Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 197760               January 13, 2014

TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION), Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks to
reverse and set aside the May 2, 2011  and the July 15, 2011  Resolutions of the Court of Tax
1 2

Appeals (CTA) En Banc in CTA EB Case No. 706. The assailed resolutions affirmed the November
26, 2010 Amended Decision  of the CTA Special First Division in CTA Case No. 7617, which
3

dismissed petitioner's claim for tax refund or issuance of a tax_ credit certificate for failure to comply
with the 120-day period provided under Section 112 (C) of the National Internal Revenue Code
(NIRC).

The facts, as found by the CTA follow:

Petitioner is principally engaged in the business of power generation and subsequent sale thereof to
the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) scheme. As such, it
is registered with the BIR as a VAT taxpayer in accordance with Section 107 of the National Internal
Revenue Code (NIRC) of 1977 (now Section 236 of the NIRC of 1997), with Tax Identification No.
001-726-870-000, as shown on its BIR Certificate of Registration No. OCN8RC0000017854.

On December 17, 2004, petitioner filed with the BIR Audit Information, Tax Exemption and
Incentives Division an Application for VAT Zero-Rate for the supply of electricity to the NPC from
January 1, 2005 to December 31, 2005, which was subsequently approved.

Petitioner filed with the BIR its Quarterly VAT Returns for the first three quarters of 2005 on April 25,
2005, July 26, 2005, and October 25, 2005, respectively. Likewise, petitioner filed its Monthly VAT
Declaration for the month of October 2005 on November 21, 2005, which was subsequently
amended on May 24, 2006. These VAT Returns reflected, among others, the following entries:

Exhibit Period Zero-Rated Taxable Output VAT Input VAT

Covered Sales/Receipts Sales
"C" 1st Qtr- ₱3,044,160,148.1 ₱1,397,107.8 ₱139,710.78 ₱16,803,760.82
2005 6 0
"D" 2nd Qtr- 3,038,281,557.57 1,241,576.30 124,157.63 32,097,482.29
2005
"E" 3rd Qtr- 3,125,371,667.08 452,411.64 45,241.16 16,937,644.73
2005
 "G" October 910,949.50 91,094.95 14,297,363.7
(amended 2005 6
)
  Total ₱9,207,813,372.8 ₱4,002,045.2 ₱400,204.52 ₱80,136,251.60
1 4

On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of tax
credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the first
three quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of
₱80,136,251.60, citing as legal bases Section 112 (A), in relation to Section 108 (B)(3) of the NIRC
of 1997, Section 4.106-2(c) of Revenue Regulations No. 7-95, Revenue Memorandum Circular No.
61-2005, and the case of Maceda v. Macaraig.

Due to respondent’s inaction on its claim, petitioner filed the instant Petition for Review before this
Court on April 18, 2007.

In his Answer filed on May 27, 2007, respondent interposed the following Special and Affirmative
Defenses:

5. He reiterates and pleads the preceding paragraphs of this answer as part of his Special
and Affirmative Defenses.

6. Petitioner’s alleged claim for refund is subject to administrative investigation/examination

by respondent.

7. Taxes remitted to the BIR are presumed to have been made in the regular course of
business and in accordance with the provision of law.

8. To support its claim for refund, it is imperative for petitioner to prove the following, viz.:

a. The registration requirements of a value-added taxpayer in compliance with the

pertinent provision of the Tax Code, of 1997, as amended, and its implementing
revenue regulations;

b. The invoicing and accounting requirements for VAT-registered persons, as well as

the filing and payment of VAT in compliance with the provisions of Sections 113 and
114 of the Tax Code of 1997, as amended;

c. Proof of compliance with the submission of complete documents in support of the

administrative claim for refund pursuant to Section 112 (D) of the Tax Code of 1997,
as amended, otherwise there would be no sufficient compliance with the filing of
administrative claim for refund which is a condition sine qua non prior to the filing of
judicial claim in accordance with the provision of Section 229 of the Tax Code, as
amended;

d. That the input taxes of ₱80,136,261.60 allegedly representing unutilized input VAT
from its domestic purchases of capital goods, domestic purchases of goods other
than capital goods, domestic purchases of services, services rendered by
nonresidents, importation of capital goods and importation of goods other than
capital goods were:
 d.i paid by petitioner;

d.ii attributable to its zero-rated sales;

d.iii used in the course of its trade or business; and

d.iv such have not been applied against any output tax;

e. That petitioner’s claim for tax credit or refund of the unutilized input tax (VAT) was
filed within two (2) years after the close of the taxable quarter when the sales were
made in accordance with Section 112 (A) of the Tax Code of 1997, as amended;

f. That petitioner has complied with the governing rules and regulations with
reference to recovery of tax erroneously or illegally collected as explicitly found in
Sections 112 (A) and 229 of the Tax Code, as amended.

g. Petitioner failed to prove compliance with the aforementioned requirements.

9. Furthermore, in action for refund the burden of proof is on the taxpayer to establish its
right to refund and failure to sustain the burden is fatal to the claim for refund/credit. This is
so because exemptions from taxation are highly disfavored in law and he who claims
exemption must be able to justify his claim by the clearest grant of organic or statutory law.
An exemption from common burden cannot be permitted to exist upon vague implications.
(Asiatic Petroleum Co. [P.I.] v. Llanes, 49 Phil 446, cited in Collector of Internal Revenue v.
Manila Jockey Club, 98 Phil. 670); 10. Claims for refund are construed strictly against the
claimant for the same partake the nature of exemption from taxation.

During trial, petitioner presented documentary and testimonial evidence. Respondent, on the other
hand, waived his right to present evidence.

This case was submitted for decision on July 13, 2009, after the parties filed their respective
Memorandum. 4

In a Decision  dated July 13, 2010, the CTA Special First Division partially granted petitioner’s claim
5

for refund or issuance of tax credit certificate. It held as follows:

WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED TO REFUND or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in the amount of SEVENTY-NINE MILLION ONE HUNDRED EIGHTY-FIVE
THOUSAND SIX HUNDRED SEVENTEEN AND 33/100 PESOS (₱79,185,617.33) in favor of
petitioner, representing unutilized input VAT, attributable to its effectively zero-rated sales of power
generation services to NPC for the period covering January 1, 2005 to October 31, 2005. SO
ORDERED.

