Part III

COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE HEALTH CARE PROVIDERS, INC.

Facts:PhilHealth is a health maintenance organization (HMO). On June 1988, the BIR issued a VAT ruling stating that PhilHealth, as a provider of medical services, is exempt from VAT. The CTA however ruled that PhilHealth is a service contractor subject to VAT since it “does not actually render medical services but merely acts as a conduit between members and accredited hospitals”.

Issue:Are PhilHealth’s services considered “medical services” to entitle it to VAT exemption?

Held: NO. But PhilHealth may exempt from VAT due only to a previously issued ruling.

The VAT-exempt transaction involved is “medical, dental, hospital and veterinary services except those rendered by professionals”. Given that Petitioner is not the entity providing medical services and only (i) acts as a conduit; (ii) arranges for the provision of health care; (iii) contracts services of doctors, etc.; and (iv) contracts and negotiates with hospitals, its services are not VAT-exempt.

COMMISSIONER OF INTERNAL REVENUE, vs.PLACER DOME TECHNICAL SERVICES (PHILS.), INC.; G.R. No. 164365; June 8, 2007

FACTS: At the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling operations, and causing potential environmental damage. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines.PDTSL and respondent thus entered into an Implementation Agreement. Due to the urgency and potentially significant damage to the environment, respondent had agreed to immediately implement the project, and the Implementation Agreement stipulated that all implementation services rendered by respondent even prior to the agreement’s signing shall be deemed to have been provided pursuant to the said Agreement. The

Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services as well as a fee agreed to one percent (1%) of such Costs."Respondent amended its quarterly VAT returns. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. Respondent argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines. When the CIR did not act on this claim, respondent duly filed a Petition for Review with the CTA, praying for the refund. CIR merely invoked the presumption that taxes are collected in accordance with law, and that claims for refund of taxes are construed strictly against claimants.CTA ruled in favor of respondent but only the resulting input VAT of P17,178,373.12 could be refunded.The rulings of the CTA were elevated by petitioner to the CA on Petition for Review. CA affirmed the CTA ruling.

ISSUE: Whether Placer is entitled to the refund as the revenues qualified as zero-rated sales

HELD: YesSection 102. Value-Added Tax on Sale of Services and Use or Lease of Properties.(b) Transactions Subject to Zero Percent (0%) Rate. ─ The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BangkoSentralngPilipinas (BSP);(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP].It is Section 102(b)(2) which finds special relevance to this case. The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement.Yet even as services may be subject to VAT, our tax laws extend the

benefit of zero-rating the VAT due on certain services. The law is very clear. Under the last paragraph [of Section 102(b)], services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.Petitioner presently invokes the "destination principle," citing that [r]espondent’s services, while rendered to a non-resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American Express debunked this argument:As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the consumption of its output abroad. The consumption contemplated by law, contrary to petitioner's administrative interpretation, does not imply that the service be done abroad in order to be zero-rated.Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term means the performance or "successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability x xx"Its services, having been performed in the Philippines, are therefore also consumed in the Philippines.Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined. Instead, there can only be a "predetermined end of a course" when determining the service "location or position x xx for legal purposes."However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]." x Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be tacked in as part of the cost of goods exported. The law neither imposes such requirement nor associates services with exported goods. It simply states that the services performed by VAT-registered persons in the Philippines — services other than the processing, manufacturing or repacking of goods for persons doing business outside this country — if paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The service rendered by respondent is clearly different from the product that arises from the rendition of such service. The activity that creates the income must not be confused with the main business in the course of which that income is realized. The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject to its

jurisdiction, for the State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used.

OCEANIC WIRELESS NETWORK, INC. vs. CIR ;G.R. No. 148380, December 9, 2005

Facts:The controversy in this case started when the petitioner received from the BIR deficiency tax assessments for the year 1984. When the petitioner filed a protest and requested for a reconsideration or cancellation of the same, the Chief of the Accounts Receivable and Billing Division of the BIR National Office reiterated the tax assessments and requested the petitioner to pay within 10 days, while denied its request for reinvestigation. Upon the petitioner’s failure to pay the subject tax assessments within the prescribed period, the Asst. Commissioner for Collection, acting for the CIR, issued the corresponding warrants of distraints and/or levy and garnishment. This prodded the petitioner to file a Petition for Review with the CTA to contest the issuance of the warrants and to enforce the collection of the tax assessments.The CTA, however, dismissed the petition, declaring that it was filed beyond the 30-day period reckoned from the time it received the demand letter on January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division.

