Cir vs. Isabela Cultural Corporation (Icc) : Issue/S

CIR vs.
ISABELA CULTURAL CORPORATION (ICC)

G. R. No. 172231February 12, 2007
FACTS:
ICC, a domestic corporation, received from BIR two (2) notices for deficiency
of (1) income taxamounting to P333, 196.86 and (2) expanded withholding tax
amounting to P4, 897.79, both for 1986.Income tax deficiency arose from the
BIR disallowance of ICC’s claimed expense deductions forprofessional and
security services billed to and paid by ICC in 1986 and alleged understatement
of ICC’s interest income on the 3 promissory notes due to Realty Investment,
Inc. Expanded withholding tax (EWT)deficiency (with interest and surcharge)
was allegedly due to failure of ICC to withhold 1% EWT on its claimed
P244,890.00 deduction for security services.ICC sought reconsideration of the
assessments on March 1990 but received final notice before seizure
(demanding payment of amounts) on February 1995. Thus, brought to CTA
which held that petition is premature because final notice cannot be
considered final decision appealable to tax court. CA reversed holding that
demand letter of BIR amounts to final decision on the protested assessments
and may be questioned before CTA. SC sustained CA and remanded case to
CTA on July 2001.On 2003, CTA decided to cancel and set aside the
assessment notices against ICC–claim deductions were properly claimed in
1986 because it was only that year that the bills were sent to ICC.Hence, even
if some of the services were rendered to ICC in 1984 or 1985, it could not
declare the same because amounts cannot be determined at that time.The
CTA also held that ICC did not understate its interest income on the subject
promissory notes. It found that it was the BIR which made an overstatement
of said income when it compounded the interest income receivable by ICC
from the promissory notes of Realty Investment, Inc., despite the absence of a
stipulation in the contract providing for a compounded interest; nor of a
circumstance, like delay in payment or breach of contract, that would justify
the application of compounded interest.Petition for review was filed with the
CA, which sustained CTA decision. Hence, the petition before the SC.
ISSUE/S:
(1) WON the expenses for professional and security services should be
deducted from ICC’s gross income.
(2) WON held that ICC did not understate its interest income from the
promissory notes of Realty Investment, Inc. and that ICC withheld the
required 1% withholding tax from the deductions for security services.
HELD:
The requisites for the deductability of ordinary and necessary trade, business,
or professional expenses, like expenses paid for legal and auditing services,
are:
(a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the taxable year;
(c) it must have been paid or incurred in carrying on the trade or business of
the taxpayer; and
(d) it must be supported by receipts, records or other pertinent papers.
The Revenue Audit Memorandum Order No. 1-2000, provides that under the
accrual method of accounting, expenses not being claimed as deductions by a
taxpayer in the current year when they are incurred cannot be claimed as
deduction from income for the succeeding year. Thus, a taxpayer who is
authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.
In the instant case, the expenses for professional fees consist of expenses for
legal and auditing services. The expenses for legal services pertain to the 1984
and 1985 legal and retainer fees of the law firm Bengzon Zarraga Narciso
Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of
said firm in connection with ICC’s tax problems for the year 1984. As testified
by the Treasurer of ICC, the firm has been its counsel since the 1960’s. - failed
to prove the burden
Diaz vs. Secretary of Finance (2011)

G.R. No. 193007 July 19, 2011
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR)
on the collections of tollway operators. Court treated the case as one of
prohibition.
Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of "sale of services" that are
subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations; that the Court should seek
the meaning and intent of the law from the words used in the statute; and that
the imposition of VAT on tollway operations has been the subject as early as
2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the
non-impairment of contracts clause since they clearly have no personal
interest in existing toll operating agreements (TOAs) between the government
and tollway operators. At any rate, the non-impairment clause cannot limit
the State's sovereign taxing power which is generally read into contracts.
Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway
operations a franchise and/or a service that is subject to VAT)?
Held :
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latter's use of the tollway facilities over which the operator enjoys private
proprietary rights that its contract and the law recognize. In this sense, the
tollway operator is no different from the service providers under Section 108
who allow others to use their properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to exceptions
that Section 119 spares from the payment of VAT. The word "franchise"
broadly covers government grants of a special right to do an act or series of
acts of public concern. Tollway operators are, owing to the nature and object
of their business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant of authority from the
state.
A tax is imposed under the taxing power of the government principally for the
purpose of raising revenues to fund public expenditures. Toll fees, on the
other hand, are collected by private tollway operators as reimbursement for
the costs and expenses incurred in the construction, maintenance and
operation of the tollways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public facilities, therefore,
they are not government exactions that can be properly treated as a tax.
Taxes may be imposed only by the government under its sovereign authority,
toll fees may be demanded by either the government or private individuals or
entities, as an attribute of ownership.
COMMISSIONER OF INTERNAL REVENUE vs.
HAMBRECHT & QUIST PHILIPPINES, INC.
GR. No. 169225 November 17, 2010
FACTS: HAMBRECHT AND QUIST PHILIPPINES INCORPORATED is

located in Makati City, Philippines. Company is working in Financial Activity
business activities. In a letter dated February 15, 1993, respondent informed
the Bureau of Internal Revenue (BIR), its change of business address from the
2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd Floor
PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City.
Respondent was accused of an alleged deficiency income and expanded

withholding taxes for the taxable year 1989 amounting to ₱ 2,936,560.87.
respondent, through its external auditors, filed its protest letter against the
alleged deficiency tax assessments for 1989 as indicated in the said tracer
letter dated October 11, 1993.
ISSUE: Whether or not the BIR’s right to collect taxes had already prescribed
HELD: The issue of prescription of the BIR’s right to collect taxes may be
considered as covered by the term "other matters" over which the CTA has
appellate jurisdiction. Furthermore, the phraseology of Section 7, number (1),
denotes an intent to view the CTA’s jurisdiction over disputed assessments
and over "other matters" arising under the NIRC or other laws administered
by the BIR as separate and independent of each other.
The fact that an assessment has become final for failure of the
taxpayer to file a protest within the time allowed only means that the validity
or correctness of the assessment may no longer be questioned on appeal.
However, the validity 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 of prescription, being a matter provided for by
the NIRC, is well within the jurisdiction of the CTA to decide.

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CIR vs.

ISABELA CULTURAL CORPORATION (ICC)

Diaz vs. Secretary of Finance (2011)

GR. No. 169225 November 17, 2010

FACTS: HAMBRECHT AND QUIST PHILIPPINES INCORPORATED is

Respondent was accused of an alleged deficiency income and expanded

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