Disgruntled, respondent filed a Motion for Reconsideration against said decision.

On November 26, 2010, the CTA Special First Division rendered an Amended Decision granting
respondent’s Motion for Reconsideration. In light of this Court’s ruling in Commissioner of Internal
Revenue v. Aichi Forging Company, Inc.  (Aichi), it reversed and set aside the earlier decision of the
6

CTA Special First Division. Thus:

In the case at bench, petitioner’s administrative claim was filed on December 20, 2006 which is well
within the two-year [prescriptive] period prescribed under Section 112 (A) of the NIRC. Observing
the 120-day period for the Commissioner to render a decision on the administrative claim, as
required under Section 112 (D) of the NIRC, petitioner’s judicial claim should have been filed not
earlier than April 19, 2007. Petitioner, however, filed its judicial claim on April 18, 2007 or only 199
days from December 20, 2006, thus, prematurely filed.

Accordingly, petitioner’s claim for refund/credit of excess input VAT, covering the period January 1 to
October 31, 2005, warrants a dismissal for having been prematurely filed.

WHEREFORE, the Motion for Reconsideration (Re: Decision promulgated 13 July 2010) of the
respondents is hereby GRANTED. The assailed July 13, 2010 Decision is hereby REVERSED and
SET ASIDE and CTA Case No. 7617 is hereby considered DISMISSED for having been prematurely
filed.

SO ORDERED. 7

Petitioner then filed a Petition for Review with the CTA En Banc arguing that the requirement to
exhaust the 120-day period for respondent to act on its administrative claim for input VAT
refund/credit under Section 112 (C) of the NIRC is merely a species of the doctrine of exhaustion of
administrative remedies and is, therefore, not jurisdictional.

In a Resolution dated May 2, 2011, the CTA En Banc denied the petition for lack of merit. Its fallo
reads:

WHEREFORE, premises considered, the Petition for Review is hereby DENIED DUE COURSE for
lack of merit.

Attys. Rachel P. Follosco and Froilyn P. Doyaoen-Pagayatan are hereby ADMONISHED to be more
careful in the discharge of their duty to the court as a lawyer under the Code of Professional
Responsibility.

SO ORDERED. 8

Unfazed, petitioner filed a Motion for Reconsideration. However, the same was denied in a
Resolution dated July 15, 2011.

Hence, the present petition.

Petitioner invokes the following grounds to support its petition:

I.

THE CTA ACQUIRED JURISDICTION OVER THE PETITION FOR REVIEW FILED WITH AND
TRIED BY THE SPECIAL FIRST DIVISION OF THE CTA DUE TO FAILURE OF THE
RESPONDENT CIR TO INVOKE THE RULE OF NON-EXHAUSTION OF ADMINISTRATIVE
REMEDIES.

II.
THE CTA EN BANC’S APPLICATION OF THE RECENT JUDICIAL INTERPRETATION OF THE
SUPREME COURT IN THE AICHI CASE TO THE INSTANT PETITION FOR REVIEW IS
ERRONEOUS BECAUSE:

A) IT VIOLATES ESTABLISHED RULES PROHIBITING RETROACTIVE

APPLICATION OF JUDICIAL DECISIONS;

B) IT WILL BE UNJUST AND INEQUITABLE TO THE PETITIONER WHO RELIED

IN GOOD FAITH ON PREVAILING JURISPRUDENCE AT THE TIME OF
INSTITUTING THE ADMINISTRATIVE AND JUDICIAL CLAIMS; AND,

C) IT WILL UNJUSTLY ENRICH THE GOVERNMENT AT THE EXPENSE OF THE

PETITIONER. 9

In essence, the issue is whether or not the CTA has jurisdiction to take cognizance of the instant
case.

Prefatorily, to address the issue of lack of jurisdiction, there is a need to discuss Section 112 (A) and
(C) which states:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-Rated or Effectively Zero-Rated Sales. – Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax: x x x.

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.

From the foregoing, it is clear that a VAT-registered taxpayer claiming for refund or tax credit of their
excess and unutilized input VAT must file their administrative claim within two years from the close
of the taxable quarter when the sales were made. After that, the taxpayer must await the decision or
ruling of denial of its claim, whether full or partial, or the expiration of the 120-day period from the
submission of complete documents in support of such claim. Once the taxpayer receives the
decision or ruling of denial or expiration of the 120-day period, it may file its petition for review with
the CTA within thirty (30) days.

In the Aichi case, this Court ruled that the 120-30-day period in Section 112 (C) of the NIRC is
mandatory and its non-observance is fatal to the filing of a judicial claim with the CTA. In this case,
the Court explained that if after the 120-day mandatory period, the Commissioner of Internal
Revenue (CIR) fails to act on the application for tax refund or credit, the remedy of the taxpayer is to
appeal the inaction of the CIR to the CTA within thirty (30) days. The judicial claim, therefore, need
not be filed within the two-year prescriptive period but has to be filed within the required 30-day
period after the expiration of the 120 days. Thus:

Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax refund/credit]," within
which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse
is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if
after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to [the] CTA within 30 days.

xxxx

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales." The phrase "within two years x x x apply for the issuance of a tax credit certificate or
refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the
CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days
within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing
an appeal with the CTA.  (Emphasis supplied)
10

Recently, however, in the case of Commissioner of Internal Revenue v. San Roque Power
Corporation  (San Roque), the Court clarified that the mandatory and jurisdictional nature of the 120-
11

30-day rule does not apply on claims for refund that were prematurely filed during the interim period
from the issuance of Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 on December 10,
2003 to October 6, 2010 when the Aichi doctrine was adopted. The exemption was premised on the
fact that prior to the promulgation of the Aichi decision, there was an existing interpretation laid down
in BIR Ruling No. DA-489-03 where the BIR expressly ruled that the taxpayer need not wait for the
expiration of the 120-day period before it could seek judicial relief with the CTA. It expounded on the
matter in this wise:

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code.  BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for
1âwphi1

the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, that the
expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

xxxx

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting
in good faith should not be made to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who, in
good faith, relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Section 246. Non-retroactivity of Rulings. – Any modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by the taxpayers
from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is
not limited to a reversal only by the Commissioner because this Section expressly states, "Any
revocation, modification or reversal" without specifying who made the revocation, modification or
reversal. Hence, a reversal by this Court is covered by Section 246.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made,
not by a particular taxpayer, but by a government agency tasked with processing tax refunds and
credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department
of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling
No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was, in fact, asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc.,
where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.  Thus, all taxpayers can rely on
1âwphi1

BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120-130 day periods are
mandatory and jurisdictional.12

In the present case, petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR
Ruling No. DA-489-03 on December 10, 2003 but before October 6, 2010, the date when the Aichi
case was promulgated. Thus, even though petitioner s judicial claim was prematurely filed without
waiting for the expiration of the 120-day mandatory period, the CT A may still take cognizance of the
instant case as it was filed within the period exempted from the 120-30-day mandatory period.

