Tridharma Marketing Corp. v. CTA

Doctrine: The CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for not more than double the amount. 

Facts: Petitioner received a PAN from BIR assessing deficiency taxes on income tax, VAT, withholding tax on compensation, expanded withholding tax, and DST. A substantial portion of the deficiency income tax and VAT arose from the complete disallowance by the BIR of the petitioner’s purchases from Etheria Trading in 2010. Petitioner replied to the PAN. Petitioner received from BIR an FLD assessing it with deficiency taxes for TY 2010. It filed a protest. CIR required the petitioner to submit submit additional documents in support of its protest, and the petitioner complied.

Petitioner received a Final Disputed Assessment. It filed with the CIR a protest through a Request for Reconsideration but it was denied. 

Prior to the CIR’s decision, the petitioner paid the assessments corresponding to the WTC, DST and EWT deficiency assessments, inclusive of interest. It likewise reiterated its offer to compromise the alleged deficiency assessments on IT and VAT.

Petitioner appealed to the CTA via Petition for Review with Motion to Suspend Collection of Tax which was granted provided, however, that petitioner deposits with this Court an acceptable surety bond equivalent to 150% of the assessment.

The petitioner filed its Motion for Partial Reconsideration praying, among others, for the reduction of the bond to an amount it could obtain. CTA reduced the amount of the petitioner’s surety bond which was the equivalent of the BIR’s deficiency assessment for IT and VAT. 

Issue: Did the CTA in Division commit grave abuse of discretion in requiring the petitioner to file a surety bond despite the supposedly patent illegality of the assessment that was beyond the petitioner’s net worth but equivalent to the deficiency assessment for IT and VAT? 

Held: Yes. Section 11 of R.A. No. 1125, amended by R.A. No. 9282 it is stated that: 

Sec. 11. Who may appeal; effect of appeal.—x x x 

xxx x

No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs 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 Bureau of Internal Revenue or the Commissioner of Customs 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. (Bold emphasis supplied) 

Clearly, the CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for not more than double the amount. 

The Court holds, however, that the CTA in Division gravely abused its discretion under Section 11 because it fixed the amount of the bond at nearly five times the net worth of the petitioner without conducting a preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency assessment on the ground that such collection would jeopardize the interests of the taxpayer. 

Moreover, Section 11 of R.A. No. 1125, as amended, indicates that the requirement of the bond as a condition precedent to suspension of the collection applies only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with the law, not when the processes are in plain violation of the law that they have to be suspended for jeopardizing the interests of the taxpayer. 

Winebrenner & Iñigo Insurance Brokers, Inc., v. CIR

Doctrines: 

• Being in the nature of a claim for exemption, refund is construed in strictissimi juris against the entity claiming the refund and in favor of the taxing power. 
• Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs
• What Section 76 of the NIRC requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. 
• Section 76 of the NIRC requires a corporation to file a Final Adjustment Return (FAR) (or Annual ITR) covering the total taxable income for the preceding calendar or fiscal year. 
• Claims for refund are civil in nature and as such, petitioner, as claimant, though having a heavy burden of showing entitlement, need only prove preponderance of evidence in order to recover excess credit in cold cash. 
• The government must keep in mind that it has no right to keep the money not belonging to it, thereby enriching itself at the expense of the law-abiding citizen or entities who have complied with the requirements of the law in order to forward the claim for refund.

Facts: April 15, 2004, petitioner filed its Annual Income Tax Return for CY 2003. On April 7, 2006, petitioner applied for the administrative tax credit/refund claiming entitlement to the refund of its excess or unutilized CWT for CY 2003, by filing BIR Form No. 1914 with the RDO No. 50 of BIR.

There being no action taken on the said claim, petitioner filed a PetRev before the CTA. CTA First Division partially granted petitioner’s claim for refund of excess and unutilized CWT for CY 2003 in the reduced amount of P2,737,903.34. 

Petitioner filed a Motion for Partial Reconsideration with Leave to Submit Supplemental Evidence. It prayed that an amended decision be issued granting the entirety of its claim for refund, or in the alternative, that it be allowed to submit and offer relevant documents as supplemental evidence. CIR also moved for reconsideration, praying for the denial of the entire amount of refund because petitioner failed to present the quarterly ITRs for CY 2004. To the CIR, the presentation of the 2004 quarterly ITRs was indispensable in proving petitioner’s entitlement to the claimed amount because it would prove that no carry-over of unutilized and excess CWT for the four (4) quarters of CY 2003 to the succeeding four (4) quarters of CY 2004 was made. In the absence of said ITRs, no refund could be granted. CTA Division reversed itself.

