COMMISSIONER OF INTERNAL REVENUE V.

BANK OF THE PHILIPPINE ISLANDS

In two notices, CIR assessed respondent BPI’s deficiency percentage and documentary stamp taxes for the year 1986 in
the total amount of ₱129,488,656.63.

In a letter, BPI, through counsel, replied that “the deficiency assessments are no assessments at all. The taxpayer is not
informed, even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency assessment
is to inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether to pay or
to protest the assessment.”

BPI received a letter from CIR stating that: “your letter failed to qualify as a protest under Revenue Regulations and no
valid issue was raised against the validity of our assessment.”

BPI requested a reconsideration of the assessments stated in the CIR but was denied. BPI filed a petition for review in
the CTA. CTA dismissed the case for lack of jurisdiction since the subject assessments had become final and
unappealable. The CTA ruled that BPI failed to protest.

The CA reversed the tax court’s decision and remanded the case to the CTA. It ruled that notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared that the proper
assessments were those contained in the May 8, 1991, letter which provided the reasons for the claimed deficiencies.
Thus, it held that BPI filed the petition for review in the CTA on time. The CIR elevated the case to this Court.

ISSUE:

Whether or not the October 28, 1988 notices were valid assessments? (YES)

RULING:

The CIR argues that the CA erred in holding that the notices were invalid assessments. He contends that there was no
law or jurisprudence then that required notices to state the reasons for assessing deficiency tax liabilities.

BPI counters that due process demanded that the facts, data and law upon which the assessments were based be
provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section 228), specifically provides that:

"The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void."

BPI’s contention has no merit.

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes
were made. He merely notified BPI of his findings, consisting only of the computation of the tax liabilities and a demand
for payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment
by RA 8424 (also known as the Tax Reform Act of 1997). Section 270, the only requirement was for the CIR to "notify" or
inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and
facts on which the assessments were based.

Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the
amount the taxpayer was to pay and a demand for payment within a prescribed period. The notice sufficiently met the
requirements of a valid assessment under the old law and jurisprudence.

Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30
days from receipt thereof. The reply it sent to the CIR did not qualify as a protest since the letter itself stated that "[a]s
soon as this is explained and clarified in a proper letter of assessment; we shall inform you of the taxpayer’s decision on
whether to pay or protest the assessment." Hence, by its own declaration, BPI did not regard this letter as a protest
against the assessments.

BPI’s failure to protest the assessments within the 30-day period provided in the former Section 270 meant that they
became final and unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from
then on, barred from disputing the correctness of the assessments or invoking any defense that would reopen the
question of its liability on the merits. There arose a presumption of correctness when BPI failed to protest the
assessments.

COMMISSIONER OF INTERNAL REVENUE V. NEXT MOBILE, INC.

Respondent filed with the BIR its Annual Income Tax Return (ITR) for taxable year ending December 31, 2001.
Respondent also filed its Monthly Remittance Returns of Final Income Taxes Withheld, its Monthly Remittance Returns
of Expanded Withholding Tax and its Monthly Remittance Return of Income Taxes Withheld on Compensation for year
ending December 31, 2001. Later on, respondent received a copy of the Letter of Authority authorizing the Revenue
Officer to examine respondent's books of accounts and other accounting records for income and withholding taxes for
the period covering January 1, 2001 to December 31, 2001.

Sarmiento, respondent's Director of Finance, subsequently executed several waivers of the statute of limitations to
extend the prescriptive period of assessment for taxes due in taxable year ending December 31, 2001 (Waivers).
Respondent received a Formal Letter of Demand (FLD) and Assessment Notices/Demand No. 43-734 both dated October
17, 2005 from the BIR, demanding payment of deficiency income tax, FWT, EWT, increments for late remittance of taxes
withheld, and compromise penalty for failure to file returns/late filing/late remittance of taxes withheld, in the total
amount of P313, 339,610.42 for the taxable year ending December 31, 2001.

