March 7, 2018 The CTA Division ruled that UPSI-MI's alleged inadvertent inclusion of the

2006 excess tax credit in the 2007 original ITR belies its own allegation that it
did not carry over the said amount to the succeeding taxable period. The
G.R. No. 205955
amendment of the 2007 ITR cannot undo UPSI-MI's actual exercise of the
carry-over option in the original 2007 ITR, for to do so would be against the
UNIVERSITY PHYSICIANS SERVICES INC. - MANAGEMENT, irrevocability rule. The dispositive portion of the CTA Division's decision
INC., Petitioner reads:
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of
merit.6
DECISION
Aggrieved, UPSI-MI appealed before the CTA En Banc.
MARTIRES, J.:
The Ruling of the CTA En Banc
When a corporation overpays its income tax liability as adjusted at the close of
the taxable year, it has two options: (1) to be refunded or issued a tax credit
The CTA En Banc ruled that UPSI-MI is barred by Section 76 of the NIRC
certificate, or (2) to carry over such overpayment to the succeeding taxable
from claiming a refund of its excess tax credits for the taxable year 2006. The
quarters to be applied as tax credit against income tax due. 1 Once the carry-
barring effect applies after UPSI-MI carried over its excess tax credits to the
over option is taken, it becomes irrevocable such that the taxpayer cannot later
succeeding quarters of 2007, even if such carry-over was allegedly done
on change its mind in order to claim a cash refund or the issuance of a tax
inadvertently. The court emphasized that the prevailing law and jurisprudence
credit certificate of the very same amount of overpayment or excess m. come
admit of no exception or qualification to the irrevocability rule. Thus, the CTA
tax credit.2
En Banc affirmed the assailed decision and resolution of the CTA Division,
disposing as follows:
Does the irrevocability rule apply exclusively to the carry-over option? Such is
the novel issue presented in this case.
Notably, the said decision was met by a dissent from Justice Esperanza R.
Pabon-Victorino. Invoking Phi/am Asset Management, Inc. v. Commissioner
THE FACTS (Philam), 8 Justice Pabon-Victorino took the view that the irrevocability rule
applies as much to the option of refund or tax credit certificate. She wrote:
As narrated by the CTA, the facts are uncomplicated, viz:
A contextual appreciation of the ruling [Philam] would tell us that any of the
two alternatives once chosen is irrevocable - be it for refund or carry over. The
UPSI-MI is a corporation incorporated and existing under and by virtue of laws
controlling factor for the operation of the irrevocability rule is that the
of the Republic of the Philippines.
taxpayer chose an option; and once it had already done so, it could no
longer make another one.
On April 16, 2007. petitioner filed its Annual Income Tax Return (ITR) for the
year ended December 31, 2006 with the Revenue District No. 34 of the Revenue Unsatisfied with the decision of the CTA En Banc, UPSI-MI appealed before
Region No. 6 of the Bureau of Internal Revenue (BIR), reflecting an income tax this Court.
overpayment of 5,159,341.00. computed as follows:4

The Present Petition for Review

Subsequently, on November 14, 2007, petitioner filed an Annual ITR for the
short period fiscal year ended March 31, '.W07, reflecting the income tax
overpayment of 5. 159.341 from the previous period as "Prior Year’s Excess UPSI-MI interposed the following reasons for its petition:
Credit", as follows:5
THE HONORABLE COURT OF TAX APPEALS (En Banc)
On the same date, petitioner filed an amended Annual ITR for the short period SERIOUSLY ERRED AND DECIDED IN A MANNER NOT IN
fiscal year ended March 31, 2007, reflecting the removal of the amount of the ACCORDANCE WITH THE LAW, PREVAILING JURISPRUDENCE,
instant claim in the ''Prior Year's Excess Credit".Thus, the amount thereof was AND FACTUAL MILIEU SURROUNDING THE CASE, WHEN IT
changed from ₱5, 159,341 to ₱2,231,507. ADOPTED THE DECISION OF THE COURT OF TAX APPEALS IN
DIVISION AND RULED THAT:
On October 10, 2008, petitioner filed with the respondent's office, a claim for
refund and/or issuance of a Tax Credit Certificate (TCC) in the amount of a. Petitioner is not entitled to the refund or issuance of a Tax Credit Certificate
₱2,927.834.00, representing the alleged excess and unutilized creditable in the amount of ₱2,927,834.00 representing its 2006 excess tax credits because
withholding taxes for 2006. of the application of the "irrevocability rule" under Section 76 of the NIRC of
1997.
In view of the fact that respondent has not acted upon the foregoing claim for
refund/tax credit, petitioner filed with a Petition for Review on April l4, 2009 b. The amendment of the original ITR for fiscal year ended 31 March 2007 does
before the Court in Division. not take back, cancel or rescind the original option to refund through tax credit
certificate based on the argument that the Petitioner allegedly made an option
to carry-over the excess credits.
The Ruling of the CTA Division

THE HONORABLE COURT OF TAX APPEALS (En Banc)