Issue: Is the demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the CIR deemed final and executor and subject to an appeal to the CTA?

Held:Yes. Firstly, a demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. In this case, the demand letter received by the petitioner signified a character of finality for it clearly indicates its firm stand against the reconsideration of the assessment when it indicated that “failure to do so (to pay) would result in the issuance of a warrant of distraint and levy to enforce its collection without further notice.”Secondly, the letter attained finality despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the CIR. This is because the act of the said Chief does not fall under the exceptions provided in Sec. 7 of the NIRC, which constitutes actions of the CIR that are non-delegable. Further, Sec. 6 of the NIRC expressly provides that the “Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax.…”Lastly, the petitioner failed to avail of its right to bring the matter before the CTA within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for

reconsideration which constituted the final determination by the BIR on petitioner’s protest. Being a final disposition by the said agency, the same would have been a proper subject for appeal to the CTA.

THE MANILA BANKING CORPORATION, petitioner vs. COMMISSIONER OF INTERNAL REVENUE, respondent, G.R. No. 168118, August 28, 2006; Sandoval-Gutierrez, J.

Facts:Manila bank was incorporated in 1961 and since had engaged in the commercial banking business until it was ordered closed by the BSP in 1987 due to insolvency. On June 23, 1999, the BSP authorized it to operate as a Thrift bank. The following years, specifically on April 7, 2000, it filed its annual corporate income tax return and paid P33, 816,164.00 as MCIT for taxable year 1999. It filed a claim for refund maintaining the position that since it CTA denied the claim for refund (which was affirmed by the CA) on the ground that petitioner is not a new corporation hence not entitled to the grace period of four years.

Issue: What is the reckoning date for the MCIT in so far as thrift banks are concerned?

Under the law (R.A. 8424), MCIT is imposed beginning on the fourth year following the commencement of business operations. Revenue Regulations No. 9-98 provides that “For purpose of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the BIR.” Petitioner registered as a commercial bank with the BIR in 1961 and again registered on January 21, 1999 as a thrift bank.

However, with respect to thrift banks, the date of commencement of business operations is the date the particular thrift bank was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later (RR No. 4-95 implementing R.A. No. 7906). The SC ruled that what applied to petitioner is RR No. 4-95 and not RR No. 9-98. It is, therefore, entitled to a grace period of four years counted from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank (it having been registered with SEC at an earlier date). Consequently, it should only pay it MCIT after four (4) years from 1999.

A thrift bank is a different taxpayer from that of the commercial bank, hence, for purposes of the MCIT, the thrift bank will be considered as an entirely new entity although it continued to use the same corporate name used by it as a commercial bank.

CIR VS. CITYTRUST INVESTMENT PHILS, INCG.R. NO. 139786 & 140857, SEPTEMBER 27, 2006

FACTS:

Citytrust is a domestic corporation engaged in quasi-banking activities. Citytrust paid the amount corresponding to its 5% GRT.Meanwhile, the CTA, in Asian Bank vs. CIR, ruled that the 20% FWT on a bank’s passive income does not form part of the taxable gross receipts. Hence, Citytrust filed a claim for a tax refund or credit.

ISSUE: Whether the 20% FWT on bank’s interest income forms part of the taxable gross receipts for the purpose of computing the GRT?