Respondent filed its protest against the FLD and requested the reinvestigation of the assessments. They received a letter
from the BIR denying its protest. Thus, they filed a Petition for Review before the CTA. The former First Division of the
CTA rendered a Decision granting respondent's Petition for Review and declared the FLD cancelled and withdrawn for
being issued beyond the three-year prescriptive period provided by law.

The tax court also rejected petitioner's claim that this case falls under the exception as to the three year prescriptive
period for assessment and that the 10-year prescriptive period should apply on the ground of filing a false or fraudulent
return. The CTA First Division held that the Waivers executed by Sarmiento did not validly extend the three-year
prescriptive period to assess respondent for, as found, the Waivers were not properly executed according to the
procedure in Revenue Memorandum Order No. 20-90 (RMO 20-90) and Revenue Delegation Authority Order No. 05-01
(RDAO 05-01).

Petitioner's Motion for Reconsideration was denied. Petitioner filed a Petition for Review before the CTA En Banc. The
CTA En Banc affirmed the former CTA First Division.

It held that the five (5) Waivers of the statute of limitations were not valid and binding; thus, the three-year period of
limitation within which to assess deficiency taxes was not extended. It also held that the records belie the allegation that
respondent filed false and fraudulent tax returns; thus, the extension of the period of limitation from three (3) to ten
(10) years does not apply.

ISSUE:

Whether or not the CIR's right to assess respondent's deficiency taxes had already prescribed? (NO)

RULING:

Section 203 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence,
an assessment notice issued after the three-year prescriptive period is not valid and effective. Exceptions to this rule are
provided under Section 222 of the NIRC.

Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period . The Court has
consistently held that a waiver of the statute of limitations must faithfully comply with the provisions of RMO No. 20-90
and RDAO 05-01 in order to be valid and binding.

In the instant case, the CTA found the Waivers because of the following flaws: (1) they were executed without a
notarized board authority; (2) the dates of acceptance by the BIR were not indicated therein; and (3) the fact of receipt
by respondent of its copy of the Second Waiver was not indicated on the face of the original Second Waiver.

To be sure, both parties in this case are at fault. Here, respondent, through Sarmiento, executed five Waivers in favor of
petitioner. However, her authority to sign these Waivers was not presented upon their submission to the BIR. Similarly,
the BIR violated its own rules and was careless in performing its functions with respect to these Waivers. It is very clear
that under RDAO 05-01 it is the duty of the authorized revenue official to ensure that the waiver is duly accomplished
and signed by the taxpayer or his authorized representative before affixing his signature to signify acceptance of the
same. It also instructs that in case the authority is delegated by the taxpayer to a representative, the concerned revenue
official shall see to it that such delegation is in writing and duly notarized. Furthermore, it mandates that the waiver
should not be accepted by the concerned BIR office and official unless duly notarized.

Both parties knew the infirmities of the Waivers yet they continued dealing with each other on the strength of these
documents without bothering to rectify these infirmities. In fact, in its Letter Protest to the BIR, respondent did not even
question the validity of the Waivers or call attention to their alleged defects.

The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-90
and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to its
peculiar circumstances, We shall treat this case as an exception.

1. The parties in this case are in pari delicto or "in equal fault." To uphold the validity of the Waivers would be
consistent with the public policy embodied in the principle that taxes are the lifeblood of the government, and
their prompt and certain availability is an imperious need.
2. The Court has repeatedly pronounced that parties must come to court with clean hands. Parties who do not
come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following the
foregoing principle, respondent should not be allowed to benefit from the flaws in its own Waivers and
successfully insist on their invalidity in order to evade its responsibility to pay taxes.
3. Respondent is estopped from questioning the validity of its Waivers. The Court finds that the application of the
doctrine is justified.

Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on
them and did not raise any objection against their validity until petitioner assessed taxes and penalties against it.
Moreover, the application of estoppel is necessary to prevent the undue injury that the government would suffer
because of the cancellation of petitioner's assessment of respondent's tax liabilities.

