January 2013 Philippine Supreme Court Decisions on Tax Law

Here are select January 2013 rulings of the Philippine Supreme Court on tax law and procedure:

VAT; Transitional Input Tax Credits; prior payment not required. Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit.

First, Section 105 of the old National Internal Revenue Code provides that for a taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to file a beginning inventory with the Bureau of Internal Revenue. It was never mentioned in Section 105 that prior payment of taxes is a requirement. To require it now would be tantamount to judicial legislation.

Second, transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required before a taxpayer could avail of transitional input tax credit. Tax credit is not synonymous to tax refund.  Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority.  Tax credit, on the other hand, is an amount subtracted directly from one’s total tax liability.  It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment.

January 2013 Philippine Supreme Court Decisions on Civil Law

Here are select January 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Compromise Agreement; definition and nature; distinction between judicial and extrajudicial. Under Article 2028 of the Civil Code, a compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Accordingly, a compromise is either judicial, if the objective is to put an end to a pending litigation, or extrajudicial, if the objective is to avoid a litigation. As a contract, a compromise is perfected by mutual consent. However, a judicial compromise, while immediately binding between the parties upon its execution, is not executory until it is approved by the court and reduced to a judgment. The validity of a compromise is dependent upon its compliance with the requisites and principles of contracts dictated by law. Also, the terms and conditions of a compromise must not be contrary to law, morals, good customs, public policy and public order. Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor Soriano and Magin Soriano; G.R. No. 178312. January 30, 2013

Contract; contract of suretyship; definition; nature of liability of surety; surety’s liability is direct, primary and absolute as well as joint and several. A contract of suretyship is defined as “an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206 (An Act Relative to Recognizances, Stipulations, Bonds and Undertakings, and to Allow Certain Corporations to be Accepted as Surety Thereon).” We have consistently held that a surety’s liability is joint and several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee. It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and absolute. The Manila Insurance Company, Inc. vs. Spouses Roberto and Aida Amurao; G.R. No. 179628. January 16, 2013

January 2013 Philippine Supreme Court Decisions on Legal and Judicial Ethics

Here are select January 2013 rulings of the Supreme Court of the Philippines on legal and judicial ethics:

Attorney; forum shopping as contempt of court. A disbarment complaint against Atty. Gonzales was filed for violating the Code of Professional Responsibility for the forum shopping he allegedly committed. The court held that the respondent was guilty of forum shopping. Lawyers should be reminded that their primary duty is to assist the courts in the administration of justice. Any conduct that tends to delay, impede or obstruct the administration of justice contravenes this obligation. The Court has repeatedly warned lawyers against resorting to forum shopping since the practice clogs the Court dockets and can lead to conflicting rulings. Willful and deliberate forum shopping has been made punishable either as direct or indirect contempt of court. In engaging in forum shopping, Atty. Gonzales violated Canon 1 of the Code of Professional Responsibility which directs lawyers to obey the laws of the land and promote respect for the law and legal processes. He also disregarded his duty to assist in the speedy and efficient administration of justice, and the prohibition against unduly delaying a case by misusing court processes. Thus, the court subjected Atty. Gonzales to censure. Anastacio N. Teodoro III vs. Atty. Romeo S. Gonzales. A.C. No. 6760. January 30, 2013

Attorney; neglect. Complainant filed a disbarment complaint against Atty. Gacott who allegedly deceived the complainant and her husband into signing a “preparatory” Deed of Sale that respondent converted into a Deed of Absolute Sale in favor of his relatives.

The respondent is reminded that his duty under Canon 16 is to “hold in trust all moneys and properties of his client that may come into his possession.” Allowing a party to take the original TCTs of properties owned by another – an act that could result in damage – should merit a finding of legal malpractice. While it was his legal staff who allowed the complainant to borrow the TCTs and it does not appear that the respondent was aware or present when the complainant borrowed the TCTs, the court still held the respondent liable, as the TCTs were entrusted to his care and custody; he failed to exercise due diligence in caring for his client’s properties that were in his custody.