Petitioner elevated the case to the CTA En Banc. CTA En Banc affirmed the Amended Decision of the CTA Divison. It stated that before a cash refund or an issuance of tax credit certificate for unutilized excess tax credits could be granted, it was essential for petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding years, that the excess CWT was not carried over to the succeeding taxable quarters considering that the option to carry over in the succeeding taxable quarters could not be modified in the final adjustment returns (FAR). Because petitioner did not present the first, second and third quarterly ITRs for CY 2004, despite having offered and submitted the Annual ITR/FAR for the same year, the CTA En Banc stated that the petitioner failed to discharge its burden, hence, no refund could be granted. 

Issue: Whether the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year is indispensable in a claim for refund. 

Held: The Court recognizes, as it always has, that the burden of proof to establish entitlement to refund is on the claimant taxpayer. Being in the nature of a claim for exemption, refund is construed in strictissimi juris against the entity claiming the refund and in favor of the taxing power. This is the reason why a claimant must positively show compliance with the statutory requirements provided for under the NIRC in order to successfully pursue one’s claim. As implemented by the applicable rules and regulations and as interpreted in a vast array of decisions, a taxpayer who seeks a refund of excess and unutilized CWT must: 1) File the claim with the CIR within the two-year period from the date of payment of the tax; 2) Show on the return that the income received was declared as part of the gross income; and 3) Establish the fact of withholding by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld. 

Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, 477 SCRA 761 (2005), the petitioner therein sought for recognition of its right to the claimed refund of unutilized CWT. The CIR opposed the claim, on the grounds similar to the case at hand, that no proof was provided showing the non-carry over of excess CWT to the subsequent quarters of the subject year. In a categorical manner, the Court ruled that the presentation of the quarterly ITRs was not necessary. 

It appears however that there is misunderstanding in the ruling of the Court in Philam. That factual distinction does not negate the proposition that subsequent quarterly ITRs are not indispensable. The logic in not requiring quarterly ITRs of the succeeding taxable years to be presented remains true to this day. What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed. This simply underscores the rule that any document, other than quarterly ITRs may be used to establish that indeed the non-carry over clause has been complied with, provided that such is competent, relevant and part of the records. The Court is thus not prepared to make a pronouncement as to the indispensability of the quarterly ITRs in a claim for refund for no court can limit a party to the means of proving a fact for as long as they are consistent with the rules of evidence and fair play. The means of ascertainment of a fact is best left to the party that alleges the same. The Court’s power is limited only to the appreciation of that means pursuant to the prevailing rules of evidence. To stress, what the NIRC merely requires is to sufficiently prove the existence of the non-carry over of excess CWT in a claim for refund. 

Section 76 of the NIRC requires a corporation to file a Final Adjustment Return (or Annual ITR) covering the total taxable income for the preceding calendar or fiscal year. The total taxable income contains the combined income for the four quarters of the taxable year, as well as the deductions and excess tax credits carried over in the quarterly income tax returns for the same period. If the excess tax credits of the preceding year were deducted, whether in whole or in part, from the estimated income tax liabilities of any of the taxable quarters of the succeeding taxable year, the total amount of the tax credits deducted for the entire taxable year should appear in the Annual ITR under the item “Prior Year’s Excess Credits.” Otherwise, or if the tax credits were carried over to the succeeding quarters and the corporation did not report it in the annual ITR, there would be a discrepancy in the amounts of combined income and tax credits carried over for all quarters and the corporation would end up shouldering a bigger tax payable. It must be remembered that taxes computed in the quarterly returns are mere estimates. It is the annual ITR which shows the aggregate amounts of income, deductions, and credits for all quarters of the taxable year. It is the final adjustment return which shows whether a corporation incurred a loss or gained a profit during the taxable quarter. Thus, the presentation of the annual ITR would suffice in proving that prior year’s excess credits were not utilized for the taxable year in order to make a final determination of the total tax due. 

Claims for refund are civil in nature and as such, petitioner, as claimant, though having a heavy burden of showing entitlement, need only prove preponderance of evidence in order to recover excess credit in cold cash. To review, “[P]reponderance of evidence is [defined as] the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term ‘greater weight of the evidence’ or ‘greater weight of the credible evidence.’ It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. 

The Court reminds the CIR that substantial justice, equity and fair play take precedence over technicalities and legalisms. The government must keep in mind that it has no right to keep the money not belonging to it, thereby enriching itself at the expense of the law-abiding citizen or entities who have complied with the requirements of the law in order to forward the claim for refund. Under the principle of solution indebiti provided in Article 2154 of the Civil Code, the CIR must return anything it has received. 