4. The Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other
hand, the BIR miserably failed to exact from respondent compliance with its rules.

The BIR's negligence in the performance of its duties was so gross that it amounted to malice and bad faith. Moreover,
the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Petitioner's negligence may be
addressed by enforcing the provisions imposing administrative liabilities upon the officers responsible for these errors.
The BIR's right to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its
officers.
 MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V. MARCOS

Petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its
Charter.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land belonging to the petitioner, located at Barrio Apas and
Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section
14 of RA 6958 (AN ACT CREATING THE MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY) which exempt it from
payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental
functions, citing section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local
government units.

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a
government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and
234 of the Local Governmental Code that took effect on January 1, 1992

ISSUE:

Whether MCIAA is now subject to tax (YES)

RULING:

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative
bodies, pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise
of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

Under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule
and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority .
The only exception to this rule is where the exemption was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units
of their power to tax, the scope thereof or its limitations, and the exemption from taxation.

Reading together Sections of the LGC, we conclude that as a general rule, the taxing powers of local government units
cannot extend to the levy of "taxes, fees, and charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on "real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for
consideration or otherwise, to a taxable person".

As to tax exemptions or incentives granted, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn
upon the effectivity of the LGC, except upon the effectivity of the LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and
unless otherwise provided in the LGC. The last paragraph of Section 234 further qualifies the retention of the exemption
in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others
not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is
owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for
consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real
property taxes granted to government owned or controlled corporations, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its
charter, R.A. No. 6958, has been withdrawn.

CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATION, INC. V. ROMULO

Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9- 98. Petitioner argues
that the MCIT violates the due process clause because it levies income tax even if there is no realized gain.

Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii)
and (c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real
properties categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two
reasons:

o they ignore the different treatment by RA 8424 of ordinary assets and capital assets and
o respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross
selling price or fair market value of the real properties classified as ordinary assets.

Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause
because, like the MCIT, the government collects income tax even when the net income has not yet been determined.
They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but
not on other business enterprises, more particularly those in the manufacturing sector.

ISSUES:

1. Whether the imposition of CWT on income from sales of real properties classified as ordinary assets under RRs
2-98, 6-2001 and 7-2003, is unconstitutional. (NO)

ASSOCIATION OF NON-PROFIT CLUBS, INC. V. BIR

Bureau of Internal Revenue (BIR) issued RMC entitled "Clarifying the Taxability of Clubs Organized and Operated
Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes,” which was addressed to all revenue officials,
employees, and others concerned for their guidance regarding the income tax and Valued Added Tax (VAT) liability of the
said recreational clubs.

On the income tax component, RMC (Revenue Memorandum Circular) states that "clubs which are organized and
operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the
National Internal Revenue Code [(NIRC)] of 1997." The BIR justified the foregoing interpretation based on the following
reasons:

According to the doctrine of casus omissus pro omisso habendus est (a person, object, or thing omitted from an
enumeration must be held to have been omitted intentionally). The provision in the (1977 Tax Code] which
granted income tax exemption to such recreational clubs was omitted in the current list of tax-exempt
corporations under [the 1997 NIRC], as amended. Hence, the income of recreational clubs from whatever
source, including but not limited to membership fees, assessment dues, rental income, and service fees are
subject to income tax.
Likewise, on the VAT component, RMC provides that "the gross receipts of recreational clubs including but not limited to
membership fees, assessment dues, rental income, and service fees are subject to VAT." As basis, the BIR relied on the
1997 NIRC, which states that even a nonstock, nonprofit private organization or government entity is liable to pay VAT
on the sale of goods or services.

ASSOCIATION OF NON-PROFIT CLUBS (ANPC), along with the representatives of its member clubs, invited Atty.
Quimosing, Chief of Staff of the BIR, to discuss "specifically the effects of the said circular and to seek clarification and
advice from the BIR on how it will affect the operational requirements of each club and their members/stakeholders.
During their meeting, Atty. Quimosing suggested that the attendees submit a position paper to the BIR expressing their
concerns.

