Roxas vs. CTA

Roxas vs. CTA

GR No. L-25043 | April 26, 1968

Facts:

·         Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their grandchildren by hereditary succession the following properties:

a.        Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas

-          Tenants who have been tilling the lands expressed their desire to purchase from Roxas y Cia, the parcels which they actually occupied

-          The govt, in line with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings

-          The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and subdivision expenses

-          Unfortunately, the govt did not have funds

-          A special arrangement was made with the Rehabilitation Finance Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan

-          Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the RFC to pay its loan from the proceeds of the yearly amortizations paid by the farmers

-          In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Sec. 34 of the Tax Code

b.        Residential house and lot at Wright St., Malate, Manila

-          After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals of 8K/year to Roxas y Cia

c.        Shares of stocks in different corporations

·         To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a partnership called Roxas y Compania

·         On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus P10.00 compromise penalty for late payment.

-          Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax

·         The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955, resulting from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers

·         The brothers protested the assessment but was denied, thus appealing to the CTA

·         CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa

Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the business of selling real estate

Ruling: NO, being an isolated transaction

·         Real estate dealer: any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year:

·         Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals

·         The fact that there were hundreds of vendees and them being paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period

·         the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless

·         It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. But due to the lack of funds, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself

·         The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly

·         Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%

As to the deductions

a.        P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer given as gifts to various persons – representation expenses

·         Representation expenses: deductible from gross income as expenditures incurred in carrying on a trade or business

·         In this case, the evidence does not show such link between the expenses and the business of Roxas y Cia

b.        Contributions to the Pasay police and fire department and other police departments as Christmas funds

·         Contributions to the Christmas funds are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities

·         Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes

·         As to the contribution to the Manila Police trust fund, such is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.

c.        Contributions to the Philippines Herald's fund for Manila's neediest families

·         The contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes

·         There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code

d.        Contribution to Our Lady of Fatima chapel at the FEU

·         University gives dividends to its stockholders

·         Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization

·         The contributions belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders

No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively

CIR vs. Algue Inc.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988

Facts:

·         Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities

·         On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes from 1958-1959, amtg to P83,183.85

·         A letter of protest or reconsideration was filed by Algue Inc on Jan 18

·         On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the pending protest

·         Since the protest was not found on the records, a file copy from the corp was produced and given to BIR Agent Reyes, who deferred service of the warrant

·         On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served

·         On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals

·         CIR contentions:

-          the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense

-          payments are fictitious because most of the payees are members of the same family in control of Algue and that there is not enough substantiation of such payments

·         CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by Algue as legitimate business expenses in its income tax returns

Ruling:

·         Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in accordance with law.

·         RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged

·         During the intervening period, the warrant was premature and could therefore not be served.

·         Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on conformed to the decision of CTA

·         There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends was involved

·         CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction

·         Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. This arrangement was understandable in view of the close relationship among the persons in the family corporation

·         The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

·         Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered xxx

·         the burden is on the taxpayer to prove the validity of the claimed deduction

·         In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos.

·         Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values

·         Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not have been disallowed by the CIR

American Bible Society vs. City of Manila

American Bible Society vs. City of Manila

GR No. L-9637 | April 30, 1957

Facts:

·         American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898

·         City of Manila is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila

·         American Bible Society has been distributing and selling bibles and/or gospel portions throughout the Philippines and translating the same into several Philippine dialect

·         City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for operating without the necessary permit and license, thereby requiring the corporation to secure the permit and license fees covering the period from 4Q 1945-2Q 1953

·         To avoid closing of its business, American Bible Society paid the City of Manila its permit and license fees under protest

·         American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529 and 3000, and prayed for a refund of the payment made to the City of Manila. They contended:

a.        They had been in the Philippines since 1899 and were not required to pay any license fee or sales tax

b.       it never made any profit from the sale of its bibles

·         City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the Ordinances in question

·         Trial Court dismissed the complaint

·         American Bible Society appealed to the Court of Appeals

Issue: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles

Ruling: NO

·         Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of the business, trades or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer. American Bible Society’s business is not among those enumerated

·         However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or occupation not mentioned, except those upon which the City is not empowered to license or to tax P5.00

·         Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation.

·         2 provisions of law that may have bearing on this case:

a.        Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of Manila is empowered to tax and fix the license fees on retail dealers engaged in the sale of books   

b.       Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax. Further, Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance

·         The only difference between the 2 provisions is the limitation as to the amount of tax or license fee that a retail dealer has to pay per annum

·         As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise of these freedoms provided for in the Bill of Rights, is indeed as potent as the power of censorship which this Court has repeatedly struck down. It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax.