WHEREFORE, the foregoing considered, the instant Petition for Review on Certiorari is hereby
GRANTED. The May 2, 2011 and the July 15, 2011 Resolutions of the Court of Tax Appeals En
Banc in CTA EB Case No. 706 are REVERSED and SET ASIDE. Let this case be remanded to the
Court of Tax Appeals for the proper determination of the refundable amount.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

ROBERTO A. ABAD JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P. A. SERENO

Chief Justice
Footnotes

1
 Penned by Associate Justice Cielito N. Mindaro-Grulla, with Associate Justices Juanito C.
Castafieda, Jr., Erlinda P. Uy Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino and
Amelia R. Cotangco-Manalastas, concurring; Associate Justice Lovell R Bautista, dissenting;
Presiding Justice Ernesto D. Acosta and Associate Justice Caesar A Casanova, on wellness
leave, rollo, pp. 48-61.

2
 Rollo, pp. 66-70.

 Penned by Associate Justice Caesar A. Casanova, with Presiding Justice Ernesto D.

3

Acosta, concurring and Associate Justice Lovell R. Bautista, dissenting; id at 35-39.

4
 Id. at 15-18. (Citations omitted; emphasis in the original)

5
 Id. at 14-33.

6
 G.R. No. 184823, October 6, 2010, 632 SCRA 422.

7
 Rollo, pp. 38-39. (Emphasis in the original)

8
 Id. at 60. (Emphasis in the original)

9
 Id. at 84.

 Commissioner of Internal Revenue v. Aichi Forging Company, Inc., supra note 6, at 443-
10

444. (Emphasis in the original)

11
 G.R. Nos. 187485, 196113, 197156, February 12, 2013, 690 SCRA 336.

 Commissioner of Internal Revenue v. San Roque Power Corporation supra at 401-404.

12

(Citations omitted, emphasis in the original)

No. L-20942. September 22, 1967.

COMMISSIONER OFINTERNAL REVENUE, petitioner, vs. A. D. GUERRERO, Special

Administrator, in substitution of NATHANIEL I. GUNN, as Administrator of the Estate of the
late PAUL I. GUNN,respondent.

Constitutional law; Ordinance, background of.—Upon liberation in 1945 when the ravages of
war left the Philippines economically prostrate and helpless, the American Congress
enacted, by way of aid, the Philippine Trade Act of 1946, providing, in its Sec. 341, parity
rights with respect to “the disposition, exploitation, development and utilization” of all the
natural resources of the Philippines as well as the operation of public utilities. This was
embodied in an Executive Agreement of July 4, 1946, signed by the President of the
Philippines and the plenipotentiary of the President of the United States, and later appended
to the Philippine Constitution as Ordinance.

Same; Ordinance construed.—What it promises must be fulfilled. There must be recognition

of the right of the “citizens of the United States in the same manner as to, and under the
same conditions imposed upon, citizens of the Philippines, or corporations or associations
owned or controlled by citizens of 'the Philippines”, in the disposition, exploitation,
development and utilization of all the natural resources of the Philippines, and the operation
of public utilities. To that grant, the Philippines is committed. Its terms are to be respected.
Anything further than its categorical wording would not be warranted. Nothing less would
suffice, but anything more would not be justified. What was not included, whether by purpose
or inadvertence, cannot be judicially supplied.

Same; Scope of Ordinance.—The Ordinance, which is transitory in character, providing

merely for the exigencies of a few years, is designed for a limited period to allow what the
Constitution prohibits. During its effectivity there should be no thought of whittling down the
grant thus freely made. Nonetheless, it should not be given an interpretation at war with the
plain and explicit command of what is to continue far into the future that would trench further
on the plain constitutional mandate to limit the operation of public utilities to Filipino hands,
for the Constitution is intended to endure through a long lapse of ages and state principles
for an expanding future.

Taxation; Tax exemption rule; Rule applied to Ordinance.—Exemption, being obnoxious to

taxation, is not favored and never presumed; if granted, it must be categorically and
unmistakably expressed in terms that admit of no doubt, yet such exempting provision must
be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. No such grant is apparent from the face of the Ordinance

181

VOL. 21, SEPTEMBER 22, 1967

181

Commissioner of Internal Revenue vs. Guerrero

No such grant could be implied from its history, much less from its transitory character.

Same; Internal Revenue Code; Tax refund; Comity of nation; Case at bar.—Sec. 142 of the
National Internal Revenue Code, allowing Filipinos a refund of 50% of the specific tax paid
on aviation oil, cannot be availed of by aliens in the absence of showing that their country
grants similar exemption to Filipino citizens; and where no such evidence was presented, the
case should be remanded to the court a quo for further proceedings.

APPEAL from a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

     Solicitor General Alafriz for petitioner.

     A. E. Dacanay for respondent.

FERNANDO, J.:

A novel question, one of importance and significance, is before this Court in this petition for
the review of a decision of the Court of Tax Appeals. For the first time, the Ordinance
appended to the Constitution calls for interpretation, having been invoked to justify a claim
for refund of taxes by the estate of an American national, who in his life-time was engaged in
the air transportation business. More specifically, the issue is whether or not Section 142 of
the National Internal Revenue Code allowing Filipinos a refund of 50 percentum of the
specific tax paid on aviation oil, could be availed of by citizens of the United States and all
forms of business enterprises owned or controlled directly or indirectly by them in view of
their privilege under the Ordinance to operate public utilities “in the same manner as to, and
under the same conditions imposed upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the Philippines.”1

__________________
1 The Ordinance appended to the Constitution reads as follows: “Notwithstanding the
provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the
foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July,
nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered
Seven hundred and thirty-three, but m no case