Bloomberry Resorts and Hotels, Inc. v. BIR

Doctrines: 

• PAGCOR from its gaming operations such as the operation and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools and related operations is subject only to five percent (5%) franchise tax. 
• PAGCOR, its contractees and licensees remain exempted from the payment of corporate income tax and other taxes. 

Facts: PAGCOR granted to petitioner a provisional license to establish and operate an integrated resort and casino complex at the Entertainment City project site of PAGCOR. Petitioner and its parent company, Sureste Properties, Inc., own and operate Solaire Resort & Casino. Thus, being one of its licensees, petitioner only pays PAGCOR license fees, in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR Charter or PD No. 1869 which provides the exemption from taxes of persons or entities contracting with PAGCOR in casino operations. However, RA No. 9337 took effect which excluded PAGCOR from the enumeration of GOCCs exempt from paying CIT. 

Aggrieved, as it is now being considered liable to pay corporate income tax in addition to the 5% franchise tax, petitioner immediately elevated the matter through a petition for certiorari and prohibition before the SC. 

Issues: (i) whether or not the assailed provision of RMC No. 33-2013 subjecting the contractees and licensees of PAGCOR to income tax under the NIRC of 1997, as amended, was issued by respondent CIR with grave abuse of discretion amounting to lack or excess of jurisdiction; and (ii) whether or not said provision is valid or constitutional considering that Section 13(2)(b) of PD No. 1869, as amended, grants tax exemptions to such contractees and licensees. 

Held: Income derived by PAGCOR from its gaming operations such as the operation and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools and related operations is subject only to 5% franchise tax, in lieu of all other taxes, including corporate income tax. The Court concluded that the CIR committed grave abuse of discretion amounting to lack or excess of jurisdiction when it issued RMC No. 33-2013 subjecting both income from gaming operations and other related services to corporate income tax and 5% franchise tax considering that it unduly expands the Court’s Decision dated 15 March 2011 without due process, which creates additional burden upon PAGCOR. 

As previously recognized, the above quoted provision providing for the said exemption was neither amended nor repealed by any subsequent laws (i.e., Section 1 of R.A. No. 9337 which amended Section 27(C) of the NIRC of 1997); thus, it is still in effect. Guided by the doctrinal teachings in resolving the case at bench, it is without a doubt that, like PAGCOR, its contractees and licensees remain exempted from the payment of corporate income tax and other taxes since the law is clear that said exemption inures to their benefit. 

PAGCOR v. BIR

Doctrines: 

• PAGCOR’s income is classified into two (2): (1) income from its operations conducted under its Franchise, pursuant to Section 13(2)(b) thereof (income from gaming operations); and (2) income from its operation of necessary and related services under Section 14(5) thereof (income from other related services) 
• Under PD No. 1869, as amended, petitioner is subject to income tax only with respect to its operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of RA No. 8424 clearly pertains only to petitioner’s income from operation of related services 
• The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. 
• Where a general law is enacted to regulate an industry, it is common for individual franchises subsequently granted to restate the rights and privileges already mentioned in the general law, or to amend the later law, as may be needed, to conform to the general law. 
• When petitioner’s franchise was extended on June 20, 2007 without revoking or withdrawing its tax exemption, it effectively reinstated and reiterated all of petitioner’s rights, privileges and authority granted under its Charter. 
• It is settled that where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other. 
• The SC upholds its earlier ruling that Section 1 of RA No. 9337, amending Section 27(c) of RA No. 8424, by excluding petitioner from the enumeration of GOCCs exempted from corporate income tax, is valid and constitutional 

Facts: On April 17, 2006, petitioner filed a PetRev on Certiorari and Prohibition seeking the declaration of nullity of Sec. 1 of RA No. 9337 insofar as it amends Sec. 27(c) of RA No. 8424 by excluding petitioner from the enumeration of GOCCs exempted from liability for corporate income tax (CIT).  SC partly granted the petitioner. Sec. 1 of RA No. 9337 is valid while BIR RR No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the NIRC of 1997, as amended by RA No. 9337. 

Both petitioner and respondent filed their respective motions for partial reconsideration but the same were denied.

On April 17, 2013, respondent issued RMC No. 33-2013 which clarifies the “Income Tax and Franchise Tax Due from the PAGCOR, its Contractees and Licensees.” Accordingly, PAGCOR’s income from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations, are subject to corporate income tax under the NIRC, as amended. This includes, among others: 

a) Income from its casino operations;

b) Income from dollar pit operations;
c) Income from regular bingo operations; and
d) Income from mobile bingo operations operated by it, with agents on commission basis. Provided, however, that the agents’ commission income shall be subject to regular income tax, and consequently, to withholding tax under existing regulations. 