HELD: YES. The 20% FWT on a bank's interest income forms part of the taxable gross receipts for the purpose of computing the 5% GRT. From the time the GRT on banks was first imposed and throughout its successive re-enactments, the legislature has not established a definition of the term gross receipts. However, under RRs and several rulings, the BIR has consistently ruled that the term gross receipts does not admit of any deduction. This interpretation has remained unchanged throughout the various re-enactments of the present Section 121 of the Tax Code. On the presumption that the legislature is familiar with the contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the statute, the reasonable conclusion is that the legislature has adopted the BIR's interpretation.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MIRANT PAGBILAO CORPORATION, respondent. G.R. No. 159593, October 12, 2006; Chico-Nazario, J.

Facts:The facts of this case are straight forward. Respondent is a registered VAT- taxpayer with a certificate of registration issued on January 26, 1996. For the period April 1, 1996 to December 31, 1996, respondent religiously filed its quarterly VAT returns reflecting thereon the amount of accumulated input taxes. These input taxes were paid to VAT suppliers of capital goods and services for the construction and development of the power generating plant in Pagbilao, Quezon.

A claim for refund for these input taxes was filed with the BIR. Without waiting for its resolution in the administrative level, it filed a petition for review with the CTA on July 10, 1998, in order to toll the running of the toe-year prescriptive period for claiming a refund under the law.

In answer to this petition, the Commissioner advanced as special and affirmative defenses that: MPC’s claim for refund is still pending investigation and consideration before his office, accordingly, the filing of the petition is premature; well-settled is the doctrine that provisions for refund and credit are construed strictly against the taxpayer as they are in the nature of tax exemption; the claimant has the burden to show that the

taxes are erroneously paid and that the claim is filed within the prescriptive period.

The CTA ruled in favor of MPC and declared that MPC had overwhelmingly proved, through the VAT invoices and official receipts it had presented, that its purchases of goods and services were necessary in the construction of power plant facilities which is used in its business of power generation and sale.

On an appeal to the CA, the Commissioner raised new arguments which were never raised in the CTA – MPC is an electric utility subject to the franchise tax and since it is exempt from VAT, it is not entitled to the refund. The CA, finding no merit in the Commissioner’s petition, affirmed the CTA decision.

Issue: Can the Commissioner change his theory of the case on appeal by raising for the first time on appeal questions of both fact and law not taken up in the tax court?

The SC ruled against the petitioner. The SC emphasized that “The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal. A party cannot, change fundamentally the nature of the issue in the case. When a party deliberately adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted to change the same on appeal, because to permit him to do so would be unfair to the adverse party”. (Carantes v. Court of Appeals, G.R. No. L-33360, April 25, 1977, 76 SCRA 514).

Allied Banking vs. the Quezon City Government, G. R. NO. 154126, September 15, 2006

FACTS: On July 1, 1998, Allied Banking, as trustee for College Assurance Plan of the Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located along Aurora Boulevard, Quezon City in the amount of P38,000,000.00. 

Prior to the sale, Natividad et al. had been paying the total amount of P85,050.00 as annual real property tax based on the property’s fair market value of P4,500,000.00 and assessed value of P1,800,000.00 under Tax Declaration No. D-102-03778. 

After its acquisition of the property, petitioner was, in accordance with Section 3 of the ordinance, required to payP102,600.00 as quarterly real estate tax (or P410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged the market value of the property at P38,000,000.00 – the consideration appearing in the Deed of Absolute Sale, and its assessed value atP15,200,000.00. Petitioner paid the quarterly real estate tax for the property from the 1st quarter of 1999 up to the 3rd quarter of 2000 which is paid under protest.

Petitioner filed a petition for prohibition and declaratory relief before the RTC of Quezon City assailing the validity of Sec. 3 of the Quezon City Ordinance which states that:

Sec. 3.   He shall apply the new assessment level of 15% for residential and 40% for commercial and industrial classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed value of the land. Provided;  however, that parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the capital gains tax issued therefor.

Petitioner contends that the proviso is contrary to the Local Government Code and the Local Assessment Regulations No. 1-92. RTC later on dismissed the petition.

ISSUE: Whether or not section 3, Quezon City Ordinance No. 357, Series of 1995, which was abrogated for being unconstitutional, can be the basis of collecting real estate taxes prior to its repeal.

