tax) of APO Portland Cement produced by it (pursuant to
sec. 196 of the Tax Code), computed at 7% of the gross selling price inclusive of the cost of the bag
containers of cement and the gypsum (a constituent of cement, imported from abroad) used in the
manufacture of said product. After the approval of the amendment of the law petitioner stopped
paying sales tax on its gross sales and instead paid the ad valorem tax (see Sec. 243, Tax Code) on
the selling price of the product after deducting therefrom the corresponding cost of the containers
thereof.
xxx xxx xxx
It was alleged in the petition that the percentage taxes collected by respondent are refundable since
under Republic Act 1299, producers of cement are exempt from the payment of said tax, ...
After hearing and consideration of the evidence submitted in connection therewith, the Court of Tax
Appeals rendered judgment dismissing the petition for review, holding: (1) that petitioner was not
exempt from payment of the sales taxes on its APO Portland Cement prior to the effectivity of
Republic Act No. 1299, it being then considered a manufactured product.
xxx xxx xxx
The first assigned error calls for a ruling on the prospective or retrospective application of Republic
Act No, 1299, which became effective upon its approval on June 16, 1955, amending section 246 of
the National Internal Revenue Code, as follows:
xxx xxx xxx
... The only change brought about by said amendment is the incorporation of the definition of the
word 'minerals' and the term 'mineral products'.
It is urged by petitioner that since the purpose of the amendment was merely to clarify the meaning
of said terms, the section should be construed as if it had been originally passed in its amended
form, so that cement should be considered as 'mineral product' even before the enactment of
Republic Act 1299, and therefore exempt from the sales or percentage tax, pursuant to the provision
of section 188 (c) of the National Internal Revenue Code.
We cannot subscribe to this view. It is a settled rule in statutory construction that statute operates
prospectively only and never retroactively, unless the legislative intent to the contrary is made
manifest either by the express terms of the statute or by necessary implication. In every case of
doubt, the doubt must be resolved against the retrospective effect. There is nothing in the context of
the provision in question that would manifest the Legislature's intention to have the provision apply to
taxes due in the past. On the other hand, the use of the word 'shall' gives the unmistakable
impression that the lawmakers intended this enactment to be effective only in futuro.
xxx xxx xxx
Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal,
unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared
or may clearly be implied from the language used. It thus results that before the enactment of the
amendment to section 246 of the Tax Code, when cement was not yet placed under the category of
either 'minerals' or 'mineral products' it was not exempt from the percentage tax imposed by section
186 of said Code, and was, therefore, taxable as a manufactured product. (pp. 791-795)
After a careful study of the foregoing, we conclude that reliance on the decision penned by Justice Angeles is
misplaced. The said decision is no authority for the proposition that after the enactment of Republic Act No. 1299 in
1955 (defining mineral product as things with at least 80% mineral content), cement became a "Mineral product", as
distinguished from a "manufactured product' , and therefore ceased to be subject to sales tax. It was not necessary
for the Court to so rule. It was enough for the Court to say in effect that even assuming Republic Act 1299 had re-
classified cement as a mineral product, 3 the reclassification could not be given retrospective application (so as to
justify the refund of sales taxes paid before Republic Act 1299 was adopted) because laws operate prospectively
only, unless the legislative intent to the contrary is manifest, which was not so in the case of Republic Act 1266. [The
situation would have been different if the Court instead had ruled in favor of refund, in which case it would have
been absolutely necessary (1) to make an unconditional ruling that Republic Act 1299 re-classified cement as a
mineral product (not subject to sales tax), and (2) to declare the law retroactive, as a basis for granting refund of
sales taxes paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict with the instant decision.
In the above CEPOC decision, Justice Angeles refers to the Congressional discussions on the bill which
subsequently became Republic Act No. 1299. The said discussions lend additional support for the view that cement
qua cement remained subject to sales tax as a manufactured product despite the adoption of Republic Act 1299.
As the sponsor of the bill, Representative Isidro C. Kintanar explained that no tax change was envisioned by the bill,
that its purpose was merely to define "minerals" and "Mineral products" in order to clarify the position of our tax-
collecting agencies. Thus-
Mr. Villareal: What is the purpose of the bill?
Mr. Kintanar: The gentleman from Capiz will notice that the provision of Section 246
of Commonwealth Act No. 466, as amended by Republic Act No. 834, defines only
the term 'gross output' but does not define the words 'minerals' and 'mineral
products.' There is now a confusion in the fixing of the ad valorem taxes.
xxx xxx xxx

Mr. Villareal: So, is it a question of the tax that the amendment has been offered?
Mr. Kintanar: No.
Mr. Villareal: What is the purpose?
Mr. Kintanar: The purpose is only to define the words minerals and ' mineral products
in order to clarify the position of our tax-collecting agencies.
Mr. Villareal: My distinguished friend cannot tell us whether it will diminish or increase
the taxes; so, in the face of this uncertainty, I am asking the gentleman if he will be
agreeable to suspending the consideration of this bill.
Mr. Kintanar: We beg to inform that there will be no change of taxes whatsoever. We
only want to define these words because there is a lack of a clear definition in the
Code itself regarding this matter. Therefore, in view of the absence of any change in
taxes, I was just wondering how the taxes that would be coming to the government
could be affected. (Congressional Record, House of Representatives, Vol. II, No. 50,
pp. 1573, 1594, April 12, 1955. Emphasis supplied
Since cement as such was subject to sales tax immediately before the enactment of Republic Act No. 1299, it
should remain to be so subject thereafter, considering that the law intended "no change of taxes whatsoever."
The foregoing discussion disposes of G.R. Nos. 35668- 72 and 35683, just as it also resolves the Identical issue
raised in G.R. No. 35677.
Some qualifications are, however, in order:
(1) The disputed assessments carry a 25% surcharge pursuant to Section 183 (a) of the Tax Code [now Sec. 193
(a) (3)] which prescribes the said surcharge for late tax payment.
In Connell Bros. Co. Phil vs. Collector of Internal Revenue, (10 SCRA 469 at 470-471), the then Justice Makalintal,
speaking for the Court, rejected therein the imposition of 25% surcharge for late payment:
We do not think Section 183 (a) of the National Internal Revenue Code is applicable. The same
imposes the penalty of 25% when the percentage tax is not paid on time, and contemplates a case
where the liability for the tax is undisputed or indisputable. In the present case the taxes were paid,
the delay being with reference to the deficiency, owing to a controversy as to the proper
interpretation of Circulars Nos. 431 and 440 of the office of respondent-appellee. The controversy
was generated in good faith, since that office itself appears to have formerly taken the view that the
inclusion of the words "tax included" on invoices issued by the taxpayer was sufficient compliance
with the requirements of said circulars. (See BIR Ruling 105.2, Aug. 3,1953; BIR Quarterly Bulletin
Vol. 7, Sept. 30 and Dec. 31,1953; in re Fred Wilson Tax Appeal No. 63.)
The cases cited in the motion for reconsideration are likewise inapplicable. In every one of those
cases the liability for the tax was not disputed, the only question being whether or not the delay in
the payment thereof was justified under the particular circumstances relied upon by the taxpayer.
Here the question is whether or not the deficiency sales tax in question was deu at all. This question
does not involve the power of respondent-appellee to condone the penalty, but rather the justifiability
of its imposition in the first place. And where respondent-appellee apparently had himself originally
adopted an incorrect interpretation of its own circulars, it would not be just to penalize appellant for
falling into the same error... (To the same effect, see Escudero Electric Service Co. vs. Tobias, 33
SCRA 547; Tuason Jr. vs. Lingad, 58 SCRA 170.)
In the case at bar the assessments are not undisputed or indisputable. The dispute as to the tax liability of private
respondents for sales tax on the sale of cement arose not simply because of ordinary divergence of views in good
faith vis-a-vis the interpretation of the law; 4 the position of private respondents was founded upon the original stand
of the Bureau of Internal Revenue itself that cement is a mineral product rather than a manufactured product and is
therefore subject to ad valorem tax, not sales tax. As pointed out above, this stand was apparently given implied
support in CEPOC vs. Collector, G.R. No. L-20563 (1968), 25 SCRA 789, penned by Justice Angeles. That the
posture of private respondents is plausible — despite the subsequent BIR position that cement is a manufactured
product subject to sales tax — is supported by the fact that the Court of Tax Appeals, the specialized body handling
tax cases, sustained the private respondents in the decisions under review.
Under the circumstances, the 25% surcharge imposed in the disputed assessment must be deleted.
(a) The assessments in question seem to have computed the sales tax liability of private respondents on the basis
of the total selling price of cement sold. If this was so, a recomputation is in order so as to deduct from the tax base
the costs of raw materials used in the production of cement, such as gypsum conformably with the provisions of
Section 186 [now Sec. 199 (a)] of the Tax Code as it stood during the tax period here involved.
SEC. 186. Percentage tax on sales of other articles. — There shall be levied, assessed and
collected once only on every original sale, barter, exchange, and similar transaction either for
nominal or valuable considerations, intended to transfer ownership of, or title to, the articles not
enumerated in sections one hundred and eighty-four and one hundred and eighty-five a tax
equivalent to seven per centum of the gross selling price or gross value in money of the articles so
sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer:
Provided, That where the articles subject to tax under this section are manufactured out of materials
likewise subject to tax under this section and section one hundred and eighty nine, the total cost of
such materials, as duly establishes shall be deductible from the gross selling price or gross value in
money of such manufactured articles.
Before closing, it may be noted in passing that in order to obviate any further controversy, cement qua cement has
been expressly made subject to sales tax at the reduced rate of 5% of the implicit assumption that it is a
manufactured product and therefore outside the purview of "mineral product" under Section 246 of the Tax Code.
(See Presidential Decree No. 1358.)
WHEREFORE, the joint decision of the Court of Tax Appeals in G.R. Nos. L-35668-72 and L-35683 and its separate
decision in G.R. No. 35677 are hereby reversed and set aside; and it is hereby ordered that private respondents pay
the 7% sales tax on cement, the same to be computed on the basis of the gross selling price, less appropriate
deductions corresponding to the costs of raw materials used in the manufacture of cement, conformably with the
aforequoted Section 186 of the Tax Code, and without the imposition of 25% surcharge. No costs.
SO ORDERED.
G.R. No. L-22356 July 21, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PEDRO B. PATANAO, defendant-appellee.
Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. O. Gal-lang for plaintiff-appellant.
Tranquilino O. Calo, Jr. for defendant-appellee.
ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil case No. 925, dismissing plaintiff's
complaint so far as concerns the collection of deficiency income taxes for the years 1951, 1953 and 1954 and
additional residence taxes for 1951 and 1952, and requiring the defendant to file his answer with respect to
deficiency income tax for 1955 and residence taxes for 1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B. Patanao, it
is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan, and
as such was engaged in the business of producing logs and lumber for sale during the years 1951-1955; that
defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax returns for 1951,
1952 and 1955, the same were false and fraudulent because he did not report substantial income earned by him
from his business; that in an examination conducted by the Bureau of Internal Revenue on defendant's income and
expenses for 1951-1955, it was ascertained that the sum of P79,892.75, representing deficiency; income taxes and
additional residence taxes for the aforesaid years, is due from defendant; that on February 14, 1958, plaintiff,
through the Deputy Commissioner of Internal Revenue, sent a letter of demand with enclosed income tax
assessment to the defendant requiring him to pay the said amount; that notwithstanding repeated demands the
defendant refused, failed and neglected to pay said taxes; and that the assessment for the payment of the taxes in
question has become final, executory and demandable, because it was not contested before the Court of Tax
Appeals in accordance with the provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions
for failure to file income tax returns and for non-payment of income taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition, the lower court
entered the order appealed from, holding that the only cause of action left to the plaintiff in its complaint is the
collection of the income tax due for the taxable year 1955 and the residence tax (Class B) for 1953, 1954 and 1955.
A motion to reconsider said order was denied, whereupon plaintiff interposed the instant appeal, which was brought
directly to this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior judgment, is anchored on the following
rationale:
There is no question that the defendant herein has been accused in Criminal Cases Nos. 2089 and 2090 of
this Court for not filing his income tax returns and for non-payment of income taxes for the years 1953 and
1954. In both cases, he was acquitted. The rule in this jurisdiction is that the accused once acquitted is
exempt from both criminal and civil responsibility because when a criminal action is instituted, civil action
arising from the same offense is impliedly instituted unless the offended party expressly waives the civil
action or reserves the right to file it separately. In the criminal cases abovementioned wherein the defendant
was completely exonerated, there was no waiver or reservation to file a separate civil case so that the failure
to obtain conviction on a charge of non-payment of income taxes is fatal to any civil action to collect the
payment of said taxes. 1äwphï1.ñët
Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his part urges that it should be maintained.
In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the
collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises which are
diametrically opposed to each either, and are founded on entirely different philosophies. Under the Penal Code the
civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to
the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly
liable thereunder. The situation under the income tax law is the exact opposite. 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. Another reason, of course, is found in the fact that while section 73 of the
National Internal Revenue Code has provided the imposition of the penalty of imprisonment or fine, or both, for
refusal or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in
criminal proceedings. The only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX
of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies are
generally exclusive in the absence of a contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288,
November 20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180, December 28, 1964) 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. (Castro vs. The Collector of Internal
Revenue, G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency income tax and
residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by the Bureau of
Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for assessment as provided
in section 331 of the National Internal Revenue Code. Appellant contends that the applicable law is section 332 (a)
of the same Code under which a proceeding in court for the collection of the tax may be commenced without
assessment at any time within 10 years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for 1951, was
discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically admitted this allegation as all
the other averments in the complaint were so admitted. Hence, section 332 (a) and not section 331 of the National
Internal Revenue Code should determine whether or not the cause of action of deficiency income tax and residence
tax for 1951 has prescribed. Applying the provision of section 332 (a), the appellant's action instituted in court on
December 7, 1962 has not prescribed.
Wherefore, the order appealed from is hereby set aside. Let the records of this case be remanded to the court of
origin for further proceedings. No pronouncement as to costs.
G.R. No. L-41919-24 May 30, 1980
QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance, Branch 1, 16TH Judicial
District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity
as State Prosecutor, respondents.
CONCEPCION JR., J:
Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the
informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of
Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the
respondent Judge from further proceeding with the hearing and trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by
the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of his
examination, he discovered that the petitioner failed to report his income derived from sales of banana saplings. As
a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him
that there is due from him (petitioner) the amount of P104,980.81, representing income, business tax and forest
charges for the year 1973 and inviting petitioner to an informal conference where the petitioner, duly assisted by
counsel, may present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner
wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on
commission basis in the banana sapling business and that his income, as reported in his income tax returns for the
said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had
filed a fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the
Bureau of Internal Revenue. After examining the records of the case, the Special Investigation Division of the
Bureau of Internal Revenue found sufficient proof that the herein petitioner is guilty of tax evasion for the taxable
year 1973 and recommended his prosecution: têñ.£îhqwâ£
(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes
due the government under Section 45 in relation to Section 72 of the National Internal Revenue
Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed
taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section 183 of
the National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total
sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of its due
revenue in the amount of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of
Internal Revenue approved the prosecution of the petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals
throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the
National Internal Revenue Code, as amended, and other related laws, in Administrative Order No. 116 dated
December 5, 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the petitioner with the Court of First Instance of Davao City,
to wit:
têñ.£îhqw â£
(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National Internal-
Revenue Code, for filing a fraudulent income tax return for the calendar year ending December 31,
1973; 4
(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in business as producer of saplings, from January,
1973 to December, 1973, without first paying the annual fixed or privilege tax thereof; 5
(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the
National Internal Revenue Code, for failure to render a true and complete return on the gross
quarterly sales, receipts and earnings in his business as producer of banana saplings and to pay the
percentage tax due thereon, for the quarter ending December 31, 1973; 6
quarterly sales receipts and earnings in his business as producer of saplings, and to pay the
percentage tax due thereon, for the quarter ending on March 31, 1973; 7
quarterly sales, receipts and earnings in his business as producer of banana saplings for the quarter
ending on June 30, 1973, and to pay the percentage tax due thereon; 8
quarterly sales, receipts and earnings as producer of banana saplings, for the quarter ending on
September 30, 1973, and to pay the percentage tax due thereon. 9
On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1) the
informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the
said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his
pending protest against the assessment made by the BIR Examiner. 10 However, the trial court denied the motion on
October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As prayed for, a temporary restraining
order was issued by the Court, ordering the respondent Judge from further proceeding with the trial and hearing of
Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all
entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed against him on the ground that the respondent State
Prosecutor is allegedly without authority to do so. The petitioner argues that while the respondent State Prosecutor
may initiate the investigation of and prosecute crimes and violations of penal laws when duly authorized, certain
requisites, enumerated by this Court in its decision in the case of Estrella vs. Orendain, 12 should be observed before
such authority may be exercised; otherwise, the provisions of the Charter of Davao City on the functions and powers
of the City Fiscal will be meaningless because according to said charter he has charge of the prosecution of all
crimes committed within his jurisdiction; and since "appropriate circumstances are not extant to warrant the
intervention of the State Prosecution to initiate the investigation, sign the informations and prosecute these cases,
said informations are null and void." The ruling adverted to by the petitioner reads, as follows: têñ.£îhqwâ£
In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and
1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails,
refuses or is unable, for any reason, to investigate or prosecute a case and, in the opinion of the
Secretary of Justice it is advisable in the public interest to take a different course of action, the
Secretary of Justice may either appoint as acting provincial or city fiscal to handle the investigation
or prosecution exclusively and only of such case, any practicing attorney or some competent officer
of the Department of Justice or office of any city or provincial fiscal, with complete authority to act
therein in all respects as if he were the provincial or city fiscal himself, or appoint any lawyer in the
government service, temporarily to assist such city of provincial fiscal in the discharge of his duties,
with the same complete authority to act independently of and for such city or provincial fiscal
provided that no such appointment may be made without first hearing the fiscal concerned and never
after the corresponding information has already been filed with the court by the corresponding city or
provincial fiscal without the conformity of the latter, except when it can be patently shown to the court
having cognizance of the case that said fiscal is intent on prejudicing the interests of justice. The
same sphere of authority is true with the prosecutor directed and authorized under Section 3 of
Republic Act 3783, as amended and/or inserted by Republic Act 5184. The observation in Salcedo
vs. Liwag, supra, regarding the nature of the power of the Secretary of Justice over fiscals as being
purely over administrative matters only was not really necessary, as indicated in the above relation
of the facts and discussion of the legal issues of said case, for the resolution thereof. In any event, to
any extent that the opinion therein may be inconsistent herewith the same is hereby modified.
The contention is without merit. Contrary to the petitioner's claim, the rule therein established had not been violated.
The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No.
116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals
throughout the Philippines in the investigation and prosecution of all violations of the National Internal Revenue
Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations was precipitate and premature since the Commissioner
of Internal Revenue has not yet resolved his protests against the assessment of the Revenue District Officer; and
that he was denied recourse to the Court of Tax Appeals.
The contention is without merit. What is involved here is not the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While
there can be no civil action to enforce collection before the assessment procedures provided in the Code have been
followed, there is no requirement for the precise computation and assessment of the tax before there can be a
criminal prosecution under the Code. têñ.£îhqw â£
The contention is made, and is here rejected, that an assessment of the deficiency tax due is
necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is
complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with
intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat
and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the
commission of the crime. 15
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of
law. 16 Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse
his discretion in denying the motion to quash filed by the petitioner.
WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued
is hereby set aside. With costs against the petitioner.
SO ORDERED.
[ G.R. No. 197945, July 09, 2018 ]

