FITNESS BY DESIGN INC V.

CIR (*from upper batch)

Facts:
Commissioner on Internal Revenue (respondent) assessed Fitness by Design,
Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner protested
and filed a Petition for Review with Motion to Suspend Collection of Income Tax, before
the Court of Tax Appeals and raised prescription as a defense. A preliminary hearing on
the issue of prescription was conducted during which petitioners former bookkeeper
attested that certified public accountant Leonardo Sablan illegally took custody of
petitioners accounting records, invoices, and official receipts and turned them over to the
BIR.
Petitioner requested for the issuance of subpoena ad testificandum to Sablan
for the hearing and of subpoena duces tecum to the BIR for the production of the
Affidavit of the Informer bearing on the assessment in question. In addition, petitioner
submitted written interrogatories addressed to Sablan. The CTA denied petitioners
motion for Issuance of Subpoenas and disallowed the submission by petitioner of written
interrogatories to Sablan. The CTA found that to require Sablan to testify would violate
Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department
Order No. 46-66, proscribing the revelation of identities of informers of violations of
internal revenue laws, except when the information is proven to be malicious or false.
Petitioner filed a rule 65.
Issue: Did the CTA err in denying the motions for subpoenas and written interrogatories?
Held:
The CTA did NOT err. In requesting the issuance of the subpoenas and the
submission of written interrogatories, petitioner sought to establish that its accounting
records and related documents, invoices, and receipts which were the bases of the
assessment against it were illegally obtained. The only issues, however, which surfaced
during the preliminary hearing before the CTA, were whether respondents issuance of
assessment against petitioner had prescribed and whether petitioners tax return was
false or fraudulent.
Besides, as the CTA held, the subpoenas and answers to the written
interrogatories would violate Section 2 of Republic Act No. 2338 as implemented by
Section 12 of Finance Department Order No. 46-66. Petitioner claims, however, that it only
intended to elicit information on the whereabouts of the documents it needs in order to
refute the assessment, and not to disclose the identity of the informer. Petitioners
position does not persuade. The interrogatories addressed to Sablan and the revenue
officers show that they were intended to confirm petitioners belief that Sablan was the
informer.
Lastly, Petitioner impugns the manner in which the documents in question
reached the BIR, Sablan having allegedly submitted them to the BIR without its
(petitioners) consent. Petitioners lack of consent does not, however, imply that the BIR