Income from “other related operations” includes, but is not limited to: 

a) Income from licensed private casinos covered by authorities to operate issued to private operators; 

b) Income from traditional bingo, electronic bingo and other bingo variations covered by authorities to operate issued to private operators; 

c) Income from private internet casino gaming, internet sports betting and private mobile gaming operations; 

d) Income from private poker operations;
e) Income from junket operations;
f) Income from SM demo units; and
g) Income from other necessary and related services, shows and entertainment.

PAGCOR’s other income that is not connected with the foregoing operations are likewise subject to corporate income tax under the NIRC, as amended. 

PAGCOR’s contractees and licensees are entities duly authorized and licensed by PAGCOR to perform gambling casinos, gaming clubs and other similar recreation or amusement places, and gaming pools. These contractees and licensees are subject to income tax under the NIRC, as amended. 

PAGCOR is also subject to 5% franchise tax of the gross revenue or earnings it derives from its operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement places, gaming pools, and other related operations as described above. 

Petitioner wrote to the CIR requesting for reconsideration of the tax treatment of its income from gaming operations and other related operations under RMC No. 33-2013 but it was denied.

Petitioner filed a Motion for Clarification alleging that RMC No. 33-2013 is an erroneous interpretation and application of the aforesaid Decision.

Issues:

1. Whether PAGCOR’s tax privilege of paying 5% franchise tax in lieu of all other taxes with respect to its gaming income, pursuant to its Charter — P.D. 1869, as amended by R.A. 9487, is deemed repealed or amended by Section 1(c) of R.A. 9337. 

2. If it is deemed repealed or amended, whether PAGCOR’s gaming income is subject to both 5% franchise tax and income tax. 

3. Whether PAGCOR’s income from operation of related services is subject to both income tax and 5% franchise tax. 

4. Whether PAGCOR’s tax privilege of paying 5% franchise tax inures to the benefit of third parties with contractual relationship with PAGCOR in connection with the operation of casinos.

Held: SC sustained petitioner’s contention that its income from gaming operations is subject only to 5% franchise tax under PD No. 1869, as amended, while its income from other related services is subject to CIT pursuant to PD No. 1869, as amended, as well as RA No. 9337. 

Under P.D. No. 1869, as amended, petitioner is subject to income tax only with respect to its operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of RA No. 8424 clearly pertains only to petitioner’s income from operation of related services. Such income tax exemption could not have been applicable to petitioner’s income from gaming operations as it is already exempt therefrom under PD No. 1869, as amended.

The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. This is the most sound and logical interpretation because petitioner could not have been exempted from paying taxes which it was not liable to pay in the first place. This is clear from the wordings of PD No. 1869, as amended, imposing a franchise tax of 5% on its gross revenue or earnings derived by petitioner from its operation under the Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which necessarily include corporate income tax. 

In other words, there was no need for Congress to grant tax exemption to petitioner with respect to its income from gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether national or local, under its Charter, save only for the 5% franchise tax. The exemption attached to the income from gaming operations exists independently from the enactment of RA No. 8424. To adopt an assumption otherwise would be downright ridiculous, if not deleterious, since petitioner would be in a worse position if the exemption was granted (then withdrawn) than when it was not granted at all in the first place. 

Where a general law is enacted to regulate an industry, it is common for individual franchises subsequently granted to restate the rights and privileges already mentioned in the general law, or to amend the later law, as may be needed, to conform to the general law. However, if no provision or amendment is stated in the franchise to effect the provisions of the general law, it cannot be said that the same is the intent of the lawmakers, for repeal of laws by implication is not favored. 

When petitioner’s franchise was extended on June 20, 2007 without revoking or withdrawing its tax exemption, it effectively reinstated and reiterated all of petitioner’s rights, privileges and authority granted under its Charter. Otherwise, Congress would have painstakingly enumerated the rights and privileges that it wants to withdraw, given that a franchise is a legislative grant of a special privilege to a person. Thus, the extension of petitioner’s franchise under the same terms and conditions means a continuation of its tax exempt status with respect to its income from gaming operations. Moreover, all laws, rules and regulations, or parts thereof, which are inconsistent with the provisions of PD 1869, as amended, a special law, are considered repealed, amended and modified, consistent with Section 2 of RA No. 9487. 

In fine, we uphold our earlier ruling that Section 1 of R.A. No. 9337, amending Section 27(c) of RA No. 8424, by excluding petitioner from the enumeration of GOCCs exempted from corporate income tax, is valid and constitutional. 

Respondent is ordered to cease and desist the implementation of RMC No. 33-2013 insofar as it imposes: (1) corporate income tax on petitioner’s income derived from its gaming operations; and (2) franchise tax on petitioner’s income from other related services. 