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, vs. PILIPINAS SHELL PETROLEUM CORPORATION, RESPONDENT.
[G.R. Nos. 204119-20]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. PILIPINAS SHELL PETROLEUM CORPORATION AND PETRON
CORPORATION, RESPONDENTS.
DECISION
LEONARDO-DE CASTRO,* J.:
Before the Court are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court, as amended, filed by petitioner
Commissioner of Internal Revenue (CIR):
1. G.R. No. 197945 assailing the Decision[1] dated February 22, 2011 and Resolution[2] dated July 27, 2011 of the Court of
Tax Appeals (CTA) in CTA En Banc Case No. 535; and
2. G.R. Nos. 204119-20 assailing the Decision[3] dated March 21, 2012 and Resolution[4] dated October 10, 2012 of the Court
of Appeals in CA-G.R. SP Nos. 55329-30.
Respondents Pilipinas Shell Petroleum Corporation (Shell) and Petron Corporation (Petron) are domestic corporations engaged in the
production of petroleum products and are duly registered with the Board of Investments (BOI) under the Omnibus Investments Code of
1987.[5]
On different occasions during 1988 to 1996, respondents separately sold bunker oil and other fuel products to other BOT-registered
entities engaged in the export of their own manufactured goods (BOI export entities). [6] These BOT-registered export entities used Tax
Credit Certificates (TCCs) originally issued in their name to pay for these purchases.
To proceed with this mode of payment, the BOT-registered export entities executed Deeds of Assignment in favor of respondents,
transferring the TCCs to the latter. Subsequently, the Department of Finance (DOF), through its One Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center (DOF Center), approved the Deeds of Assignment. [7]
Thereafter, respondents sought the DOF Center's permission to use the assigned TCCs in settling respondents' own excise tax
liabilities. The DOF Center issued Tax Debit Memoranda (DOF TDMs) addressed to the Collection Program Division of the Bureau of
Internal Revenue (BIR),[8] allowing respondents to do so.
Thus, to pay for their excise tax liabilities from 1992 to 1997 (Covered Years), [9] respondents presented the DOF TDMs to the BIR. The
BIR accepted the TDMs and issued the following: (a) TDMs signed by the BIR Assistant Commissioner for Collection Service [10] (BIR
TDMs); (b) Authorities to Accept Payment for Excise Taxes (ATAPETs) signed by the BIR Regional District Officer; and (c)
corresponding instructions to BIR's authorized agent banks to accept respondents' payments in the form of BIR TDMs. [11]
Three significant incidents arising from the foregoing antecedents resulted in the filing of several petitions before this Court, viz.:
Significant Incidents Resultant Petition/s before the Court

(a) 1998 Collection Letters issued by the BIR against G.R. Nos. 204119-20 (one of the pr sent petitions)
respondents
(b) 1999 Assessments issued by the BIR against Pilipinas Shell Petroleum Corporation v.
respondents Commissioner of Internal Revenue, G.R. No. 172598,
December 21, 2007 (2007 Shell Case)
Petron Corporation v. Commissioner of Internal

Revenue, G.R. No. 180385, July 28, 2010 (2010 Petron
Case)
(c) 2002 Collection Letter issued by the BIR against G.R. No. 197945 (one of the present petitions)
respondent Shell
Said incidents and petitions are discussed in detail below.
A. 1998 Collection Letters

(G.R. Nos. 204119-20)
In its collection letters[12] dated April 22, 1998 (1998 Collection Letters) addressed to respondents' respective presidents, the
BIR[13] pointed out that respondents partly paid for their excise tax liabilities during the Covered Years using TCCs issued in the names
of other companies; invalidated respondents' tax payments using said TCCs; and requested respondent Shell and respondent Petron to
pay their delinquent tax liabilities amounting to P1,705,028,008.06 and P1,107,542,547.08, respectively. The 1998 Collection Letters
similarly read:
Our records show that for the years x x x, you have been paying part of your excise tax liabilities in the form of Tax Credit Certificate
(TCC) which bear the name of a company other than yours in violation of Rule IX of the Rules and Regulations issued by the Board of
Investments to implement P.D. No. 1789 and B.P. 391. Accordingly, your payment through the aforesaid TCC's are considered
invalid and therefore, you are hereby requested to pay the amount of x x x inclusive of delinquency for late payments as of even
date, covering the years heretofore mentioned within thirty days (30) from receipt hereof, lest we will be constrained to resort
to administrative and legal remedies available in accordance with law. (Emphasis supplied.)
Respondents separately filed their administrative protests [14] against the 1998 Collection Letters, but the BIR denied [15] said protests.
The BIR maintained that the transfers of the TCCs from the BOI-registered export entities to respondents and the use of the same
TCCs by respondents to pay for their self-assessed specific tax liabilities were invalid, and reiterated its demand that respondents pay
their delinquent taxes.
This prompted respondent Petron to file a Petition for Review[16] before the CTA docketed as CTA Case No. 5657.
As for respondent Shell, it first requested for reconsideration of the denial of its protest by the BIR. [17] However, while said request for
reconsideration was pending, the BIR issued a Warrant of Garnishment [18] against respondent Shell. Taking this as a denial of its
request for reconsideration, respondent Shell likewise filed a Petition for Review [19] before the CTA docketed as CTA Case No. 5728.
In their respective petitions before the CTA, respondents raised similar arguments against petitioner, to wit: (a) The collection of tax
without prior assessment was a denial of the taxpayer's right to due process; (b) The use of TCCs as payment of excise tax liabilities
was valid; (c) Since the BIR approved the transfers and subsequent use of the TCCs, it was estopped from questioning the validity
thereof; and (d) The BIR's right to collect the alleged delinquent taxes had already prescribed.
The CTA granted respondents' petitions in separate Decisions both dated July 23, 1999, decreeing as follows:
CTA Case No. 5657
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED. The collection of the alleged delinquent
excise taxes in the amount of P1,107,542,547.08 is hereby CANCELLED AND SET ASIDE for being contrary to law. Accordingly,
[herein petitioner and BIR Regional Director of Makati, Region No. 8] are ENJOINED from collecting the said amount of taxes against
[herein respondent Petron].[20]
CTA Case No. 5728
IN LIGHT OF ALL THE FOREGOING, the instant petition for review is GRANTED. The collection letter issued by [herein petitioner]
dated April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to collect from [herein respondent Shell] the
specific tax, surcharge and interest subject of this petition. [21]
In both Decisions, the CTA upheld the validity of the TCC transfers from the BOI-registered export entities to respondents, the latter
having complied with the requirements of transferability. The CTA further ruled that the BIR's attempt to collect taxes without an
assessment was a denial of due process and a violation of Section 228 [22] of the National Internal Revenue Code of the Philippines of
1997 (Tax Code). The CTA also noted that the BIR might have purposely avoided the issuance of a for;mal assessment because its
right to assess majority of respondents' alleged delinquent taxes had already prescribed.
Petitioner's motions for reconsideration of the above-mentioned decisions were denied by the CTA.[23] Thus, petitioner CIR sought
recourse before the Court of Appeals[24] through the consolidated petitions docketed as CA-G.R. SP Nos. 55329-30.
However, the Court of Appeals dismissed the petitions and found the transfer and utilization of the subject TCCs were valid, in
accordance with the 2007 Shell Case.[25] The appellate court eventually denied petitioner's motion for reconsideration.
Undaunted, petitioner CIR filed the present petition docketed as G.R. Nos. 204119-20.
B. 1999 Assessments (The 2007 Shell Case and 2010 Petron Case)
During the pendency of the consolidated petitions in CA-G.R. SP Nos. 55329-30 before the Court of Appeals, the DOF Center
conducted separate post-audit procedures[26] on all of the TCCs acquired and used by respondents during the Covered Years, requiring
them to submit documents to support their acquisition of the TCCs from the BOI-registered export entities. As a result of its post-audit
procedures, the DOF Center cancelled the first batch of the transferred TCCs [27] used by respondent Shell and Petron, with aggregate
amount of P830,560,791.00 and P284,390,845.00, respectively.
Following the cancellation of the TCCs, petitioner issued separate assessment letters to respondents in November 1999 (1999
Assessments) for the payment of deficiency excise taxes, surcharges, and interest for the Covered Years, which were also covered by
the 1998 Collection Letters. Respondents filed their respective administrative protests against said assessments. While petitioner
denied respondent Shell's protest, he did not act upon that of respondent Petron.
B.1 The 2007 Shell Case
Respondent Shell raised petitioner's denial of its protest through a petition for review before the CTA, docketed as CTA Case No. 6003.
The CTA Division rendered a Decision dated August 2, 2004 granting said petition and cancelled and set aside the assessment against
respondent Shell; but then the CTA en banc, in its Decision dated April 28, 2006, set aside the CTA Division's judgment and ordered
respondent Shell to pay petitioner deficiency excise tax, surcharges, and interest. Hence, respondent Shell filed a petition for review
before this Court docketed as G.R. No. 172598, the 2007 Shell Case.
In its Decision in the 2007 Shell Case, the Court cancelled the 1999 assessment against respondent Shell and disposed thus:
WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in CTA EB No. 64 is hereby REVERSED and SET
ASIDE, and the August 2, 2004 CTA Decision in CTA Case No. 6003 disallowing the assessment is hereby REINSTATED. The
assessment of respondent for deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22,
1998 letter of respondent is cancelled and declared without force and effect for lack of legal basis. No pronouncement as to costs.[28]
In nullifying petitioner's assessments, the Court upheld the TCCs' validity, respondent Shell's qualifications as transferees of said TCCs,
respondent Shell's status as a transferee in good faith and for value, and respondent Shell's right to due process.
The 2007 Shell Case became final and executory on March 17, 2008.[29]
B.2 The 2010 Petron Case
Considering petitioner's inaction on its protest, respondent Petron likewise filed a petition for review with the CTA, docketed as CTA
Case No. 6136, to challenge the assessment. In a Decision dated August 23, 2006, the CTA Division denied the petition and ordered
respondent Petron to pay petitioner deficiency excise taxes, surcharges, and interest. Said judgment was subsequently affirmed by the
CTA En Banc in. its Decision dated October 30, 2007. This prompted respondent Petron to seek relief from this Court through a petition
for review, docketed as G.R. No. 180385, the 2010 Petron Case.[30]
Citing the 2007 Shell Case, the Court similarly cancelled the 1999 assessment against respondent Petron and decided the 2010 Petron
Case as follows:
WHEREFORE, premises considered, the petition is GRANTED and the October 30, 2007 CTA En Banc Decision in CTA EB No. 238 is,
accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered invalidating respondent's Assessment of petitioner's
deficiency excise taxes for the years 1995 to 1997 for lack of legal bases. No pronouncement as to costs.[31]
Entry of Judgment[32] was made in the 2010 Petron Case on November 2, 2010.
C. 2002 Collection Letter