After trial, the CT A Division denied the petition for review for lack of merit.
SERIOUSLY ERRED WHEN IT IGNORED THAT ON JOINT
It reasoned that UPSI-MI effectively exercised the carry-over option under
STIPULATIONS, THE RESPONDENT ADMITTED THE FACT THAT
Section 76 of the National Internal Revenue Code (NIRC) of 1997. On motion
PETITIONER INDICATED IN THE CORRESPONDING BOX ITS
for reconsideration, UPSI-MI argued that the irrevocability rule under Section
76 of the NIRC is not applicable for the reason that it did not carry over to the
succeeding taxable period the 2006 excess income tax credit. UPSI-MI added INTENTION TO BE ISSUED A TAX CREDIT CERTIFICATE
that the subject excess tax credits were inadvertently included in its original REPRESENTING ITS UNUTILIZED CREDITABLE WITHHOLDING
2007 ITR, and such mistake was rectified in the amended 2007 ITR. Thus, TAX WITHHELD FOR THE TAXABLE YEAR 2006 BY MARKING
UPSI-MI insisted that what should control is its election of the option "To be THE APPROPRIATE BOX.
issued a Tax Credit Certificate" in its 2006 ITR.
THE HONORABLE COURT OF TAX APPEALS (En Banc) Law and jurisprudence unequivocally support the view that only the option of
SERIOUSLY ERRED WHEN IT DECIDED ON THE ISSUE OF carry-over is irrevocable.
WHETHER OR NOT PEITIONER CARRIED OVER ITS 2006 EXCESS
TAX CREDITS TO THE SUCCEEDING SHORT TAXABLE PERIOD
Aside from the uncompromising last sentence of Section 76, Section 228 of the
OF 2007 WHEN THE SAME WAS NEVER RAISED IN THE JOINT
NIRC recognizes such freedom of a taxpayer to change its option from refund
STIPULATION OF FACTS.
to carry-over. This law affords the government a remedy in case a taxpayer,
who had previously claimed a refund or tax credit certificate (TCC) of excess
UPSI-MI faults the CTA En Banc for banking too much on the irrevocability creditable withholding tax, subsequently applies such amount as automatic tax
of the option to carry over. It contends that even the option to be refunded credit. The pertinent text of Section 228 reads:
through the issuance of a TCC is likewise irrevocable. Taking cue from the
dissent of Justice Pabon-Victorino, UPSI-MI cites Philam in restating this
The taxpayers shall be informed in writing of the law and the facts on which
Court's pronouncement that "the options of a corporate taxpayer, whose total
the assessment is made; otherwise, the assessment shall be void. x x x (emphasis
quarterly income tax payments exceed its tax liability, are alternative in nature
supplied)
and the choice of one precludes the other." It also cites Commissioner v. PL
Management International Philippines, Inc. (PL Management)9 that reiterated
the rule that the choice of one precludes the other. Thus, when it indicated in its The provision contemplates three scenarios:
2006 Annual ITR the option "To be issued a Tax Credit Certificate," such
choice precluded the other option to carry over.10
(1) Deficiency in the payment or remittance of tax to the government
(paragraphs [a], [b] and [d]);
In other words, UPSI-MI proposes that the options of refund on one hand and
carry-over on the other hand are both irrevocable by nature. Relying again on
the dissent of Justice Pabon-Victorino, UPSI-MI also points to BIR Form 1702 (2) Overclaim of refund or tax credit (paragraph [ c ]); and
(Annual Income Tax Return) itself which expressly states under line 31 thereof:
(3) Unwarranted claim of tax exemption (paragraph [e]).
"If overpayment, mark one box only:
In each case, the government is deprived of the rightful amount of tax due it.
ISSUE: whether UPSI-MI may still be entitled to the refund of its 2006 excess The law assures recovery of the amount through the issuance of an assessment
tax credits in the amount of ₱2,927,834.00 when it thereafter filed its income against the erring taxpayer. However, the usual two-stage process in making an
assessment is not strictly followed. Accordingly, the government may
tax return (for the short period ending 31 March 2007) indicating the option of
carry-over. immediately proceed to the issuance of a final assessment notice (FAN), thus
dispensing with the preliminary assessment (PAN), for the reason that the
discrepancy or deficiency is so glaring or reasonably within the taxpayer's
OUR RULING knowledge such that a preliminary notice to the taxpayer, through the issuance
of a PAN, would be a superfluity.
We affirm the CTA.
Pertinently, paragraph (c) contemplates a double recovery by the taxpayer of an
overpaid income tax that arose from an over-withholding of creditable taxes.
We cannot subscribe to the suggestion that the irrevocability rule enshrined in
The refundable amount is the excess and unutilized creditable withholding tax.
Section 76 of the National Internal Revenue Code (NIRC) applies to either of
the options of refund or carry-over. Our reading of the law assumes the
interpretation that the irrevocability is limited only to the option of carry-over This paragraph envisages that the taxpayer had previously asked
such that a taxpayer is still free to change its choice after electing a refund of for and successfully recovered from the BIR its excess creditable
its excess tax credit. But once it opts to carry over such excess creditable tax, withholding tax through refund or tax credit certificate; it could not be
after electing refund or issuance of tax credit certificate, the carry-over option viewed any other way. If the government had already granted the refund, but
becomes irrevocable. Accordingly, the previous choice of a claim for refund, the taxpayer is determined to have automatically applied the excess creditable
even if subsequently pursued, may no longer be granted. withholding tax against its estimated quarterly tax liabilities in the succeeding
taxable year(s), the taxpayer would undeservedly recover twice the same
amount of excess creditable withholding tax. There appears, therefore, no other
In case the corporation is entitled to a tax credit or refund of the excess
viable remedial recourse on the part of the government except to assess the
estimated quarterly income taxes paid, the excess amount shown on its final
taxpayer for the double recovery. In this instance, and in accordance with the
adjustment return may be carried over and credited against the estimated
above rule, the government can right away issue a FAN.
quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly income
tax against income tax due for the taxable quarters of the succeeding taxable If, on the other hand, an administrative claim for refund or issuance of TCC is
years has been made, such option shall be considered irrevocable for that still pending but the taxpayer had in the meantime automatically carried over
taxable period and no application for cash refund or issuance of a tax credit the excess creditable tax, it would appear not only wholly unjustified but also
certificate shall be allowed therefor. (emphasis supplied) tantamount to adopting an unsound policy if the government should resort to
the remedy of assessment.
Under the cited law, there are two options available to the corporation whenever
it overpays its income tax for the taxable year: (1) to carry over and apply the First, on the premise that the carry-over is to be sustained, there should be no
overpayment as tax credit against the estimated quarterly income tax liabilities more reason for the government to make an assessment for the sum (equivalent
of the succeeding taxable years (also known as automatic tax credit) until fully to the excess creditable withholding tax) that has been justifiably returned
utilized (meaning, there is no prescriptive period); and (2) to apply for a cash already to the taxpayer (through automatic tax credit) and for which the
refund or issuance of a tax credit certificate within the prescribed government has no right to retain in the first place. In this instance, all that the
period.11 Such overpayment of income tax is usually occasioned by the over- government needs to do is to deny the refund claim.
withholding of taxes on the income payments to the corporate taxpayer.
Second, on the premise that the carry-over is to be disallowed due to the
In other words, the law does not prevent a taxpayer who originally opted for a pending application for refund, it would be more complicated and circuitous if
refund or tax credit certificate from shifting to the carry-over of the excess the government were to grant first the refund claim and then later assess the
creditable taxes to the taxable quarters of the succeeding taxable years. taxpayer for the claim of automatic tax credit that was previously disallowed.
However, in case the taxpayer decides to shift its option to carryover, it may no Such procedure is highly inefficient and expensive on the part of the
longer revert to its original choice due to the irrevocability rule. As Section 76 government due to the costs entailed by an assessment. It unduly hampers,
unequivocally provides, once the option to carry over has been made, it shall be instead of eases, tax administration and unnecessarily exhausts the
irrevocable. Furthermore, the provision seems to suggest that there are no government's time and resources. It defeats, rather than promotes,
qualifications or conditions attached to the rule on irrevocability. administrative feasibility.12 Such could not have been intended by our
lawmakers. Congress is deemed to have enacted a valid, sensible, and just law.13
Thus, in order to place a sensible meaning to paragraph (c) of Section 228, it In either case, it is clear that the taxpayer cannot avail of both refund and
should be interpreted as contemplating only that situation when an application automatic tax credit at the same time. Thus, as Philam declared: "One cannot
for refund or tax credit certificate had already been previously granted. Issuing get a tax refund and a tax credit at the same time for the same excess income
an assessment against the taxpayer who benefited twice because of the taxes paid." This is the import of the Court's pronouncement that the options
application of automatic tax credit is a wholly acceptable remedy for the under Section 76 are alternative in nature.
government.
In declaring that "the choice of one (option) precludes the other," the Court
Going back to the case wherein the application for refund or tax credit is still in Philam cited Philippine Bank of Communications v. Commissioner of
pending before the BIR, but the taxpayer had in the meantime automatically Internal Revenue (PBCom), 15 a case decided under the aegis of the old NIRC
carried over its excess creditable tax in the taxable quarters of the succeeding of 1977 under which the irrevocability rule had not yet been established. It was
taxable year(s), the only judicious course of action that the BIR may take is to in PBCom that the Court stated for the first time that "the choice of one
deny the pending claim for refund. To insist on giving due course to the refund precludes the other."16 However, a closer perusal of PBCom reveals that the
claim only because it was the first option taken, and consequently disallowing taxpayer had opted for an automatic tax credit. Thus, it was precluded from
the automatic tax credit, is to encourage inefficiency or to suppress availing of the other remedy of refund; otherwise, it would recover twice the
administrative feasibility, as previously explained. Otherwise put, imbuing same excess creditable tax. Again, nowhere is it even suggested that the choice
upon the choice of refund or tax credit certificate the character of irrevocability of refund is irrevocable. For one thing, it was not the choice taken by the
would bring about an irrational situation that Congress did not intend to remedy taxpayer. For another, the irrevocability rule had not yet been provided.
by means of an assessment through the issuance of a FAN without a prior PAN,
as provided in paragraph (c) of Section 228. It should be remembered that
As in PBCom, the Court also said in PL Management that the choice of one
Congress' declared national policy in passing the NIRC of 1997 is to rationalize
(option) precludes the other.1âwphi1 Similarly, the taxpayer in PL
the internal revenue tax system of the Philippines, including tax
Management initially signified in the FAR its choice of automatic tax credit.
administration.14
But unlike in PBCom, PL Management was decided under the NIRC of 1997
when the irrevocability rule was already applicable. Thus, although PL
The foregoing simply shows that the lawmakers never intended to make the Management was unable to actually apply its excess creditable tax in the next
choice of refund or tax credit certificate irrevocable. Sections 76 and 228, succeeding taxable quarters due to lack of income tax liability, its subsequent
paragraph (c), unmistakably evince such intention. application for TCC was rightfully denied by the Court. The reason is the
irrevocability of its choice of carry-over.
Philam and PL Management cases
did not categorically declare the In other words, previous incarnations of the words "the options are alternative...
option of refund or TCC irrevocable. the choice of one precludes the other" did not lay down a doctrinal rule that the
option of refund or tax credit certificate is irrevocable.
The petitioner hinges its claim of irrevocability of the option of refund on the
statement of this Court in Philam and PL Management that "the options xxx are Again, we need not belabor the point that insisting upon the irrevocability of
alternative and the choice of one precludes the other." This also appears as the the option for refund, even though the taxpayer subsequently changed its mind
basis of Justice Fabon-Victorino’s stance in her dissent to the majority opinion by resorting to automatic tax credit, is not only contrary to the apparent
in the assailed decision. intention of the lawmakers but is also clearly violative of the principle of
administrative feasibility.
We do not agree.
Prior to the NIRC of 1997, the alternative options of refund and carryover of
excess creditable tax had already been firmly established. However, the
The cases cited in the petition did not make an express declaration that the
irrevocability rule was not yet in place.17 As we explained in PL
option of cash refund or TCC, once made, is irrevocable. Neither should this be
Management,Congress added the last sentence of Section 76 in order to lay
inferred from the statement of the Court that the options are alternative and that
down the irrevocability rule. More recently, in Republic v. Team (Phils.)
the choice of one precludes the other. Such statement must be understood in the
Energy Corp., 18 we said that the rationale of the rule is to avoid confusion and
light of the factual milieu obtaining in the cases.
complication that could be brought about by the flip-flopping on the options,
viz:
Philam involved two cases wherein the taxpayer failed to signify its option in
the Final Adjustment Return (FAR).
The evident intent of the legislature, in adding the last sentence to Section 76
of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options,
In the first case (G.R. No. 156637), the Court ruled that such failure did not and avoid confusion and complication as regards said taxpayer's excess tax
mean the outright barring of the request for a refund should one still choose this credit.19
option later on. Thy taxpayer did in fact file on 11 September 1998 an
administrative claim for refund of its 1997 excess creditable taxes. We
The current rule specifically addresses the problematic situation when a
sustained the refund claim in1 this case.
taxpayer, after claiming cash refund or applying for the issuance of tax credit,
and during the pendency of such claim or application, automatically carries over
It was different in the second case (G.R. No. 162004) because the taxpayer the same excess creditable tax and applies it against the estimated quarterly
filled out the portion "Prior Year's Excess Credits" in its subsequent FAR. The income tax liabilities of the succeeding year. Thus, the rule not only eases tax
court considered the taxpayer to have constructively chosen the carry-over administration but also obviates double recovery of the excess creditable tax.
option. It was in this context that the court determined the taxpayer to be bound
by its initial choice (of automatic tax credit), so that it is precluded from asking
Further, nothing in the contents of BIR 1702 expressly declares that the option
for a refund of the excess CWT. It must be so because the carry-over option is
of refund or TCC is irrevocable. Even on the assumption that the irrevocability
irrevocable, and it cannot be allowed to recover twice for its overpayment of
also applies to the option of refund, such would be an interpretation of the BIR
tax.
that, as already demonstrated in the foregoing discussion, is contrary to the
intent of the law. It must be stressed that such erroneous interpretation is not
Unlike the second case, there was no flip-flopping of choices in the first one. binding on the court. Philippine Bank of Communications v. CIR20is apropos:
The taxpayer did not indicate in its 1997 FAR the choice of carryover. Neither
did it apply automatic tax credit in subsequent income tax returns so as to be
It is widely accepted that the interpretation placed upon a statute by the
considered as having constructively chosen the carry-over option. When it later
executive officers, whose duty is to enforce it, is entitled to great respect by the
on asked for a refund of its 1997 excess CWT, the taxpayer was expressing its
courts. Nevertheless, such interpretation is not conclusive and will be ignored
option for the first time. It must be emphasized that the Court sustained the
if judicially found to be erroneous. Thus, courts will not countenance
application for refund but without expressly declaring that such choice was
administrative issuances that override, instead of remaining consistent and in
irrevocable.
harmony with, the law they seek to apply and implement.21
Applying the foregoing precepts to the given case, UPSI-MI is barred from Pesos and Sixteen Centavos (₱292,874.16.) for deficiency value-added and
recovering its excess creditable tax through refund or TCC. It is undisputed that withholding taxes for the taxable year 1999, computed as follows:
despite its initial option to refund its 2006 excess creditable tax, UPSI-MI
subsequently indicated in its 2007 short-period FAR that it carried over the Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice
2006 excess creditable tax and applied the same against its 2007 income tax of Seizure dated May 12, 2003, which petitioner received on May 15, 2003,
due. The CTA was correct in considering UPSI-MI to have constructively giving the latter last opportunity to settle its deficiency tax liabilities within ten
chosen the option of carry-over, for which reason, the irrevocability rule (10) [days] from receipt thereof, otherwise respondent BIR shall be constrained
forbade it to revert to its initial choice. It does not matter that UPSI-Ml had not to serve and execute the Warrants of Distraint and/or Levy and Garnishment to
actually benefited from the carry-over on the ground that it did not have a tax enforce collection.
due in its 2007 short period. Neither may it insist that the insertion of the carry-
over in the 2007 FAR was by mere mistake or inadvertence. As we previously On February 6, 2004, petitioner received from Revenue District Office No. 67
laid down, the irrevocability rule admits of no qualifications or conditions.
a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax and withholding tax
In sum, the petitioner is clearly mistaken in its view that the irrevocability rule payment in the amount of ₱292,874.16.
also applies to the option of refund or tax credit certificate. In view of the court's
finding that it constructively chose the option of can-y-over, it is already barred On July 30, 2004, petitioner filed with the Office of respondent Commissioner
from recovering its 2006 excess creditable tax through refund or TCC even if it a Motion for Reconsideration pursuant to Section 3.1.5 of Revenue Regulations
was its initial choice. No. 12-99.