HELD: No. The validity of the proviso fixing the appraised value of property at the stated consideration at which the property was last sold is invalid as it adopts a method of assessment or appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92 issued by the Department of Finance. Under these immediately stated authorities, real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use.

“Fair market value” is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy, taking into consideration all uses to which the property is adapted and might in reason be applied.  The criterion established by the statute contemplates a hypothetical sale.  Hence, the buyers need not be actual and existing purchasers.

YAMANE vs. BA LEPANTO

FACTS

Respondent BA-Lepanto Condominium Corporation (the “Corporation”) is a duly organized condominium corporation constituted in accordance with the Condominium Act, which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the “Condominium”), situated in Paseo de Roxas, Makati City. Its membership

comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.

The Corporation received a Notice of Assessment signed by the City Treasurer stating that the Corporation is “liable to pay the correct city business taxes, fees and charges,” computed as totaling P1,601,013.77 for the years 1995 to 1997. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. The Corporation responded with a written tax protest addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment.

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, “business” is defined as “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.” It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.

The protest was rejected by the City Treasurer, insisting that the collection of dues from the unit owners was effected primarily “to sustain and maintain the expenses of the common areas, with the end in view of getting full appreciative living values for the individual condominium occupants and to command better marketable prices for those occupants” who would in the future sell their respective units. Thus, she concluded since the “chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor managed common areas,” the corporation activity “is a profit venture making”. From the denial of the protest, the Corporation filed an Appeal with the RTC which dismissed the apeal for lack of merit, accepting the premise laid by the City Treasurer.   From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42. However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the

taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction.  

The CA reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati.

ISSUES

1. Whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises “original jurisdiction” or “appellate jurisdiction.”

2. Whether or not the City of Makati may collect business taxes on condominium corporations.RULING

1. Original Jurisdiction. The question assumes a measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal. Labelling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official.From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

2. No. The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code (“Revenue Code”), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the particular businesses which are covered by business taxes.   At no point has the City Treasurer informed the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner.  The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195

of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporation’s confusion, as expressed in its protest, as to the exact legal basis for the tax.  Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation “etc.”, or “et cetera”.  (m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 ½%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words “et cetera.” Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as “et cetera.” Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on “et cetera,” or on Section 3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on “et cetera” under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other businesses listed under that provision.  Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all throughout as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a due process violation on account of the City Treasurer’s failure to disclose on paper the statutory basis of the tax–that the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer.  As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word “business” itself is defined under Section 131(d) of the Code as “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.” This definition of “business” takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities

specifically named in Section 143 are themselves susceptible to broad interpretation.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the very statutory nature of a condominium corporation.  For orderly administration over common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units.

In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, “to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owner’s fractional interest in any common areas.” It is the collection of these assessments from unit owners that form the basis of the City Treasurer’s claim that the Corporation is doing business. We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act.  The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the Condominium Act. Obviously, none of these corporate purposes are geared towards obtaining of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.

The City Treasurer nonetheless contends that the collection of these assessments and dues are “with the end view of getting full appreciative living values” for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues

not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.  The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation “to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property.” What the  City  Treasurer  fails  to add is that every corporation organized under the Corporation Code is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity “to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful business of the corporation  may  reasonably   and   necessarily   require . . . .” Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations.  Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit.  Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise.

CIR VS. PHILIPPINE NATIONAL BANKG.R. No. 161997 October 25, 2005

FACTS: In early April 1991, respondent PNB issued to the BIR P180,000,000.00. The check represented PNB’s advance income tax payment for the bank’s 1991 operations and was remitted in response to then President Corazon C. Aquino’s call to generate more revenues for national development. The BIR acknowledged receipt of the amount by issuing Payment Order No. C-10151465 and BIR Confirmation Receipt No. 22063553, both dated April 15, 1991.3 Via separate letters dated April 19 and 29, 1991 and May 14, 19914 to then BIR Commissioner Jose C. Ong, PNB requested the issuance of a tax credit certificate (TCC) to be utilized against future tax obligations of the bank. For the first and second quarters of 1991, PNB also paid additional taxes amounting to P6,096,150.00 and P26,854,505.80, respectively, as shown in its corporate quarterly income tax return filed on May 30, 1991.5Inclusive of the P180 Million aforementioned, PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79.6 This final figure, if tacked to PNB’s prior year’s excess tax credit (P1,385,198.30) and the creditable tax withheld for