obtained them illegally or that the information received is false or malicious. Nor does the
lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on
the documents. Section 5 of the Tax Code allows the BIR access to all relevant or material
records and data in the person of the taxpayer, and the BIR can accept documents which
cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.
To require the consent of the taxpayer would defeat the intent of the law to help the BIR
assess and collect the correct amount of taxes
BONIFACIO SY PO VS. COURT OF TAX APPEALS (AUGUST 18, 1988) (*from upper batch)
DOCTRINE - Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in
the performance of duties, an assessment duly made by the BIR examiner and approved by
his superior officers will not be disturbed. All presumptions are in favour of the correctness
of tax assessments. (Venzuela 3D 2012)
Po Bien Sing was the sole proprietor of Silver Cup Wine Factory engaged in the
manufacture and sale of compounded liquors. On the basis of a denunciation against
Silver Cup allegedly for tax evasion amounting to millions of pesos, an investigation was
conducted by the BIR. A subpoena duces tecum was issued against Silver Cup requesting
the production of accounting records and other related documents. Po Bien Sing did not
produce the said documents so the BIR investigation team entered the factory and seized
the different brands of alcohol products inside. On the basis of the investigation teams
report, Silver Cup was assessed deficiency income tax of P5,596,003.68 which Po Bien
Sing protested. However, since he still did not present the documents requested, the
assessment remained. BIR then issued warrants of distraint and levy. In short, the
protests were denied so Po Bien Sing (represented by his wife because he was already
dead) brought the case to the Supreme Court.
The basis issue is whether or not the assessment is valid and has legal basis.
The Supreme Court ruled that the assessment was valid. One of the powers of
the Commissioner of Internal Revenue under the NIRC is to make an assessment with the
available information in case the taxpayer makes a fraudulent return or does not make a
return at all. This basically speaks of the principle of best evidence obtainable. In this
case, the failure of Po Bien Sing to produce the required documents left the Commissioner
with no choice but to exercise the said power. The assessment was not arbitrary as
alleged by So Bien Sing because it was based on the number bottles of wines seized
during the raid and sworn statements of the employees.
50% surcharge was also imposed and .05% monthly interest. (FYI kung itanong ni
sir.)
Tax assessments by tax examiners are presumed correct and made in good faith.
The burden to prove otherwise is on the taxpayer. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a BIR examiner
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and approved by his superior officers will not be disturbed. All presumptions are in favor
of the correctness of the tax.
Furthermore, the taxpayer should not only prove that the tax assessment is
wrong. He must also prove what is the correct and just liability by a full and fair disclosure
of all pertinent data in is possession. Otherwise, the tax court proceedings would settle
nothing and the whole process may be repeated again if the taxpayer does not like the
subsequent assessment.
CIR V. BENIPAYO (ASSESSMENTS CANNOT BE BASED ON MERE PRESUMPTIONS) *from
upper batch
DOCTRINE The assessment determines the tax liability of a taxpayer. As it is imperative to
be accurate, the assessment must be based on actual facts. Although there is a presumption
of correctness in the assessment, such presumption cannot be based on another
presumption as well, not matter how reasonable or logical such may be. The basis of the
presumption of correctness must be actual facts. (Noel 3D 2012)
Benipayo was the owner and operator of the Lucena Theater. He charged ) 20
centavos for childrens tickets and 40 centavos for adults tickets. The 20c tickets for
children were tax free while those for adults were not. During 1949-1951, the ratio of the
customers was 1 child for every 3 adults. However, during the 1952-1953, the ratio was 3
children for every adult. This led the Revenue Agent to conclude that Benipayo
fraudulently sold 20c tax-free tickets to adults instead of the 40c taxable tickets in order
to avoid the corresponding amusement tax. As such, the BIR assessed Benipayo of
amusement tax liability. Benipayo claims that the reports were bare presumptions and
conclusions and that there was no proof of fraud committed by him.
Another report was made wherein the agents of the BIR supervised the sale of
tickets. During this period, the tickets for the adults soared while those of the children
decreased. The Revenue Agent claims that this shows that fraud was indeed committed
during the questioned period.
The Supreme Court ruled that there was no factual basis for the assessment of
amusement tax. It ruled that assessments should not be based on mere presumptions no
matter how reasonable or logical. The fact that the ratio changed is no proof that the
ratio was the same during the questioned period. The assessment must be based on
actual facts. The presumption of correctness should not be based on another
presumption that the ratio during the questioned period was the same as that of the
succeeding period.

DOCTRINE Mandamus cannot lie to compel the Commissioner to impose a deficiency tax
assessment. Mandamus only lies when the act is ministerial in nature, and not discretionary,
as assessments are, with regard to the Commissioner. Should the Commissioner choose not
to impose deficiency tax assessments due to want of proof, the courts cannot interfere with
such discretionary function. (Noel 3D 2012)
Maniago submitted to CIR a confidential denunciation against Meralco for tax
evasion for paying income tax only for 25% of the dividends it received from Manila
Electric Company. The Commissioner initiated an investigation but found that Meralco
complied with the requirements of the law which states that in the case of dividends
received by a domestic or foreign resident corporation liable to tax under this
Chapter.only 25% thereof shall be returnable for the purposes of the tax imposed under
this section. Maniago filed a petition for mandamus to compel the Commissioner to issue
a deficiency tax assessment so he could get his informers reward. The trial court granted
the mandamus so the CIR brought the case to the Supreme Court.
The Supreme Court ruled that the trial court had no jurisdiction to take
cognizance of the case because the subject matter thereof clearly falls within the scope of
those under the exclusive jurisdiction of the CTA. The determination of the correctness or
incorrectness of a tax assessment falls within the jurisdiction of the CTA and not the trial
court.
Furthermore, the proper procedure was to appeal the decision of the
Commissioner to the CTA within 30 days from receipt thereof. Since no appeal was
perfected, the assessment became final.
Finally, the rule of mandamus only lies to enforce the performance of a
ministerial act or duty and not to control the performance of a discretionary power.
Discretion here means the power or the right conferred upon the office by law of acting
officially under certain circumstances according to the dictates of his own judgment and
conscience and not controlled by the judgment or conscience of others. As such,
mandamus may not lie against the Commissioner to compel him to impose a tax
assessment not found by him to be due or proper for that would be tantamount to a
usurpation of executive functions.
JUDY ANNE L. SANTOS VS. PEOPLE OF THE PHILIPPINES (AUGUST 26, 2008)
DOCTRINE CTA divisions denial of motion to quash is an interlocutory order, which is not
proper subject of appeal or petition for certiorari to the CTA en banc. (Glenn Tuason)

The discrepancy can actually be explained by the fact that Benipayo adopted a
rebate system wherein adults and children who came as a group all paid 20c. He
discontinued this practice after being informed by the BIR that this was illegal.