However, the petitioner remains entitled to the benefit of carry-over and thus On February 8, 2005, respondent Commissioner, through its authorized
may apply the 2006 overpaid income tax as tax credit in succeeding taxable representative, Revenue Regional Director of Revenue Region 10, Legaspi
years until fully exhausted. This is because, unlike the remedy of refund or tax City, issued a Decision denying petitioner’s Motion for Reconsideration.
credit certificate, the option of carry-over under Section 76 is not subject to any Petitioner, through counsel received said Decision on February 18, 2005.
prescriptive period.
x x x.
WHEREFORE, the petition is DENIED for lack of merit. The 8 February Denying that it received a Preliminary Assessment Notice (PAN) and claiming
2013 Decision of the Court of Tax Appeals in CTA-EB Case No. 828 is that it was not accorded due process, Metro Star filed a petition for review4 with
hereby AFFIRMED. the CTA. The parties then stipulated on the following issues to be decided by
the tax court: The CTA-Second Division found merit in the petition of Metro
SO ORDERED. Star and, on March 21, 2007, rendered a decision, the decretal portion of which
reads:
G.R. No. 185371 December 8, 2010
The CTA-Second Division opined that "[w]hile there [is] a disputable
COMMISSIONER OF INTERNAL REVENUE, Petitioner, presumption that a mailed letter [is] deemed received by the addressee in the
vs. ordinary course of mail, a direct denial of the receipt of mail shifts the burden
METRO STAR SUPERAMA, INC., Respondent. upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee."5 It also found that there was no clear
DECISION showing that Metro Star actually received the alleged PAN, dated January 16,
2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3,
MENDOZA, J.: 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were
void, as Metro Star was denied due process.6
the sending of a PAN to taxpayer to inform him of the assessment made is but
part of the "due process requirement in the issuance of a deficiency tax The CIR sought reconsideration7 of the decision of the CTA-Second Division,
assessment," the absence of which renders nugatory any assessment made by but the motion was denied in the latter’s July 24, 2007 Resolution. 8
the tax authorities.
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the
FACTS petition was dismissed after a determination that no new matters were raised.
The CTA-En Banc disposed:
Petitioner is a domestic corporation duly organized and existing by virtue of the
laws of the Republic of the Philippines, x x x. The motion for reconsideration10 filed by the CIR was likewise denied by the
CTA-En Banc in its November 18, 2008 Resolution.11
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi
City, issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. ISSUE:
Justiniana to examine petitioner’s books of accounts and other accounting
records for income tax and other internal revenue taxes for the taxable year 1. Is the failure to strictly comply with notice requirements prescribed
1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional under Section 228 of the National Internal Revenue Code of 1997
Director Leonardo Sacamos. and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial
of due process?
For petitioner’s failure to comply with several requests for the presentation of
records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued
an Indorsement dated September 26, 2001 informing Revenue District Officer
of Revenue Region No. 67, Legazpi City to proceed with the investigation RULING.
based on the best evidence obtainable preparatory to the issuance of assessment
The Court agrees with the CTA that the CIR failed to discharge its duty and
notice.
present any evidence to show that Metro Star indeed received the PAN dated
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente January 16, 2002. It could have simply presented the registry receipt or the
issued a Preliminary 15-day Letter, which petitioner received on November 9, certification from the postmaster that it mailed the PAN, but failed. Neither did
2001. The said letter stated that a post audit review was held and it was it offer any explanation on why it failed to comply with the requirement of
ascertained that there was deficiency value-added and withholding taxes due service of the PAN. It merely accepted the letter of Metro Star’s chairman dated
from petitioner in the amount of ₱ 292,874.16. April 29, 2002, that stated that he had received the FAN dated April 3, 2002,
but not the PAN; that he was willing to pay the tax as computed by the CIR;
On April 11, 2002, petitioner received a Formal Letter of Demand dated April and that he just wanted to clarify some matters with the hope of lessening its
3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the tax liability.
amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four
From the provision quoted above, it is clear that the sending of a PAN to Commissioner of Internal Revenue denying its protest against the deficiency
taxpayer to inform him of the assessment made is but part of the "due process income and withholding tax assessments issued for taxable year 1989. 3
requirement in the issuance of a deficiency tax assessment," the absence of
which renders nugatory any assessment made by the tax authorities. The use of In a Decision dated September 24, 2004, the CTA Original Division held that
the word "shall" in subsection 3.1.2 describes the mandatory nature of the the subject assessment notice sent by registered mail on January 8, 1993 to
service of a PAN. The persuasiveness of the right to due process reaches both respondent’s former place of business was valid and binding since respondent
substantial and procedural rights and the failure of the CIR to strictly comply only gave formal notice of its change of address on February 18, 1993. Thus,
with the requirements laid down by law and its own rules is a denial of Metro the assessment had become final and unappealable for failure of respondent to
Star’s right to due process.15 Thus, for its failure to send the PAN stating the file a protest within the 30-day period provided by law. However, the CTA (a)
facts and the law on which the assessment was made as required by Section 228 held that the CIR failed to collect the assessed taxes within the prescriptive
of R.A. No. 8424, the assessment made by the CIR is void. period; and (b) directed the cancellation and withdrawal of Assessment Notice
No. 001543-89-5668. Petitioner’s Motion for Reconsideration and
G.R. No. 169225 November 17, 2010 Supplemental Motion for Reconsideration of said Decision filed on October 14,
2004 and November 22, 2004, respectively, were denied for lack of merit.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this
HAMBRECHT & QUIST PHILIPPINES, INC., Respondent. was denied in a Decision dated August 12, 2005, the dispositive portion reads:

DECISION ISSUES

LEONARDO-DE CASTRO, J.: I

the fact that an assessment has become final for failure of the taxpayer to file a WHETHER OR NOT THE COURT OF TAX APPEALS HAS
protest within the time allowed only means that the validity or correctness of JURISDICTION TO RULE THAT THE GOVERNMENT’S RIGHT TO
the assessment may no longer be questioned on appeal. However, the validity COLLECT THE TAX HAS PRESCRIBED.
of the assessment itself is a separate and distinct issue from the issue of whether
the right of the CIR to collect the validly assessed tax has prescribed. This issue II
of prescription, being a matter provided for by the NIRC, is well within the
jurisdiction of the CTA to decide. WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT
HAS PRESCRIBED.5

FACTS:
RULING:
In a letter dated February 15, 1993, respondent informed the Bureau of Internal
Revenue (BIR), through its West-Makati District Office of its change of 1. Plainly, the assailed CTA En Banc Decision was correct in declaring that
business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati there was nothing in the foregoing provision upon which petitioner’s theory
City to the 22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa with regard to the parameters of the term "other matters" can be supported or
Streets, Makati City. Said letter was duly received by the BIR-West Makati on even deduced. What is rather clearly apparent, however, is that the term "other
February 18, 1993. matters" is limited only by the qualifying phrase that follows it.