182

182

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Guerrero

The Commissioner of Internal Revenue, now petitioner before this Court, denied the claim for
refund in the sum of P2,441.93 filed by the administrator of the estate of Paul I. Gunn,
thereafter substituted by the present respondent A. D. Guerrero as special administrator
under the above section of the National Internal Revenue Code.2 The deceased operated an
air transportation business under the business name and style of Philippine Aviation
Development; his estate, it was claimed, “was entitled to the same rights and privileges as
Filipino citizens operating public utilities including privileges in the matter of taxation.” The
Commissioner of Internal Revenue disagreed, ruling that such partial exemption from the
gasoline tax was not included under the terms of the Ordinance and that in ac-

___________________

to extend beyond the third of July, nineteen hundred and seventy-four, the disposition,
exploitation, development, and utilization of all agricultural, timber, and mineral lands of the
public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, and other natural resources of the Philippines, and the operation of, public
utilities, shall, if open to any person, be open to citizens of the United States and to all forms
of business enterprises owned or controlled, directly or indirectly, by citizens of the United
States in the same manner as to, and under the same, conditions imposed upon, citizens of
the Philippines or corporations or associations owned or controlled by citizens of the
Philippines.”

2 Section 142 of the National Internal Revenue Code as amended reads as follows: “Section
14. Specific tax on manufactured oils and others fuels.—On refined and manufactured
mineral oils and motor fuels, there shall be collected the following taxes: (a) xxx; (b) xxx; (c)
Naphtha, gasoline, and all other similar products of distillation, per liter of volume capacity,
eight centavos; and (d) x x x . Whenever any of the oils mentioned above are, during the five
years from June eighteen, nineteen hundred and fifty-two, used in agriculture and aviation,
fifty-percentum of the specific tax paid thereon shall he refunded by the Collector of Internal
Revenue upon the submission of the following: (1) xxx; (2) xxx; (3) In case of aviation oils, a
sworn certificate satisfactory to the Collector proving that the said oils were actually used in
aviation: Provided, That no such refunds shall be granted in respect to the oils used in
aviation by citizens and corporations of foreign countries which do not grant equivalent
refunds or exemptions in respect to similar oils used in aviation by citizens and corporations
of the Philippines.”

183

VOL. 21, SEPTEMBER 22, 1967

183

Commissioner of Internal Revenue vs. Guerrero

cordance with the statute, to be entitled to its benefits, there must be a showing that the
United States of which the deceased was a citizen granted a similar exemption to Filipinos.
The refund as already noted was denied. The matter was brought to the Court of Tax
Appeals on a stipulation of facts, no additional evidence being introduced. Viewing the
Ordinance differently, it “ordered the petitioner to refund to the respondent the sum of
P2,441.93 representing 50% of the specific taxes paid on 61,048.19 liters of gasoline
actually used in aviation during the period from October 3, 1956 up to May 31, 1957.” Not
satisfied with the above decision, petitioner appealed.

We sustain the Commissioner of Internal Revenue; accordingly, the Court of Tax Appeals is
reversed. To the extent that a refund is allowable, there is in reality a tax exemption. The rule
applied with undeviating rigidity in the Philippines is that for a tax exemption to exist, it must
be so categorically declared in words that admit of no doubt. No such language may be
found in the Ordinance. It furnishes no support, whether express or implied, to the claim of
respondent Administrator for a refund.

From 1906, in Catholic Church vs. Hastings3 to 1966, in Esso Standard Eastern, Inc. vs.
Acting Commissioner of Customs,4 it has been the constant and uniform holding that
exemption from taxation is not favored and is never presumed, so that if granted it must be
strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from
taxation, hence, an exempting provision should be construed strictissimi juris.5 The

_______________

3 5 Phil. 701.

4 L-21841, October 28, 1966. Some of the other cases follow: Govt. of the. Phil. v. Monte de
Piedad (1916) 25 Phil. 42; Asiatic Petroleum v. Llanes (1926) 49 Phil. 466; House v.
Posadas (1929) 53 Phil. 338; Phil. Tel. & Tel. Co. v. Collector (1933) 58 Phil. 639; Greenfield
v. Meer (1946) 77 Phil. 394; Collector of Internal Revenue v. Manila Jockey Club (1956) 98
Phil. 670; Phil. Guaranty Co. v. Commissioner, L-22074, Sept. 6, 1965; Abad v. Court of Tax
Appeals, L-20834, October 19, 1966.

5 Philippine Guaranty Co. v. Commissioner, L-22074, Septembei 6, 1965, per Bengzon, J.

184

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SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Guerrero

state of the law on the subject was aptly summarized in the Esso Standard Eastern, Inc. by
Justice Sanchez thus: “The drive of petitioner's argument is that marketing of its gasoline
product ‘is corollary to or incidental to its industrial operations.’ But this contention runs
smack against the familiar rules that exemption from taxation is not favored, and that
exemptions in tax statutes are never presumed. Which are but statements in adherence to
the ancient rule that exemptions from taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot
indulge in expansive construction and write into the law an exemption not therein set forth.
Rather, we go by the reasonable assumption that where the State has granted in express
terms certain exemptions, those are the exemptions to be considered, and no more x x x.”

In addition to Justice Tracey, who first spoke for this Court in the Hastings case in
announcing “the cardinal rule of American jurisprudence that exemption from taxation not
being favored,” and therefore “must be strictly construed” against the taxpayer, two other
noted American jurists, Moreland and Street, who likewise served this Court with distinction,
reiterated the doctrine in terms even more emphatic. According to Justice Moreland: “Even
though the complaint in this regard were well founded, it would have little bearing on the
result of the litigation when we take into consideration the universal rule that he who claims
an exemption from his share of the common burden of taxation must justify his claim by
showing that the Legislature intended to exempt him by words too plain to be mistaken.”6
From Justice Street: “Exemptions from taxation are highly disfavored, so much so that they
may almost be said to be odious to the law. He who claims an exemption must be able to
point to some positive provision of law creating the right. It cannot be allowed to exist upon a
vague implication such as is supposed to arise in this case from the omission from Act No.
1654 of any reference to liability for tax. The books

_____________

6 Govt. of the Phil. v. Monte de Piedad (1916) 35 Phil. 42, 48.

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Commissioner of Internal Revenue vs. Guerrero

are full of very strong expressions on this point.”7

At the time then when the Ordinance took effect in April, 1947, the strict rule against tax
exemption was undisputed and indisputable. Such being the case, it would be a plain
departure from the terms of the Ordinance to predicate a tax exemption where none was
intended. Well-settled is the principle “x x x that a constitutional provision must be presumed
to have been framed and adopted in the light and understanding of prior and existing laws
and with reference to them. ‘Courts are bound to presume that the people adopting a
constitution are familiar with the previous and existing laws upon the subjects to which its
provisions relate, and upon which they express their judgment and opinion in its adoption’.”8

Respect for and deference to doctrines of such undeniable force and cogency preclude an
affirmance of the decision of the Court of Tax Appeals. This is not to say that the scope of
the Ordinance is to be restricted or confined.