(G.R. No. 197945)
Meanwhile, during the pendency of respondent Shell's CTA Case No. 6003 (which was eventually elevated to this Court in the 2007
Shell Case), the BIR requested respondent Shell to pay its purported excise tax liabilities amounting to P234,555,275.48, in a collection
letter[33] dated June 17, 2002 (2002 Collection Letter), which read:
Collection Letter
xxxx
Our records show that a letter dated January 30, 2002 was served to you by our Collection Service, for the collection of cancelled Tax
Credit Certificates and Tax Debit Memos which were used to pay your 1995 to 1998 excise tax liabilities. Said cancellation was
embodied in EXCOM Resolution No. 03-05-99 of the Tax & Duty Drawback Center of the Department of Finance. Upon verification by
this Office, however, some of these TCCs/TDMs were already included in the tax case previously filed in [the] Court of Tax Appeals.
Accordingly, the collectible amount has been reduced from P691,508,005.82 to P234,555,275.48, the summary of which is hereto
attached for your ready reference.
P
Basic
87,893,876.00
Surcharge 21,973,469.00
Interest 124,687,930.48
P
TOTAL
234,555,275.48
In view thereof, you are hereby requested to pay the aforesaid tax liability/ties within ten (10) days from receipt hereof thru any
authorized agent bank x x x Should you fail to do so, this Office, much to our regret, will be constrained to enforce the
collection of the said amount thru the summary administrative remedies provided by law, without any further notice.
(Emphasis supplied.)
DOF Executive Committee Resolution No. 03-05-99 referred to in the aforequoted Collection Letter prescribed the guidelines and
procedures for the cancellation, recall, and recovery of fraudulently-issued TCCs.
Respondent Shell filed on July 11, 2002 its administrative protest[34] to the 2002 Collection Letter. However, without resolving said
protest, petitioner[35] issued a Warrant of Distraint and/or Levy dated September 12, 2002 for the satisfaction of the following alleged tax
delinquency of respondent Shell:
WHEREAS, THERE IS DUE FROM:
PILIPINAS SHELL PETROLEUM CORP. x x x x
The sum of TWO HUNDRED THIRTY[-]FOUR MILLION FIVE HUNDRED FIFTY[-]FIVE THOUSAND TWO HUNDRED TWENTY[-
]FIVE PESOS AND 48 CENTAVOS as Internal Revenue Taxes shown hereunder, plus all increments incident to delinquency.
Assessment
: Unnumbered
Notice No.
Date Issued : January 30, 2002
Tax Type : Excise Tax
Period Covered : Various Dates (December 18, 1995 to July 03, 1997)
Amount : P234,555,275.48
WHEREAS, the said taxpayer failed and refused and still fails and refuses to pay the same notwithstanding demands made by this
Office.[36]
Aggrieved, respondent Shell filed a petition for review [37] before the CTA docketed as CTA Case No. 6547, arguing that: (a) the
issuance of the 2002 Collection Letter and Warrant of Distraint and/or Levy and enforcement of DOF Center's Executive Committee
Resolution No. 03-05-99 violated its right to due process; (b) The DOF Center did not have authority to cancel the TCCs; (c) The TCCs'
transfers and utilizations were valid and legal; (d) It was an innocent purchaser for value; (e) The HIR was estopped from invalidating
the transfer and utilization of the TCCs; and (f) The HIR's right to collect had already prescribed.
The CTA Second Division ruled in favor of respondent Shell in its Decision [38] dated April 30, 2009:
WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. The Collection Letters and Warrant of
Distraint and/or Levy are CANCELLED and declared without force and effect for lack of legal basis. [39]
After the CTA Division denied[40] his motion for reconsideration, petitioner elevated the case to the CTA En Banc via a petition for
review[41] docketed as CTA EB No. 535.
In its Decision dated February 22, 2011, the CTA En Banc denied the petition and affirmed the judgment of the CTA Division.
The CTA En Banc resolved the issues relying on the 2007 Shell Case. Pursuant to this ruling, the real issue is not whether the BOI-
registered export entities validly procured the TCCs from the DOF Center, but whether respondent Shell fraudulently obtained the TCCs
from said BOI-registered export entities.
The CTA En Banc brushed aside petitioner's argument that respondent Shell was aware that the transferred TCCs were subject to
post-audit procedures. It explained that the TCCs were valid and effective upon issuance and were not subject to post-audit procedures
as a suspensive condition. Further, the TCCs could no longer be cancelled once these had been fully utilized or duly applied against
any outstanding tax liability of an innocent transferee for value.
In this regard, the CTA En Banc found that respondent Shell did not participate in any fraud attending the issuance of the TCCs, as well
as its subsequent transfers. Thus, respondent Shell is an innocent transferee in good faith and for value and could not be prejudiced by
fraud attending the TCCs' procurement.
In the absence of fraud, petitioner could only reassess Shell for deficiency tax within the three-year prescriptive period under Section
203 of the Tax Code, not the 10-year period under Section 222(a) of the same Code. Further, petitioner violated respondent Shell's
right to due process when he issued the 2002 Collection Letter without a Notice of Informal Conference (NIC) or a Preliminary
Assessment Notice as required by Revenue Regulations No. (RR) 12-99.
The CIR moved for reconsideration but was denied.
Hence, petitioner now comes before this Court citing in the petitions at bar the following errors allegedly committed by the courts a
quo in G.R. Nos. 204119-20 and G.R. No. 197945:
G.R. Nos. 204119-20
The Court of Appeals erred:

I.
IN NOT HOLDING THAT RESPONDENTS SHELL AND PETRON WERE NOT QUALIFIED TRANSFEREES OF THE TAX CREDIT
CERTIFICATES (TCCs) SINCE THEY WERE NOT SUPPLIERS OF DOMESTIC CAPITAL EQUIPMENT OR OF RAW MATERIAL
AND/OR COMPONENTS TO THEIR TRANSFERORS.
II.
IN NOT HOLDING THAT SINCE RESPONDENTS WERE NOT QUALIFIED TRANSFEREES OF THE TCCs, THE SAME COULD NOT
BE VALIDLY USED IN PAYING THEIR EXCISE TAX LIABILITIES.
III.
IN NOT HOLDING THAT GOVERNMENT IS NOT ESTOPPED FROM COLLECTING TAXES DUE TO THE MISTAKES OF ITS
AGENTS.
IV.
IN NOT HOLDING THAT SHELL WAS ACCORDED DUE PROCESS IN PETITIONER'S ATTEMPT TO COLLECT ITS EXCISE TAX
LIABILITIES.[42]
G.R. No. 197945
I. The CTA EN BANC COMMITTED GRIEVOUS ERROR IN NOT RULING ON THE VALIDITY OF THE TCCs AND ITS
CONSEQUENT EFFECTS ON THE RIGHTS AND OBLIGATIONS ASSUMED BY RESPONDENT.
II. THE CTA EN BANC COMMITTED GRIEVOUS ERROR IN HOLDING THAT RESPONDENT IS AN INNOCENT TRANSFEREE OF
THE DISPUTED TCCs IN GOOD FAITH.
III. THE CTA EN BANC COMMITTED GRIEVOUS ERROR IN RULING THAT RESPONDENT IS NOT LIABLE TO PAY EXCISE
TAXES.
IV. THE CTA EN BANC COMMITTED GRIEVOUS ERROR IN HOLDING THAT THE GOVERNMENT IS ESTOPPED FROM
NULLIFYING THE TCCs, AND DECLARING THEIR USE, TRANSFER AND UTILIZATION AS FRAUDULENT.
V. THE CTA EN BANC COMMITTED GRIEVOUS ERROR IN RULING THAT RESPONDENT WAS DENIED DUE PROCESS.
VI. THE CTA EN BANC COMMITTED A GRIEVOUS ERROR IN DECLARING THAT THE PERIOD TO COLLECT RESPONDENT'S
UNPAID EXCISE TAXES HAS ALREADY PRESCRIBED.
VII. THE CTA EN BANC COMMITTED A GRIEVOUS ERROR IN RULING THAT,RESPONDENT IS NOT LIABLE TO PAY
SURCHARGES AND INTERESTS.[43]
The Ruling of the Court
The petitions are without merit.
The issues concerning the transferred TCCs' validity, respondents' qualifications as transferees of said TCCs, and the
respondents' valid use of the TCCs to pay for their excise tax liabilities for the Covered Years had been finally settled in the
2007 Shell Case and 2010 Petron Case and are already barred from being re-litigated herein by the doctrine of res judicata in
the concept of conclusiveness of judgment.
While the present petitions, on one hand, and the 2007 Shell Case and 2010 Petron Case, on the other hand, involve identical parties
and originate from the same factual antecedents, there are also substantial distinctions between these cases, for which reason, the
Court cannot simply dismiss the former on account of the latter based on the doctrine of res judicata in the concept of "barby prior
judgment."
The 2007 Shell Case and 2010 Petron Case were assessment cases. These initiated from respondents' protests of the 1999
Assessments issued by petitioner CIR against them for deficiency excise taxes, surcharges, and interest, following cancellation of the
transferred TCCs and the corresponding TDMs which respondents used to pay for said excise taxes. Said cases were primarily
concerned with the legality and propriety of petitioner's issuance of the 1999 Assessments against respondents.
In contrast, the consolidated petitions now before the Court arose from respondents' protests of petitioner's 1998 and 2002 Collection
Letters for essentially the same excise tax deficiencies covered by the 1999
Assessments, but apparently issued and pursued by the petitioner and BIR separately from and concurrently with the assessment
cases. At the crux of these cases is petitioner's right to collect the deficiency excise taxes from respondents.
In the instant petitions, petitioner asserts his right to collect as excise tax deficiencies the excise tax liabilities which respondents had
previously settled using the transferred TCCs, impugning the TCCs' validity on account of fraud as well as respondents' qualifications
as transferees of said TCCs. However, respondents already raised the same arguments and the Court definitively ruled thereon in its
final and executory decisions in the 2007 Shell Case and 2010 Petron Case.
The re-litigation of these issues in the present petitions, when said issues had already been settled with finality in the 2007 Shell
Case and 2010 Petron Case, is precluded by res judicata in the concept of "conclusiveness of judgment."
In Ocho v. Calos,[44] the Court extensively explained the doctrine of res judicata in the concept of "conclusiveness of judgment," thus:
The doctrine of res judicata as embodied in Section 47, Rule 39 of the Rules of Court states:
SECTION 47. Effect of judgments or final orders. - The effect of a judgment or final order rendered by a court of the Philippines, having
jurisdiction to pronom:tce the judgment or final order, may be as follows:
xxxx
(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have
been raised in relation thereto, conclusive between the parties and their successors-in interest by title subsequent to the
commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; and
(c) In any other litigation between the same parties or their successors-in-interest, that only is deemed. to have been adjudged in a
former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included
therein or necessary thereto.
It must be pointed out at this point that, contrary to the insistence of the Caloses, the doctrine of res judicata applies to both judicial and
quasi-judiCial proceedings. The doctrine actually embraces two (2) concepts: the first is "bar by prior judgment" under paragraph (b) of
Rule 39, Section 47, and the second is "conclusiveness of judgment" under paragraph (c) thereof. In the present case, the second
concept - conclusiveness of judgment- applies. The said concept is explained in this manner:
[A] fact or question which was in issue in a former suit and was there judicially passed upon and determined by a court of
competent jurisdiction, is conclusively settled by the judgment therein as far as the parties to that action and persons in
privity with them are concerned and cannot be again litigated in any future action between such parties or their privies, in the
same court or any other court of concurrent jurisdiction on either the same or different cause of action, while the judgment
remains unreversed by proper authority. It has been held that in order. that a judgment in one action can be conclusive as to a
particular matter in another action between the same parties or their privies, it is essential that the issue be identical. If a particular
point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question,
a former judgment between the same parties or their privies will be final and conclusive in the second if that same point or question
was in issue and adjudicated in the first suit. x x x.
Although the action instituted by the Caloses in Adm. Case No. 006-90 (Anomalies/Irregularities in OLT Transfer Action and Other
Related Activities) is different from the action in Adm. Case No. (X)-014 (Annulment of Deeds of Assignment, Emancipation Patents
and Transfer Certificate of Titles, Retention and Recovery of Possession and Ownership), the concept of conclusiveness of judgment
still applies because under this principle "the identity of causes of action is not required but merely identity of issues."
[Simply] put, conclusiveness of judgment bars the relitigation of particular facts or issues in another litigation between the
same parties on a different claim or cause of action. In Lopez vs. Reyes, we expounded on the concept of conclusiveness of
judgment as follows:
The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are
commonly applied to all matters essentially connected with the subject matter of litigation. Thus it extends to questions necessarily
involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may have
been made in reference thereto, and although such matters were directly referred to in the pleadings and were not actually or formally
presented. Under this rule, if the record of the former trial shows that the judgment could not have been rendered without deciding the
particular matter, it will be considered as having settled that matter as to all future actions between the parties, and if a judgment
necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for the rule are that a judgment is an
adjudication on all the matters which are essential to support it, and that every proposition assumed or decided by the court leading up
to the final conclusion upon which such conclusion is based is as effectually passed upon as the ultimate question which is solved.
xxxx
As held in Legarda vs. Savellano:
x x x It is a general rule common to all civilized system of jurisprudence, that the solemn and deliberate sentence of the law,
pronounced by its appointed organs, upon a disputed fact or a state of facts, should be regarded as a final and conclusive
determination of the question litigated, and should forever set the controversy at rest. Indeed, it has been well said that this maxim is
more than a mere rule of law; more even than an important principle of public policy; and that it is not too much to say that it is a
fundamental concept in the organization of every jural system. Public policy and sound practice demand that, at the risk of occasional
errors, judgments of courts should become final at some definite date fixed by law. The very object for which courts were constituted
was to put an end to controversies.
The findings of the Hearing Officer in Adm. Case No. 006-90, which had long attained finality, that petitioner is not the owner of other
agricultural lands foreclosed any inquiry on the same issue involving the same parties and property. The CA thus erred in still making a
finding that petitioner is not qualified to be a farmer-beneficiary because he owns other agricultural lands. (Emphases supplied, citations
omitted.)
In the 2007 Shell Case, the Court affirmed the validity of the TCCs, the transfer of the TCCs to respondent Shell, and the use of the
transfe ed TCCs by respondent Shell to partly pay for its excise tax liabilities for the Covered Years. The Court ratiocinated as
follows: First, the results of postaudit procedures conducted in connection with the TCCs should not operate as a suspensive condition
to the TCCs' validity. Second, while it was one of the conditions appearing on the face of the TCCs, the post-audit contemplated therein
did not pertain to the TCCs' genuineness or validity, but to computational discrepancies that might have resulted from their utilization
and transfer. Third, the DOF Center or DOF could not compel respondent Shell to submit sales documents for the purported post-audit.
As a BOI-registered enterprise, respondent Shell was a qualified transferee of the subject TCCs, pursuant to existing rules and
regulations.[45] Fourth, respondent Shell was a transferee in good faith and for value as it secured the necessary approvals from various
government agencies before it used and applied the transferred TCCs against its tax liabilities and it did not participate in the
perpetuation of fraudulent acts in the procurement of the said TCCs. As a transferee in good faith, respondent Shell could not be
prejudiced with a re-assessment of excise tax liabilities it had already settled when due using the subject TCCs nor by any fraud
attending the procurement of the subject TCCs. Fifth, while the DOF Center was authorized to cancel TCCs it might have erroneously
issued, it could no longer exercise such authority after the subject TCCs have already been utilized and accepted as payment for
respondent Shell's excise tax liabilities. What had been used up, debited, and cancelled could no longer be voided and cancelled anew.
While the State was not estopped by the neglect or omission of its agents, this principle could not be applied to the prejudice of an
innocent transferee in good faith and for value.
And finally, the Court found in the 2007 Shell Case that respondent Shell's right to due process was violated. Petitioner did not issue a
Notice of Informal Conference (NIC) and Preliminary Assessment Notice (PAN) to respondent Shell, in violation of the formal
assessment procedure required by Revenue Regulations No. (RR) 12-99.[46] Petitioner merely relied on the DOF Center's findings
supporting the cancellation of respondent Shell's TCCs. Thus, the Court voided the assessment dated November 15, 1999 issued by
the CIR against herein respondent Shell.
On the other hand, the Court resolved the 2010 Petron Case in accordance with its ruling in the 2007 Shell Case, reiterating that: First,
the subject TCCs' validity and effectivity should be immediate and should not be dependent on the outcome of a post-audit as a
suspensive condition. Second, respondent Petron could not be prejudiced by fraud alleged to have attended such issuance as it was
not privy to the issuance of the subject TCCs and it had already used said TCCs in settling its tax liabilities. Third, respondent Petron
was also an innocent transferee in good faith and for value because it was a qualified transferee of the TCCs based on existing rules
and regulations and the TCCs' transfers were approved by the appropriate government agencies. And fourth, while the government
cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents, the rights of a transferee in good faith
and for value should be protected.
The Court's aforementioned findings in the 2007 Shell Case and 2010 Petron Case are conclusive and binding upon this Court in the
petitions at bar. Res judicata by conclusiveness of judgment bars the Court from relitigating the issues on the TCCs' validity and
respondents' qualifications as transferees in these cases. As a result of such findings in the 2007 Shell Case and 2010 Petron Case,
then respondents could not have had excise tax deficiencies for the Covered Years as they had validly paid for and settled their excise
tax liabilities using the transferred TCCs.
In any case, the present petitions are dismissed as petitioner violated respondents' right to due process for failing to observe
the prescribed procedure for collection of unpaid taxes through summary administrative remedies.
The Court dismisses the present petitions for it cannot allow petitioner to collect any excise tax deficiency from respondents by mere
issuance of the 1998 and 2002 Collection Letters. Petitioner had failed to comply with the prescribed procedure for collection of unpaid
taxes through summary administrative remedies and, thus, violated respondents' right to due process.
That taxation is an essential attribute of sovereignty and the lifeblood of every nation are doctrines well-entrenched in our jurisdiction.
Taxes are the government's primary means to generate funds needed to fulfill its mandate of promoting the general welfare and well-
being of the people[47] and so should be collected without unnecessary hindrance. [48]
While taxation per se is generally legislative in nature, collection of tax is administrative in character. [49] Thus, Congress delegated the
assessment and collection of all national internal revenue taxes, fees, and charges to the BIR. [50] And as the BIR's chief, the CIR has
the power to make assessments and prescribe additional requirements for tax administration and enforcement. [51]
The Tax Code provides two types of remedies to enforce the collection of unpaid taxes, to wit: (a) summary administrative remedies,
such as the distraint and/or levy of taxpayer's property; [52] and/or (b) judicial remedies, such as the filing of a criminal or civil action
against the erring taxpayer.[53]
Verily, pursuant to the lifeblood doctrine, the Court has allowed tax authorities ample discretion to avail themselves of the most
expeditious way to collect the taxes,[54] including summary processes, with as little interference as possible.[55] However, the Court, at
the same time, has not hesitated to strike down these processes in cases wherein tax authorities disregarded due process. [56] The
BIR's power to collect taxes must yield to the fundamental rule that no person shall be deprived of his/her property without due process
of law.[57] The rule is that taxes must be collected reasonably and in accordance with the prescribed procedure. [58]
In the normal course of tax administration and enforcement, the BIR must first make an assessment then enforce the collection of the
amounts so assessed. "An assessment is not an action or proceeding for the collection of taxes. x x x It is a step preliminary, but
essential to warrant distraint, if still feasible, and, also, to establish a cause for judicial action." [59] The BIR may summarily enforce
collection only when it has accorded the taxpayer administrative due process, which vitally includes the issuance of a valid
assessment.[60] A valid assessment sufficiently informs the taxpayer in writing of the legal and factual bases of the said assessment,
thereby allowing the taxpayer to effectively protest the assessment and adduce supporting evidence in its behalf.
In Commissioner of Internal Revenue v. Reyes[61] (Reyes Case), the petitioner issued an assessment notice and a demand letter for
alleged deficiency estate tax against the taxpayer estate. The assessment notice and demand letter. simply notified the taxpayer estate
of petitioner's findings, without stating the factual and legal bases for said assessment. The Court, absent a valid assessment, refused
to accord validity and effect to petitioner's collection efforts - which involved, among other things, the successive issuances of a
collection letter, a final notice before seizure, and a warrant of distraint and/or levy against the taxpayer estate - and declared that:
x x x [P]etitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here
disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers
should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of
the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government's
claim, there can be no deprivation of property, because no effective protest can be made. The haphazard shot at slapping an
assessment, supposedly based on estate taxation's general provisions that are expected to be known by the taxpayer, is utter
chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for - not to
mention the insufficiency of - the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes
are the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will
negate the very reason for government itself."[62] (Emphasis supplied.)
The Court similarly found that there was no valid assessment in Commissioner of Internal Revenue v. BASF Coating + Inks Phils.,
Inc.[63] (BASF Coating Case) as the assessment notice therein was sent to the taxpayer company's former address. Without a valid
assessment, the Court pronounced that petitioner's issuance of a First Notice Before Issuance of Warrant of Distraint and Levy to be in
violation of the taxpayer company's right to due process and effectively blocked any further efforts by petitioner to collect by virtue
thereof. The Court ratiocinated that:
It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of Warrant of Distraint and Levy
violated respondent's right to due process because no valid notice of assessment was sent to it. An invalid assessment bears no valid
fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be
able to present their case and adduce supporting evidence. In the instant case, respondent has not properly been informed of the basis
of its tax liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the government's claim, there can
be no deprivation of property, because no effective protest can be made.
xxxx
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. In
balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one
side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt
in favor of the individual, for a citizen's right is amply protected by the Bill of Rights under the Constitution. [64]
It is worthy to note that in the Reyes Case and BASF Coating Case, there were assessments actually issued against the taxpayers
therein, except that said assessments were adjudged invalid for different reasons (i.e., for failing to state the factual and legal bases for
the assessment in the Reyes Case and for sending the assessment to the wrong address in the BASF Coating Case). In the instant
cases, petitioner did not issue at all an assessment against respondents prior to his issuance of the 1998 and 2002 Collection Letters.
Thus, there is even more reason for the Court to bar petitioner's attempts to collect the alleged deficiency excise taxes through any
summary administrative remedy.
In the present case, it is clear from the wording of the 1998 and 2002 Collection Letters that petitioner intended to pursue, through said
collection letters, summary administrative remedies for the collection of respondents' alleged excise tax deficiencies for the Covered
Years. In fact, in the respondent Shell's case, the collection letters were already followed by the BIR's issuance of Warrants of
Garnishment and Distraint and/or Levy against it.
That the BIR proceeded with the collection of respondents' alleged unpaid taxes without a previous valid assessment is evident from
the following: First, petitioner admitted in CTA Case Nos. 5728[65] and 6547 that: (a) the collections letters were not tax assessment
notices; (b) the letters were issued solely based on the DOF Center's findings; and (c) the BIR never issued any preliminary
assessment notice prior to the issuance of the collection letters. Second, although the 1998 and 2002 Collection Letters and the 1999
Assessments against respondents were for the same excise taxes for the Covered Years, the former were evidently not based on the
latter. The 1998 Collection Letters against respondents were issued prior to the 1999 Assessments; while the 2002 Collection Letter
against respondent Shell was issued even while respondent Shell's protest of the 1999 Assessment was still pending before the CTA.
And third, assuming arguendo that the 1998 and 2002 Collection Letters were intended to implement the 1999 Assessments against
respondents, the 1999 Assessments were already nullified in the 2007 Shell Case and 2010 Petron Case.
Absent a previously issued assessment supporting the 1998 and 2002 Collection Letters, it is clear that petitioner's attempts to collect
through said collection letters as well as the subsequent Warrants of Garnishment and Distraint and/or Levy are void and ineffectual. If
an invalid assessment bears no valid fruit, with more reason will no such fruit arise if there was no assessment in the first place.
The period for petitioner to collect the alleged deficiency excise taxes from respondents through judicial remedies had
already prescribed.
After establishing that petitioner could not collect respondents' alleged deficiency excise taxes for the covered years through summary
administrative remedies without a valid assessment, the Court next determines whether petitioner could still resort to judicial remedies
to enforce collection.
The Court answers in the negative as the period for collection o£ the respondents' alleged deficiency excise taxes for the Covered
Years through judicial remedies had already prescribed.
The alleged deficiency excise taxes petitioner seeks to collect from respondents in the cases at bar pertain to the Covered Years, i.e.,
1992 to 1997, during which, the National Internal Revenue Code of the Philippines of 1977 [66] (1977 NIRC) was the governing law.
Pertinent provisions of the 1977 NIRC read:
Sec. 318. Period of Limitation Upon Assessment and Collection. - Except as provided in the succeeding section, internal-revenue taxes
shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period. For the purposes of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code. (Emphasis Supplied)
Sec. 319. Exceptions as to period of limitation of assessment and collection of taxes. - (a) In the case of a false or fraudulent return with
intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: Provided,
That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner
and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the
expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue tax has been made within the period of limitation above-prescribed, such tax may be
collected by distraint or levy or by a proceeding in court, but only if began (1) within five years after assessment of the tax, or (2) prior to
the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such
five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the
period previously agreed upon.
Under Section 318 of the 1977 NIRC, petitioner had five years [67] from the time respondents filed their excise tax returns in question to:
(a) issue an assessment; and/or (b) file a court action for collection without an assessment. In the petitions at bar, respondents filed
their returns for the Covered Years from 1992 to 1997, and the five-year prescriptive period under Section 319 of the 1977 NIRC would
have prescribed accordingly from 1997 to 2002.
As the Court has explicitly found herein as well as in the 2007 Shell Case and 2010 Petron Case, petitioner failed to issue any valid
assessment against respondents for the latter's alleged deficiency excise taxes for the Covered Years. Without a valid assessment, the
five-year prescriptive period to assess continued to run and had, in fact, expired in these cases. Irrefragably, petitioner is already
barred by prescription from issuing an assessment against respondents for deficiency excise taxes for the Covered Years. Resultantly,
this also bars petitioner from undertaking any summary administrative remedies, i.e., distraint and/or levy, against respondents for
collection of the same taxes.
Unlike summary administrative remedies, the government's power to enforce the collection through judicial action is not
conditioned upon a previous valid assessment. Sections 318 and 319(a) of the 1977 NIRC expressly allowed the institution of court
proceedings for collection of taxes without assessment within five years from the filing of the tax return and 10 years from the discovery
of falsity, fraud, or omission, respectively.[68]
A judicial action for the collection of a tax is begun: (a) by the filing of a complaint with the court of competent jurisdiction, or (b) where
the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment
of the tax is prayed for.[69]
From respondents' filing of their excise tax returns in the years 1992 to 1997 until the lapse of the five-year prescriptive period under
Section 318 of the 1977 NIRC in the years 1997 to 2002, petitioner did not institute any judicial action for collection of tax as
aforedescribed. Instead, petitioner relied solely on summary administrative remedies by issuing the collection letters and warrants of
garnishment and distraint and/or levy without prior assessment against respondents. Sifting through records, it can be said that
petitioner's earliest attempts to judicially enforce collection of respondents' alleged deficiency excise taxes were his Answers to
respondents' Petitions for Review filed before the CTA in Case Nos. 5657, 5728, and 6547 on August 6, 1998, [70] March 2, 1999,[71] and
November 29, 2002,[72] respectively.
Verily, in a long line of jurisprudence, the Court deemed the filing of such pleadings as effective tax collection suits so as to stop the
running of the prescriptive period in cases where: (a) the CIR issued an assessment and the taxpayer appealed the same to the
CTA;[73] (b) the CIR filed the answer praying for the payment of tax within five years after the issuance of the assessment; [74] and (c) at
the time of its filing, jurisdiction over judicial actions for collection of internal revenue taxes was vested in the CTA, not in the regular
courts.[75]
However, judging by the foregoing conditions, even petitioner's Answers in CTA Case Nos. 5657, 5728, and 6547 cannot be deemed
judicial actions for collection of tax. First, CTA Case Nos. 5657, 5728, and 6547 were not appeals of assessments. Respondents went
before the CTA to challenge the 1998 and 2002 Collection Letters, which, by petitioner's own admission, are not assessments. Second,
by the time petitioner filed. his Answers before the CTA on August 6, 1998, March 2, 1999, and November 29, 2002, his power to
collect alleged deficiency excise taxes, the returns for which were filed from 1992 to 1997, had already partially prescribed, particularly
those pertaining to the earlier portion of the Covered Years. Third, at the time petitioner filed his Answers before the CTA, the
jurisdiction over judicial actions for collection of internal revenue taxes was vested in the regular courts, not the CTA. [76] Original
jurisdiction over collection cases[77] was transferred to the CTA only on April 23, 2004, upon the effectivity of Republic Act No. 9282. [78]
Without either a formal tax collection suit filed before the court of competent jurisdiction or an answer deemed as a judicial action for
collection of tax within the prescribed five-year period under Section 318 of the 1977 NIRC, petitioner's power to institute a court
proceeding for the collection of respondents' alleged deficiency excise taxes without an assessment had already
prescribed in 1997 to 2002.
The Court's ruling remains the same even if the 10-year prescriptive period under Section 319(a) of the 1977 NIRC, in case of falsity,
fraud, or omission in the taxpayer's return, is applied to the present cases.
Even if the Court concedes, for the sake of argument, that respondents' returns for the Covered Years were false or fraudulent, Section
319(a) of the 1977 NIRC similarly required petitioner to (a) issue an assessment; and/or (b) file a court action for collection without an
assessment, but within 10 years after the discovery of the falsity, fraud, or omission in the taxpayer's return. As early as the 1998
Collection Letters, petitioner could already be charged with knowledge of the alleged falsity or fraud in respondents' excise tax returns,
which precisely led petitioner to invalidate respondents' payments using the transferred TCCs and to demand payment of deficiency
excise taxes through said letters. The 10-year prescriptive period under Section 319(a) of the 1977 NIRC wholly expired in 2008 without
petitioner issuing a valid assessment or instituting judicial action for collection.
The Court cannot countenance the tax authorities' non-performance of their duties in the present cases. The law provides for a statute
of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation.[79]
While taxes are the lifeblood of the nation, the Court cannot allow tax authorities indefinite periods to assess and/or collect alleged
unpaid taxes. Certainly, it is an injustice to leave any taxpayer in perpetual uncertainty whether he will be made liable for deficiency or
delinquent taxes.
In sum, petitioner's attempts to collect the alleged deficiency excise taxes from respondents are void and ineffectual because (a) the
Issues regarding the transferred TCCs' validity, respondents' qualifications as transferees of said TCCs, and respondents' use of the
TCCs to pay for their excise tax liabilities for the Covered Years, had already been settled with finality in the 2007 Shell Case and 2010
Petron Case, and could no longer be re-litigated on the ground of res judicata in the concept of conclusiveness of judgment; (b)
petitioner's resort to summary administrative remedies without a valid assessment was not in accordance with the prescribed procedure
and was in violation of respondents' right to substantive due process; and (c) none of petitioner's collection efforts constitute a valid
institution of a judicial remedy for collection of taxes without an assessment, and any such judicial remedy is now barred by
prescription.
WHEREFORE, premises considered, the Court DENIES the petition of the Commissioner of Internal Revenue in G.R. No. 197945
and AFFIRMS the Decision dated February 22, 2011 and Resolution dated July 27, 2011 of the Court of Tax Appeals en banc in
CTA En Banc Case No. 535.
The Court likewise DENIES the petition of the Commissioner of Internal Revenue in G.R. Nos. 204119-20 and AFFIRMS the Decision
dated March 21, 2012 and Resolution dated October 10, 2012 of the Court of Appeals in CA-G.R. SP Nos. 55329-30.
SO ORDERED.
GR. No. L-37061 September 5, 1984
MAMBULAO LUMBER COMPANY, petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, respondent.
CUEVAS, J.:
Petitioner in this appeal by certiorari, seeks the reversal of the decision of the defunct Court of Appeals which
affirmed the judgment of the then Court of First Instance of Manila ordering petitioner to pay respondent the amount
of P15,739.80 representing its tax liability not secured by any bond, with legal interest thereon from August 25, 1961
until fully paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6, Bicol Region,
Naga City, conducted an examination of the books of accounts of herein petitioner Mambulao number Company for
the purpose of determining said taxpayer's forest charges and percentage tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among others that —
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
It can be stated in this connection that sometime in the early part of 1949, the personnel of the local
office of the Bureau of Forestry in Daet, Camarines Norte, manifested under the name of the subject
taxpayer 2,052.48 cubic meters of timber, with the corresponding forest charges in the total amount
of P15,443.65 including surcharges. The Bureau of Forestry then demanded for the payment of said
forest charges on January 15, 1949. However, the subject taxpayer, for one reason or the other,
contested this assessment until this case reached the hands of the Secretary of Agriculture and
Natural Resources, the undersigned cannot therefore include in his assessment this amount in
question, hence, due course is given, recommending that this bureau take proper action regarding
this case.
Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue addressed a letter to petitioner,
the pertinent portion of which reads-
Mambulao Lumber Company