On November 4, 1993, respondent received a tracer letter or follow-up letter Thus, on the strength of such observation, we have previously ruled that the
dated October 11, 1993 issued by the Accounts Receivable/Billing Division of appellate jurisdiction of the CTA is not limited to cases which involve decisions
the BIR’s National Office and signed by then Assistant Chief Mr. Manuel B. of the CIR on matters relating to assessments or refunds. The second part of the
Mina, demanding for payment of alleged deficiency income and expanded provision covers other cases that arise out of the National Internal Revenue
withholding taxes for the taxable year 1989 amounting to ₱2,936,560.87. Code (NIRC) or related laws administered by the Bureau of Internal Revenue
(BIR).7
On December 3, 1993, respondent, through its external auditors, filed with the
same Accounts Receivable/Billing Division of the BIR’s National Office, its In the case at bar, the issue at hand is whether or not the BIR’s right to collect
protest letter against the alleged deficiency tax assessments for 1989 as taxes had already prescribed and that is a subject matter falling under Section
indicated in the said tracer letter dated October 11, 1993. 223(c) of the 1986 NIRC, the law applicable at the time the disputed assessment
was made. To quote Section 223(c):
The alleged deficiency income tax assessment apparently resulted from an
adjustment made to respondent’s taxable income for the year 1989, on account Thus, from the foregoing, the issue of prescription of the BIR’s right to collect
of the disallowance of certain items of expense, namely, professional fees paid, taxes may be considered as covered by the term "other matters" over which the
donations, repairs and maintenance, salaries and wages, and management fees. CTA has appellate jurisdiction.
The latter item of expense, the management fees, made up the bulk of the
Furthermore, the phraseology of Section 7, number (1), denotes an intent to
disallowance, the examiner alleging, among others, that petitioner failed to
view the CTA’s jurisdiction over disputed assessments and over "other matters"
withhold the appropriate tax thereon. This is also the same basis for the
arising under the NIRC or other laws administered by the BIR as separate and
imposition of the deficiency withholding tax assessment on the management
independent of each other. This runs counter to petitioner’s theory that the latter
fees. Revenue Regulations No. 6-85 (EWT Regulations) does not impose or
is qualified by the status of the former, i.e., an "other matter" must not be a final
prescribe EWT on management fees paid to a non-resident.
and unappealable tax assessment or, alternatively, must be a disputed
On November 7, 2001, nearly eight (8) years later, respondent’s external assessment.
auditors received a letter from herein petitioner Commissioner of Internal
To be sure, the fact that an assessment has become final for failure of the
Revenue dated October 27, 2001. The letter advised the respondent that
taxpayer to file a protest within the time allowed only means that the validity
petitioner had rendered a final decision denying its protest on the ground that
or correctness of the assessment may no longer be questioned on appeal.
the protest against the disputed tax assessment was allegedly filed beyond the
However, the validity of the assessment itself is a separate and distinct issue
30-day reglementary period prescribed in then Section 229 of the National
from the issue of whether the right of the CIR to collect the validly assessed tax
Internal Revenue Code.
has prescribed. This issue of prescription, being a matter provided for by the
On December 6, 2001, respondent filed a Petition for Review docketed as CTA NIRC, is well within the jurisdiction of the CTA to decide.
Case No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of
2. Based on the facts of this case, we find that the CIR’s contention is without
Republic Act No. 1125, otherwise known as an ‘Act Creating the Court of Tax
basis.
Appeals’ and Section 228 of the NIRC, to appeal the final decision of the
The above section is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the request for In accordance with the One Time Transactions (ONETT) Computation sheets,
reinvestigation must be granted by the CIR.9 (Emphasis supplied.) petitioner paid Capital Gains Tax amounting to P505,177,213.81 10 and
Documentary Stamp Tax amounting to P330,390.00.11
Consequently, the mere filing of a protest letter which is not granted does not
operate to suspend the running of the period to collect taxes. In the case at bar, On July 23, 2008, the BIR-RDO No. 52 issued the corresponding Certificates
the records show that respondent filed a request for reinvestigation on Authorizing Registration and Tax Clearance Certificates.12
December 3, 1993, however, there is no indication that petitioner acted upon
respondent’s protest. As the CTA Original Division in C.T.A. Case No. 6362 Two years later, Commissioner of Internal Revenue (respondent) opined that
succinctly pointed out in its Decision, to wit: petitioner was not liable for the 6% capital gains tax but for the 32% regular
income tax and 12% value added tax, on the theory that the properties petitioner
It is evident that the respondent did not conduct a reinvestigation, the protest sold were ordinary assets and not capital assets. Further, respondent found
having been dismissed on the ground that the assessment has become final and petitioner to have misdeclared his income, misclassified the properties and used
executory. There is nothing in the record that would show what action was taken multiple tax identification numbers to avoid being assessed the correct amount
in connection with the protest of the petitioner. In fact, petitioner did not hear of taxes.13
anything from the respondent nor received any communication from the
respondent relative to its protest, not until eight years later when the final Thus, on August 25, 2010, respondent issued a Letter of Authority14 to
decision of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other commence investigation on petitioner's tax account.
words, the request for reinvestigation was not granted. x x x.10 (Emphasis
supplied.) The next day, respondent filed before the Department of Justice (DOJ) a Joint
Complaint Affidavit15 for tax evasion against petitioner for violation of Sections
Since the CIR failed to disprove the aforementioned findings of fact of the CTA
25416 and 25517 of the National Internal Revenue Code (NIRC).
which are borne by substantial evidence on record, this Court is constrained to
uphold them as binding and true. This is in consonance with our oft-cited ruling
The DOJ then filed two criminal informations for tax evasion against petitioner
that instructs this Court to not lightly set aside the conclusions reached by the
docketed as CTA Criminal Case Nos. O-206 and O-207.18 At the time the
CTA, which, by the very nature of its functions, is dedicated exclusively to the
Informations were filed, the respondent has not issued a final decision on the
resolution of tax problems and has accordingly developed an expertise on the
deficiency assessment against petitioner. Halfway through the trial, the
subject unless there has been an abuse or improvident exercise of authority. 11
respondent issued a Final Decision on Disputed Assessment (FDDA)19 against
Indeed, it is contradictory for the CIR to argue that respondent’s December 3, petitioner, assessing him of deficiency income tax and VAT covering taxable
1993 protest which contained a request for reinvestigation was filed beyond the years 2007 and 2008.
reglementary period but still claim that the same request for reinvestigation was
implicitly granted by virtue of its October 27, 2001 letter. We find no cogent With respect to the deficiency assessment against petitioner for the year 2007,
reason to reverse the CTA when it ruled that the prescriptive period for the petitioner filed a petition for review with the CTA, docketed as CTA Case No.
CIR’s right to collect was not suspended under the circumstances of this case. 8502. The clerk of court of the CTA assessed petitioner for filing fees which
the latter promptly paid.20
WHEREFORE, the petition is DENIED. The assailed Decision of the Court
of Tax Appeals (CTA) En Banc dated August 12, 2005 is AFFIRMED. No However, with respect to the deficiency assessment against petitioner for the
costs. year 2008, the same involves the same tax liabilities being recovered in the
pending criminal cases. Thus, petitioner was confused as to whether he has to
SO ORDERED. separately file an appeal with the CTA and pay the corresponding filing fees
considering that the civil action for recovery of the civil liability for taxes and
G.R. No. 222837, July 23, 2018 penalties was deemed instituted in the criminal case. 21
MACARIO LIM GAW, JR., Petitioner, v. COMMISSIONER OF
Thus, petitioner filed before the CTA a motion to clarify as to whether petitioner
INTERNAL REVENUE, Respondent.
has to file a separate petition to question the deficiency assessment for the year
DECISION 2008.22

TIJAM, J.: On June 6, 2012, the CTA issued a Resolution 23 granting petitioner's motion
and held that the recovery of the civil liabilities for the taxable year 2008 was
Antecedent Facts deemed instituted with the consolidated criminal cases, thus:

However, as a caution, petitioner still filed a Petition for Review Ad

Sometime in November 2007, petitioner acquired six (6) parcels of land. To Cautelam (with Motion for Consolidation with CTA Criminal Case Nos. O-206
finance its acquisition, petitioner applied for, and was granted a Short Term and O-207).25 Upon filing of the said petition, the clerk of court of the CTA
Loan (STL) Facility from Banco De Oro (BDO) in the amount of assessed petitioner with "zero filing fees."26
P2,021,154,060.00.4
Meanwhile, the CTA later acquitted petitioner in Criminal Case Nos. O-206
From April to June 2008, petitioner acquired four (4) more parcels of land. and O-207 and directed the litigation of the civil aspect in CTA Case No. 8503
Again, petitioner applied for and was granted an STL Facility from BDO in the in its Resolution27 dated January 3, 2013, to wit:
amount of P2,732,666,785.5
Thereafter, respondent filed a Motion to Dismiss29 the Petition for Review Ad
Petitioner entered into an Agreement to Sell6 with Azure Corporation for the Cautelam on the ground that the CTA First Division lacks jurisdiction to
sale and transfer of real properties to a joint venture company, which at the time resolve the case due to petitioner's non-payment of the filing fees.
was still to be formed and incorporated. Then on July 11, 2008, petitioner
conveyed the 10 parcels of land to Eagle I Landholdings, Inc. (Eagle I), the joint On March 1, 2013, the CTA First Division issued a Resolution 30 granting the
venture company referred to in the Agreement to Sell. 7 Motion to Dismiss. His motion for reconsideration being denied, petitioner
elevated the case to the CTA En Banc. The latter however affirmed the
In compliance with Revenue Memorandum Order No. 15-2003,8 petitioner dismissal of the case in its Decision31 dated December 22, 2014, thus:
requested the Bureau of Internal Revenue (BIR)-Revenue District Office
(RDO) No. 52 for the respective computations of the tax liabilities due on the
sale of the 10 parcels of land to Eagle I. 9 Petitioner's motion for reconsideration was likewise denied by the CTA En
Banc in its Resolution33 dated February 2, 2016. Further, in a more recent case of Proton Pilipinas Corp. v. Republic of the
Phils.,49 We ruled that:
Hence, this petition.
While it is true that according to the aforesaid Section 4, of Republic Act No.
Issues 8249, the institution of the criminal action automatically carries with it the
institution of the civil action for the recovery of civil liability, however, in the
case at bar, the civil case for the collection of unpaid customs duties and
1. WON the civil action filed by the taxes cannot be simultaneously instituted and determined in the same
petitioner to question the FDDA is proceedings as the criminal cases before the Sandiganbayan, as it cannot
deemed instituted with the be made the civil aspect of the criminal cases filed before it. It should be
criminal case for tax evasion borne in mind that the tax and the obligation to pay the same are all created
2.WON the civil action for the recovery of by statute; so are its collection and payment governed by
civil liability for taxes and penalties statute. The payment of taxes is a duty which the law requires to be paid.
that is deemed instituted with the Said obligation is not a consequence of the felonious acts charged in the
criminal action is the Petition criminal proceeding nor is it a mere civil liability arising from crime that
for Review Ad Cautelam filed by could be wiped out by the judicial declaration of non-existence of the
petitioner criminal acts charged. Hence, the payment and collection of customs duties
and taxes in itself creates civil liability on the part of the taxpayer. Such
civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed
by him.50 (Citations omitted and emphasis ours)
Ruling of the Court