1991 (P3,216,267.29), adds up to P217,552,122.38. By the end of CY 1991, PNB’s annual income tax liability, per its 1992 annual income tax return,7 amounted to P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38, resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the bank’s negative tax position for the said inclusive years, having incurred losses during the 4-year period.On July 28, 1997, PNB wrote then BIR Commissioner Liwayway Vinzons-Chato, Attention: Appellate Division, to inform her about the above developments and to reiterate its request for the issuance of a TCC, this time for the "unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60".9 This request was forwarded for review and further processing to the Office of the Deputy Commissioner for Legal and Inspection Group, Lilian B. Hefti, and then to the BIR’s Large Taxpayers Service.In a letter dated July 26, 2000, PNB sought reconsideration of the decision of Deputy Commissioner Hefti not to take cognizance of the bank’s claim for tax credit certificate on the ground that the jurisdiction of the Appellate Division is limited to claims for tax refund and credit "involving erroneous or illegal collection of taxes whenever there are questions of law and/or facts and does not include claims for refund of advance payment, pursuant to Revenue Administrative Order No. 7-95."10 In her letter-reply dated August 8, 2008,11 Deputy Commissioner Hefti denied PNB’s request for reconsideration. On August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its unutilized advance tax payment of P73,298,892.60 to the bank’s future gross receipts tax liability.12

Replying, the BIR Commissioner denied PNB’s claim for tax credit for the following reasons stated in his letter of May 21, 2002, to wit:13

1. The amount subject of claim for [TCC] is being carried over from your 1991 to 1996 Annual Income Tax Returns. xxx. To grant your claim would result into granting it twice – first for tax carry over as shown in your 1991 amended Income Tax Return and second for granting a tax credit.2. When you requested for a refund on April 19, 1991, reiterated on April 29, 1991 and again on May 14, 1991 on alleged excess income taxes, the same was considered premature since the determination . . . of your income tax liability can only be ascertained upon filing of your Final or Adjusted Income Tax Return for 1991 on or before April 15, 1992.3. When you carried over the excess tax payments from 1991 to 1996 Annual Income Tax Return, you had already abandoned your original intention of claiming for a [TCC]. Furthermore, the 1991 amended Income Tax Return you filed on April 14, 1994 clearly showed that the amount being claimed has already been applied as tax credit against your 1992 income tax liability.4. Although there was already a recommendation for the issuance of a [TCC] by the Chief, Appellate Division and concurred in by the Assistant Commissioner, Legal Service, the recommendation was for . . . year 1992 and not for the taxable year 1991, which is the taxable year involved in this case.5. Even if you reiterated your claim for tax credit certificate when you filed your claim on July 28, 1997, the same has already prescribed on the

ground that it was filed beyond the two (2) year prescriptive period as provided for under Section 204 of NIRC. [Words in bracket and emphasis added]

PNB, via a petition for review, appealed the denial action of the BIR Commissioner to the Court of Tax Appeals (CTA). The Revenue Commissioner filed a motion to dismiss PNB’s aforementioned petition on ground of prescription under the 1977 National Internal Revenue Code (NIRC)14. The CTA granted the MTD and denied PNB’s petition for review, stating that such refund was not filed within the 2-year prescriptive period and because of this, the court did not have jurisdiction to hear it. PNB’s MR was denied. PNB filed a petition for review with the Court of Appeals (CA), arguing that the applicability of the two (2)-year prescriptive period is not jurisdictional and that said rule admits of certain exceptions. The CA reversed the CTA’s ruling and remanded it to the CIR for the issuance of the TCC. In gist, the appellate court predicated its disposition on the following main premises:1. Considering the "special circumstance" that the tax credit PNB has been seeking is to be sourced not from any tax erroneously or illegally collected but from advance income tax payment voluntarily made in response to then President Aquino’s call to generate more revenues for the government, in no way can the amount of P180 million advanced by PNB in 1991 be considered as erroneously or illegally paid tax.21