R-406 Samanillo Building
Escolta, Manila
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested 2,052.48 cubic meters of timber, the forest
charges and surcharges of which in the total amount of P15,443.55 was demanded of you by the
Bureau of Forestry on January 15, 1949. ...
In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax, forest
charges and surcharges, committed as follows:
Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949 appealed to the Secretary of Agriculture and
Natural Resources P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the City Treasurer
of Manila or this office within ten (10) days from receipt hereof so that this case may be closed.
xxx xxx xxx
Sgd.Melencio
Domingo
Acting Commissioner
of Internal Revenue
The aforesaid letter was acknowledged to have been received by petitioner on September 19, 1958. 3 On October
18, 1958, petitioner requested for a reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959,
respondent Commissioner of Internal Revenue give petitioner a period of twenty (20) days from receipt thereof to
submit the results of its verification of payments with a warning that failure to comply therewith would be construed
as an abandonment of the request for reinvestigation.
For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite demands for the
payment thereof, respondent Commissioner of Internal Revenue filed. a complaint for collection in the Court of First
Instance of Manila on August 25, 1961. 4
After trial, judgment was rendered by the trial court, the dispositive portion of which reads —
WHEREFORE, judgment is rendered —
(a) Ordering both defendants, jointly and severally, to pay plaintiff the amount of P1,219.95 plus
legal interest thereon from August 25, 1961, the date of the filing of the original complaint until fully
paid, or in case of failure to Pay the said amount, ordering the forfeiture of GISCOR Bond No. 35 to
the amount of P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company to pay the plaintiff the amount of P15,739.80
representing its tax liability not secured by any bond, with legal interest thereon from August 25,
1961, until paid.
With costs against defendants.
From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial court's decision
ordering it to pay the amount of P15,443.55 representing forest charges and surcharges due for the year 1949.
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner filed a motion for
reconsideration which was denied by the said court in its Resolution dated June 7, 1973. Hence, the instant appeal,
petitioner presenting the lone issue of whether or not the right of plaintiff (respondent herein) to file a judicial action
for the collection of the amount of P15,443.55 as forest charges and surcharges due from the petitioner Mambulao
Lumber Company for the year 1949 has already prescribed.
Relying on the provisions of Section 332 of the National Internal Revenue Code which reads-
Section 332. Exemptions as to period of limitation of assessment and collection of taxes —
xxx xxx xxx
(c) Where the assessment of any internal revenue tax has been made within the period of limitation
above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only
if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any
period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer
before the expiration of such five-year period. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the period previously agreed upon.
petitioner argues that counting from January 15, 1949 when the Bureau of Forestry in Daet, Camarines Norte made
an assessment and demand for payment of the amount of P15,443.55 as forest charges and surcharges for the
year 1949, up to the filing of the complaint for collection before the lower court on August 25, 196 1, more than five
(5) years had already elapsed, hence, the action had clearly prescribed.
Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court and the Court of Appeals in the
appealed decision, the letter of demand of the Acting Commissioner of Internal Revenue dated August 29, 1958 was
the basis of respondent's complaint filed in this case and not the demand letter of the Bureau of Forestry dated
January 15, 1949. This must be so because forest charges are internal revenue taxes 6 and the sole power and duty
to collect the same is lodged with the Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The
computation and/or assessment of forest charges made by the Bureau of Forestry may or may not be adopted by
the Commissioner of Internal Revenue and such computation made by the Bureau of Forestry is not appealable to
the Court of Tax Appeals. 8 Therefore, for the purpose of computing the five-year period within which to file a
complaint for collection, the demand or even the assessment made by the Bureau of Forestry is immaterial.
In the case at bar, the commencement of the five-year period should be counted from August 29, 1958, the date of
the letter of demand of the Acting Commissioner of Internal Revenue 9 to petitioner Mambulao Lumber Company. It
is this demand or assessment that is appealable to the Court of Tax Appeals. The complaint for collection was filed
in the Court of First Instance of Manila on August 25, 1961, very much within the five-year period prescribed by
Section 332 (c) of the Tax Code. Consequently, the right of the Commissioner of Internal Revenue to collect the
forest charges and surcharges in the amount of P15,443.55 has not prescribed.
Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability.
In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20) days from receipt
thereof to submit the results of its verification of payments and failure to comply therewith would be construed as
abandonment of the request for reinvestigation. Petitioner failed to comply with this requirement. Neither did it
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed
under Section 11 of Republic Act No. 1125, thus making the assessment final and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in
question final, executory and demandable. And when the action was instituted on September 2,
1958 to enforce the deficiency assessment in question, it was already barred from disputing the
correctness of the assessment or invoking any defense that would reopen the question of its tax
liability. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little
sense.
In a proceeding like this the taxpayer's defenses are similar to those of the defendant in a case for
the enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court.
No inquiry can be made therein as to the merits of the original case or the justness of the judgment
relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of
fraud in the party offering the record with respect to the proceedings. As held by this Court in Insular
Government vs. Nico the taxpayer may raise only the questions whether or not the Collector of
Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in
the doing of the act. In that case, Doroteo Nico was fined by the Collector of Internal Revenue for
violation of sub-paragraphs (d), (e) and (g) of Section 28 as well as Sections 36, 101 and 107 of Act
1189. Under Section 54 of the same Act, the taxpayer was given the right to appeal from the
decision of the Collector of Internal Revenue to the Court of First Instance within a period of ten days
from notice of imposition of the fine. Nico did not appeal, neither did he pay the fine. Pursuant to
Section 33 of the Act, the Collector of Internal Revenue filed an action in the Court of First Instance
to enforce his decision and collect the fine. The decision of the Collector of Internal Revenue having
become final, this Court, on appeal, allowed no further inquiry into the merits of the same. 10
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and
executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the
merits of the original case or the justness of the judgment relied upon. Petitioner is thus already precluded from
raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax assessed against him, the same
became final and properly collectible by means of an ordinary court action. The taxpayer cannot
dispute an assessment which is being enforced by judicial action, He should have disputed it before
it was brought to court. 11
WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition DISMISSED. No costs.
SO ORDERED.
[ G.R. No. 213394, April 06, 2016 ]
SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO, PETITIONERS, VS. THE
COURT OF TAX APPEALS - FIRST DIVISION AND THE COMMISSION OF INTERNAL
REVENUE, RESPONDENTS.
DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari[1] under Rule 65 of the Rules of Court filed by petitioner spouses, now
Congressman Emmanuel D. Pacquiao (Pacquiao) and Vice-Governor Jinkee J. Pacquiao (Jinkee), to set aside and annul the April 22,
2014 Resolution[2] and the July 11, 2014 Resolution[3] of the Court of Tax Appeals (CTA), First Division, in CTA Case No. 8683.
Through the assailed issuances, the CTA granted the petitioners' Urgent Motion to Lift Warrants of Distraint & Levy and Garnishment
and for the Issuance of an Order to Suspend the Collection of Tax (with Prayer for the Issuance of a Temporary Restraining
Order[4] [Urgent Motion], dated October 18, 2013, but required them, as a condition, to deposit a cash bond in the amount of
P3,298,514,894.35-or post a bond of P4,947,772,341.53.
The Antecedents
The genesis of the foregoing controversy began a few years before the petitioners became elected officials in their own right. Prior to
their election as public officers, the petitioners relied heavily on Pacquiao's claim to fame as a world-class professional boxer. Due to
his success, Pacquiao was able to amass income from both the Philippines and the United States of America (US). His income from the
US came primarily from the purses he received for the boxing matches he took part under Top Rank, Inc. On the other hand, his
income from the Philippines consisted of talent fees received from various Philippine corporations for product endorsements,
advertising commercials and television appearances.
In compliance with his duty to his home country, Pacquiao filed his 2008 income tax return on April 15, 2009 reporting his Philippine-
sourced income.[5] It was subsequently amended to include his US-sourced income.[6]
The controversy began on March 25, 2010, when Pacquiao received a Letter of Authority [7] (March LA) from the Regional District Office
No. 43 (RDO) of the Bureau of Internal Revenue (BIR) for the examination of his books of accounts and other accounting records for
the period covering January 1, 2008 to December 31, 2008.
On April 15, 2010, Pacquiao filed his 2009 income tax return, [8] which although reflecting his Philippines-sourced income, failed to
include his income derived from his earnings in the US. [9] He also failed to file his Value Added Tax (VAT) returns for the years 2008
and 2009.[10]
Finding the need to directly conduct the investigation and determine the tax liabilities of the petitioners, respondent Commissioner on
Internal Revenue (CIR) issued another Letter of Authority, dated July 27, 2010 (July LA), authorizing the BIR's National Investigation
Division (NID) to examine the books of accounts and other accounting records of both Pacquiao and Jinkee for the last 15 years, from
1995 to 2009.[11] On September 21, 2010 and September 22, 2010, the CIR replaced the July LA by issuing to both Pacquiao [12] and
Jinkee[13] separate electronic versions of the July LA pursuant to Revenue Memorandum Circular (RMC) No. 56-2010.[14]
Due to these developments, the petitioners, through counsel, wrote a letter [15] questioning the propriety of the CIR investigation.
According to the petitioners, they were already subjected to an earlier investigation by the BIR for the years prior to 2007, and no fraud
was ever found to have been committed. They added that pursuant to the March LA issued by the RDO, they were already being
investigated for the year 2008.
In its letter,[16] dated December 13, 2010, the NID informed the counsel of the petitioners that the July LA issued by the CIR had
effectively cancelled and superseded the March LA issued by its RDO. The same letter also stated that:
Although fraud had been established in the instant case as determined by the Commissioner, your clients would still be given
the opportunity to present documents as part of their procedural rights to due process with regard to the civil aspect thereof. Moreover,
any tax credits and/or payments from the taxable year 2007 & prior years will be properly considered and credited in the current
investigation.[17]
[Emphasis Supplied]
The CIR informed the petitioners that its reinvestigation of years prior to 2007 was justified because the assessment thereof was
pursuant to a "fraud investigation" against the petitioners under the "Run After Tax Evaders" (RATE) program of the BIR.
On January 5 and 21, 2011, the petitioners submitted various income tax related documents for the years 2007-2009.[18] As for the
years 1995 to 2006, the petitioners explained that they could not furnish the bureau with the books of accounts and other, tax related
documents as they had already been disposed in accordance with Section 235 of the Tax Code. [19] They added that even if they wanted
to, they could no longer find copies of the documents because during those years, their accounting records were then managed by
previous counsels, who had since passed away. Finally, the petitioners pointed out that their tax liabilities for the said years had already
been fully settled with then CIR Jose Mario Buñag, who after a review, found no fraud against them. [20]
On June 21; 2011, on the same day that the petitioners made their last compliance in submitting their tax-related documents, the CIR
issued a subpoena duces tecum[21] requiring the petitioners rto submit additional income tax and VAT-related documents for the years
1995-2009.
After conducting its own- investigation, the CIR made its initial assessment finding that the petitioners were unable to fully settle their
tax liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal Conference (NIC),[22] dated January 31, 2012, directly
addressed to the petitioners, informing them that based on the best evidence obtainable, they were liable for deficiency income
taxes in the amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive of interests and surcharges. After being
informed of this development, the counsel for the petitioners sought to have the conference reset but he never received a response.
Then, on "February 20, 2012, the CIR issued the Preliminary Assessment Notice [23] (PAN), informing the petitioners that based on third-
party information allowed under Section 5(B)[24] and 6 of the National Internal Revenue Code (NIRC),[25] they found the petitioners liable
not only for deficiency income taxes in the amount of P714,061,116.30 for 2008 and P1,446;245,864.33 for 2009, but aiso for their
non-payment of their VAT liabilities in the amount P4,104,360.01 for 2008 and P 24,901,276.77 for 2009.
The petitioners filed their protest against the PAN.[26]
After denying the protest, the BIR issued its Formal Letter Demand [27] (FLD), dated May 2, 2012, finding the petitioners liable for
deficiency income tax and VAT amounting to P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for 2009, inclusive of
interests and surcharges. Again, the petitioners questioned the findings of the CIR.[28]
On May 14, 2013, the BIR issued its Final Decision on Disputed Assessment (FDDA),[29] addressed to Pacquiao only, informing him
that the CIR found him liable for deficiency income tax and VAT for taxable years 2008 and 2009 which, inclusive of interests and
surcharges, amounted to a total of P2,261,217,439.92.
Seeking to collect the total outstanding tax liabilities of the petitioners, the Accounts Receivable Monitoring Division of the BIR (BIR-
ARMD), issued the Preliminary Collection Letter (PCL),[30] dated July 19, 2013, demanding that both Pacquiao and Jinkee pay the
amount of P2,261,217,439.92, inclusive of interests and surcharges.
Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final Notice Before Seizure (FNBS),[31] informing the petitioners
of their last opportunity to make the necessary settlement of deficiency income and VAT liabilities before the bureau would proceed
against their property.
Although they no longer questioned the BIR's assessment of their deficiency VAT liability, the petitioners requested that they be
allowed to pay the same in four (4) quarterly installments. Eventually, through a series of installments, Pacquiao and Jinkee paid a total
P32,196,534.40 in satisfaction of their liability for deficiency VAT. [32]
Proceedings at the CTA
Aggrieved that they were being made liable for deficiency income taxes for the years 2008 and 2009, the petitioners sought redress
and filed a petition for review[33] with the CTA.
Before the CTA, the petitioners contended that the assessment of the CIR was defective because it was predicated on its mere
allegation that they were guilty of fraud.[34]
They also questioned the validity of the attempt by the CIR to collect deficiency taxes from Jinkee, arguing that she was denied due
process. According to the petitioners, as all previous communications and notices from the CIR were addressed to both petitioners, the
FDDA was void because it was only addressed to Pacquiao. Moreover, considering that the PCL and FNBS were based on the FDDA,
the same should likewise be declared void.[35]
The petitioners added that the CIR assessment, which was not based on actual transaction documents but simply on "best
possible sources," was not sanctioned by the Tax Code. They also argue that the assessment failed to consider not only the taxes
paid by Pacquiao to the US authorities for his fights, but also the deductions claimed by him for his expenses. [36]
Pending the resolution by the CTA of their appeal, the petitioners sought the suspension of the issuance of warrants of distraint and/or
levy and warrants of garnishment.[37]
Meanwhile, in a letter,[38] dated October 14, 2013, the BIR-ARMD informed the petitioners that they were denying their request to defer
the collection enforcement action for lack of legal basis. The same letter also informed the petitioners that despite their initial payment,
the amount to be collected from both of them still amounted to P3,259,643,792.24, for deficiency income tax for taxable years
2008 and 2009, and P46,920,235.74 for deficiency VAT for the same period. A warrant of distraint and/or levy [39] against Pacquiao
and Jinkee was included in the letter.
Aggrieved, the petitioners filed the subject Urgent Motion for the CTA to lift the warrants of distraint, levy and garnishments issued by
the CIR against their .assets and to enjoin the CIR from collecting the assessed deficiency taxes pending the resolution of their appeal.
As for- the cash deposit and bond requirement under Section 11 of Republic Act (R.A.) No. 1125, the petitioners question the necessity
thereof, arguing that the CIR's assessment of their tax liabilities was highly questionable. At the same time, the petitioners manifested
that they were willing to file a bond for such reasonable amount to be fixed by the tax court.
On April 22, 2014, the CTA issued the first assailed resolution granting the petitioner's Urgent Motion, ordering the CIR to desist from
collecting on the deficiency tax assessments against the petitioners. In its resolution, the CTA noted that the amount sought to be
collected was way beyond the petitioners' net worth, which, based on Pacquiao's Statement of Assets, Liabilities and Net
Worth (SALN), only amounted to P1,185,984,697.00. Considering that the petitioners still needed to cover the costs of their daily
subsistence, the CTA opined that the collection of the total amount of P3,298,514,894.35 from the petitioners would be highly
prejudicial to their interests and should, thus, be suspended pursuant to Section 11 of R.A. No. 1125, as amended.
The CTA, however, saw no justification that the petitioners should deposit less than the disputed amount. They were, thus, required to
deposit the amount of P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53.
The petitioners sought partial reconsideration of the April 22, 2014 CTA resolution, praying for the reduction of the amount of the bond
required or an extension of 30 days to file the same. On July 11, 2014, the CTA issued the second assailed resolution [40] denying the
petitioner's motion to reduce the required cash deposit or bond, but allowed them an extension of thirty (30) days within which to file the
same.
Hence, this petition, raising the following
GROUNDS
A.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction in presuming the
correctness of a fraud assessment without evidentiary support other than the issuance of the fraud assessments themselves,
thereby violating Petitioner's constitutional right to due process.
B.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it required the
Petitioners to post a bond even if the tax collection processes employed by Respondent Commissioner against Petitioners
was patently in violation of law thereby blatantly breaching Petitioners' constitutional right to due process, to wit:
1. Respondent Commissioner commenced tax collection process against Jinkee without issuing or serving an FDDA
against her.
2. Respondent Commissioner failed to comply with the procedural due process requirements for summary tax
collection remedies under Sections 207(A) and (B) of the Tax Code when she commenced summary collection
remedies before the expiration of the period for Petitioners to pay the assessed deficiency taxes.
3. Respondent Commissioner failed to comply with the procedural due process requirements for summary tax
collection remedies under Section 208 of the Tax Code when she failed to serve Petitioners with warrants of
garnishment against their bank accounts.
4. The Chief of the ARMD, without any authority from Respondent Commissioner, increased the aggregate amount
of deficiency income tax and VAT assessed against Petitioners from P2,261,217,439.92 to P3,298,514,894.35 after
the filing of the Petition for Review with the Court of Tax Appeals.
5. Respondent Commissioner arbitrarily refused to admit that Petitioners had already paid the deficiency VAT
assessments for the years 2008 and 2009.
C.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction in requiring Petitioners to
post a cash bond in the amount of P3,298,514,894.35 or a surety bond in the amount of P4,947,772,341.53, which is effectively
an impossible condition given that their undisputed net worth is only P1,185,984,697.00.
D.
Respondent Court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it imposed a bond
requirement which will effectively prevent Petitioners from continuing the prosecution of its appeal from the arbitrary and
bloated assessments issued by Respondent Commissioner.[41]
Arguments of the Petitioners
Contending that the CTA En Bane has no certiorari jurisdiction over interlocutory orders issued by its division, the petitioners come
before the Court, asking it to 1] direct the CTA to dispense with the bond requirement imposed under Section 11 of R.A. No. 1125, as
amended; and 2] direct the CIR to suspend the collection of the deficiency income tax and VAT for the years 2008 and 2009. The
petitioners also pray that a temporary restraining order (TRO) be issued seeking a similar relief pending the disposition of the subject
petition.
In support of their position, the petitioners assert that the CTA acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in requiring them to provide security required under Section 11 of R.A. No. 1125. Under the circumstances, they claim that
they should not be required to make a cash deposit or post a bond to stay the collection of the questioned deficiency taxes considering
that the assessment and collection efforts of the BIR was marred by both procedural and substantive errors. They are synthesized as
follows:
First. The CTA erred when it required them to make a cash deposit or post a bond on the basis of the fraud assessment by the CIR.
Similar to the argument they raised in their petition for review with the CTA, they insist that the fraud assessment by the CIR could not
serve as basis for security because the amount assessed by the CIR was made without evidentiary basis, [42] but just grounded on the
"best possible sources," without any detail.
Second... The BIR failed to accord them procedural due process when it initiated summary collection remedies even before the
expiration of the period allowed for them to pay the assessed deficiency taxes. [43] They also claimed that they were not served with
warrants of garnishment and that the warrants of garnishment served on their banks of account were made even before they received
the FDDA and PCL.[44]
Third. The BIR only served the FDDA to Pacquiao. There was no similar notice to Jinkee. Considering such failure, the CIR effectively
did not find Jinkee liable for deficiency taxes. The collection of deficiency taxes against Jinkee was improper as it violated her right to
due process of law.[45] Accordingly, the petitioners question the propriety of the CIR's attempt to collect deficiency taxes from Jinkee.
Fourth. The amount assessed by the BIR as deficiency taxes included the deficiency VAT for the years 2008 and 2009 which they had
already paid, albeit in installments.
Fifth. The posting of the required security is effectively an impossible condition given that their undisputed net worth is only
P1,185,984,697.00
Considering the issues raised, it is the position of the petitioners that the circumstances of the case warrant the application of the
exception provided under Section 11 of R.A. No. 1125 as affirmed by the ruling of the Court in Collector of Internal Revenue v.
Avelino[46] (Avelino) and Collector of Internal Revenue v. Zulueta,[47] (Zulueta) and that they should have been exempted from posting
the required security as a prerequisite to suspend the collection of deficiency taxes from them.
On August 18, 2014, the Court resolved to grant the petitioners' prayer for the issuance of a TRO and to require the CIR to file its
comment.[48]
Arguments of the CIR
For its part,- the CIR asserts that the CTA was correct in insisting that the petitioners post the required cash deposit or bond as a
condition to suspend the collection of deficiency taxes. According to. the tax administrator, Section 11 of R.A. No. 1125, as amended, is
without exception when it states that notwithstanding an appeal to the CTA, a taxpayer, in order to suspend the payment of his tax
liabilities, is required to deposit the amount claimed by the CIR or to file a surety bond for not more than double the amount due.[49]
As for the Court's rulings in Avelino and Zulueta invoked by the petitioners, the CIR argues that they are inapplicable considering that in
the said cases, it was ruled that the requirement of posting a bond to suspend the collection of taxes could be dispensed with only if the
methods employed by the CIR in the tax collection were clearly null and void and prejudicial to the taxpayer. [50] The CIR points out that,
in this case, the CTA itself made, no finding that its collection by summary methods was void and even ruled that "the alleged illegality
of the methods employed by the respondent (CIR) to effect the collection of tax [is] not at all patent or evident xxx" and could only be
determined after a full-blown trial.[51] The CIR even suggests that the Court revisit its ruling in Avelino and Zulueta as Section 11 of R.A.
No. 1125, as amended, gives the CTA no discretion to allow the dispensation of the required bond as a condition to suspend the
collection of taxes.
Finally, the CIR adds that whether the assessment and collection of the petitioners' tax liabilities were proper as to justify the application
of Avelino and Zulueta is a question of fact which is not proper in a petition for certiorari under Rule 65, considering that the rule is only
confined to issues of jurisdiction.[52]
The Court's Ruling
Appeal will not suspend