_________________

7 Asiatic Petroleum Co. v. Llanes (1926) 49 Phil. 466, 471-472. He added: “As was said by
the Supreme Court of Tenneesee in Memphis v. U. & P. Bank (91 Tenn., 546. 550), ‘The
right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the
government; and he who claims an exemption from the common burden, must justify his
claim by the clearest grant of organic or statute law.’ Other utterances equally or more
emphatic come readily to hand from ‘the highest authority. In Ohio Life Ins. and Trust Co. v.
Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not
be held to have been surrendered, ‘unless the intention to surrender is manifested by words
too plain to be mistaken.’ In the case of the Delaware Railroad Tax (18 Wallace, 206, 226),
the Supreme Court of the United States said that the surrender, when claimed, must be
shown by clear, unambiguous language, which will admit of no reasonable construction
consistent with the reservation of the power. If a doubt arises as to the intent of the
legislature, that doubt must be solved in favor of the State. In Erie Railway Company v.
Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of
exemptions, observed that a State cannot strip itself of the most essential power of taxation
by doubtful words. ‘It cannot, by ambiguous language, be deprived of this highest attribute of
sovereignty.’” (At pp. 471-472).

8 Gold Creek Mining Corp. v. Rodriguez (1938) 66 Phil. 259, 265, per Abad Santos, J.,
citing: Barry v. Truax, 13 N.C., 131; 99 N.W., 769; 65 L.R.A., 762.
186

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SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Guerrero

What it promises must be fulfilled. There must be recognition of the right of the “citizens of
the United States and to all forms of business enterprise owned or controlled, directly or
indirectly, by citizens of the United States” to operate public utilities “in the same manner as
to, and under the same conditions imposed upon, citizens of the Philippines or corporations
or associations owned or controlled by citizens of the Philippines.”

If the language of the Ordinance applies to tax refund or exemption, then the Court of Tax
Appeals should be sustained. It does not, however. Its terms are clear. Standing alone,
without any franchise to supply that omission, it affords no warrant for the claim here made.
While good faith, no less than adherence to the categorical wording of the Ordinance,
requires that all the rights and privileges thus granted to Americans and business enterprises
owned and controlled by them be respected, anything further would not be warranted.
Nothing less will suffice, but anything more is not justified.

This conclusion has reinforcement that comes to it from another avenue of approach, the
historical background of the Ordinance. In public law questions, history many a time holds
the key that unlocks the door to understanding. Justice Tuason would thus have courts “look
to the history of the times, examine the state of things existing when the Constitution was
framed and adopted, x x x and interpret it in the light of the law then in operation.”9 Justice
Laurel earlier noted that while historical discussion is not decisive, it is valuable.10 A brief
resume then of the events that led to its being appended to the Constitution will not be
inappropriate.

Early in 1945, liberation primarily through the efforts of the American forces under General
MacArthur, assisted by Filipino guerrillas, heralded the dawn, awaited so long and so
anxiously, ending the dark night of the Japanese Occupation, which was only partly
mitigated by a show of cooperation on the part of some Filipino leaders of stature and
eminence. All throughout those years, the Jap-
______________

9 De los Santos v. Mallare (1950) 87 Phil. 289, 295.

10 Schneckenburger v. Moran (1936) 63 Phil. 249,

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anese Army in the Philippines enforced repressive measures, severe in character. What was
even more regrettable, in the last few weeks, the few remaining Japanese troops in Manila
and suburbs made a suicidal stand. The scorched earth policy was followed. Guerrilla
suspects paid dearly for their imaginary sins. There were recorded cases, not few in number,
or the old and infirm, even those of tender years, not being spared. The Americans shelled
Japanese positions, unfortunately not always with precision, as would have been
unavoidable perhaps in any case. The lot of the helpless civilians, already suffering from acts
born out of desperation of a cornered prey, became even more unenviable. They were
caught in the cross-fire.

The toll in the destruction of the property and the loss of lives was heavy; the price the
Filipinos paid was high. The feeling then, and even now for that matter, was that it was worth
it. For life during the period of the Japanese Occupation had become unbearable. There was
an intolerable burden on the spirit and the kind of man with all civil liberties wantonly
disregarded. There was likewise a well-nigh insupportable affliction on his health and
physical well-being, with food, what there was of it, difficult to locate and beyond the means
of even the middleincome groups. Medicine was equally scarce, what was available
commanding prices unusually high. A considerable portion of the population were dressed in
rags and lived under the most pitiable conditions in houses that had seen much better days.
Moreover in a garrison state with the Japanese kempetai,11 and the contemptible spies and
informers, there was ever present that fear of the morrow, the sense of living at the edge of
an impending doom.

It was fortunate that the Japanese Occupation ended when it did. Liberation was hailed by
all, but the problems faced by the legitimate government were awesome in their immensity.
The Philippine treasury was bankrupt and her economy prostrate. There were no
dollarearning export crops to speak of; commercial operations were paralyzed; and her
industries were unable to pro-

______________

11 Japanese Military Secret Police.

188

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SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Guerrero

duce with mills, factories and plants either destroyed or their machineries obsolete or
dismantled. It was a desolate and tragic sight that greeted the victorious American and
Filipino troops. Manila, particularly that portion south of the Pasig, lay in ruins, its public
edifices and business buildings lying in a heap of rubble and numberless houses razed to
the ground. It was in fact, next to Warsaw, the most devastated city in the expert opinion of
the then General Eisenhower. There was thus a clear need of help from the United States.
American aid was forthcoming but on terms proposed by her government and later on
accepted by the Philippines.
One such condition expressly set forth in the Philippine Trade Act of 1946 passed by the
Congress of the United States was that: “The disposition, exploitation, development, and
utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces and sources of potential energy, and other
natural resources of the Philippines, and the operation of public utilities, shall, if open to any
person, be open to citizens of the United States and to all forms of business enterprises
owned or controlled directly or indirectly, by United States citizens.”12

The above was embodied in an Executive Agreement concluded on July 4, 1946, the
agreement being signed by the President of the Republic of the Philippines and the
plenipotentiary of the President of the United States. The Constitution being in the way, both
the exploitation of natural resources and the operation of public utilities having been
reserved for Filipinos, there was a need for an amendment. Such an amendment was only
forthcoming. It took the form of the Ordinance now under consideration, which took effect on
April 9, 1947.