REPUBLIC VS. HIZON (DECEMBER 13, 1999) (*Mendoza 3D 2009 2010)

MERALCO SECURITIES CORP. VS. SAVELLANO (OCTOBER 23, 1982) (*from upper batch)

(DOCTRINE) The issues in this case revolve around the lack of approval of the CIR in filing
the collection case and the summary nature of collection cases in relation to the prescription
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of an action for collection. The court ruled that in accordance with Sec. 221 of the NIRC as
implemented by RAO 5-83, the authority to file complaints for collection of tax liabilities has
been validly delegated to the Revenue Regions particularly to the Special Attorneys and
Special Counsels designated by the Regional Director. As such, approval of the CIR is no
longer necessary. In the case at bar, it was the Chief of the Legal Division with the approval of
the Regional Director who instituted the case. Anent the second issue, the petitioner is
incorrect in saying that the action has prescribed. When the BIR served warrants of distraint
or levy on Hizon, the running of the period to collect was suspended. The summary nature of
collection by distraint or levy allows the enforcement of such collection to proceed beyind
the statutory period. (Francisco 3D 2012)
FACTS

On July 18, 1986, the BIR issued to Hizon a deficiency income tax assessment of
P1,113,359.68 covering the fiscal year 1981-1982
Not having contested the assessment, CIR, on January 12, 1989, served warrants of
distraint and levy to collect the tax deficiency. However, for reasons not known, it did
not proceed to dispose of the attached properties
More than three years later, Salud wrote the BIR requesting a reconsideration of her
tax deficiency assessment
The BIR, in a letter dated August 11, 1994, denied the request
On January 1, 1997, it filed a case with the RTC to collect the tax deficiency
o Signed by the Chief of the Legal Division, BIR Region 4, and verified by the
Bureau's Regional Director in Pampanga
Salud moved to dismiss the case on two grounds:
o That the complaint was not filed upon authority of the BIR Commissioner as
required by 221 of the National Internal Revenue Code, and
o That the action had already prescribed
The RTC granted the motion and dismissed the complaint
Hence, this petition

institute the necessary civil and criminal actions for tax collection. As the complaint
filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and
verified by the Regional Director, there was, therefore, compliance with the law
THE ACTION HAS ALREADY PRESCRIBED WHEN IT WAS FILED. HOWEVER, IT IS WITHOUT
PREJUDICE TO THE DISPOSITION OF THE PROPERTIES COVERED BY THE WARRANTS OF
DISTRAINT AND LEVY WHICH THE BIR SERVED TO HIZON, AS SUCH WOULD BE A MERE
CONTINUATION OF THE SUMMARY REMEDY IT HAD TIMELY BEGUN

ISSUES & ARGUMENTS

W/N the institution of the civil case was filed without the approval of the CIR in
violation of 221 of the NIRC
W/N the action for the collection has already prescribed when filed

HOLDING & RATIO DECIDENDI

THE FILING OF THE CIVIL CASE WAS IN ACCORDANCE WITH THE NIRC, AS WELL AS THE
RAOs ISSUED IN IMPLEMENTING THE NIRC

221 of the NIRC is to be implemented by Revenue Administrative Order No. 5-83 of

the BIR, providing that the complaints for collection within the jurisdiction of the of
Revenues Regions are handled and filed by the Special Attorneys and Special
Counsels assigned in the Legal Branches of the concerned Revenue Regions

Furthermore, Revenue Administrative Order No. 10-95 specifically authorizes the

Litigation and Prosecution Section of the Legal Division of regional district offices to