PAGCOR v. CIR

Doctrine: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.

Facts: [PAGCOR] provides a car plan program to its qualified officers under which 60% of the car plan availment is shouldered by PAGCOR and the remaining 40% for the account of the officer, payable in 5 years.

On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated September 28, 2007 from BIR RD Misajon for an informal conference to discuss the result of its investigation on [PAGCOR's] internal revenue taxes in 2004. The Post Reporting Notice shows that [PAGCOR] has deficiencies on VAT, WTV, EWT, and FBT.

Subsequently, the BIR abandoned the claim for deficiency assessments on VAT, WTV and EWT in the Letter to [PAGCOR] dated November 23, 2007 in view of the principles laid down in CIR vs. Acesite Hotel Corporation exempting [PAGCOR] and its contractors from VAT. However, the assessment on deficiency FBT subsists and remains due to date.

On January 17, 2008, [PAGCOR] received a FAN dated January 14, 2008, with demand for payment of deficiency FBT for taxable year 2004 in the amount of P48,589,507.65.

On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to RD Misajon.

On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter dated August 13, 2008, there being no action taken thereon as of that date.

In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR] was informed that the Legal Division of Revenue Region No. 6 sustained Revenue Officer Ma. Elena Llantada on the imposition of FBT against it based on the provisions of RR No. 3-98 and that its protest was forwarded to the Assessment Division for further action.

On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional Director, Revenue Region No. 6 (Manila), stating that its letter protest was referred to Revenue District Office No. 33 for appropriate action.

On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging respondents' inaction in its protest on the disputed deficiency FBT.

CTA 1st Division ruled in favor of respondents. The CTA 1st Division ruled that RD Misajon's issuance of the FAN was a valid delegation of authority, and PAGCOR's administrative protest was validly and seasonably filed on 24 January 2008. The petition for review filed with the CTA 1st Division, however, was filed out of time. In accordance with Section 228 of the Tax Code, respondent CIR or her duly authorized representative had 180 days or until July 22, 2008 to act on the protest. After the expiration of the 180-day period without action on the protest, as in the instant case, the taxpayer, specifically [PAGCOR], had 30 days or until August 21, 2008 to assail the non-determination of its protest. The failure of [PAGCOR] to appeal from an assessment on time rendered the same final, executory and demandable. Consequently, [PAGCOR] is already precluded from disputing the correctness of the assessment. The failure to comply with the 30-day statutory period would bar the appeal and deprive the CTA of its jurisdiction to entertain and determine the correctness of the assessment. Since the car plan provided by [PAGCOR] partakes of the nature of a personal expense attributable to its employees, it shall be treated as taxable fringe benefit of its employees, whether or not the same is duly receipted in the name of the employer. Therefore, [PAGCOR's] obligation as an agent of the government to withhold and remit the final tax on the fringe benefit received by its employees is personal and direct. The government's cause of action against [PAGCOR] is not for the collection of income tax, for which [PAGCOR] is exempted, but for the enforcement of the withholding provision of the 1997 NIRC, compliance of which is imposed on [PAGCOR] as, the withholding agent, and not upon its employees. Consequently, [PAGCOR's] non-compliance with said obligation to withhold makes it personally liable for the tax arising from the breach of its legal duty.

PAGCOR filed an MR. PAGCOR filed a petition for review with urgent motion to suspend tax collection with the CTA En Banc. 

The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA 1st Division's Decision and Resolution. The CTA En Banc ruled that the protest filed before the RD is a valid protest; hence, it was superfluous for PAGCOR to raise the protest before the CIR. When PAGCOR filed its administrative protest on 24 January 2008, the CIR or her duly authorized representative had 180 days or until 22 July 2008 to act on the protest. After the expiration of the 180 days, PAGCOR had 30 days or until 21 August 2008 to assail before the CTA the non-determination of its protest.

Moreover, Section 223 of the NIRC merely suspends the period within which the BIR can make assessments on a certain taxpayer. A taxpayer's request for reinvestigation only happens upon the BIR's issuance of an assessment within the three-year prescriptive period. The reinvestigation of the assessment suspends the prescriptive period for either a revised assessment or a retained assessment.

PAGCOR filed an MR but it was denied.

Issue: Whether or not CTA En Banc gravely erred in affirming CTA 1st Division’s ruling

Held: No. The CTA En Banc and 1st Division were correct in dismissing PAGCOR's petition. However the dismissal should be on the ground of premature, rather than late, filing. 

Section 3.1.5 of RR No. 12-99, implementing Section 228 of the Tax Code gives a protesting taxpayer like PAGCOR only three options: 

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period.