The Ordinance thus came into being at a time when the liberation of the Philippines had
elicited a vast reservoir of goodwill for the United States, one that has lasted to this day
notwithstanding irritants that mar ever so often the relationship even among the most friendly
of nations. Her prestige was never so high. The Philippines after

_______________

12 Section 341, Philippine Trade Act of 1946.

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Commissioner of Internal Revenue vs. Guerrero

hearing opposing views on the matter conceded parity rights. She adopted the Ordinance.
To that grant, she is committed. Its terms are to be respected. In view of the equally
fundamental postulate that legal concepts imperatively calling for application cannot be
ignored, however, it follows that tax exemption to Americans or to business owned or
controlled directly or indirectly by American citizens, based solely on the language of the
Ordinance, cannot be allowed. There is nothing in its history that calls for a different view.
Had the parties been of a different mind, they would have employed words indicative of such
intention. What was not there included, whether by purpose or inadvertence, cannot be
judicially supplied.

One final consideration. The Ordinance is designed for a limited period to allow what the
Constitution prohibits; Americans may operate public utilities. During its effectivity, there
should be no thought of whittling down the grant thus freely made. Nonetheless, being of a
limited duration, it should not be given an interpretation that would trench further on the plain
constitutional mandate to limit the operation of public utilities to Filipino hands. That is to
show fealty to the fundamental law, which, in the language of Story “was not intended to
provide merely for the exigencies of a few years” unlike the Ordinance “but was to endure
through a long lapse of ages, the events of which were locked up in the inscrutable purposes
of Providence.”13 This is merely to emphasize that the Constitution unlike an ordinance
appended to it, to borrow from Cardozo “states or ought to state not rules for the passing
hour, but principles for an expanding future.”14 What is transitory in character then should
not be given an interpretation at war with the plain and explicit command of what is to
continue far into the future, unless there be some other principle of acknowledged primacy
that compels the contrary.15

_______________

13 Martin v. Hunter’s Lessee (1816) 1 Wheat 304

14 Cardozo, The Nature of Judicial Process (1921) 83.

15 What is permanent and enduring, as long a the Constitution remains what it is, is the
stress, both unmistakable and pronounced, on nationalism. So it has been declared
repeatedly.

190
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SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Guerrero

It would seem to follow from all the foregoing that the decision of the Court of Tax Appeals
enlarged the scope and operation of the Ordinance. It failed unfortunately to abide by what
the controlling precedents require, namely, that tax exemption is not to be presumed and
that if granted, it is to be most strictly construed. No such grant was apparent on the face of
the Ordinance. No such grant could be implied from its history, much less from its transitory
character. The Court of Tax Appeals went too far. That cannot be done.

WHEREFORE, the decision of the Court of Tax Appeals is reversed and the case is
remanded to it, to grant respondent Administrator the opportunity of proving whether the
estate could claim the benefits of Section 142 of the National Internal Revenue Code,
allowing refund to citizens of foreign countries on a showing of reciprocity. With costs.

     Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
Castro and Angeles, JJ., concur.

Decision reversed.

Note.—See note under Basilan Estates, Inc. vs. Commissioner of Internal Revenue, L-
22492, September 5, 1967, ante.

__________________

by this Court. We start with Justice Laurel, himself one of the foremost architects of the
Constitution, who authoritatively noted the “nationalistic xxx traits” discoverable by “even a
sudden dip into a variety of the provisions” embodied in our charter framed under “an intense
spirit of nationalism.” (Gold Creek Mining Co. vs. Rodriguez [1938] 66 Phil. 259, 270.) Justice
 Perfecto, another delegate, who gained deservedly a reputation as a civil libertarian, would
have the guarantees of due process and equal protection yield to its nationalistic provisions,
one of which “reserves to Filipino citizens the operation of public services or utilities.” (Co
Chiong v. Cuaderno [1949] 83 Phil. 242, 251.) From still another former member of the
constitutional convention, who likewise sat on this Court, Justice Labrador: “It would do well
to refer to the nationalistic tendency manifested in various provisions of the Constitution, x x
x The nationalization of the retail trade is only a continuance of the nationalistic protective
policy laid down as a primary objective of the Constitution. Can it be said that a law imbued
with

191

© Copyright 2021 Central Book Supply, Inc. All rights reserved. Commissioner of Internal
Revenue vs. Guerrero, 21 SCRA 180, No. L-20942 September 22, 1967

G.R. No. 150812. August 22, 2006.*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CITYTRUST BANKING CORPORATION,

respondent.

Taxation; Court of Tax Appeals; Because of the CTA’s recognized expertise in taxation, its findings are
not ordinarily subject to review specially where there is no showing of grave error or abuse on its part.—
The CTA complied with the Court’s order to conduct further proceedings for the reception of the CIR’s
evidence in CTA Case No. 4099. In the course thereof, Citytrust paid the assessed deficiencies to remove
all administrative impediments to its claim for refund. But the CIR considered this payment as an
admission of a tax liability which was inconsistent with Citytrust’s claim for refund. There is indeed a
contradiction between a claim for refund and the assessment of deficiency tax. The CA pointed out that
the case was remanded to the CTA for the reception of additional evidence precisely to resolve the
apparent contradiction. Because of the CTA’s recognized expertise in taxation, its findings are not
ordinarily subject to review specially where there is no showing of grave error or abuse on its part. This
Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very
nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an abuse or improvident exercise of
authority.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

_______________
* SECOND DIVISION.

478

478

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation

The facts are stated in the opinion of the Court.

     The Solicitor General for petitioner.

     Pelaez, Gregorio, Sipin, Bala and Robles for respondent.