The civil action for the recovery of

The petition is partly granted. civil liability for taxes and penalties
that is deemed instituted with the
The civil action filed by the criminal action is not the Petition
petitioner to question the FDDA is for Review Ad Cautelam filed by
not deemed instituted with the petitioner
criminal case for tax evasion
Under Sections 254 and 255 of the NIRC, the government can file a criminal
case for tax evasion against any taxpayer who willfully attempts in any manner
to evade or defeat any tax imposed in the tax code or the payment thereof. The
crime of tax evasion is committed by the mere fact that the taxpayer knowingly
and willfully filed a fraudulent return with intent to evade and defeat a part or
We do not agree.
all of the tax. It is therefore not required that a tax deficiency assessment must
Rule 111, Section 1(a)44 of the Rules of Court provides that what is deemed
first be issued for a criminal prosecution for tax evasion to prosper. 51
instituted with the criminal action is only the action to recover civil liability
arising from the crime.45 Civil liability arising from a different source of
While the tax evasion case is pending, the BIR is not precluded from issuing a
obligation, such as when the obligation is created by law, such civil liability is
final decision on a disputed assessment, such as what happened in this case. In
not deemed instituted with the criminal action.
order to prevent the assessment from becoming final, executory and
demandable, Section 9 of R.A. No. 9282 allows the taxpayer to file with the
It is well-settled that the taxpayer's obligation to pay the tax is an obligation that
CTA, a Petition for Review within 30 days from receipt of the decision or the
is created by law and does not arise from the offense of tax evasion, as such,
inaction of the respondent.
the same is not deemed instituted in the criminal case.46
The tax evasion case filed by the government against the erring taxpayer has,
In the case of Republic of the Philippines v. Patanao,47 We held that:
for its purpose, the imposition of criminal liability on the latter. While the
Civil liability to pay taxes arises from the fact, for instance, that one has Petition for Review filed by the petitioner was aimed to question the FDDA and
engaged himself in business, and not because of any criminal act committed to prevent it from becoming final. The stark difference between them is
by him. The criminal liability arises upon failure of the debtor to satisfy his glaringly apparent. As such, the Petition for Review Ad Cautelam is not deemed
civil obligation. The incongruity of the factual premises and foundation instituted with the criminal case for tax evasion.
principles of the two cases is one of the reasons for not imposing civil indemnity
on the criminal infractor of the income tax law. x x x Considering that the In fact, in the Resolution52 dated June 6, 2012, the CTA recognized the separate
Government cannot seek satisfaction of the taxpayer's civil liability in a and distinct character of the Petition for Review from the criminal case, to wit:
criminal proceeding under the tax law or, otherwise stated, since the said civil
As regards, [petitioner's] Urgent Motion (With Leave of Court for Confirmation
liability is not deemed included in the criminal action, acquittal of the taxpayer
that the Civil Action for Recovery of Civil Liability for Taxes and Penalties is
in the criminal proceeding does not necessarily entail exoneration from his
Deemed Instituted in the Consolidated Criminal Cases) filed on May 30, 2012,
liability to pay the taxes. It is error to hold, as the lower court has held that the
the same is hereby GRANTED.The civil action for recovery of the civil
judgment in the criminal cases Nos. 2089 and 2090 bars the action in the present
liabilities of [petitioner] for taxable year 2008 stated in the [FDDA] dated May
case. The acquittal in the said criminal cases cannot operate to discharge
18, 2012 is DEEMED INSTITUTED with the instant consolidated criminal
defendant appellee from the duty of paying the taxes which the law
cases, without prejudice to the right of the [petitioner] to avail of whatever
requires to be paid, since that duty is imposed by statute prior to and
additional legal remedy he may have, to prevent the said FDDA from
independently of any attempts by the taxpayer to evade payment. Said
becoming final and executory for taxable year 2008.53 (Emphasis ours)
obligation is not a consequence of the felonious acts charged in the criminal
proceeding nor is it a mere civil liability arising from crime that could be
wiped out by the judicial declaration of non existence of the criminal acts
charged. x x x.48(Citations omitted and emphasis ours) In the said resolution, what is deemed instituted with the criminal action is only
the government's recovery of the taxes and penalties relative to the criminal
case. The remedy of the taxpayer to appeal the disputed assessment is not
deemed instituted with the criminal case. To rule otherwise would be to render
nugatory the procedure in assailing the tax deficiency assessment.
 b. Ordinary assets shall refer to all real properties specifically excluded from
the definition of capital assets under Sec. 39(A)(1) of the Code, namely:

This Court will not however rule on 1. Stock in trade of a taxpayer or other real property of a kind which would
the merits of the CTA Case No. properly be included in the inventory of the taxpayer if on hand at the close of
8503 the taxable year; or

Rule 4, Section 3(a), paragraph 1 of the RRCTA provides that the CTA First 2. Real property held by the taxpayer primarily for sale to customers in the
Division has exclusive appellate jurisdiction over decisions of the ordinary course of his trade or business; or
Commissioner of Internal Revenue on disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other 3. Real property used in trade or business (i.e., buildings and/or improvements)
matters arising under the NIRC or other laws administered by the BIR, to wit: of a character which is subject to the allowance for depreciation provided for
under Sec. 34(F) of the Code; or
SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in
Divisions shall exercise: 4. Real property used in trade or business of the taxpayer.

(a) Exclusive original or appellate jurisdiction to review by appeal the

following: The statutory definition of capital assets is negative in nature. Thus, if the
property or asset is not among the exceptions, it is a capital asset; conversely,
(1) Decisions of the Commissioner of Internal Revenue in cases involving assets falling within the exceptions are ordinary assets. 64
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the To determine as to whether the transaction between petitioner and Eagle I is an
National Internal Revenue Code or other laws administered by the Bureau isolated transaction or whether the 10 parcels of land sold by petitioner is
of Internal Revenue; classified as capital assets or ordinary assets should properly be resolved by the
CTA. Thus, it would be more prudent for Us to remand the case to CTA for the
latter to conduct a full-blown trial where both parties are given the chance to
present evidence of their claim. Well-settled is the rule that this Court is not a
The above provision means that the CTA exercises exclusive appellate trier of facts.
jurisdiction to resolve decisions of the commissioner of internal revenue. There
is no other court that can exercise such jurisdiction. "[I]t should be noted that Considering Our foregoing disquisitions, the proper remedy is to remand the
the CTA has developed an expertise on the subject of taxation because it is a case to the CTA First Division and to order the Clerk of Court to assess the
specialized court dedicated exclusively to the study and resolution of tax correct docket fees for the Petition for Review Ad Cautelam and for petitioner
problems."59 Thus, this Court has no jurisdiction to review tax cases at the first to pay the same within ten (10) days from receipt of the correct assessment of
instance without first letting the CTA to study and resolve the same. the clerk of court.
Under Rule 16, Section 160 of the RRCTA, this Court's review of the decision WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The
of the CTA En Banc is limited in determining whether there is grave abuse of Decision dated December 22, 2014 and Resolution dated February 2, 2016 of
discretion on the part of the CTA in resolving the case. Basic is the rule that the Court of Tax Appeals En Banc in CTA EB Criminal Case No. 026
delving into factual issues in a petition for review on certiorari is not a proper are REVERSED and SET ASIDE. The case is REMANDED to the Court of
recourse, since a Rule 45 petition is only limited to resolutions on questions of Tax Appeals First Division to conduct futher proceedings in CTA Case No.
law.61 8503 and to ORDER the Clerk of Court to assess the correct docket fees.
Petitioner Mariano Lim Gaw, Jr., is likewise ORDERED to pay the correct
Here, petitioner insists that the 10 parcels of idle land he sold on July 11, 2008 docket fees within ten (10) days from the receipt of the correct assessment of
in a single transaction to Eagle I are capital assets. Thus, the said parcels of land the Clerk of Court.
are properly subject to capital gains tax and documentary stamp tax and not to G.R. No. 169899 February 06, 2013
the regular income tax and value-added tax. The CIR, on the other hand argues
that the 10 parcels of land sold by petitioner are ordinary assets, hence should PHILACOR CREDIT CORPORATION, Petitioner,
be subject to income tax and value-added tax. The CIR reasoned that the sole vs.
purpose of petitioner in acquiring the said lots was for the latter to make a profit. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Further, the buying and selling of the said lots all occurred within the period of
eight months and it involved sale transactions with a ready buyer. 62 DECISION

Section 39(A)(1) of the National Internal Revenue Code (NIRC) provides that: BRION, J.:

(1) Capital Assets. - the term 'capital assets' means property held by the Before us is a petition for review on certiorari 1under Rule 45 of the Rules of
taxpayer (whether or not connected with his trade or business), but does not Court seeking the reversal of the decision 2 dated September 23, 2005 of the
include stock in trade of the taxpayer or other property of a kind which would Court of Tax Appeals (CTA) en bane in C.T.A, E.B. No. 19 (C.T.A. Case No.
properly be included in the inventory of the taxpayer if on hand at the close of 5674). In the assailed decision, the CTA en banc affirmed the CTA Division’s
the taxable year, or property held by the taxpayer primarily for sale to customers resolution3 of April 6, 2004. Both courts held that petitioner Philacor Credit
in the ordinary course of his trade or business, or property used in the trade or Corporation (Philacor), as an assignee of promissory notes, is liable for
business, of a character which is subject to the allowance for depreciation deficiency documentary stamp tax (DST) on (1) the issuance of promissory
provided in Subsection (F) of Section 34; or real property used in trade or notes; and (2) the assignment of promissory notes for the fiscal year ended
business of the taxpayer. 1993.