Sec. 229 of the Code mandates that a request for reconsideration must be made
within 30 days from the taxpayer's receipt of the tax deficiency assessment,
otherwise the assessment becomes final, unappealable and, therefore, demandable.
The notice of assessment for Hizons tax deficiency was issued by BIR on July 18,
1986. On the other hand, Hizon made her request for reconsideration thereof only on
November 3, 1992, without stating when she received the notice of tax assessment.
She explained that she was constrained to ask for a reconsideration in order to avoid
the harassment of BIR collectors. In all likelihood, she must have been referring to
the distraint and levy of her properties by BIR's agents which took place on January
12, 1989. Even assuming that she first learned of the deficiency assessment on this
date, her request for reconsideration was nonetheless filed late since she made it
more than 30 days thereafter. Hence, her request for reconsideration did not
suspend the running of the prescriptive period provided under 223(c). Although the
Commissioner acted on her request by eventually denying it on August 11, 1994, this is
of no moment and does not detract from the fact that the assessment had long
become demandable
It is contended that the running of the prescriptive period under 223(c) was
suspended when the BIR timely served the warrants of distraint and levy on Hizon on
January 12, 1989 by citing Advertising Associates Inc., v. Court of Appeals, and argued
that it could still avail of the other remedy under 223(c) of filing a case in court for
collection of the tax deficiency, as the BIR in fact did on January 1, 1997. But its
reliance in the said case was misplaced since the Court held that the timely service of
a warrant of distraint or levy suspends the running of the period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take
time to accomplish, extending even after the lapse of the statutory period for
collection. In those cases, the BIR did not file any collection case but merely relied on
the summary remedy of distraint and levy to collect the tax deficiency
For the foregoing reasons, we hold that petitioner's contention that the action in this
case had not prescribed when filed has no merit. Our holding, however, is without
prejudice to the disposition of the properties covered by the warrants of distraint
and levy which petitioner served on respondent, as such would be a mere
continuation of the summary remedy it had timely begun. Although considerable
time has passed since then, as held in Advertising Associates Inc. v. Court of Appeals
and Palanca v. Commissioner of Internal Revenue, the enforcement of tax collection
through summary proceedings may be carried out beyond the statutory period
considering that such remedy was seasonably availed of

Petition DENIED.
ROVERO VS. AMPARO (MAY 5, 1952)
DOCTRINE Person concealed importation of jewelry into Philippines jewelry confiscated
and appraisal made. Appealed to court, and court made final decision. The Commissioner
must carry out the courts decision and he has lost the power to compromise, upon request
for lower appraisal. (Glenn Tuason)
COMMISSIONER OF INTERNAL REVENUE
COMMISSION (NOVEMBER 9, 1994)

VS.

NATIONAL

LABOR

RELATIONS

DOCTRINE Sheriff in labor case levied upon barges already placed under distraint for failure
to pay taxes. Here, the distraint was superior to the levy because tax liens attach not only
from service of warrant of distraint but from the time the tax became due and payable.
(Glenn Tuason)
Imposition of penalties
LIM CO CHUI VS. POSADAS (FEBRUARY 11, 1925)
DOCTRINE Chinese alien unable to file a tax return since he was forced to stay home
because of the riots against the Chinese. When he paid his sales tax due, CIR imposed a 25%
penalty.
CIR has no discretionary power with respect to the collection of taxes with penalty. CIR
simply collects that which is mandated by law. He is not authorized to refund taxes as a
matter of gratuity. Moreover, the rate is not excessive. It is not an assessed amount but the
amount specifically fixed by law. (Grai Escosia)
PHILIPPINE REFINING COMPANY VS. COURT OF APPEALS (MAY 8, 1996)
DOCTRINE The CIR disallowed the deduction of bad debts and interest expense from
PRCs income. It then assessed the PRC with deficiency income taxes, with surcharge and
interest incident of delinquency. Upon appeal, CTA modified the assessment.
The surcharge and delinquency interest accrued on the date of default. The fact that PRC
appealed the assessment and that it was modified by the CTA does not relieve it of penalties
incident to delinquency. It is mandatory to collect penalty and interest in case of delinquency.
The penalty and interest are not penal but compensatory for the concomitant use of the
funds by the taxpayer beyond the date when he is supposed to have paid them to the
government. (Grai Escosia)
COMMISSIONER OF INTERNAL REVENUE VS. REPUBLIC CEMENT CORP. (AUGUST 10,
1983)