CORONA, J.:

The Commissioner of Internal Revenue (CIR) assails the decision1 of the Court of Appeals (CA) and its
resolution2 upholding the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4099 which
ordered the refund of P13,314,506.14 to respondent Citytrust Banking Corporation (Citytrust)3 as its
alleged overpaid income taxes for the years 1984 and 1985.

On May 28, 1991, the CTA ordered the CIR to grant Citytrust a refund in the amount of P13,314,506.14
representing Citytrust’s overpaid income taxes for 1984 and 1985. The CIR filed a motion for
reconsideration (MR) on the ground that the Certificate of Tax Withheld was inconclusive evidence of
payment and remittance of tax to the Bureau of Internal Revenue. In its supplemental MR, the CIR
alleged an additional ground: that Citytrust had outstanding deficiency income and business tax
liabilities of P4,509,293.714 for 1984, thus, the claim for refund was not in order. The tax court denied
both motions.
_______________

1 Decision dated May 21, 2001; penned by Associate Justice Portia Aliño-Hormachuelos and concurred
in by Associate Justices Fermin A. Martin Jr. (retired) and Mercedes Gozo-Dadole (retired) of the Second
Division of the Court of Appeals; Rollo, pp. 17-23.

2 Resolution dated October 26, 2001; penned by Associate Justice Portia Aliño-Hormachuelos and
concurred in by Associate Justices Romeo A. Brawner (retired) and Mercedes Gozo-Dadole (retired) of
the Second Division of the Court of Appeals; Id., pp. 24-26. Justice Brawner took the place of Justice
Martin after the latter’s retirement.

3 Now absorbed by the Bank of the Philippine Islands.

4 Rollo, p. 33.

479

VOL. 499, AUGUST 22, 2006

479

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation

The case was elevated to the CA5 in CA-G.R. SP No. 26839 but the appellate court affirmed the CTA’s
ruling. On petition for review on certiorari to this Court, however, we ruled that there was an apparent
contradiction between the claim for refund and the deficiency assessments against Citytrust, and that
the government could not be held in estoppel due to the negligence of its officials or employees,
specially in cases involving taxes. For that reason, the case was remanded to the CTA for further
reception of evidence.6
The tax court thereafter conducted the necessary proceedings. One of the exhibits presented and
offered in the hearings was a letter dated February 28, 1995, signed by the CIR, stating the withdrawal
and cancellation of the following assessments:7

Kind of Tax

Year

Involved

Amount

1.

[Deficiency] Fixed Tax

1984

P 44,132.88

2.

[Deficiency] Withholding Tax on

deposit substitutes (1-1-84 to 10-

15-84)

1984
22,363,791.31

3.

[Deficiency] Withholding Tax on

deposit substitutes (10-15-84 to

12-31-84)

1984

11,292,140.50

4.

[Deficiency] Documentary Stamp

Tax on deposit substitutes

1984

17,825,342.30

_______________

5 Under RA 9282, the CTA was upgraded to the same level as the CA. Hence, upon its effectivity in 2004,
decisions of the CTA are now appealable directly to the Supreme Court.

6 See Commissioner of Internal Revenue v. Court of Tax Appeals, et al., G.R. No. 106611, 21 July 1994,
234 SCRA 348.
7 CTA Decision, Rollo, p. 33. Penned by Presiding Judge Ernesto D. Acosta with Associate Judges Ramon
O. de Veyra and Amancio Q. Saga concurring.

480

480

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation

In the same letter, the CIR demanded the following sums from Citytrust for 1984: (1) as deficiency
income tax—P3,301,578.19; (2) as deficiency gross receipts tax—P1,193,090.52 and (3) as fixed tax as
real estate dealer—P14,625. Citytrust paid these deficiency tax liabilities.8

From the exhibits presented to it, the CTA determined that: (1) the deficiency and gross receipts taxes
had been fully paid and (2) the deficiency income tax was only partially settled.9

Except for a pending issue in another CTA proceeding,10 Citytrust considered all its deficiency tax
liabilities for 1984 fully settled, hence, it prayed that it be granted a refund. The CIR interposed his
objection, however, alleging that Citytrust still had unpaid deficiency income, business and withholding
taxes for the year 1985.11 Due to these deficiency assessments, the CIR insisted that Citytrust was not
entitled to any tax refund.

On October 16, 1997, the CTA set aside the CIR’s objections and granted the refund.12

On May 21, 2001, the CA denied the CIR’s petition for review13 for lack of merit and affirmed the CTA
decision.14

Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the
refund of P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the
CA erred in not holding that payment by Citytrust of its defi-
_______________

8 CTA Decision, Id., pp. 33-34.

9 Id., pp. 34-35.

10 Petitioner only paid P2,405,940.90 of its deficiency income tax. The amount was the result of
excluding the expenses allocable to non-taxable income from the tax base. The issue of whether
expenses allocable to nontaxable income are deductible from the tax base was raised in a separate
proceeding (CTA Case No. 5261, Citytrust Banking Corporation v. The Commissioner of Internal Revenue)
which, at the time CTA decided CTA Case No. 4099, was still pending.

11 Rollo, pp. 35-36. The assessments were contained in a Delinquency Verification Slip dated June 5,
1990 (marked as Exhibit “5” before the CTA).

12 Id., p. 38.

13 Docketed as CA-G.R. SP No. 46793.

14 Rollo, p. 23.

481

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481

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation
ciency income tax was an admission of its tax liability and, therefore, a bar to its entitlement to a refund
of income tax for the same taxable year.

In resolving this case, the CTA did not allow a set-off or legal compensation of the taxes involved.15 The
CTA reasoned:

Again, the BIR interposed objection to the grant of such refund. It alleged that there are still deficiency
income, business and withholding taxes proposed against petitioner for 1985. These assessments are
contained in a Delinquency Verification Slip, dated June 5, 1990, which was marked as Exh. “5” for
respondent. Due to these deficiency assessments, respondent insisted that petitioner is not entitled to
any tax refund.

[The CTA] sets aside respondent’s objection and grants to petitioner the refund of the amount of
P13,314,506.14 on several grounds.

First, [respondent’s position] violates the order of the Supreme Court in directing [the CTA] to conduct
further proceedings for the reception of petitioner’s evidence, and the disposition of the present case.
Although the Supreme Court did not specifically mention what kind of petitioner’s evidence should be
entertained, [the CTA] is of the opinion that the evidence should pertain only to the 1984 assessments
which were the only assessments raised as a defense on appeal to the Court of Appeals and the
Supreme Court. The assessments embodied in Exhibit “5” of respondent were never raised on appeal to
the higher [c]ourts. Hence, evidence related to said assessments should not be allowed as this will lead
to endless litigation.