To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.

PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made separate and successive filings before the RD and the CIR before it filed its petition with the CTA.

PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day period prescribed in Section 228 and Section 3.1.5. The RD did not release any decision on PAGCOR's protest; thus, PAGCOR was unable to make use of the first option as described above to justify an appeal to the CTA. The effect of the lack of decision from the RD is the same, whether we consider PAGCOR's April 2008 submission of documents or not.

Under the third option described above, even if we grant leeway to PAGCOR and consider its unspecified April 2008 submission, PAGCOR still should have waited for the RD's decision until 27 October 2008, or 180 days from 30 April 2008. PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008, to file its petition before the CTA. PAGCOR, however, did not make use of the third option. PAGCOR did not file a petition before the CTA on or before 26 November 2008.

Under the second option, PAGCOR ought to have waited for the RD's whole or partial denial of its protest before it filed an appeal before the CIR. PAGCOR rendered the second option moot when it formulated its own rule and chose to ignore the clear text of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on 13 August 2008 without any decision from the RD, then filed a petition before the CTA on 11 March 2009. A textual reading of Section 228 and Section 3 .1.5 will readily show that neither Section 228 nor Section 3 .1.5 provides for the remedy of an appeal to the CIR in case of the RD's failure to act. The third option states that the remedy for failure to act by the CIR or his authorized representative is to file an appeal to the CTA within 30 days after the lapse of 180 days from the submission of the required supporting documents. PAGCOR clearly failed to do this.

When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use of any of the three options described above. A petition before the CTA may only be made after a whole or partial denial of the protest by the CIR or the CIR's authorized representative. When PAGCOR filed its petition before the CTA on 11 March 2009, there was still no denial of PAGCOR's protest by either the RD or the CIR. Therefore, under the first option, PAGCOR's petition before the CTA had no cause of action because it was prematurely filed. The CIR made an unequivocal denial of PAGCOR's protest only on 18 July 2011, when the CIR sought to collect from PAGCOR the amount of P46,589,507.65. The CIR's denial further puts PAGCOR in a bind, because it can no longer amend its petition before the CTA.

PAGCOR has clearly failed to comply with the requisites in disputing an assessment as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in procedure have made the BIR's assessment final, executory and demandable, thus obviating the need to further discuss the issue of the propriety of imposition of fringe benefits tax.

Mercury Drug Corporation v. CIR

Facts: Pursuant to Republic Act No. 7432, petitioner Mercury Drug Corporation, a retailer of pharmaceutical products, granted a 20% sales discount to qualified senior citizens on their purchases of medicines. For the taxable year April to December 1993 and January to December 1994, the amounts representing the 20% sales discount totalled P3,719,287.68 and P35,500,593.44, respectively, which petitioner claimed as deductions from its gross income.

Realizing that Republic Act No. 7432 allows a tax credit for sales discounts granted to senior citizens, petitioner filed with the CIR claims for refund. CIR failed to act. Petitioner filed a PetRev with the CTA. CTA favored petitioner by declaring that the 20% sales discount should be treated as tax credit rather than a mere deduction from gross income. However, the CTA found some discrepancies and irregularities in the cash slips submitted by petitioner as basis for the tax refund. Hence, it disallowed the claim for taxable year 1994 and some portion of the amount claimed for 1993 by petitioner The conclusion of tax liability instead of tax overpayment pertaining to taxable year 1994 has the effect of negating the tax refund of Petitioner because the basis of such refund is the fact that there is tax credit. Under the circumstances, instead to tax credit, Petitioner has a tax liability of P5,032,113.72, hence the refund for the period must fail.” 

CTA also stated that the claim for tax credit must be based on the actual cost of the medicine and not the whole amount of the 20% senior citizens discount. It applied the formula: cost of sales/gross sales x amount of 20% sales discount. 

Petitioner moved for partial reconsideration. CTA modified its earlier ruling by increasing the creditable tax. CTA finally granted the claim for refund for the taxable year 1994 on the basis of the cash slips submitted by petitioner.

Petitioner sought a partial modification in the CA of the above resolution raising as legal issue the basis of the computation of tax credit. Petitioner contended that the actual discount granted to the senior citizens, rather than the acquisition cost of the item availed by senior citizens, should be the basis for computation of tax credit. CA sustained the CTA decision and dismissed the petition. Petitioner filed a motion for partial reconsideration but it was denied.

Issue: Whether the 20% discount is a tax credit or a tax deduction.

Held: Tax credit. The burden imposed on private establishments amounts to the taking of private property for public use with just compensation in the form of tax credit. 