The facts are not disputed.

The distinction between capital asset and ordinary asset was further defined in Philacor is a domestic corporation organized under Philippine laws and is
Section 2(a) and (b) Revenue Regulations No. 7-2003,63 thus: engaged in the business of retail financing. Through retail financing, a
prospective buyer of a home appliance – with neither cash nor any credit card
a. Capital assets shall refer to all real properties held by a taxpayer, whether or – may purchase appliances on installment basis from an appliance dealer. After
not connected with his trade or business, and which are not included among the Philacor conducts a credit investigation and approves the buyer’s application,
real properties considered as ordinary assets under Sec. 39(A)(1) of the Code. the buyer executes a unilateral promissory note in favor of the appliance dealer.
The same promissory note is subsequently assigned by the appliance dealer to
Philacor.4
Pursuant to Letter of Authority No. 17107 dated July 6, 1974, Revenue Officer be held liable to pay the DST. Since the subject promissory notes do not bear
Celestino Mejia examined Philacor’s books of accounts and other accounting documentary stamps, Philacor can be held liable for DST. As for the assignment
records for the fiscal year August 1, 1992 to July 31, 1993. Philacor received of the promissory notes, the CTA en banc held that each and every transaction
tentative computations of deficiency taxes for this year. Philacor’s Finance involving promissory notes is subject to the DST under Section 173 of the 1986
Manager, Leticia Pangan, contested the tentative computations of deficiency Tax Code; Philacor is liable as the transferee and assignee of the promissory
taxes (totaling P20,037,013.83) through a letter dated April 17, 1995.5 notes.

On May 16, 1995, Mr. Mejia sent a letter to Philacor revising the preliminary ISSUE: Under the undisputed facts and the above law, the issue that emerges
assessments as follows: is: who is liable for the tax?

Philacor then received Pre-Assessment Notices (PANs), all dated July 18, 1996, Section 173 of the 1997 National Internal Revenue Code (1997 NIRC) names
covering the alleged deficiency income, percentage and DSTs, including those
increments.7
The persons primarily liable for the payment of the DST are the person (1)
On February 3, 1998, Philacor received demand letters and the corresponding making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable
assessment notices, all dated January 28, 1998. The assessments, inclusive of documents, instruments or papers. Should these parties be exempted from
increments, cover the following: paying tax, the other party who is not exempt would then be liable.

On March 4, 1998, Philacor protested the PANs, with a request for Philacor did not make, sign, issue, accept or transfer the promissory notes. The
reconsideration and reinvestigation. It alleged that the assessed deficiency acts of making, signing, issuing and transferring are unambiguous. The buyers
income tax was erroneously computed when it failed to take into account the of the appliances made, signed and issued the documents subject to tax, while
reversing entries of the revenue accounts and income adjustments, such as the appliance dealer transferred these documents to Philacor which likewise
repossessions, write-offs and legal accounts. Similarly, the Bureau of Internal indisputably received or "accepted" them. "Acceptance," however, is an act that
Revenue (BIR) failed to take into account the reversing entries of repossessions, is not even applicable to promissory notes, but only to bills of
legal accounts, and write-offs when it computed the percentage tax; thus, the exchange.22 Under Section 13223 of the Negotiable Instruments Law (which
total income reported, that the BIR arrived at, was not equal to the actual provides for how acceptance should be made), the act of acceptance refers
receipts of payment from the customers. As for the deficiency DST, Philacor solely to bills of exchange. Its object is to bind the drawee of a bill and make
claims that the accredited appliance dealers were required by law to affix the him an actual and bound party to the instrument. 24 Further, in a ruling adopted
documentary stamps on all promissory notes purchased until the enactment of by the BIR as early as 1955, acceptance has already been given a narrow
Republic Act No. 7660, otherwise known as An Act Rationalizing Further the definition with respect to incoming foreign bills of exchange, not the common
Structure and Administration of the Documentary Stamp Tax, 9 which took usage of the word "accepting" as in receiving:
effect on January 15, 1994. In addition, Philacor filed, on the following day, a
supplemental protest, arguing that the assessments were void for failure to state The word "accepting" appearing in Section 210 of the National Internal
the law and the facts on which they were based.10 Revenue Code has reference to incoming foreign bills of exchange which are
accepted in the Philippines by the drawees thereof. Accordingly, the
On September 30, 1998, Philacor filed a petition for review before the CTA documentary stamp tax on freight receipts is due at the time the receipts are
Division, docketed as C.T.A. Case No. 5674. 11 issued and from the transportation company issuing the same. The fact that the
transportation contractor issuing the freight receipts shifts the burden of the tax
The CTA Division rendered its decision on August 14, 2003.12 After examining to the shipper does not make the latter primarily liable to the payment of the
the documents submitted by the parties, it concluded that Philacor failed to tax.25 (underscore ours)
declare part of its income, making it liable for deficiency income tax and
percentage tax. However, it also found that the Commissioner of Internal This ruling, to our mind, further clarifies that a party to a taxable transaction
Revenue (CIR) erred in his analysis of the entries in Philacor’s books thereby who "accepts" any documents or instruments in the plain and ordinary meaning
considerably reducing Philacor’s liability to a deficiency income tax of of the act (such as the shipper in the cited case) does not become primarily liable
P1,757,262.47 and a deficiency percentage tax of P613,987.86. The CTA also for the tax. In the same way, Philacor cannot be made primarily liable for the
ruled that Philacor is liable for the DST on the issuance of the promissory notes DST on the issuance of the subject promissory notes, just because it had
and their subsequent transfer or assignment. Noting that Philacor failed to prove "accepted" the promissory notes in the plain and ordinary meaning. In this
that the DST on its promissory notes had been paid for these two transactions, regard, Section 173 of the 1997 NIRC assumes materiality as it determines
the CTA held Philacor liable for deficiency DST of P673,633.88, which is liability should the parties who are primarily liable turn out to be exempted from
computed as follows: paying tax; the other party to the transaction then becomes liable.