ANPC submitted its position paper, requesting "the non-application of RMC. However, despite the lapse of two (2) years,
the BIR has not acted upon the request, and all the member clubs of ANPC were subjected to income tax and VAT on all
membership fees, assessment dues, and service fees.

Aggrieved, ANPC, on behalf of its club members, filed a petition for declaratory relief before the RTC seeking to declare
RMC invalid, unjust, oppressive and in violation of the due process clause of the Constitution. ANPC argued that in
issuing RMC, the BIR acted beyond its rule-making authority in interpreting that payments of membership fees,
assessment dues, and service fees are considered as income subject to income tax, as well as a sale of service that is
subject to VAT.

Office of the Solicitor General (OSG), on behalf of the BIR argued that RMC is a mere amplification of the existing law and
the rules and regulations of the BIR on the matter, positing that the said Circular merely explained that by removing
recreational clubs from the list of tax exempt entities or corporations, Congress intended to subject them to income tax
and VAT under the 1997 NIRC.

RTC upheld the validity and constitutionality of RMC and that given the apparent intent of Congress to subject
recreational clubs to taxes, the BIR, being the administrative agency concerned with the implementation of the law, has
the power to make such an interpretation. As an interpretative rule issued well within the powers of the BIR, the same
need not be published and neither is a hearing required for its validity.

ISSUE: Whether or not the RTC erred in upholding in full the validity of RMC.

The interpretation is partly correct.

Applying doctrine of casus omissus pro omisso habendus est (meaning, a person, object or thing omitted from an
enumeration must be held to have been omitted intentionally), the fact that 1997 NIRC omitted recreational clubs from
the list of exempt organizations means there is deliberate intent of Congress to remove the tax income exemption. The
income that recreational clubs derive "from whatever source" is now subject to income tax under the provisions of the
1997 NIRC.

However, the RMC erroneously made a sweeping interpretation that membership fees and assessment dues are
sources of income of recreational clubs from which income tax liability may accrue.

Distinction between "capital" and "income". "Capital" described as a "fund" or "wealth," as opposed to "income" being
"the flow of services rendered by capital" or the "service of wealth":

The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property
existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from
it or any other benefit rendered by a fund of capital is called income. Capital is wealth, while income is the service of
wealth.
As correctly argued by ANPC, membership fees, assessment dues, and other fees of similar nature only constitute
contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by
recreational clubs to their exclusive members. They represent funds "held in trust" by these clubs to defray their
operating and general costs and hence, only constitute infusion of capital.

Case law provides that in order to constitute "income," there must be realized "gain." Clearly, because of the nature of
membership fees and assessment dues as funds inherently dedicated for the maintenance, preservation, and upkeep of
the clubs' general operations and facilities, nothing is to be gained from their collection. This stands in contrast to the
fees received by recreational clubs coming from their income-generating facilities, such as bars, restaurants, and food
concessionaires, or from income-generating activities, like the renting out of sports equipment, services, and other
accommodations: In these latter examples, regardless of the purpose of the fees' eventual use, gain is already realized
from the moment they are collected because capital maintenance, preservation, or upkeep is not their pre-determined
purpose. As such, recreational clubs are generally free to use these fees for whatever purpose they desire and thus,
considered as unencumbered "fruits" coming from a business transaction.

Further, given these recreational clubs' non-profit nature, membership fees and assessment dues cannot be considered
as funds that would represent these clubs' interest or profit from any investment. In fact, these fees are paid by the
clubs' members without any expectation of any yield or gain (unlike in stock subscriptions), but only for the above-stated
purposes and in order to retain their membership therein.