Revised Implementing Rules and Regulations for the Adopt-A-School Program

The Department of Education (DepED) promulgated the revised implementing rules and regulations (IRR) for Republic Act 8525, or the Adopt-a-School Act of 1998, on 18 January 2013. DepED Order 2 series of 2013 is the latest revision to Department Order No. 80 s. 1998 – the first IRR issued for RA 8525.

The said law aims to improve access to quality education by promoting private sector participation in school building, rehabilitation and development. Under RA 8525, an adopting private entity (APE) must enter into a Memorandum of Agreement (MOA) with a public school. The MOA must be for at least two years and shall contain the terms of the ‘adoption’. Under such a MOA, the APE may provide training to a school’s faculty or construct or upgrade school facilities. It may also donate educational materials to public schools, whether elementary, secondary or tertiary, within the twenty poorest provinces in the country. In return, the law allows the APE to have its name displayed below the name of the adoptee school apart from an additional deduction to gross income equivalent to half of the expenses incurred and representation in the local school board.

January 2013 Philippine Supreme Court Decisions on Remedial Law

Here are select January 2013 rulings of the Supreme Court of the Philippines on remedial law:

Civil Procedure

Annulment of Judgment; exception to final judgment rule; lack of due process as additional ground. A petition for Annulment of Judgment under Rule 47 of the Rules of Court is a remedy granted only under exceptional circumstances where a party, without fault on his part, has failed to avail of the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies. Said rule explicitly provides that it is not available as a substitute for a remedy which was lost due to the party’s own neglect in promptly availing of the same. “The underlying reason is traceable to the notion that annulling final judgments goes against the grain of finality of judgment, litigation must end and terminate sometime and somewhere, and it is essential to an affective administration of justice that once a judgment has become final, the issue or cause involved therein should be laid to rest.”

While under Section 2, Rule 47 of the Rules of Court a Petition for Annulment of Judgment may be based only on the grounds of extrinsic fraud and lack of jurisdiction, jurisprudence recognizes lack of due process as additional ground to annul a judgment. In Arcelona v. Court of Appeals, this Court declared that a final and executory judgment may still be set aside if, upon mere inspection thereof, its patent nullity can be shown for having been issued without jurisdiction or for lack of due process of law. Leticia Diona, represented by her Attorney-in-fact, Marcelina Diona v. Romeo Balangue, Sonny Balangue, Reynaldo Balangue, and Esteban Balangue, Jr.; G.R. No. 173559. January 7, 2013

Appeal; filing of motion for extension of time to file motion for reconsideration in CA does not toll fifteen-day period to appeal; rule suspended in exceptional cases to serve substantial justice. The assailed CA resolution upheld the general rule that the filing of a motion for reconsideration in the CA does not toll the fifteen-day period to appeal, citing Habaluyas Enterprises, Inc. v. Japson. However, in previous cases we suspended this rule in order to serve substantial justice.

Dissension in the Court: January 2013

The same legal issue resolved in the earlier case of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue (G.R. Nos. 158885 & 170680, 2 October 2009) – regarding the proper interpretation of Section 105 (now Section 111(A)) of the National Internal Revenue Code (“Tax Code”) – was again raised in the recent case of Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue and Revenue District Officer, Revenue District No. 44, Taguig and Pateros, Bureau of Internal Revenue (G.R. No. 173425, January 22, 2013), resulting in the same decision and dissenting opinion.

Section 105 of the old Tax Code provides:

SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory prescribed by regulations, be allowed input tax on his beginning inventory of good, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax. (Emphasis supplied.)

The recent case began with the purchase by Fort Bonifacio Development Corporation (“FBDC”) on February 8, 1995 from the national government of a portion of the Fort Bonifacio Global City.  On January 1, 1996, RA 7716 restructured the VAT system by, among others, extending the VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade of business.