the collection of tax;
Exception
Section 11 of R.A. No. 1125, as amended by R.A. No. 9282,[53] embodies the rule that an appeal to the CTA from the decision of the
CIR will not suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law. When, in the view of the CTA, the collection may jeopardize the interest of the Government and/or the
taxpayer, it may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond.
The application of the exception to the rule is the crux of the subject controversy. Specifically, Section 11 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the
Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA
within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to
in Section 7(a)(2) herein.
xxxx
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the
Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and
Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for
the satisfaction of his tax liability as provided by existing law:
Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the
amount with the Court.
xxxx
[Emphasis Supplied]
Essentially, the petitioners ascribe grave abuse of discretion on the part of the CTA when it issued the subject resolutions requiring
them to deposit-the amount of P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53 as a condition for its order
enjoining the CIR from collecting the taxes from them. The petitioners anchor their contention on the premise that the assessment and
collection processes employed by the CIR in exacting their tax liabilities were in patent violation of their constitutional right to due
process of law. They, thus, posit that pursuant to Avelino and Zulueta, the tax court should have not only ordered the CIR to suspend
the collection efforts it was pursuing in satisfaction of their tax liability, but also dispensed with the requirement of depositing a cash or
filing a surety bond.
To recall, the Court in Avelino upheld the decision of the CTA to declare the warrants of garnishment, distraint and levy and the notice
of sale of the properties of Jose Avelino null and void and ordered the CIR to desist from collecting the deficiency income taxes which
were assessed for the years 1946 to 1948 through summary administrative methods. The Court therein found that the demand of the
then CIR was made without authority of law because it was made five (5) years and thirty-five (35) days after the last two returns of
Jose Avelino were filed - clearly beyond the three (3)-year prescriptive period provided under what was then Section 51(d) of the
National Internal Revenue Code. Dismissing the contention of the CIR that the deposit of the amount claimed or the filing of a bond as
required by law was a requisite before relief was granted, the Court therein concurred with the opinion of the CTA that the courts were
clothed with authority to dispense with the requirement "if the method employed by the Collector of Internal Revenue in the collection of
tax is not sanctioned by law."[54]
In Zulueta, the Court likewise dismissed the argument that the CTA erred in issuing the injunction without requiring the taxpayer either
to deposit the amount claimed or to file a surety bond for an amount not more than double the tax sought to be collected. The Court
cited Collector of Internal Revenue v. Aurelio P. Reyes and the Court of Tax Appeals [55] where it was written:
Xxx. At first blush it might be as contended by the Solicitor General, but a careful analysis of the second paragraph of said Section 11
will lead Us to the conclusion that the requirement of the bond as a condition precedent to the issuance of a writ of injunction applies
only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with law
for such cases provided and not when said processes are obviously in violation of the law to the extreme that they have to be
SUSPENDED for jeopardizing the interests of the taxpayer.[56]
[Italics included]
The Court went on to explain the reason for empowering the courts to issue such injunctive writs. It wrote:
"Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by summary proceedings is by itself in
accordance with existing laws; and then what is suspended is the act of collecting, whereas, in the case at bar what the respondent
Court suspended was the use of the method employed to verify the collection which was evidently illegal after the lapse of the three-
year limitation period. The respondent Court issued the injunction in question on the basis of its findings that the means intended to be
used by petitioner in the collection of the alleged deficiency taxes were in violation of law. It would certainly be an absurdity on the
part of the Court of Tax Appeals to declare that the collection by the summary methods of distraint and levy was violative of
the law, and then, on the same breath require the petitioner to deposit or file a bond as a prerequisite of the issuance of a writ
of injunction. Let us suppose, for the sake of argument, that the Court a quo would have required the petitioner to post the bond in
question and that the taxpayer would refuse or fail to furnish said bond, would the Court a quo be obliged to authorize or allow the
Collector of Internal Revenue to proceed with the collection from the petitioner of the taxes due by a means it previously declared to be
contrary to law?"[57]
[Italics included. Emphases and Underlining Supplied]
Thus, despite the amendments to the law, the Court still holds that the CTA has ample authority to issue injunctive writs to restrain the
collection of tax and to even dispense with the deposit of the amount claimed or the filing of the required bond, whenever
the method employed by the CIR in the collection of. tax jeopardizes the interests of a taxpayer for being patently in violation of the
law. Such authority emanates from the jurisdiction conferred to it not only by Section 11 of R.A. No. 1125, but also by Section 7 of the
same law, which, as amended provides:
Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
l. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
xxxx
[Emphasis Supplied]
From all the foregoing, it is clear that the authority of the courts to issue injunctive writs to restrain the collection of tax and to dispense
with the deposit of the amount claimed or the filing of the required bond is not simply confined to cases where prescription has set
in. As explained by the Court in those cases, whenever it is determined by the courts that the method employed by the Collector
of Internal Revenue in the collection of tax is not sanctioned by law, the bond requirement under Section 11 of R.A. No.
1125 should be dispensed with. The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more
importantly, to prevent the absurd situation wherein the court would declare "that the collection by the summary methods of distraint
and levy was violative of law, and then, in the same breath require the petitioner to deposit or file a bond as a prerequisite for the
issuance of a writ of injunction."[58]
The determination of whether

the petitioners.' case falls
within the exception provided
under Section 11, R.A No. 1125
cannot be determined
at this point
Applying the foregoing precepts to the subject controversy, the Court finds no sufficient basis in the records for the Court to determine
whether the dispensation of the required cash deposit or bond provided under Section 11, R.A No. 1125 is appropriate.
It should first be highlighted that in rendering the assailed resolution, the CTA, without stating the facts and law, made a determination
that the illegality of the methods employed by the CIR to effect the collection of tax was not patent. To quote the CTA:
In this case, the alleged illegality of the methods employed by respondent to effect the collection of tax is not at all patent or evident
as in the foregoing cases. At this early stage of the proceedings, it is premature for this Court to rule on the issues of whether or not
the warrants were defectively issued; or whether the service thereof was done in violation of the rules; or whether or not respondent's
assessments were valid. These matters are evidentiary in nature, the resolution of which can only be made after a full blown
trial.
Apropos, the Court finds no legal basis to apply Avelino and Zulueta to the instant case and exempt petitioners from depositing a cash
bond or filing a surety bond before a suspension order may be effected. [59]
Though it may be true that it would have been premature for the CTA to immediately determine whether the assessment made against
the petitioners was valid or whether the warrants were properly issued and served, still, it behooved upon the CTA to properly
determine, at least preliminarily, whether the CIR, in its assessment of the tax liability of the petitioners, and its effort of collecting the
same, complied with the law and the pertinent issuances of the BIR itself. The CTA should have conducted a preliminary hearing
and received evidence so it could have properly determined whether the requirement of providing the required security under Section
11, R.A. No. 1125 could be reduced or dispensed with pendente lite.
The Court cannot make a