All sums for deficiency taxes included surcharge and interest. But even under these terms, the liability of Philacor is not a foregone conclusion
as from the face of the promissory note itself, Philacor is not a party to the
Both parties filed their motions for reconsideration. The CIR’s motion was issuance of the promissory notes, but merely to their assignment. On the face
denied for having been filed out of time.14On the other hand, the CTA partially of the documents, the parties to the issuance of the promissory notes would be
granted Philacor’s motion in the resolution of April 6, 2004,15 wherein it the buyer of the appliance, as the maker, and the appliance dealer, as the payee.
cancelled the assessment for deficiency income tax and deficiency
percentage tax. These assessments were withdrawn because the CTA found We are aware that while Philacor denies being a party to the issuance of the
that Philacor had correctly declared its income; the discrepancy of promissory notes,27 the appliance buyer is made to sign a promissory note only
P2,180,564.00 had been properly accounted for as proper adjustments to after Philacor has approved its credit application. Moreover, the note Philacor
Philacor’s net revenues. Nevertheless, the CTA Division sustained the marked as Annex "J" of its petition for review28 is the standard pro
assessment for deficiency DST in the amount of P673,633.88. forma promissory note that Philacor uses in all similar transactions;29 the same
document contains the issuance of the notes in favor of the appliance dealer and
Philacor filed a petition for review before the CTA en banc.16 their assignments to Philacor. The promissory notes are also transferred to
Philacor by the appliance dealer on the same date that the appliance buyer issues
In its decision17 dated September 23, 2005, the CTA en banc affirmed the the promissory note in favor of the appliance buyer. Thus, it would seem that
resolution of April 6, 2004 of the CTA Division. It reiterated that Philacor is Philacor is the person who ultimately benefits from the issuance of the notes, if
liable for the DST due on two transactions – the issuance of promissory notes not the intended payee of these notes.
and their subsequent assignment in favor of Philacor. With respect to the
issuance of the promissory notes, Philacor is liable as the transferee which These observations, however, pertain to facts and implications that are found
"accepted" the promissory notes from the appliance dealer in accordance with outside the terms of the documents under discussion and are contradictory to
Section 180 of Presidential Decree No. 1158, as amended (1986 Tax their outright terms. To consider these externalities would go against the
Code).18 Further citing Section 4219 of Regulations No. 26,20 the CTA en doctrine that the liability for the DST and the amount due are determined from
banc held that a person "using" a promissory note is one of the persons who can
the document itself – examined through its form and face – and cannot be 183, 184, 185, 194 and 195 which impose it on the issuances of mortgages,
affected by proof of facts outside it.30 leases and policies of insurance. Indeed, the law has set a pattern of expressly
providing for the imposition of DST on the transfer and/or assignment of
Nor can the CIR justify his position that Philacor is liable for the tax by citing documents evidencing certain transactions. Thus, we can safely conclude that
Section 42 of Regulations No. 26, which was issued by the Department of where the law did not specify that such transfer and/or assignment is to be taxed,
Finance on March 26, 1924: there would be no basis to recognize an imposition.
The rule uses the word "can" which is permissive, rather than the word "shall," A good illustrative example is Section 198 of the 1986 Tax Code which
which would make the liability of the persons named definite and provides that:
unconditional. In this sense, a person using a promissory note can be made
liable for the DST if he or she is: (1) among those persons enumerated under If we look closely at this provision, we would find that an assignment or transfer
the law - i.e., the person who makes, issues, signs, accepts or transfers the becomes taxable only in connection with mortgages, leases and policies of
document or instrument; or (2) if these persons are exempt, a non-exempt party insurance. The list does not include the assignment or transfer of evidences of
to the transaction. Such interpretation would avoid any conflict between Section indebtedness; rather, it is the renewal of these that is taxable. The present case
173 of the 1997 NIRC and Section 42 of Regulations No. 26 and would make does not involve a renewal, but a mere transfer or assignment of the evidences
it unnecessary for us to strike down the latter as having gone beyond the law it of indebtedness or promissory notes. A renewal would involve an increase in
seeks to interpret. the amount of indebtedness or an extension of a period, and not the mere change
in person of the payee.35
However, we cannot interpret Section 42 of Regulations No. 26 to mean that
anyone who "uses" the document, regardless of whether such person is a party The settled rule is that in case of doubt, tax laws must be construed strictly
to the transaction, should be liable, as this reading would go beyond Section against the State and liberally in favor of the taxpayer. The reason for this ruling
173 of the 1986 Tax Code – the law that the rule seeks to implement. is not hard to grasp taxes, as burdens which must be endured by the taxpayer,
Implementing rules and regulations cannot amend a law for they are intended should not be presumed to go beyond what the law expressly and clearly
to carry out, not supplant or modify, the law.31 To allow Regulations No. 26 to declares. That such strict construction is necessary in this case is evidenced by
extend the liability for DST to persons who are not even mentioned in the the change in the subject provision as presently worded, which now expressly
relevant provisions of any of our Tax Codes, particularly the 1986 Tax Code levies the tax on shares of stock as against the previlege of issuing certificates
(the relevant law at the time of the subject transactions) would be a clear breach of stock as formerly provided.36
of the rule that a statute must always be superior to its implementing
regulations. [G.R. No. 165617, February 25 : 2011]

This expansive interpretation of Regulations No. 26 becomes even more SUPREME TRANSLINER, INC., MOISES C. ALVAREZ AND
untenable when we look at the difference between the way our law has been PAULITA S. ALVAREZ, PETITIONERS, VS. BPI FAMILY SAVINGS
phrased and the way the Internal Revenue Law of the United States (US) BANK, INC., RESPONDENT.
identified the persons liable for its stamp tax. We also note that despite the
subsequent amendments to our DST provisions, our Congress never saw it fit [G.R. No. 165837]
to phrase our laws using the US phraseologies.
BPI FAMILY SAVINGS BANK, INC., PETITIONER, VS. SUPREME
In our view, it makes more sense to include persons who benefit from or have TRANSLINER, INC., MOISES C. ALVAREZ AND PAULITA S.
an interest in the taxable document, instrument or transaction. There appears no ALVAREZ, RESPONDENTS.
reason for distinguishing between the persons who make, sign, issue, transfer
or accept these documents and the persons who have an interest in these and/or DECISION
have caused them to be made, signed or issued. This also limits the
opportunities for avoiding tax. Moreover, there are cases when making all
relevant parties taxable could help our administrative officers collect tax more
efficiently. In this case, the BIR could simply collect from the financing VILLARAMA, JR., J.:
companies, rather than go after each and every appliance buyer or appliance
seller. However, these are matters that are within the prerogatives of
Congress so that any interference from the Court, no matter how well- This case involves the question of the correct redemption price payable to a
meaning, would constitute judicial legislation. At best, we can only air our
mortgagee bank as purchaser of the property in a foreclosure sale.
views in the hope that Congress would take notice.

Philacor is not liable for the DST on the assignment of promissory notes. On April 24, 1995, Supreme Transliner, Inc. represented by its Managing
Director, Moises C. Alvarez, and Paulita S. Alvarez, obtained a loan in the
Philacor, as an assignee or transferee of the promissory notes, is not liable for amount of P9,853,000.00 from BPI Family Savings Bank with a 714-square
the assignment or transfer of promissory notes as this transaction is not taxed meter lot covered by Transfer Certificate of Title No. T-79193 in the name of
under the law. Moises C. Alvarez and Paulita S. Alvarez, as collateral. [1]

The CIR argues that the DST is levied on the exercise of privileges through the For non-payment of the loan, the mortgage was extrajudicially foreclosed and
execution of specific instruments, or the privilege to enter into a transaction. the property was sold to the bank as the highest bidder in the public auction
Therefore, the DST should be imposed on every exercise of the privilege to conducted by the Office of the Provincial Sheriff of Lucena City. On August
enter into a transaction.34 There is nothing in Section 180 of the 1986 Tax Code 7, 1996, a Certificate of Sale[2] was issued in favor of the bank and the same
that supports this argument; the argument is even contradicted by the way the was registered on October 1, 1996.
provisions on DST were drafted.1âwphi1
Before the expiration of the one-year redemption period, the mortgagors
As Philacor correctly points out, there are provisions in the 1997 NIRC that notified the bank of their intention to redeem the property. Accordingly, the
specifically impose the DST on the transfer and/or assignment of documents following Statement of Account[3] was prepared by the bank indicating the total
evidencing particular transactions. Section 176 imposes a DST on amount due under the mortgage loan agreement:
the transfer of due bills, certificates of obligation, or shares or certificates of
stock in a corporation, apart from Section 175 which imposes the DST on the
issuance of shares of stock in a corporation. Section 178 imposes the DST on The mortgagors requested for the elimination of liquidated damages and
certificates of profits, or any certificate or memorandum showing interest in a reduction of attorney's fees and interest (1% per month) but the bank
property or accumulations of any corporation, and on all transfers of such refused. On May 21, 1997, the mortgagors redeemed the property by paying
certificate or memoranda. Section 198 imposes the DST on the assignment or the sum of P15,704,249.12. A Certificate of Redemption[4] was issued by the
transfer of any mortgage, lease or policy of insurance, apart from Sections bank on May 27, 1997.
 the order confirming the sale shall be registered by brief memorandum thereof
On June 11, 1997, the mortgagors filed a complaint against the bank to recover made by the Register of Deeds upon the certificate of title. In the event the
the allegedly unlawful and excessive charges totaling P5,331,237.77, with property is redeemed, the certificate or deed of redemption shall be filed with
prayer for damages and attorney's fees, docketed as Civil Case No. 97-72 of the the Register of Deeds, and a brief memorandum thereof shall be made by the
Regional Trial Court of Lucena City, Branch 57. Register of Deeds on the certificate of title.

In its Answer with Special and Affirmative Defenses and Counterclaim, the It is therefore clear that in foreclosure sale, there is no actual transfer of the
bank asserted that the redemption price reflecting the stipulated interest, mortgaged real property until after the expiration of the one-year redemption
charges and/or expenses, is valid, legal and in accordance with documents duly period as provided in Act No. 3135 and title thereto is consolidated in the name
signed by the mortgagors. The bank further contended that the claims are of the mortgagee in case of non-redemption. In the interim, the mortgagor is
deemed waived and the mortgagors are already estopped from questioning the given the option whether or not to redeem the real property. The issuance of
terms and conditions of their contract. the Certificate of Sale does not by itself transfer ownership.[19]

On September 30, 1997, the bank filed a motion to set the case for hearing on RR No. 4-99 issued on March 16, 1999, further amends RMO No. 6-92 relative
the special and affirmative defenses by way of motion to dismiss. The trial to the payment of Capital Gains Tax and Documentary Stamp Tax on
court denied the motion on January 8, 1998 and also denied the bank's motion extrajudicial foreclosure sale of capital assets initiated by banks, finance and
for reconsideration. The bank elevated the matter to the Court of Appeals (CA- insurance companies.
G.R. SP No. 47588) which dismissed the petition for certiorari on February 26,
1999. In this case, the retroactive application of RR No. 4-99 is more consistent with
the policy of aiding the exercise of the right of redemption. As the Court of
On February 14, 2002, the trial court rendered its decision [5] dismissing the Tax Appeals concluded in one case, RR No. 4-99 "has curbed the inequity of
complaint and the bank's counterclaims. The trial court held that plaintiffs- imposing a capital gains tax even before the expiration of the redemption period
mortgagors are bound by the terms of the mortgage loan documents which [since] there is yet no transfer of title and no profit or gain is realized by the
clearly provided for the payment of the following interest, charges and mortgagor at the time of foreclosure sale but only upon expiration of the
expenses: 18% p.a. on the loan, 3% post-default penalty, 15% liquidated redemption period."[20] In his commentaries, De Leon expressed the view that
damages, 15% attorney's fees and collection and legal costs. Plaintiffs- while revenue regulations as a general rule have no retroactive effect, if the
mortgagors' claim that they paid the redemption price demanded by the revocation is due to the fact that the regulation is erroneous or contrary to law,
defendant bank under extreme pressure was rejected by the trial court since such revocation shall have retroactive operation as to affect past transactions,
there was active negotiation for the final redemption price between the bank's because a wrong construction of the law cannot give rise to a vested right that
representatives and plaintiffs-mortgagors who at the time had legal advice from can be invoked by a taxpayer.[21]
their counsel, together with Orient Development Banking Corporation which
committed to finance the redemption. Considering that herein petitioners-mortgagors exercised their right of
redemption before the expiration of the statutory one-year period, petitioner
According to the trial court, plaintiffs-mortgagors are estopped from bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure
questioning the correctness of the redemption price as they had freely and sale. There was no actual transfer of title from the owners-mortgagors to the
voluntarily signed the letter-agreement prepared by the defendant bank, and foreclosing bank. Hence, the inclusion of the said charge in the total redemption
along with Orient Bank expressed their conformity to the terms and conditions price was unwarranted and the corresponding amount paid by the petitioners-
therein, thus: mortgagors should be returned to them.