Second, [the CTA] has no jurisdiction to try an assessment case which was never appealed to it. With
due respect to the Supreme Court’s decision, it is [the CTA’s] firm stand that in hearing a refund case,
the CTA

_______________

15 Id., p. 38. See Vitug and Acosta, TAX LAW AND JURISPRUDENCE 46 (2000). See also Francia v.
Intermediate Appellate Court and Fernandez, G.R. No. L-67649, 28 June 1988, 162 SCRA 753 and Caltex
Philippines, Inc. v. Commission on Audit, et al., G.R. No. 92585, 8 May 1992, 208 SCRA 726. The
prevalent rule in our jurisdiction disfavors set-off or legal compensation of tax obligations for the
following reasons: (1) taxes are of a distinct kind, essence and nature, and these impositions cannot be
so classed in merely the same category as ordinary obligations; (2) the applicable laws and principles
governing each are peculiar, not necessarily common to each and (3) public policy is better subserved if
the integrity and independence of taxes be maintained.

482

482

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation

cannot hear in the same case an assessment dispute even if the parties involved are the same parties.16
x x x x x x x x x. (Citations omitted and emphasis supplied)

We uphold the findings and conclusion of the CTA and the CA. Records show that this Court made no
previous direct ruling on Citytrust’s alleged failure to substantiate its claim for refund. Instead, the order
of this Court addressed the apparent failure of the Bureau of Internal Revenue, by reason of the mistake
or negligence of its officials and employees, to present the appropriate evidence to

_______________

16 Rollo, pp. 35-37, citing the CTA Resolution in CTA Case No. 4231, Chemo-Technische Manufacturing,
Inc. v. the Commissioner of Internal Revenue, pp. 7-8, promulgated on August 31, 1995:

Our second reason why we refuse to take cognizance of petitioner’s deficiency tax assessment is that to
do so would create utter confusion among taxpayers. It is of common knowledge that the laws or rules
governing claims for refund are separate and distinct from those applicable to assessment appeals. For
example, the period of time to appeal a refund case is within (2) years from the date of payment, while
the filing of an assessment appeal requires the observance of thirty (30) days from the date of receipt of
denial of protest. Using this example for illustration, let us take a taxpayer who has an erroneously paid
capital gains tax in August 1992. Sometime in August 1994, an assessment was issued against him for
deficiency income tax for the same taxable year. Supposing, he immediately protested the said
assessment but the BIR did not immediately act on his protest, will he still wait for the [BIR’s] decision
before he can go to [the CTA] to file his claim for refund? What about if the two-year period to appeal
his refund is [nearing expiration], will he still wait indefinitely for the decision on his protest, so he can
file both suits simultaneously with this Court? Of course, the answer will be No.

Now, let us reverse the scenario. Supposing, the [BIR’s] assessment came first but this time no protest
was made by the taxpayer. [H]ence, the assessment became final and executory and so, the [BIR] filed a
collection case in the regular trial court. During the pendency of the collection suit, taxpayer discovered
that he made an erroneous payment of a different kind of tax. To avoid multiplicity of suits, will the [BIR]
allow the taxpayer to venti-late his claim for refund in the same collection case? Of course, the [BIR] will
object on the ground of jurisdiction.

483

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483

Commissioner of Internal Revenue vs. Citytrust

Banking Corporation

oppose respondent’s claim.17 In the earlier case, we directed the joint resolution of the issues of tax
deficiency assessment and refund due to its particular circumstances.18

The CTA complied with the Court’s order to conduct further proceedings for the reception of the CIR’s
evidence in CTA Case No. 4099. In the course thereof, Citytrust paid the assessed deficiencies to remove
all administrative impediments to its claim for refund. But the CIR considered this payment as an
admission of a tax liability which was inconsistent with Citytrust’s claim for refund.

There is indeed a contradiction between a claim for refund and the assessment of deficiency tax. The CA
pointed out that the case was remanded to the CTA for the reception of additional evidence precisely to
resolve the apparent contradiction.
Because of the CTA’s recognized expertise in taxation, its findings are not ordinarily subject to review
specially where there is no showing of grave error or abuse on its part.19

This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the
very nature of its function, is dedicated exclusively to the consideration of tax problems and has
necessarily developed an expertise on the subject, unless there has been an abuse or improvident
exercise of authority.20

WHEREFORE, the petition is hereby DENIED. The May 21, 2001 decision of the Court of Appeals in CA-
G.R. SP No. 46793 is AFFIRMED.

_______________

17 Rollo, p. 31. See Commissioner of Internal Revenue v. Court of Tax Appeals, supra.

18 Commissioner of Internal Revenue v. Court of Tax Appeals, supra,at p. 358.

19 See Philippine Refining Company (now known as Unilever Philippines [PRC], Inc.) v. Court of Appeals,
326 Phil. 680; 256 SCRA 667 (1996).

20 Sea-Land Service, Inc. v. Court of Appeals, G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446.

484

484

SUPREME COURT REPORTS ANNOTATED

Figuracion-Gerilla vs. Vda. de Figuracion

SO ORDERED.
     Puno (Chairperson), Sandoval-Gutierrez and Garcia, JJ., concur.

     Azcuna, J., On Official Business.

Petition denied, judgment affirmed.

Notes.—In reviewing administrative decisions, the reviewing court cannot re-examine the factual basis
and sufficiency of evidence—the findings of fact must be respected so long as they are supported by
substantial evidence. (Protector’s Services, Inc. vs. Court of Appeals, 330 SCRA 404 [2000])

Strict procedural rules generally frown upon the submission of the Tax Return after the trial, but the law
creating the Court of Tax Appeals specifically provides that proceedings before it shall not be governed
strictly by the technical rules of evidence—the paramount consideration remains the ascertainment of
truth. (BPI-Family Savings Bank, Inc. vs. Court of Appeals, 330 SCRA 507 [2000])

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© Copyright 2021 Central Book Supply, Inc. All rights reserved. Commissioner of Internal Revenue vs.
Citytrust Banking Corporation, 499 SCRA 477, G.R. No. 150812 August 22, 2006