2. The BIR is deemed to have waived the two (2)-year prescriptive period when its officials led the PNB to believe that its request for tax credit had not yet prescribed since the matter was not being treated as an ordinary claim for tax refund/credit or a simple case of excess payment.3. Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.22 instructs that even if the two (2)-year prescriptive period under the Tax Code had already lapsed, the same is not jurisdictional, and may be suspended for reasons of equity and other special circumstances. PNB’s failure to apply the advance income tax payment due to its negative tax liability in the succeeding taxable years i.e., 1992-1996, should not be subject to the two (2)-year limitation as to bar its claim for tax credit. The advance income tax payment, made as it were under special circumstances, warrants a suspension of the two (2)-year limitation, underscoring the fact that PNB’s claim is not even a simple case of excess payment.The BIR Commissioner filed an MR which was then denied by the CA.

ISSUE: WON the 2-year prescriptive period under Section 230 (now Sec. 229) of the NIRC is applicable.

HELD: We rule for respondent PNB. The request for issuance of a tax credit certificate should NOT be subject to the two (2)-year limitation in Section 230 of the NIRC.

1. SEC. 230. Recovery of tax erroneously or illegally collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , . . , or of any sum, alleged to have been

excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment:   Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

Here, respondent PNB requested the BIR to issue a TCC on the remaining balance of the advance income tax payment it made in 1991. It should be noted that the request was made considering that, while PNB carried over such credit balance to the succeeding taxable years, i.e., 1992 to 1996, its negative tax position during said tax period prevented it from actually applying the credit balance of P73, 298,892.60. It is fairly correct to say then that the claim for tax credit was specifically pursued to enable the respondent bank to utilize the same for future tax liabilities. However, petitioner ruled that the claim in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992 when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment ascertained with the filing of its final 1991 income tax return.In rejecting petitioner’s ruling, the CA stated that PNB’s request for issuance of a tax credit certificate on the balance of its advance income tax payment cannot be treated as a simple case of excess payment as to be automatically covered by the two (2)-year limitation in Section 230, supra of the NIRC. We agree with the Court of Appeals.

Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected.Black defines the term erroneous or illegal tax as one levied without statutory authority.29 In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter30 was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period.The instant case ought to be distinguished from a situation where, owing to net losses suffered during a taxable year, a corporation was also unable to apply to its income tax liability taxes which the law requires to be withheld and remitted. In the latter instance, such creditable withholding taxes, albeit also legally collected, are in the nature of "erroneously collected

taxes" which entitled the corporate taxpayer to a refund under Section 230 of the Tax Code.In this case, the payments of the withholding taxes for 1979 and 1980 were creditable to the income tax liability, if any, of petitioner-bank, determined after the filing of the corporate income tax returns on April 15, 1980 and April 15, 1981. As petitioner posted net losses in its 1979 and 1980 returns, it was not liable for any income taxes. Consequently and clearly, the taxes withheld during the course of the taxable year, while collected legally under the aforecited revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the taxable year. Analyzing the underlying reason behind the advance payment made by respondent PNB in 1991, the CA held that it would be improper to treat the same as erroneous, wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code. So that even if the respondent’s inability to carry-over the remaining amount of its advance payment to taxable years 1992 to 1996 resulted in   excess credit , it would be inequitable to impose the two (2)-year prescriptive period in Section 230 as to bar PNB’s claim for tax credit to utilize   the same for future tax liabilities.

2. Petitioner insists that a prior tax assessment in this case was unnecessary, the excess tax payment having already been ascertained by the end of 1992 upon the filing by respondent of its adjusted final return. Thus, petitioner adds, the two (2)-year prescriptive period to recover said excess credit balance had begun to run from the accomplishment of the said final return and, ergo, PNB’s claim for tax credit asserted in 1997 is definitely belated. Additionally, petitioner, citing Revenue Regulation No. 10-77, contends that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. We do not agree.

