June 2010 Philippine Supreme Court Decisions on Tax Law

Here are selected June 2010 decisions of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; factual findings final, binding and conclusive. The factual findings of the Court of Tax Appeals (CTA), a special court exercising expertise on the subject of tax, are generally regarded as final, binding and conclusive upon the Supreme Court, especially if these are substantially similar to the findings of the Court of Appeals (CA) which is normally the final arbiter of questions of fact. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Court of Tax Appeals; factual findings final, binding and conclusive; exceptions. Recognized exceptions to the rule that the factual findings are final, binding and conclusive are: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in makings its findings the CA went beyond the issues of the case; or its findings are contrary to the admissions of both the appellee and the appellant; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties which, if properly considered, would justify a different conclusion. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Employees’ trust fund; no estoppel in favor of BIR. An employees’ trust fund is not estopped from proving its ownership over a lot held in trust by, and titled in the name of, another when the purpose is not to contest the disposition or encumbrance of the property in favor of an innocent third-party purchaser for value. The Bureau of Internal Revenue (BIR), not being a buyer or claimant to any interest in the lot, has not relied on the fact of the title of the lot to acquire any interest in it. Thus, there is no basis for the BIR to claim that the trustee of employees’ trust fund is estopped from proving that it co-owns the lot.  Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Employees’ trust fund; article 1452 of the Civil Code; recognition of trust by the BIR. Article 1452 of the Civil Code expressly allows a co-owner, or first co-owner, of a parcel of land to register his proportionate share in the name of his co-owner, or second co-owner, in whose name the entire land is registered. The second co-owner serves as a legal trustee of the first co-owner insofar as the proportionate share of the first co-owner is concerned. For said article to apply, all that a co-owner needs to show is that there is “common consent” among the purchasing co-owners to put the legal title to the purchased property in the name of one co-owner for the benefit of all. Once this “common consent” is shown a trust is created by force of law. The BIR has no option but to recognize such legal trust as well as the beneficial ownership of the real owners because the trust is created by force of law. The fact that the title is registered solely in the name of one person is not conclusive that he alone owns the property. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Employees’ trust fund; income tax exemption; rationale. Income of an employees’ trust fund is exempt otherwise taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Employees’ trust fund; refund; trustee proper party in interest. Since the petitioner exists for the purpose of holding title to, and administering, the tax-exempt employees’ trust fund established for the benefit of the employees, it has personality to claim tax refunds due the employees’ trust fund. Miguel G. Osorio Pension Foundation, Incorporated vs Court of Appeals and Commissioner of Internal Revenue, G.R. No. 162175, June 28, 2010.

Excise Tax; principle that company should be taxed only on main business not applicable. The principle that when a company is taxed on its main business, it is no longer taxable for engaging in an activity that is but a part of incidental to, and necessary to such main business, applies to business taxes and not to taxes such as the sand and gravel tax imposed by the provincial government. The reasoning was that the incidental activity could not be treated as a business separate and distinct from the main business of the taxpayer. The sand and gravel tax is an excise tax imposed on the privilege of extracting sand and gravel. It is settled that provincial governments can levy excise taxes on quarry resources independently from national government. Lepanto Consolidated Mining Company vs Hon. Mauricio B. Ambanloc in his capacity as the Provincial Treasurer of Benguet, G.R. No. 180639, June 29, 2010.

Local Government Code; sand and gravel tax. Section 138 of the Local Government Code (LGC) which authorizes provinces to levy and collect tax on ordinary stones, sand, gravel, earth and other quarry resources extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction should be deemed to cover extractions for both personal and commercial uses. Lepanto Consolidated Mining Company vs Hon. Mauricio B. Ambanloc in his capacity as the Provincial Treasurer of Benguet, G.R. No. 180639, June 29, 2010.

Local Government Code; Revised Benguet Revenue Code; sand and gravel tax; permits. The Revised Benguet Revenue Code provides that the sand and gravel tax must be paid prior to the issuance of the permit to extract sand and gravel. It enumerates four kinds of permits: commercial, industrial, special and gratuitous. Special permits cover only personal use of the extracted materials and did not allow permitees to sell materials coming from his concession. However, only gratuitous permits were exempt from the sand and gravel tax. It follows that persons who applied for special permits needed to pay the tax, event though they did not extract materials for commercial purposes. Lepanto Consolidated Mining Company vs Hon. Mauricio B. Ambanloc in his capacity as the Provincial Treasurer of Benguet, G.R. No. 180639, June 29, 2010.

Local Government Code; prohibition on injunction to restrain collection of tax. Unlike in the case of the NIRC, there is no express provision in the Local Government Code (LGC) prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. However, injunctions enjoining the collection of local taxes are still frowned upon and court should therefore exercise extreme caution in issuing such injunctions. And the requirements for the issuance of a writ of preliminary injunction laid down under section 3, rule 58 of the Rules of Court are applicable, namely: (1) the existence of a clear and unmistakable right that must be protected and (2) an urgent and paramount necessity for the writ to prevent serious damage. Angeles City vs Angeles City Electric Corporation and Regional Trial Court Branch 57, Angeles City, G.R. No. 166134, June 29, 2010.

National Internal Revenue Code; prohibition on injunction to restrain collection of tax; exception. Taxes, being the lifeblood of the government, should be collected promptly, without unnecessary hindrance or delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the NIRC. An exception to this rule is when, in the opinion of the Court of Tax Appeals (CTA), the collection thereof may jeopardize the interest of the government and/or the taxpayer. Angeles City vs Angeles City Electric Corporation and Regional Trial Court Branch 57, Angeles City, G.R. No. 166134, June 29, 2010.

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