In fine, for as long as these membership fees, assessment dues, and the like are treated as collections by recreational
clubs from their members as an inherent consequence of their membership, and are, by nature, intended for the
maintenance, , then these fees cannot be classified as "the income of recreational clubs from whatever source" that are
"subject to income tax." Instead, they only form part of capital from which no income tax may be collected or imposed.

It is a well-enshrined principle that the State cannot impose a tax on capital as it constitutes an unconstitutional
confiscation of property.

The Constitutional Safeguard of Due Process – no person shall be deprived of life, liberty or property without due
process of law." Certainly, an income tax is arbitrary and confiscatory if it taxes capital, because capital is not income.

The rule-making power of administrative agencies cannot be extended to amend or expand statutory requirements.
Administrative regulations should always be in accord with the provisions of the statute they seek to carry into effect.

The Court declares as invalid the BIR's interpretation in RMC that membership fees, assessment dues, and the like are
part of "the gross receipts of recreational clubs" that are "subject to VAT."

Before a transaction is imposed VAT, a sale, barter or exchange of goods or properties, or sale of a service is required.
This is true even if such sale is on a cost-reimbursement basis.

Membership fees, assessment dues, and the like are not subject to VAT because in collecting such fees, the club is not
selling its service to the members. The members are not buying services from the club. Hence, there is no economic or
commercial activity to speak of.

CALASANZ V. CIR

A property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of the
factors indubitably tend to show that the activity was in furtherance of or in the course of the taxpayer's trade or
business.

Ursula Calasanz inherited from her father an agricultural land in Cainta, Rizal. Improvements were introduced to make
such land. In order to liquidate her inheritance, Ursula Calasanz had the land surveyed and subdivided into lots.
Improvements were introduced to make the lots saleable. After some time, it was sold to the public at a profit.
The Revenue examiner adjudged Ursula and her spouse as engaged in business as real estate dealers and required them
to pay the real estate dealer’s tax (ordinary assets).

ISSUE: Whether or not the gains realized from the sale of the lots are taxable in full as ordinary income or capital gains
taxable at capital gain rates. (ordinary income)

The assets of a taxpayer are classified for income tax purposes into ordinary assets and capital assets. National Internal
Revenue Code broadly defines capital assets as follows:

Capital assets. - property held by the taxpayer (whether or not connected with his trade or business), but does not
include:

o Stock in trade of the taxpayer

o Other property of a kind which would properly be included, in the inventory of the taxpayer if on hand at the
close of the taxable year
o Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business
o property used in the trade or business of a character which is subject to the allowance for depreciation
o real property used in the trade or business of the taxpayer.

The statutory definition of capital assets is negative in nature. If the asset is not among the exceptions, it is a capital
asset; conversely, assets falling within the exceptions are ordinary assets.

Any gain resulting from the sale or exchange of an asset is a capital gain or an ordinary gain depending on the kind of
asset involved in the transaction.

However, there is no rigid rule by which it can be determined with finality whether property sold by a taxpayer was held
primarily for sale to customers in the ordinary course of his trade or business or whether it was sold as a capital asset.
Also, a property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of
the factors tend to show that the activity was in furtherance of or in the course of the taxpayer's trade or business.

Thus, a sale of inherited real property usually gives capital gain or loss even though the property has to be subdivided or
improved or both to make it salable. However, if the inherited property is substantially improved or sold or both it may
be treated as held primarily for sale to customers in the ordinary course of the heir's business.

One strong factor against petitioners' contention (capital gains) is the business element of development. Petitioners did
not sell the land in the condition in which they acquired it.

While the land was originally devoted to rice and fruit trees, it was subdivided into small lots and converted into a
residential subdivision and given the name Don Mariano Subdivision.

Extensive improvements like the laying out of streets, construction of concrete gutters and installation of lighting system
and drainage facilities were undertaken to enhance the value of the lots and make them more attractive to prospective
buyers. The audited financial statements submitted together with the tax return in question disclosed that a
considerable amount was expended to cover the cost of improvements.