Revenue Regulation No. 10-7733 governs the method of computing corporate quarterly income tax on a cumulative basis. Section 7 thereof provides:SEC. 7. Filing of final or adjustment return and final payment of income tax. -- A final or an adjustment return . . . covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. xxxx. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year."Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return   shall either (a) be refunded to the corporation, or (b)   may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.   The corporation must signify in its annual corporate adjustment return its intention whether to request for the refund of the overpaid income or claim for automatic tax credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling the appropriate box on the corporate tax return. (B.I.R. Form No. 1702)

As can be gleaned from the above, the mandate of Rev. Reg. No. 10-77 is hardly of any application to PNB’s advance payment which, needless to stress, are not " quarterly payments " reflected in the adjusted final return, but a lump sum payment to cover future tax obligations. Neither can such advance lump sum payment be considered overpaid income tax   for a given taxable year , so that the carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. 34   Clearly, limiting the right to carry-over the balance of respondent’s advance payment only to the immediately succeeding taxable year would be unfair and improper considering that, at the time payment was made, BIR was put on due notice of PNB’s intention to apply the entire amount to its future tax obligations.In Commissioner vs. Phi-am Life35, the Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the   Tax Code   or special laws, that period would be ten (10) years under Article 1144 of the   Civil Code . Significantly, Commissioner vs. Phil-Am is partly a reiteration of a previous holding that even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is not jurisdictional36 and may be suspended for reasons of equity and other special circumstances.37

Like the CA, this Court perceives no compelling reason why the principle enunciated in Panay Electric andCommissioner vs. Phil-Am Life should not be applied in this case, more so since the amount over which tax credit is claimed was theoretically booked as advance income tax payment. It bears stressing that respondent PNB remitted the P180 Million in question as a measure of goodwill and patriotism, a gesture noblesse oblige, so to speak, to help the cash-strapped national government. It would thus indeed, be unfair, as the CA correctly observed, to leave respondent PNB to suffer losing millions of pesos advanced by it for future tax liabilities. The cut becomes all the more painful when it is considered that PNB’s failure to apply the balance of such advance income tax payment from 1992 to 1996 was, to repeat, due to business downturn experienced by the bank so that it incurred no tax liability for the period.

It is likewise settled that to a claimant rests the onus to establish the factual basis of his or her claim for tax credit or refund. 40   In this case, however, petitioner does not dispute that a portion of the P180 Million PNB remitted to the BIR in 1991 as advance payment remains unutilized for the purpose for which it was intended in the first place. Verily, the suspension of the two (2)-year prescriptive period is warranted not solely by the objective or purpose pursuant to which respondent PNB made the advance income tax payment in 1991. Records show that petitioner’s very own conduct led the bank to believe all along that its original intention to apply the advance payment to its future income tax obligations will be respected by the BIR. Notwithstanding respondent PNB’s failure to request for tax credit after incurring negative tax position in 1992, up to taxable year 1996, there appears to be a valid reason to assume that the agreed carrying forward of the balance of the advance payment extended to succeeding taxable years, and not only in 1992. Thus, upon posting a net income in 1997 and regaining a profitable

business operation, respondent bank promptly sought the issuance of a TCC for the reason that its credit balance of P73, 298,892.60 remained unutilized. If ever, petitioner’s pose about respondent PNB never having made a written claim for refund only serves to buttress the latter’s position that it was not out to secure a refund or recover the aforesaid amount, but for the BIR to issue a TCC so it can apply the same to its future tax obligations.Even as petitioner concluded such administrative investigation, it did not deny the request for issuance of a tax credit certificate on any factual finding, such as the veracity of alleged business losses in the taxable years 1992 to 1996, during which the respondent bank alleged the credit balance was not applied. Lastly, there is no indication that petitioner considered respondent’s request as an ordinary claim for refund, the very reason why the same was referred by the BIR for processing to the Operations Group of the Bureau.Hence, no reversible error was committed by the CA in holding that, upon basic considerations of equity and fairness, respondent’s request for issuance of a tax credit certificate should NOT be subject to the two (2)-year limitation in Section 230 of the NIRC.