RA No. 7432 specifically allows the 20% senior citizens’ discount to be claimed by the private establishment as a tax credit and not merely as a tax deduction from gross sales or gross income. The law however is silent as to how the “cost of the discount” as tax credit should be construed. 

The most recent case in point is M.E. Holding Corporation which bears a strikingly similar set of facts and issues with the case at bar. Both petitioners filed their respective income tax return initially treating the 20% sales discount to senior citizens as deductions from its gross income. When advised that the discount should be treated as tax credit, they both filed a claim for overpayment. The BIR on both occasions failed to act timely on the claims, hence they appealed before the Court of Tax Appeals. The CTA in M.E. Holding concedes that the 20% sales discount granted to qualified senior citizens should be treated as tax credit but it placed reliance on the CA’s decision in Commissioner of Internal Revenue v. Elmas Drug Corporation where the term “cost of the discount” was interpreted to mean only the direct acquisition cost, excluding administrative and other incremental costs. This was the very same case relied upon by the CA in the present case. We finally affirmed in M.E. Holding that the tax credit should be equivalent to the actual 20% sales discount granted to qualified senior citizens. 

It is worthy to mention that Republic Act No. 7432 had undergone two (2) amendments; first in 2003 by Republic Act No. 9257 and most recently in 2010 by Republic Act No. 9994. 

The 20% sales discount granted by establishments to qualified senior citizens is now treated as tax deduction and not as tax credit. This case covers the taxable years 1993 and 1994, thus, Republic Act No. 7432 applies. 

Petitioner is entitled to a tax credit equivalent to the actual amounts of the 20% sales discount as determined by the CTA. 

CIR v. Filinvest Development Corporation

Facts: The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a holding company which also owned 67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). On 29 November 1996, FDC and FAI entered into a Deed of Exchange with FLI whereby the former both transferred in favor of the latter parcels of land appraised at P4,306,777,000.00. In exchange for said parcels which were intended to facilitate development of medium- rise residential and commercial buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI. As a result of the exchange, FLI’s ownership structure was changed.

On 13 January 1997, FLI requested a ruling from the BIR to the effect that no gain or loss should be recognized in the aforesaid transfer of real properties. BIR ruled that that the exchange is among those contemplated under Section 34 (c) (2) of the old NIRC which provides that “(n)o gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding 4 persons, gains control of said corporation.” FLI, FDC, and FAI complied with all the requirements imposed in the ruling.

In 1996 and 1997, FDC also extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI), duly evidenced by instructional letters as well as cash and journal vouchers, said cash advances.

On 15 November 1996, FDC also entered into a Shareholders’ Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a Singapore-based joint venture company called Filinvest Asia Corporation (FAC), tasked to develop and manage FDC’s 50% ownership of its PBCom Office Tower Project. 

Having paid its subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project, FDC eventually reported a net loss in its Annual Income Tax Return for the taxable year 1996.

On 3 January 2000, FDC received from the BIR a Formal Notice of Demand to pay deficiency income and documentary stamp taxes, plus interests and compromise penalties.The foregoing deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it executed with FAI and FLI, on the dilution resulting from the Shareholders’ Agreement FDC executed with RHPL as well as the “arm’s-length” interest rate and documentary stamp taxes imposable on the advances FDC extended to its affiliates. FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes for the year 1997.

Both FDC and FAI filed their respective requests for reconsideration/protest, on the ground that the deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual and legal basis. They filed a letter requesting an early resolution of their resolution of their request for reconsideration/protest.

CIR failed to resolve the request within the period so FDC and FAI filed a PetRev with the CTA.

CTA ruled that with the exception of the deficiency income tax on the interest income FDC supposedly realized from the advances it extended in favor of its affiliates, cancelled the rest of deficiency income and documentary stamp taxes assessed against FDC and FAI for the years 1996 and 1997.

FDC filed a PetRev before the CA.

CA upheld FDC’s position.

CIR also filed a PetRev.

The petition was denied due course and dismissed for lack of merit.

Issue: Whether or not CA erred in reversing the decision of the CTA and in holding that the advances extended by respondent to its affiliates are not subject to income tax

Held: Bereft of merit. It would appear that FDC and its affiliates come within the purview of Section 43 of the 1993 NIRC. Aside from owning significant portions of the shares of stock of FLI, FAI, DSCC and FCI, the fact that FDC extended substantial sums of money as cash advances to its said affiliates for the purpose of providing them financial assistance for their operational and capital expenditures seemingly indicate that the situation sought to be addressed by the subject provision exists. From the tenor of paragraph (c) of Section 179 of Revenue Regulation No. 2, it may also be seen that the CIR’s power to distribute, apportion or allocate gross income or deductions between or among controlled taxpayers may be likewise exercised whether or not fraud inheres in the transaction/s under scrutiny. For as long as the controlled taxpayer’s taxable income is not reflective of that which it would have realized had it been dealing at arm’s length with an uncontrolled taxpayer, the CIR can make the necessary rectifications in order to prevent evasion of taxes. 