·         Further, the case also mentioned that the power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse

·         Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue Code, Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code shall not be taxed

·         The price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that American Bible Society was engaged in the business or occupation of selling said "merchandise" for profit

·         Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible Society’s free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it

Intel Technology Phils vs. CIR

Intel Technology Phils. Inc. vs. CIR

GR No. 166732 | April 27, 2007

Facts:

·         Intel Tech

-          domestic corporation engaged primarily in the business of designing, developing, manufacturing and exporting advanced and large- scale integrated circuit components

-          registered with the BIR as VAT entity

-          registered with PEZA

·         As a VAT-registered entity, Intel file its monthly VAT declarations and quarterly VAT return

·         During the 2Q of 1998, Intel declared zero-rated export sales of 2.5Mn and VAT input taxes from domestic purchases of goods and services of 11.7Mn

-          Zero-rated export sales were paid in acceptable foreign currency and were inwardly remitted

·         On 1999, a claim for tax refund/credit of VAT input taxes was filed by Intel

·         Prior to the lapse of 2-year prescriptive prd and due to inaction by the CIR, a petition for review was filed with the CTA and prayed for the issuance of a tax credit certificate amtg to 11.7Mn

-          for the period covering April 01, 1998 to June 30, 1998, having generated zero-rated sales and paid VAT input taxes in the course of its trade or business, which VAT input taxes are attributable to the zero-rated sales and have not been applied to any VAT output tax liability for said period or any succeeding quarter or quarters nor has been issued any tax credit certificate, it follows that it is entitled to the issuance of a tax credit certificate for VAT input taxes in the amount of PhP11,770,181.70

·         CTA decision: denied the claim for tax refund or issuance of a tax credit certificate since the export invoices offered as evidence could not be considered as competent evidence to prove its zero-rated sales of goods for VAT purposes and for refund or issuance of a tax credit certificate because no BIR authority to print said invoices was indicated

·         A petition for review was filed before the CA, arguing that the info (seller’s TIN, statement that seller is VAT-registered) required to be printed in the invoice or receipt do not apply to its export sales since no input VAT may be claimed and that the absence of BIR authority to print its TIN-V in some of the invoices is not fatal to its claim for refund or issuance of a tax credit certificate as to invalidate the documents used to prove its export sales

·         CA decision:  since Intel issued invoices with the BIR’s authority to print, it must be concluded that these invoices were not registered as they did not comply with the invoicing requirements under Section 113, and the requirements for issuance of receipts or sales or commercial invoices under Section 237. Thus, an unregistered receipt could not be used as supporting document for input tax

Issue: W/N Intel is not entitled to a tax refund/credit for failure to comply with the invoicing requirements?

Ruling:

·         a taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a refund or issuance of a tax credit certificate for input taxes paid attributable to such sales upon complying with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax; and (5) in case of zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations.

·         The docu evid submitted by Intel such as summary of export sales, sales invoices, official receipts, airway bills and export declarations, prove that it is engaged in the "sale and actual shipment of goods from the Philippines to a foreign country." Hence, Intel is considered engaged in export sales (a zero-rated transaction) if made by a VAT-registered entity

·         the certification of inward remittances attests to the fact of payment "in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the BSP

·         Therefore, Intel’s evidence, juxtaposed with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, as enumerated earlier, sufficiently establish that it is entitled to a claim for refund or issuance of a tax credit certificate for creditable input taxes.

·         while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein. Only the following items are required to be indicated in the receipts or invoices: 

a.        a statement that the seller is a VAT-registered entity followed by its TIN-V;

b.        the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax;

c.        date of the transaction;

d.        quantity of merchandise;

e.        unit cost;

f.         description of merchandise or nature of service;

g.        the name, business style, if any, and address of the purchaser, customer or client in the case of sales, receipt or transfers in the amount of P100.00 or more, or regardless of the amount, where the sale or transfer is made by a person liable to VAT to another person also liable to VAT, or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees; and

h.        the TIN of the purchaser where the purchaser is a VAT-registered person.

·         while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered.

·         Intel,  as a VAT-registered entity, is engaged in export sales of advanced and large-scale ICs and, as such, under Section 106 (A)(2)(a)(1) of the Tax Code, its sales or transactions are subject to VAT at 0% rate. Further, subject to the requirements stated in Section 112(A), it is entitled to claim refund or issuance of a tax credit certificate for input VAT taxes attributable to its export sales. As the Court had the occasion to explain since no output VAT was imposed on the zero-rated export sales, what the government reimburses or refunds to the claimant is the input VAT paid – thus, the necessity for the input VAT paid to be substantiated by purchase invoices or official receipts. These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quality of goods sold and their selling price, and, taken collectively, are the best means to prove the input VAT payments of the claimant

·         In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is the documentary substantiation of the input VAT paid, as may be proven by other export documents, rather than the supporting documents for the zero-rated export sales. And since petitioner has established by sufficient evidence that it is entitled to a refund or issuance of a tax credit certificate, in accordance with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should not be denied, notwithstanding its failure to state on the invoices the BIR authority to print and the TIN-V.

The incentives offered to PEZA enterprises, among which are tax exemptions and tax credits, ultimately redound to the benefit of the national economy, enticing as they do more enterprises to invest and do business within the zones, thus creating more employment opportunities and infusing more dynamism to the vibrant interplay of market forces