preliminary determination
on whether the CIR used
methods not sanctioned by law
Absent any evidence and preliminary determination by the CTA, the Court cannot make any factual finding and settle the issue of
whether the petitioners should comply with the security requirement under Section 11, R.A. No. 1125. The determination of whether the
methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as basis. In this regard, the CTA is in a better position to
initiate this given its time and resources. The remand of the "case to the CTA on this question is, therefore, more sensible and proper.
For the Court to make any finding of fact on this point would be premature. As stated earlier, there is no evidentiary basis. All the
arguments are mere allegations from both sides. Moreover, any finding by the Court would pre-empt the CTA from properly
exercising its jurisdiction and settle the main issues presented before it, that is, whether the petitioners were afforded due process;
whether the CIR has valid basis for its assessment; and whether the petitioners should be held liable for the deficiency taxes.
Petition to be remanded to
the CTA; CTA to conduct
preliminary hearing
As the CTA is in a better, position to make such a preliminary determination, a remand to the CTA is in order. To resolve the issue of
whether the petitioners should be required to post the security bond under Section 11 of R.A. No. 1125, and, if so, in what, amount, the
CTA must take into account, among others, the following:
First. Whether the requirement of a Notice of Informal Conference was complied with - The petitioners contend that the BIR issued the
PAN without first sending a NIC to petitioners. One of the first requirements of Section 3 of Revenue Regulation (R.R.) No. 12-99,[60] the
then prevailing regulation on the due process requirement in tax audits and/or investigation, [61] is that a NIC be first accorded to the
taxpayer. The use of the word "shall" in subsection 3.1.1 describes the mandatory nature of the service of a NIC. As with the other
notices required under the regulation, the purpose of sending a NIC is but part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders nugatory any assessment made by the tax authorities. [62]
Second. Whether the 15-year period subject of the CIR's investigation is arbitrary and excessive. - Section 203[63] of the Tax Code
provides a 3-year limit for the assessment. of internal revenue taxes. While the prescriptive period to assess deficiency taxes may be
extended to 10 years in cases where there is false, fraudulent, or non-filing of a tax return - the fraud contemplated by law must be
actual. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up
some right.[64]
Third. Whether fraud was duly established. - In its letter, dated December 13, 2010, the NID had been conducting a fraud investigation
against the petitioners under its RATE program and that it found that "fraud had been established in the instant case as determined by
the Commissioner." Under Revenue Memorandum Order (RMO) No. 27-10, it is required that a preliminary investigation must first be
conducted before a LA is issued.[65]
Fourth. Whether the FLD issued against the petitioners was irregular. - The FLD issued against the petitioners allegedly stated that the
amounts therein were "estimates based on best possible sources." A taxpayer should be informed in writing of the law and the facts
on which the assessment is made, otherwise, the assessment is void. [66] An assessment, in order to stand judicial scrutiny, must be
based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another
presumption.[67]
To stress, the petitioners had asserted that the assessment of the CIR was not based on actual transactions but on "estimates based
on best possible sources." This assertion has not been satisfactorily addressed by the CIR in detail. Thus, there is a need for the
CTA to conduct a preliminary hearing.
Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or Levy were validly issued. In its hearing, the CTA
must also determine if the following allegations of the petitioners have merit:,
a. The FDDA and PCL were issued against petitioner Pacquiao only. The Warrant of Distraint and/or Levy/Garnishment issued by the
CIR, however, were made against the assets of both petitioners;
b. The warrants of garnishment had been served on the banks of both petitioners even before the petitioners received the FDDA
and PCL;
c. The Warrant of Distraint and/or Levy/Garnishment against the petitioners was allegedly made prior to the expiration of the period
allowed for the petitioners to pay the assessed deficiency taxes;
d. The Warrant of Distraint and/or Levy/Garnishment against petitioners failed to take into consideration that the deficiency VAT was
already paid in full; and
e. Petitioners were not given a copy of the Warrants. Sections 207[68] and 208[69] of the Tax Code require the Warrant of Distraint
and/or Levy/Garnishment be served upon the taxpayer.
Additional Factors
In case the CTA finds that the petitioners should provide the necessary security under Section 11 of R.A. 1125, a recomputation of the
amount thereof is in order.- If there would be a need for a bond or to reduce the same, the CTA should take note that the Court, in A.M.
No. 15-92-01-CTA, resolved to approve the CTA En Banc Resolution No. 02-2015, where the phrase "amount claimed" stated in
Section 11 of R.A. No. 1125 was construed to refer to the principal amount of the deficiency taxes, excluding penalties, interests
and surcharges.
Moreover, the CTA should.also consider the claim of the petitioners that they already paid a total of P32,196,534.40 deficiency VAT
assessed against' them.. Despite said payment, the CIR still assessed them the total amount of P3,298,514,894.35, including the
amount assessed as VAT deficiency, plus surcharges, penalties and interest. If so, these should also be deducted from the.amount of
the bond to be computed and required.
In the conduct of its preliminary hearing, the CTA must balance the scale between the inherent power of the State to tax and its right to
prosecute perceived transgressors of the law, on one side; and the constitutional rights of petitioners to due process of law and the
equal protection of the laws, on the other. In case of doubt, the tax court must remember that as in all tax cases, such scale should
favor the taxpayer, for a citizen's right to due process and equal protection of the law is amply protected by the Bill of Rights under the
Constitution.[70]
In view of all the foregoing, the April 22, 2014 and July 11, 2014 Resolutions of the CTA, in so far as it required the petitioners to
deposit first a cash bond in the amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, should be further enjoined until the
issues aforementioned are settled in a preliminary hearing to be conducted by it. Thereafter, it should make a determination if the
posting of a bond would still be required and, if so, compute it taking into account the CTA En Banc Resolution, which was approved by
the Court in A.M. No. 15-02-01-CTA, and the claimed payment of P32,196,534.40, among others.
WHEREFORE, the petition is PARTIALLY GRANTED. Let a Writ of Preliminary Injunction be issued, enjoining the implementation of
the April 22, 2014 and July 11, 2014 Resolutions of the Court of Tax Appeals, First Division, in CTA Case No. 8683, requiring the
petitioners to first deposit a cash bond in the amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, as a condition to
restrain the collection of the deficiency taxes assessed against them.
The writ shall remain in effect until the issues aforementioned are settled in a preliminary hearing to be conducted by the Court of Tax
Appeals, First Division.
Accordingly, the case is hereby REMANDED to the Court of Tax Appeals, First Division, which is ordered to conduct a preliminary
hearing to determine whether the dispensation or reduction of the required cash deposit or bond provided under Section 11, Republic
Act No. 1125 is proper to restrain the collection of deficiency taxes assessed against the petitioners.
If required, the Court of Tax Appeals, First Division, shall proceed to compute the amount of the bond in accordance with the guidelines
aforestated, particularly the provisions of A.M. No. 15-02-01-CTA. It should also take into account the amounts already paid by the
petitioners.
After the posting of the required bond, or if the Court of Tax Appeals, First Division, determines that no bond is necessary, it shall
proceed to hear and resolve the petition for review pending before it.
SO ORDERED.
G.R. No. 174942 March 7, 2008
BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks a review of the Decision1dated 15 August 2006 and the
Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable
for the deficiency documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that
prescription had not yet set in against the government.
The following undisputed facts are culled from the CTA decision:
Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly
created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue
corner Paseo de Roxas Ave., Makati City.
Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment
notice (PAN) dated November 26, 1986.
Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-
1986 deficiency taxes mentioned in the November 26, 1986 PAN.
On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000
and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving
the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986.
On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner
filed a supplemental protest.
On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on
the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated
June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner
submitted to the BIR, Swap Contracts with the Central Bank.
Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until
December 31, 1994.
On August 9, 2002, respondent issued a final decision on petitioner’s protest ordering the withdrawal and
cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered
the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount
of P24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30)
days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003.
Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court.
On August 31, 2004, the Court rendered a Decision denying the petitioner’s Petition for Review, the
dispositive portion of which is quoted hereunder:
IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly,
petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing
deficiency documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14,
2003 until the amount is fully paid pursuant to Section 249 of the Tax Code.
SO ORDERED.
On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which
was denied for lack of merit in a Resolution dated February 14, 2005.
On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for
Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005.
Petitioner’s motion was granted in a Resolution dated March 16, 2005.
On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing
the following assignment of errors.
I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND
VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994;
II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY
TAX HAS NOT PRESCRIBED.
III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE
PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO
DOCUMENTARY STAMP DEFICIENCY.
IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM
OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO
RIGHTS TO PETITIONER.
V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR

DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3
The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription
and whether BPI is liable for DST on its SWAP loan transactions.
On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco
Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPI’s protest and supplemental protest should be considered
requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by
distraint, levy, or court proceeding. It further held, as regards the second issue, that BPI’s cabled instructions to its
foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited
to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of
the Tax Code.
In its Petition for Review5 dated 24 November 2006, BPI argues that the government’s right to collect the DST had
already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPI’s
request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9
August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that
the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. It
further claims that the CIR was not precluded from collecting the deficiency within three (3) years from the time the
notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last
waiver of the statute of limitations signed by BPI.
Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the
National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled
instructions on SWAP transactions are subject to DST.
The Office of the Solicitor General (OSG) filed a Comment6 dated 1 June 2007, on behalf of the CIR, asserting that
the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR.
Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to
its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPI’s receipt on 13
January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again.
The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et
al.7(Suyoc case) in support of its argument that BPI is already estopped from raising the defense of prescription in
view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the
assessed tax.
In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never
induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon
by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any
communication from the CIR in reply to its protest letters.
We grant the petition.
Section 3189 of the Tax Code of 1977 provides:
Sec. 318. Period of limitation upon assessment and collection.—Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases
already investigated prior to the approval of this Code.
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five
(5) years to three (3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual
filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection
thereof without an assessment.
When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to
collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three
(3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been
released, mailed or sent to the taxpayer.11
As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7
April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002
that the CIR ordered BPI to pay the deficiency.
In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s
filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section
32012 of the Tax Code of 1977, which states:
Sec. 320. Suspension of running of statute.—The running of the statute of limitations provided in Sections
318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not be suspended; when the warrant of
distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when the taxpayer is out of the
Philippines. (Emphasis supplied)
The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and
collection, the request for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the
request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough
reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal
Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records
and documents were not at all examined. Considering the given facts, this Court pronounced that—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v.
Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his
evidence, which the latter did one day before. There were no impediments on the part of the Collector to file
the collection case from April 1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that—

x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a
warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the running of the period for
filing an action for collection. [Emphasis in the original]14
The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted
shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the
action of the CIR or his authorized representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the
request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the
CIR on the request for reinvestigation, as he considered BPI’s letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that
he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in
the records, is that the prescriptive period was tolled by BPI’s request for reinvestigation, without any assertion that
the same had been granted or at least acted upon.15
In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the
reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case
showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and
reinvestigation of the assessments. The records further showed that the company, thru its finance manager,
communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review
and consideration of its protest.
As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually
conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its
request. Hence, there is no basis for the tax court’s ruling that the filing of the request for reinvestigation tolled the
running of the prescriptive period for collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994
suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance
in violation of RMO No. 20-90.16 At any rate, the records of this case do not disclose any effort on the part of the
Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years
thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration
were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments
against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court
proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several
reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA
claiming that the right of the government to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its
own action, the government was induced to delay the collection of taxes to make the company feel that the demand
was not unreasonable or that no harassment or injustice was meant by the government.
In this case, BPI’s letters of protest and submission of additional documents pertaining to its SWAP transactions,
which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the
collection of the deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in
collecting the DST allegedly due from the latter had resulted in the prescription of the government’s right to collect
the deficiency. As this Court declared in Republic of the Philippines v. Ablaza:17
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act promptly in
the making of assessment, and to citizens because after the lapse of the period of prescription citizens
would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect
the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity
to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of the law.18
Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the validity of the
assessment.
WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its
Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs.
SO ORDERED.
G.R. No. 197515 July 2, 2014