As to plaintiffs-mortgagors' contention that the amounts representing attorney's

fees and liquidated damages were already included in the P10,372,711.35 bid G.R. No. 117604 March 26, 1997
price, the trial court said this was belied by their own evidence, the Statement
of Account showing the breakdown of the redemption price as computed by the CHINA BANKING CORPORATION, petitioner,
defendant bank. vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB,
The mortgagors appealed to the CA (CA-G.R. CV No. 74761) which, by INC., respondents.
Decision[7] dated April 6, 2004 reversed the trial court and decreed as follows:

ISSUE: whether the foreclosing mortgagee should pay capital gains tax upon
KAPUNAN, J.:
execution of the certificate of sale, and if paid by the mortgagee, whether the
same should be shouldered by the redemptioner. FACTS:

On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a

Coming now to the issue of capital gains tax, we find merit in petitioners- stockholder of private respondent Valley Golf & Country Club, Inc. (VGCCI,
mortgagors' argument that there is no legal basis for the inclusion of this charge for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking
in the redemption price. Under Revenue Regulations (RR) No. 13-85 Corporation (CBC, for brevity).1
(December 12, 1985), every sale or exchange or other disposition of real
property classified as capital asset under Section 34(a)[17] of the Tax Code shall On 16 September 1974, petitioner wrote VGCCI requesting that the
be subject to the final capital gains tax. The term sale includes pacto de aforementioned pledge agreement be recorded in its books.2
retro and other forms of conditional sale. Section 2.2 of Revenue Memorandum
Order (RMO) No. 29-86 (as amended by RMO No. 16-88 and as further In a letter dated 27 September 1974, VGCCI replied that the deed of pledge
amended by RMO Nos. 27-89 and 6-92) states that these conditional sales executed by Calapatia in petitioner's favor was duly noted in its corporate
"necessarily include mortgage foreclosure sales (judicial and extrajudicial books.3
foreclosure sales)." Further, for real property foreclosed by a bank on or after
September 3, 1986, the capital gains tax and documentary stamp tax must be On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner,
paid before title to the property can be consolidated in favor of the bank.[18] payment of which was secured by the aforestated pledge agreement still existing
between Calapatia and petitioner.4
Under Section 63 of Presidential Decree No. 1529 otherwise known as
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985,
the Property Registration Decree, if no right of redemption exists, the certificate
filed a petition for extrajudicial foreclosure before Notary Public Antonio T. de
of title of the mortgagor shall be cancelled, and a new certificate issued in the
Vera of Manila, requesting the latter to conduct a public auction sale of the
name of the purchaser. But where the right of redemption exists, the certificate
pledged stock.5
of title of the mortgagor shall not be cancelled, but the certificate of sale and
On 14 May 1985, petitioner informed VGCCI of the above-mentioned dismissed petitioner's original complaint. The Court of Appeals declared that
foreclosure proceedings and requested that the pledged stock be transferred to the controversy between CBC and VGCCI is not intra-corporate. It ruled as
its (petitioner's) name and the same be recorded in the corporate books. follows:
However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to
accede to petitioner's request in view of Calapatia's unsettled accounts with the ISSUE: which body has jurisdiction over the controversy, the regular courts or
club.6 the SEC.

Despite the foregoing, Notary Public de Vera held a public auction on 17 Applying the foregoing principles in the case at bar, to ascertain which tribunal
September 1985 and petitioner emerged as the highest bidder at P20,000.00 for has jurisdiction we have to determine therefore whether or not petitioner is a
the pledged stock. Consequently, petitioner was issued the corresponding stockholder of VGCCI and whether or not the nature of the controversy between
certificate of sale.7 petitioner and private respondent corporation is intra-corporate.

On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment As to the first query, there is no question that the purchase of the subject share
of his overdue account in the amount of P18,783.24. 8 Said notice was followed or membership certificate at public auction by petitioner (and the issuance to it
by a demand letter dated 12 December 1985 for the same amount9 and another of the corresponding Certificate of Sale) transferred ownership of the same to
notice dated 22 November 1986 for P23,483.24. 10 the latter and thus entitled petitioner to have the said share registered in its name
as a member of VGCCI. It is readily observed that VGCCI did not assail the
On 4 December 1986, VGCCI caused to be published in the newspaper Daily transfer directly and has in fact, in its letter of 27 September 1974, expressly
Express a notice of auction sale of a number of its stock certificates, to be held recognized the pledge agreement executed by the original owner, Calapatia, in
on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share favor of petitioner and has even noted said agreement in its corporate
of stock (Stock Certificate No. 1219). books. 25 In addition, Calapatia, the original owner of the subject share, has not
contested the said transfer.
Through a letter dated 15 December 1986, VGCCI informed Calapatia of the
termination of his membership due to the sale of his share of stock in the 10 By virtue of the afore-mentioned sale, petitioner became a bona
December 1986 auction. 11 fide stockholder of VGCCI and, therefore, the conflict that arose between
petitioner and VGCCI aptly exemplies an intra-corporate controversy between
On 5 May 1989, petitioner advised VGCCI that it is the new owner of a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.
Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in
the 17 September 1985 auction and requested that a new certificate of stock be An important consideration, moreover, is the nature of the controversy between
issued in its name. 12 petitioner and private respondent corporation. VGCCI claims a prior right over
the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's provides that "after a member shall have been posted as delinquent, the Board
stock was sold at the public auction held on 10 December 1986 for may order his/her/its share sold to satisfy the claims of the Club. . ." 26 It is
P25,000.00. 13 pursuant to this provision that VGCCI also sold the subject share at public
auction, of which it was the highest bidder. VGCCI caps its argument by
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share asserting that its corporate by-laws should prevail. The bone of contention, thus,
of stock and thereafter filed a case with the Regional Trial Court of Makati for is the proper interpretation and application of VGCCI's aforequoted by-laws, a
the nullification of the 10 December 1986 auction and for the issuance of a new subject which irrefutably calls for the special competence of the SEC.
stock certificate in its name. 14
In this case, the need for the SEC's technical expertise cannot be over-
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint emphasized involving as it does the meticulous analysis and correct
for lack of jurisdiction over the subject matter on the theory that it involves an interpretation of a corporation's by-laws as well as the applicable provisions of
intra-corporate dispute and on 27 August 1990 denied petitioner's motion for the Corporation Code in order to determine the validity of VGCCI's claims. The
reconsideration. SEC, therefore, took proper cognizance of the instant case.
On 20 September 1990, petitioner filed a complaint with the Securities and VGCCI further contends that petitioner is estopped from denying its earlier
Exchange Commission (SEC) for the nullification of the sale of Calapatia's position, in the first complaint it filed with the RTC of Makati (Civil Case No.
stock by VGCCI; the cancellation of any new stock certificate issued pursuant 90-1112) that there is no intra-corporate relations between itself and VGCCI.
thereto; for the issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation. VGCCI's contention lacks merit.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision We remind VGCCI that in the same proceedings before the RTC of Makati, it
in favor of VGCCI, stating in the main that "(c)onsidering that the said share is categorically stated (in its motion to dismiss) that the case between itself and
delinquent, (VGCCI) had valid reason not to transfer the share in the name of petitioner is intra-corporate and insisted that it is the SEC and not the regular
the petitioner in the books of (VGCCI) until liquidation of courts which has jurisdiction. This is precisely the reason why the said court
delinquency." 15 Consequently, the case was dismissed. 16 dismissed petitioner's complaint and led to petitioner's recourse to the SEC.
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for Having resolved the issue on jurisdiction, instead of remanding the whole case
reconsideration. 17 to the Court of Appeals, this Court likewise deems it procedurally sound to
proceed and rule on its merits in the same proceedings.
Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission
issued an order reversing the decision of its hearing officer. It declared thus: It must be underscored that petitioner did not confine the instant petition for
review on certiorari on the issue of jurisdiction. In its assignment of errors,
The Commission en banc believes that appellant-petitioner has a prior right petitioner specifically raised questions on the merits of the case. In turn, in its
over the pledged share and because of pledgor's failure to pay the principal debt responsive pleadings, private respondent duly answered and countered all the
upon maturity, appellant-petitioner can proceed with the foreclosure of the issues raised by petitioner.
pledged share.

VGCCI sought reconsideration of the abovecited order. However, the SEC

denied the same in its resolution dated 7 December 1993. 19

The sudden turn of events sent VGCCI to seek redress from the Court of
Appeals. On 15 August 1994, the Court of Appeals rendered its decision
nullifying and setting aside the orders of the SEC and its hearing officer on
ground of lack of jurisdiction over the subject matter and, consequently,