DOCTRINE Various cement corporations were assessed deficiency sales taxes and surcharge
due as manufacturers of cement. The issue here is whether cement is mineral product
(exempt from sales tax) or a manufactured product (subject to sales tax).
Cement is a manufactured product. The 25% surcharge should not be imposed in this case
because surcharge shall be imposed when the tax was not paid on time, or the liability for
tax is not disputed. In this case, the tax was paid on time; the delay in payment was only with
respect to the deficiency. (Grai Escosia)
Dispute whether cement is a mineral or manufactured product. Here, no 25% surcharge,
which only applies where liability for tax is undisputable and the only issue is justification for
late payment. Here, payment of tax was disputed in good faith. (Glenn Tuason)
SILKAIR ( SINGAPORE ) PTE, LTD. VS. COMMISSIONER OF
REVENUE (FEBRUARY 6, 2008 & November 14, 2008) (*from 2011 Barops)
February 6, 2008

INTERNAL

Facts:
Silkair, an online international air carrier operating the Singapore-Davao-CebuSingapore, Singapore-Cube-Davao-Singapore and Singapore-Cebu-Singapore routes and
organized under the laws of Singapore with a representative office in the Philippines, filed
with the BIR a written application for refund of P4,567,450.79 excise taxes. The tax is
claimed to have been paid by Silkair to Petron Corporation from its purchase of jet fuel
from Petron.
Silkair filed a Petition for Review before the CTA as the BIR has not acted on the
previous application. The CIR opposed the petition. The CIR says that the excise tax on
petroleum products are the liability of the manufacturer, but when it is added to the cost
of the goods, it is no longer a tax but part of the price which the buyer has to pay. Only
the statutory taxpayer, which in this case is Petron Corporation, can file for the refund
when applicable.
Silkair filed a motion for reconsideration with its previous counsel replaced with
another without officially changing the counsel of record through the procedure
established by Section 26, Rule 138 of the Rules of Court. The counsel of record shall
continue to receive the copies of judgments, orders and pleadings.
Issues: Whether or not Silkair has a right to the refund claimed based on Section 135 (b) of
the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between the Philippines
and Singapore.
Held:
The exeption granted under Section 135 of the NIRC and Article 4(2) of the Air
Transport Agreement cannot be construed as including indirect taxes as is the case.
Statutes granting tax exemptions must be construed strictly against the taxpayer and
liberally against the taxing authority.
4

CAGAYAN ELECTRIC POWER & LIGHT CO., INC. VS. COMMISSIONER OF INTERNAL
REVENUE (SEPTEMBER 25, 1985)
DOCTRINE Cagayan Electrics legislative franchise was withdrawn in June 1968 but was
restored in August 1969. CIR required Cagayan Electric to pay deficiency income taxes for
1968-69.
Congress may impair its franchise. However, CIR may only collect the tax proper without
surcharge and interest because Cagayan Electric had reason not to pay income tax on
account of the tax exemption in its franchise. (Grai Escosia)
Question as to whether Cagayan Electric was still exempt from all taxes, and even the
Commissioner was unsure at first. Thus, Cagayan, when adjudged liable for tax, must only
pay the tax proper and not the surcharge because it had reason to believe it was exempted.
(Glenn Tuason)
COMMISSIONER OF INTERNAL REVENUE VS. AIR INDIA (JANUARY 29, 1988)
DOCTRINE CIR held Air India, an off-line international carrier not engaged in business of air
transportation in the Philippines, liable for income tax, inclusive of the 50% surcharge for
willful neglect to file a return.
Air India is not liable for the 50% surcharge because there is no proof that Air India willfully
neglected to file the required tax return. The willful neglect to file the required tax return or
the fraudulent intent to evade the payment of taxes cannot be presumed. However, it is
liable to pay income tax, 25% p0enalty for failure to file a return, 42% interest, 60% interest
p.a. because the deficiency was not paid in full within 30 days from date of notice and
demand, and 10% additional surcharge because more than 3 years have passed since and yet
the amount remains unsettled. The failure to pay the tax deficiency within the required
period of time upon demand is penalized by this additional surcharge. Upon such failure to
pay, the surcharge is automatically due; its imposition is mandatory. (Grai Escosia)
Taxpayer assessed 50% surcharge for willful neglect to file tax return. But because there is no
proof of intent to defraud, which is essential for 50% surcharge, it is lowered to 25%.(Glenn
Tuason)