Despite the broad parameters provided, however, we find that the CIR’s powers of distribution, apportionment or allocation of gross income and deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue Regulation No. 2 does not include the power to impute “theoretical interests” to the controlled taxpayer’s transactions. Pursuant to Section 28 of the 1993 NIRC, after all, the term “gross income” is understood to mean all income from whatever source derived, including, but not limited to the following items: compensation for services, including fees, commissions, and similar items; gross income derived from business; gains derived from dealings in property”; interest; rents; royalties; dividends; annuities; prizes and winnings; pensions; and partner’s distributive share of the gross income of general professional partnership. While it has been held that the phrase “from whatever source derived” indicates a legislative policy to include all income not expressly exempted within the class of taxable income under our laws, the term “income” has been variously interpreted to mean “cash received or its equivalent”, “the amount of money coming to a person within a specific time” or “something distinct from principal or capital.” Otherwise stated, there must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. 

The record yielded no evidence of actual or possible showing that the advances FDC extended to its affiliates had resulted to the interests subsequently assessed by the CIR. the CIR had adduced no concrete proof that said funds were, indeed, the source of the advances the former provided its affiliates. While admitting that FDC obtained interest-bearing loans from commercial banks, Susan Macabelda—FDC’s Funds Management Department Manager who was the sole witness presented before the CTA—clarified that the subject advances were sourced from the corporation’s rights offering in 1995 as well as the sale of its investment in Bonifacio Land in 1997. The advances: (a) were extended to give FLI, FAI, DSCC and FCI financial assistance for their operational and capital expenditures; and, (b) were all temporarily in nature since they were repaid within the duration of one week to three months and were evidenced by mere journal entries, cash vouchers and instructional letters.” 

Even if we were, therefore, to accord precipitate credulity to the CIR’s bare assertion that FDC had deducted substantial interest expense from its gross income, there would still be no factual basis for the imputation of theoretical interests on the subject advances and assess deficiency income taxes thereon. More so, when it is borne in mind that, pursuant to Article 1956 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly stipulated in writing.

CIR v. St. Luke’s (2012)

Doctrines:

• “Non-profit” does not necessarily mean “charitable.” 
• An organization may be considered as non-profit if it does not distribute any part of its income to stockholders or members. However, despite its being a tax exempt institution, any income such institution earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of Section 30 (NIRC). 

Facts: St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and non-profit corporation. BIR assessed St. Luke’s deficiency taxes but the amount was reduced during the trial in CTA 1st Division. 

St. Lukes filed an administrative protest with the BIR but it was not acted within the 180-day period. St. Luke’s appealed to the CTA. St. Luke’s maintained that it is a non-stock and non-profit institution for charitable and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy its income tax exemption. CTA En Banc affirmed the CTA 1st Division ruling, the 1998 deficiency VAT assessment is cancelled and withdrawn but St. Lukes is liable for deficiency income tax and deficiency expanded withholding tax as well as 20% delinquency interest. 

Issue: Whether or not St. Lukes is liable for deficiency income tax

Held: The Court partly grants the petition of the BIR but on a different ground. SC held that Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed together without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary non-profit educational institutions and proprietary non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). 

“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue v. Club Filipino Inc. de Cebu, the Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders and members. The club was primarily funded by membership fees and dues. If it had profits, they were used for overhead expenses and improving its golf course. The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-making enterprise.

The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined “charity” in Lung Center of the Philippines v. Quezon City as “a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish were used for overhead expenses and improving its golf course. The club was non-profit because of its purpose and there was no themselves in life or [by] otherwise lessening the burden of government.” A non-profit club for the benefit of its members fails this test. An organization may be considered as non-profit if it does not distribute any part of its income to stockholders or members. However, despite its being a tax exempt institution, any income such institution earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of Section 30. 

There is no dispute that St. Luke’s is organized as a non-stock and non-profit charitable institution. However, this does not automatically exempt St. Luke’s from paying taxes. This only refers to the organization of St. Luke’s. Even if St. Luke’s meets the test of charity, a charitable institution is not ipso facto tax exempt. 

St. Luke’s Medical Center, Inc. is liable the deficiency income tax in 1998 based on the 10% preferential income tax rate under Section 27(B) of the National Internal Revenue Code. However, it is not liable for surcharges and interest on such deficiency income tax under Sections 248 and 249 of the National Internal Revenue Code.