Cases tax 21 to 22, 27 to 29 PDF

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TAXATION CASE DIGESTS IN TAXATION
21. G.R. No. L-6807             May 24, 1954
JESUS SACRED HEART COLLEGE, plaintiff-appellee,
vs.
COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Jesus Sacred Heart College is an educational organization authorized to operate and ex...

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21. G.R. No. L-6807

May 24, 1954

JESUS SACRED HEART COLLEGE, plaintiff-appellee, vs. COLLECTOR OF INTERNAL REVENUE, defendant-appellant. Jesus Sacred Heart College is an educational organization authorized to operate and existing in Lucena, Quezon, and offering to the public elementary, secondary and collegiate courses.That according to its income tax returns, plaintiff realized net incomes from tuition and other fees in carrying on its educational activity.Plaintiff claimed for refund with the defendant but the claim was denied. Issue:whether the net income from tuition and other fees collected and received by the plaintiff as an educational institution from its students in carrying on its educational activity under the conditions specified in paragraphs 1, 2, and 3 hereof is subject to income tax under the provisions of section 24 of the National Internal Revenue Code, notwithstanding the provisions of section 27(e) thereof, as amended by Republic Act No. 82 The tenor of section 27(e)of the National Internal Revenue Code, positively exempts from taxation those corporations or associations which, otherwise, would be subject thereto, because of the existence of said net income. This provision was amended by Republic Act No. 82 (section 5), so as to become paragraph (e) of said section 27 of the National Internal Revenue Code, which we quote: (e) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, cultural, or educational purposes, or for the rehabilitation of veterans no part of the net income of which inures to the benefit of any private stockholder or individual: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code. It will be noted that four (4) changes were introduced by this act of Congress of the Philippines namely: (1) It increased the exempt class, by including therein corporations or associations organized and operated exclusively "for the rehabilitation of veterans"; (2) It reverted to the phraseologoy of the original act of Congress of 1913, by providing that the corporations or associations therein enumerated shall be exempt if no part of the net income thereof "inures to the benefit of"-instead of "is distributed to" — any private stockholder or individual; (3) It clarified the meaning of the proviso, by declaring that the income therein mentioned shall be taxable "regardless of the disposition made of such income"; and (4) It inserted in the proviso an additional limitation to the exemption established in the first part of paragraph (e), by excluding from said exemption the income of the aforementioned corporations or associations derived "from any activity conducted for profit." Congress had no intention of taxing matriculation, laboratory, library, athletic and graduation fees and other fees of similar nature, essential to, or necessarily connected with, the educational purposes of an institution of learning, but, also, that the legislative

department positively intended such fees to be exempt from taxation. Hence, viewed from any angle, the contention of appellant herein cannot be sustained. SECOND DIVISION 22. [G.R. No. 182722 : January 22, 2010] DUMAGUETE CATHEDRAL CREDIT COOPERATIVE [DCCCO], REPRESENTED BY FELICIDAD L. RUIZ, ITS GENERAL MANAGER, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Petitioner argues that Section 24(B)(1) of the NIRC which reads in part, to wit: SECTION 24. Income Tax Rates. -xxxx (B) Rate of Tax on Certain Passive Income: -(1) Interests, Royalties, Prizes, and Other Winnings. -- A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; x x x applies only to banks and not to cooperatives, since the phrase "similar arrangements" is preceded by terms referring to banking transactions that have deposit peculiarities. Petitioner thus posits that the savings and time deposits of members of cooperatives are not included in the enumeration, and thus not subject to the 20% final tax. To bolster its position, petitioner cites BIR Ruling No. 551-888[23] and BIR Ruling [DA-591-2006][24] where the BIR ruled that interests from deposits maintained by members of cooperative are not subject to withholding tax under Section 24(B)(1) of the NIRC. Petitioner further contends that pursuant to Article XII, Section 15 of the Constitution[25] and Article 2 of Republic Act No. 6938 (RA 6938) or the Cooperative Code of the Philippines,[26] cooperatives enjoy a preferential tax treatment which exempts their members from the application of Section 24(B)(1) of the NIRC. Issue: whether or not it is liable to pay the deficiency withholding taxes on interest from savings and time deposits of its members for the taxable years 1999 and 2000, as well as the delinquency interest of 20% per annum. Petitioner is not liable to pay the assessed deficiency withholding taxes on interest from the savings and time deposits of its members, as well as the delinquency interest of 20% per annum. Given that petitioner is a credit cooperative duly registered with the Cooperative Development Authority (CDA), Section 24(B)(1) of the NIRC must be read together with RA 6938, as amended by RA 9520. The legislative intent to give cooperatives a preferential tax treatment is apparent in Articles 61 and 62 of RA 6938, which read:

ART. 61. Tax Treatment of Cooperatives. -- Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section. ART. 62. Tax and Other Exemptions. -- Cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provision of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions; x x x. This exemption extends to members of cooperatives. It must be emphasized that cooperatives exist for the benefit of their members. In fact, the primary objective of every cooperative is to provide goods and services to its members to enable them to attain increased income, savings, investments, and productivity.[30] Therefore, limiting the application of the tax exemption to cooperatives would go against the very purpose of a credit cooperative. Extending the exemption to members of cooperatives, on the other hand, would be consistent with the intent of the legislature. Thus, although the tax exemption only mentions cooperatives, this should be construed to include the members, pursuant to Article 126 of RA 6938, which provides: ART. 126. Interpretation and Construction. - In case of doubt as to the meaning of any provision of this Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the cooperatives and their members. The ruling that a cooperative is not the proper party to withhold the corresponding taxes on the aforementioned accounts is correct. As correctly pointed out by respondent in his Memorandum, nothing in the above quoted resolution will give the conclusion that savings account and time deposits of members of a cooperative are tax-exempt. What is entirely clear is the opinion of the Commissioner that the proper party to withhold the corresponding taxes on certain specified items of income is the payor-corporation and/or person. In the same way, in the case of interests earned from Philippine currency deposits made in a bank, then it is the bank which is liable to withhold the corresponding taxes considering that the bank is the payor-corporation. EN BANC 27. [G.R. No. 44100. September 22, 1938.] WM. H. ANDERSON, Plaintiff-Appellee, v. JUAN POSADAS, JR., Collector of Internal Revenue, Defendant-Appellant. Solicitor-General Hilado, for Appellant. Ohnick & Opisso, for Appellee.

The appellant assigns the following alleged errors as committed by the court a quo in its judgment in question, to wit: jg c:ch an rob les.com.p h

"1. The lower court erred in approving a deduction made in the appellee’s income tax return for 1921, in the amount of P42,542.63, paid as 100 per cent surcharge on the income tax due for 1918 and 1919. "2. The lower court erred in holding that the amount of P125,000, found by the appellant as losses recovered, is not subject to income tax. "3. The lower court erred in holding that the amount of P155,000, found by the appellant as proceeds from the sale of good will, is not subject to income tax. Issue:WON the alleged errors are well founded The appealed judgment is reversed. 1. INCOME TAX; FINES PAID AS PENALTY BY THE TAXPAYER. — Fines paid as penalty by a taxpayer cannot be deducted from the amount subject to the payment of income tax. Section 5 of Act No. 2833 of the Philippine Legislature, commonly known as the Income Tax Law, enumerates the items that may be deducted in computing the net income of a citizen or resident of the Philippines, but the amount paid as penalty for fraud is not mentioned among them. 2. ID.; RESTORATION OF LOSSES RECOVERED TO THE PROFITS. — The amount deducted from the income by reason of temporary partial loss from the capital should, upon the recovery of said loss, be restored to the profits and pay the corresponding tax. 3. ID.; GOOD WILL AS PROFIT. — The good will created by an incorporator in the course of the business of a corporation and appraised to pay the unpaid price of shares subscribed to by said incorporator, is a profit and is subject to the payment of income tax.

28. G.R. No. L-66416 March 21, 1990 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TOURS SPECIALISTS, INC., and THE COURT OF TAX APPEALS, respondents. Gadioma Law Offices for private respondent. For the years 1974 to 1976, petitioner (Tours Specialists, Inc.) had derived income from its activities as a travel agency by servicing the needs of foreign tourists and travelers and Filipino "Balikbayans" during their stay in this country. In order to ably supply these services to the foreign tourists, petitioner and its correspondent counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. Although the fee to be paid by said tourists is quoted

by the petitioner, the payments of the hotel room accommodations, food and other personal expenses of said tourists, as a rule, are paid directly either by tourists themselves, or by their foreign travel agencies to the local hotels. Despite this arrangement, respondent Commissioner of Internal Revenue assessed petitioner for deficiency 3% contractor's tax as independent contractor by including the entrusted hotel room charges in its gross receipts from services for the years 1974 to 1976. WHETHER AMOUNTS RECEIVED BY A LOCAL TOURIST AND TRAVEL AGENCY INCLUDED IN A PACKAGE FEE FROM TOURISTS OR FOREIGN TOUR AGENCIES, INTENDED OR EARMARKED FOR HOTEL ACCOMMODATIONS FORM PART OF GROSS RECEIPTS SUBJECT TO 3% CONTRACTOR'S TAX. The room charges entrusted by the foreign travel agencies to the private respondent do not form part of its gross receipts within the definition of the Tax Code. Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code.The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. If the hotel room charges entrusted to petitioner will be subjected to 3% contractor's tax as what respondent would want to do in this case, that would in effect do indirectly what P.D. 31 would not like hotel room charges of foreign tourists to be subjected to hotel room tax. Although, respondent may claim that the 3% contractor's tax is imposed upon a different incidence i.e. the gross receipts of petitioner tourist agency which he asserts includes the hotel room charges entrusted to it, the effect would be to impose a tax, and though different, it nonetheless imposes a tax actually on room charges.

29. G.R. No. 78953

July 31, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MELCHOR J. JAVIER, JR. and THE COURT OF TAX APPEALS, respondents. Elison G. Natividad for accused-appellant. Petitioner contends that the private respondent committed fraud by not declaring the "mistaken remittance" in his income tax return and by merely making a footnote thereon which read: "Taxpayer was the recipient of some money from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation." The Commissioner imposed a 50% fraud penalty against Javier. whether or not a taxpayer who merely states as a footnote in his income tax return that a sum of money that he erroneously received and already spent is the subject of a pending litigation and there did not declare it as income is liable to pay the 50% penalty for filing a fraudulent return. In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The government was not induced to give up

some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. The records lack a clear showing of fraud committed because he did not conceal the fact that he had received an amount of money although it was a "subject of litigation." As ruled by respondent Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by the petitioner against the private respondent in the deficiency assessment should be deleted....