vs.
UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court which seeks to
review, reverse and set aside the Decision1 of the Court of Tax Appeals En Banc (CTA En Banc), dated June 27,
2011, in the case entitled Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc. (USTP),
docketed as C.T.A. EB No. 662. The facts as culled from the records:
Respondent is engaged in the business of sub-contracting work for service contractors engaged in petroleum
operations in the Philippines.2 During the taxable years in question, it had entered into various contracts and/or sub-
contracts with several petroleum service contractors, such as Shell Philippines Exploration, B.V. and Alorn
Production Philippines for the supply of service vessels.3
In the course of respondent’s operations, petitioner found respondent liable for deficiency income tax, withholding
tax, value-added tax (VAT) and documentary stamp tax (DST) for taxable years 1992,1994, 1997 and
1998.4 Particularly, petitioner, through BIR officials, issued demand letters with attached assessment notices for
withholding tax on compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994 and
1998,5 detailed as follows:
Assessment Notice No. Tax Covered Period Amount
25-1-000545-92 WTC 1992 ₱50,429.18
25-1-000546-92 EWT 1992 ₱14,079.45
034-14-000029-94 EWT 1994 ₱48,461.76
034-1-000080-98 EWT 1998 ₱22,437.016
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and 1998 EWT
assessments, respectively.7
On February 21, 2003, USTP appealed by way of Petition for Review before the Court in action (which was
thereafter raffled to the CTA-Special First Division) alleging, among others, that the Notices of Assessment are
bereft of any facts, law, rules and regulations or jurisprudence; thus, the assessments are void and the right of the
government to assess and collect deficiency taxes from it has prescribed on account of the failure to issue a valid
notice of assessment within the applicable period.8
During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition because it availed of the
benefits of the Tax Amnesty Program under Republic Act (R.A.) No. 9480.9 Having complied with all the
requirements therefor, the CTA-Special First Division partially granted the Motion to Withdraw and declared the
issues on income tax, VAT and DST deficiencies closed and terminated in accordance with our pronouncement in
Philippine Banking Corporation v. Commissioner of Internal Revenue.10 Consequently, the case was submitted for
decision covering the remaining issue on deficiency EWT and WTC, respectively, for taxable years 1992, 1994 and
1998.11
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency EWT for taxable
years 1994 and 1998 were not formally offered; hence, pursuant to Section 34, Rule 132 of the Revised Rules of
Court, the Court shall neither consider the same as evidence nor rule on their validity.12 As regards the Final
Assessment Notices (FANs) for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First Division
held that the same do not show the law and the facts on which the assessments were based.13 Said assessments
were, therefore, declared void for failure to comply with Section 228 of the 1997 National Internal Revenue Code
(Tax Code).14 From the foregoing, the only remaining valid assessment is for taxable year 1992.15
Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect the deficiency EWT and
WTC, respectively, for taxable year 1992 had already lapsed pursuant to Section 203 of the Tax Code.16 Thus, in
ruling for USTP, the CTA-Special First Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-
92, both dated January 9, 1996 and covering the period of 1992, as declared in its Decision17 dated March 12, 2010,
the dispositive portion of which provides:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notice No. 25-1-
00546-92 dated January 9, 1996 for deficiency Expanded Withholding Tax and Assessment Notice No. 25-1-000545
dated January 9, 1996 for deficiency Withholding Tax on Compensation are hereby CANCELLED.
SO ORDERED.18
Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a Resolution19 dated July 15, 2010, the
CTA-Special First Division denied the same for lack of merit.
On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc praying that the Decision of the
CTA-Special First Division, dated March 12, 2010,be set aside.20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with modification the Decision dated
March 12, 2010 and the Resolution dated July 15, 2010 of the CTA-Special First Division, the dispositive portion of
which reads:
WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The Decision dated March 12, 2010 and
the Resolution dated July 15, 2010 are AFFIRMED with MODIFICATION upholding the 1998 EWT assessment. In
addition to the basic EWT deficiency of ₱14,496.79, USTP is ordered to pay surcharge, annual deficiency interest,
and annual delinquency interest from the date due until full payment pursuant to Section 249 of the 1997 NIRC.
SO ORDERED.21
Hence, the instant petition raising the following issues:
1. Whether or not the Court of Tax Appeals is governed strictly by the technical rules of evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner against the respondent
for taxable year 1994 was without any factual and legal basis; and
3. Whether or not petitioner’s right to collect the creditable withholding tax and expanded withholding tax for
taxable year 1992 has already prescribed.22
After careful review of the records and evidence presented before us, we find no basis to overturn the decision of
the CTA En Banc.
On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR,23 is enlightening, to wit:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the
conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function,
it has dedicated itself to the study and consideration of tax problems and has necessarily developed an expertise on
the subject, unless there has been an abuse or improvident exercise of authority on its part, which is not present
here.24
Now, to the first issue.
Petitioner implores unto this Court that technical rules of evidence should not be strictly applied in the interest of
substantial justice, considering that the mandate of the CTA explicitly provides that its proceedings shall not be
governed by the technical rules of evidence.25 Relying thereon, petitioner avers that while it failed to formally offer
the PANs of EWTs for taxable years 1994and 1998, their existence and due execution were duly tackled during the
presentation of petitioner’s witnesses, Ruleo Badilles and Carmelita Lynne de Guzman (for taxable year 1994) and
Susan Salcedo-De Castro and Edna A. Ortalla (for taxable year 1998).26 Petitioner further claims that although the
PANs were not marked as exhibits, their existence and value were properly established, since the BIR records for
taxable years 1994 and 1998 were forwarded by petitioner to the CTA in compliance with the latter’s directive and
were, in fact, made part of the CTA records.27
Under Section 828 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a court of record.29 As such,
it shall have the power to promulgate rules and regulations for the conduct of its business, and as may be needed,
for the uniformity of decisions within its jurisdiction.30 Moreover, as cases filed before it are litigated de novo, party-
litigants shall prove every minute aspect of their cases.31 Thus, no evidentiary value can be given the pieces of
evidence submitted by the BIR, as the rules on documentary evidence require that these documents must be
formally offered before the CTA.32 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. – The court shall consider no evidence which has not been formally offered. The
purpose for which the evidence is offered must be specified.
Although in a long line of cases, we have relaxed the foregoing rule and allowed evidence not formally offered to be
admitted and considered by the trial court, we exercised extreme caution in applying the exceptions to the rule, as
pronounced in Vda. de Oñate v. Court of Appeals,33 thus:
From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered.
Corollarily, the mere fact that a particular document is identified and marked as an exhibit does not mean that it has
already been offered as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles[186 SCRA 385, 388-389
(1990)], we had the occasion to make a distinction between identification of documentary evidence and its formal
offer as an exhibit. We said that the first is done in the course of the trial and is accompanied by the marking of the
evidence as an exhibit while the second is done only when the party rests its case and not before. A party,
therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In
the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same.
However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103 SCRA 484 (1980)], we relaxed the
foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial court provided
the following requirements are present, viz.: first, the same must have been duly identified by testimony duly
recorded and, second, the same must have been incorporated in the records of the case.34
The evidence may, therefore, be admitted provided the following requirements are present: (1) the same must have
been duly identified by testimony duly recorded; and (2) the same must have been incorporated in the records of the
case. Being an exception, the same may only be applied when there is strict compliance with the requisites
mentioned above; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail.35
In the case at bar, petitioner categorically admitted that it failed to formally offer the PANs as evidence. Worse, it
advanced no justifiable reason for such fatal omission. Instead, it merely alleged that the existence and due
execution of the PANs were duly tackled by petitioner’s witnesses. We hold that such is not sufficient to seek
exception from the general rule requiring a formal offer of evidence, since no evidence of positive identification of
such PANs by petitioner’s witnesses was presented. Hence, we agree with the CTA En Banc’s observation that the
1994 and 1998 PANs for EWT deficiencies were not duly identified by testimony and were not incorporated in the
records of the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by technical rules of evidence, as rules of
procedure are not ends in themselves but are primarily intended as tools in the administration of justice,36 the
presentation of PANs as evidence of the taxpayer’s liability is not mere procedural technicality. It is a means by
which a taxpayer is informed of his liability for deficiency taxes. It serves as basis for the taxpayer to answer the
notices, present his case and adduce supporting evidence.37 More so, the same is the only means by which the CTA
may ascertain and verify the truth of respondent's claims. We are, therefore, constrained to apply our ruling in Heirs
of Pedro Pasag v. Spouses Parocha,38 viz.:
x x x. A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only
and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the
purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing
parties to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court
will not be required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the
formal offer of one's evidence is deemed waived after failing to submit it within a considerable period of time. It
explained that the court cannot admit an offer of evidence made after a lapse of three (3) months because to do so
would "condone an inexcusable laxity if not non-compliance with a court order which, in effect, would encourage
needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that
petitioners had waived their right to make a formal offer of documentary or object evidence. Despite several
extensions of time to make their formal offer, petitioners failed to comply with their commitment and allowed almost
five months to lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility of
evidence is anathema to the efficient, effective, and expeditious dispensation of justice. x x x.39
Anent the second issue, petitioner claims that the EWT assessment issued for taxable year 1994 has factual and
legal basis because at the time the PAN and FAN were issued by petitioner to respondent on January 19, 1998, the
provisions of Revenue Regulation No. 12-9940 which governs the issuance of assessments was not yet operative.
Hence, its compliance with Revenue Regulation No. 12-8541 was sufficient. In any case, petitioner argues that a
scrutiny of the BIR records of respondent for taxable year 1994 would show that the details of the factual finding of
EWT were itemized from the PAN issued by petitioner.42
In order to determine whether the requirement for a valid assessment is duly complied with, it is important to
ascertain the governing law, rules and regulations and jurisprudence at the time the assessment was issued. In the
instant case, the PANs and FANs pertaining to the deficiency EWT for taxable years 1994 and 1998, respectively,
were issued on January 19, 1998, when the Tax Code was already in effect, as correctly found by the CTA En Banc:
The date of issuance of the notice of assessment determines which law applies- the 1997 NIRC or the old Tax
Code. The case of Commissioner of Internal Revenue v. Bank of Philippine Islands is instructive:
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its
amendment by RA 8424 (also known as the Tax Reform Act of 1997). In CIR v. Reyes, we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate
taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions
of former Section 229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR's findings was changed in 1998to informing the taxpayer of
not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself
would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998,
the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was
already in effect. The notice required under the old law was no longer sufficient under the new law.(Emphasis ours.)
In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because there were issued on January
19, 1998 and September 21, 2001, respectively, at the time of the effectivity of the 1997 NIRC. Clearly, the
assessments are governed by the law.43
Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the law and the facts
on which the assessment is made. Otherwise, the assessment is void. To implement the aforesaid provision,
Revenue Regulation No. 12-99was enacted by the BIR, of which Section 3.1.4 thereof reads:
3.1.4. Formal Letter of Demand and Assessment Notice. –The formal letter of demand and assessment notice shall
be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of
the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which
the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void. The same
shall be sent to the taxpayer only by registered mail or by personal delivery. x x x44
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax
assessment made against him. The use of the word "shall" in these legal provisions indicates the mandatory nature
of the requirements laid down therein.
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994will show that other
than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by
petitioner. Only the resulting interest, surcharge and penalty were anchored with legal basis.45 Petitioner should have
at least attached a detailed notice of discrepancy or stated an explanation why the amount of ₱48,461.76 is
collectible against respondent46 and how the same was arrived at. Any short-cuts to the prescribed content of the
assessment or the process thereof should not be countenanced, in consonance with the ruling in Commissioner of
Internal Revenue v. Enron Subic Power Corporation47 to wit:
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During
the pre-assessment stage, the CIR advised Enron’s representative of the tax deficiency, informed it of the proposed
tax deficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit working
paper allegedly showing in detail the legal and factual bases of the assessment. The CIR argues that these steps
sufficed to inform Enron of the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary
five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the
assessment. These steps were mere perfunctory discharges of the CIR’s duties incorrectly assessing a taxpayer.
The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence
of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the
order required by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC
and RR No. 12-99 would be rendered nugatory. The alleged "factual bases" in the advice, preliminary letter and
"audit working papers" did not suffice. There was no going around the mandate of the law that the legal and factual
bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was
changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the
assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be
deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the
legal and factual bases of the assessment against it, the assessment in question was void. x x x.48
In the same vein, we have held in Commissioner of Internal Revenue v. Reyes,49 that:
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of
basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in
the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have
been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and
collection "should be made in accordance with law as any arbitrariness will negate the very reason for government
itself."50
Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax assessment for the
EWT in 1994disregarded the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of
Revenue Regulations No. 12-99 by not providing the legal and factual bases of the assessment. Hence, the formal
letter of demand and the notice of assessment issued relative thereto are void.
In any case, we find no basis in petitioner’s claim that Revenue Regulation No. 12-99 is not applicable at the time
the PAN and FAN for the deficiency EWT for taxable year 1994 were issued. Considering that such regulation
merely implements the law, and does not create or take away vested rights, the same may be applied retroactively,
as held in Reyes:
x x x x.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it
merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is
desirable for the government authority or administrative agency to have one immediately issued after a law is
passed, the absence of the regulation does not automatically mean that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the
assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old
regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations-- old as
they were -- should be in harmony with, and not supplant or modify, the law.
It may be argued that the Tax Code provisions are not self- executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any
manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make
nor its desired results hard to achieve. Moreover, an administrative rule interpretive of a statute, and not declarative
of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute. RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the
preliminary assessment notice and demand letter.51
Indubitably, the disputed assessments for taxable year 1994 should have already complied with the requirements
laid down under Revenue Regulation No. 12-99. Having failed so, the same produces no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA En Banc’s findings on the deficiency EWT for taxable
year 1998 considering that it complies with Section 228 of the Tax Code as well as Revenue Regulation No. 12-99,
thus:
On the other hand, the 1998 EWT FAN reflected the following: a detailed factual account why the basic EWT is
₱14,496.79 and the legal basis, Section 57 B of the 1997 NIRC supporting findings of EWT liability of ₱22,437.01.
Thus, the EWT FAN for 1998 is duly issued in accordance with the law.52
As to the last issue, petitioner avers that its right to collect the EWT for taxable year 1992 has not yet prescribed. It
argues that while the final assessment notice and demand letter on EWT for taxable year 1992 were all issued on
January 9, 1996, the five (5)-year prescriptive period to collect was interrupted when respondent filed its request for
reinvestigation on March 14, 1997 which was granted by petitioner on January 22, 2001 through the issuance of Tax
Verification Notice No. 00165498 on even date.53 Thus, the period for tax collection should have begun to run from
the date of the reconsidered or modified assessment.54
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five
(5) years to three (3) years by virtue of Batas Pambansa Blg. 700.55 Thus, petitioner has three (3) years from the
date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for
the collection thereof without an assessment.56 However, when it validly issues an assessment within the three (3)-
year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court
proceeding.57 The assessment of the tax is deemed made and the three (3)-year period for collection of the
assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.58
On this matter, we note the findings of the CTA-Special First Division that no evidence was formally offered to prove
when respondent filed its returns and paid the corresponding EWT and WTC for taxable year 1992.59
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency taxes for
taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs for the deficiency EWT and
WTC for taxable year 1992 was issued as early as January 9, 1996. Clearly, five (5) long years had already lapsed,
beyond the three (3)-year prescriptive period, before collection was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by
petitioner on January22, 2001, also beyond the three (3) year statute of limitations reckoned from January 9, 1996,
notwithstanding the lack of impediment to rule upon such issue. We cannot countenance such inaction by petitioner
to the prejudice of respondent pursuant to our ruling in Commissioner of Internal Revenue v. Philippine Global
Communication, Inc.,60 to wit:
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the
CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy
served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect
the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which
was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the
assessed tax.61
Here, petitioner had ample time to make a factually and legally well-founded assessment and implement collection
pursuant thereto. Whatever examination that petitioner may have conducted cannot possibly outlast the entire three
1âw phi 1
(3)-year prescriptive period provided by law to collect the assessed tax. Thus, there is no reason to suspend the
running of the statute of limitations in this case.
Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the request for reinvestigation
should be granted or at least acted upon in due course before the suspension of the statute of limitations may set in,
thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first grant the request
for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation
of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he
had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all
examined. Considering the given facts, this Court pronounced that—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted,
in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover,
the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day
before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that –
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation
thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In
fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full
amount of the assessment (Exh. "D"), but there was follow-up of this warrant. Consequently, the request for
reinvestigation did not suspend the running of the period for filing an action for collection.[Emphasis in the
original]62 With respect to petitioner’s argument that respondent’s act of elevating its protest to the CTA has fortified
the continuing interruption of petitioner’s prescriptive period to collect under Section 223 of the Tax Code,63 the same
is flawed at best because respondent was merely exercising its right to resort to the proper Court, and does not in
any way deter petitioner’s right to collect taxes from respondent under existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the
scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law
on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on
the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights
under the Constitution."64 Thus, while "taxes are the lifeblood of the government," the power to tax has its limits, in
spite of all its plenitude.65 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.66
After all, the statute of limitations on the collection of taxes was also enacted to benefit and protect the taxpayers, as
elucidated in the case of Philippine Global Communication, Inc.,67 thus:
x x x The report submitted by the tax commission clearly states that these provisions on prescription should be
enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
1âwphi1
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5
years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so
also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax
purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the
Philippines, pp. 321-322).68
WHEREFORE, the petition is DENIED. The June 27, 2011 Decision of the Court of Tax Appeals En Banc in C.T.A.
EB No. 662 is hereby AFFIRMED.
SO ORDERED.

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G.R. No.

COMMISSIONER OF INTERNAL REVENUE, Petitioner

FINAL ASSESSMENT NOTICE

March 17, 2004

FITNESS BY DESIGN, INC

Assessment No. _____________

Taxable Income per return ₱

Tax Due (35%) 2,504,717.63

Value Added Tax

Unreported Sales ₱ 7,156,336.08

Subscribe Capital Stock ₱ 375,000.00

Total Deficiency Taxes ₱ 10,647,529.69

SO ORDERED.31 (Emphasis in the original)

The Petition has no merit.

Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –

The disputed Final Assessment Notice is not a valid assessment.

MARVIC M.V.F. LEONEN

G.R. No. L-19727 May 20, 1965

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

G.R. No. L-19903 May 20, 1965

PHOENIX ASSURANCE, CO., LTD., petitioner,

Office of the Solicitor General for petitioner-respondent Commissioner of Internal Revenue.

BENGZON, J.P., J.:

Year Amount Ceded

Year Withholding Tax

Net income per investigation P 28,337.96

Tax due thereon P 5,667.00

Net income per investigation P170,489.41

Tax due thereon P 39,737.00

DEFICIENCY TAX DUE P 2,847.00

Paragraph (a) of Section 32 of the Tax Code states:

Sato, Enad Garcia for petitioner.

Year Net Income Amount Exhibit

The new deficiency assessment was based on the following computations:

Net income per return ........................ P9,910.94

Deduct: Income tax liability

Net income per return ..................................................... P10,200.00

Net income per return ...................................................... P9,148.34

Net income per return ....................................................... P9,990.66

Net income per return ........................................................ P6,800.00

Real estate inventory ................................ P64,738.00

Real estate inventory ................................. P86,944.18

Real estate inventory .................................. P237,824.18

Real estate inventory .................................. P244,824.18

Real estate inventory ................................. P400,515.52

Real estate inventory .................................. P412,465.52

Real estate inventory ................................... P412,465.52

(Exh. 45-B, BIR rec. p. 188)

Net income per return .............................................. P9,910.94

Net income per return ............................................ P10,200.00

Net income per return .............................................. P9,148.34

Net income per return ................................................. P8,990.66

Net income per return ................................................... P8,364.50

With costs against the petitioner.

[ G.R. No. 230861. February 14, 2022 ]

ASIAN TRANSMISSION CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE,

The Rulings of the CTA

Our Main Decision

Hence, ATC filed the present motion.28

Motion for Reconsideration