The estimated improvements of the lots sold reached P170,028.60 whereas the cost of the land is only P 4,742.66. A
property ceases to be a capital asset if the amount spent to improve it is double its original cost. The extensive
improvement indicates that the seller held the property primarily for sale to customers in the ordinary course of his
business.

CIR v. LUCIO L. CO

Four respondents[, Lucio L. Co, Susan P. Co, Ferdinand Vincent P. Co and Pamela Justine P. Co (respondents), collectively
were the majority shareholders of Kareila Management Corporation (Kareila), a domestic corporation engaged as
managers, managing agents, consignor, concessionaire, or supplier of business engaged in the operation of hotels,
supermarkets, groceries and the like.

[Kareila had an authorized capital stock of P500 MILLION wherein 1.7 MILLION shares were subscribed and fully paid.
Respondents owned 99.9999% of the total subscribed shares while Anthony Sy (Sy) owned the remaining 0.0001%.]

[Respondents were also shareholders of Puregold Price Club, Inc. (Puregold). From Puregold's authorized capital stock of
3 BILLION , 2 BILLION shares were subscribed and fully paid. Respondents owned 66.55% of Puregold's total subscribed
shares.]

On March 2012, the Board of Directors of [Puregold] x x x approved the issuance of some Puregold common shares to
[respondents] and [Sy] in exchange for the transfer to Puregold of some shares of Kareila.

The exchange was approved by the stockholders representing two-thirds of Puregold's outstanding capital stock, so
[respondents] and [Sy] entered into a Deed of Exchange with [Puregold] wherein they agreed to transfer all their Kareila
shares to Puregold in exchange for Puregold shares.

Under the Deed of Exchange, [respondents] and [Sy] each would receive four hundred fifty (450) Puregold shares for
every one (1) Kareila share that they would transfer to Puregold.

[respondents] collectively paid capital gains tax (CGT) on the said transfer. [Respondents], however, contend that their
payments of CGT were erroneous because, under Section 40(C) of the NIRC, their transfer of shares through the Deed of
Exchange was a tax-exempt transaction.

Thus, within the two-year prescriptive period provided under the NIRC of 1997 [respondents] filed their administrative
claims for refund of the CGT with their respective Revenue District Offices (RDO).

Due to the CIR's inaction, respondents filed a Petition for Review with the CTA Division.

In the Answer, CIR alleged that Revenue Regulations and Revenue Memorandum provide that there are certain
conditions or requirements which should be complied with in order to avail of the non-recognition of gain. That for the
share swap transaction to qualify as a tax-free exchange, a prior application for a BIR certification or ruling must have
been secured. In this case, however, no such prior request from the BIR was made.

The CIR contended that, since refund claims are construed strictly against the taxpayer, the refund sought by
[respondents] should be denied.

[respondents] contend that it was impossible for them to make any prior request for a ruling since they were not aware
that their transaction was in fact tax free, so their CGT payments were erroneously paid. Further, the NIRC, or any other
provision of law or any existing jurisprudence does not impose such condition.

CTA Division granted respondents' claim for refund. According to the CTA Division, all the requisites for the non-
recognition of gain or loss under the National Internal Revenue Code (NIRC) of 1997 are all present in this case.

Respondents could not be expected to obtain a BIR Ruling for tax exemption as they previously believed that they were
liable to pay based on the computation and recommendation of their accounting consultant.

BIR issuances cited by the CIR are mere guidelines in monitoring tax-free exchange of property and in determining the
gain or loss on a subsequent sale or disposition of such property. Thus, respondents cannot be deprived of their claim
for refund simply because they failed to comply with said guidelines.

CIR also claimed that the tax exemption does not cover the subject share swap transaction because respondents, prior
to the exchange, already had control of Puregold.

CTA En Banc affirmed respondents' entitlement to refund.

ISSUE: Whether the CTA EB erred in finding that respondents are entitled to the claim for refund for erroneously paid
CGT. (YES)

Section 40 defines the term "control" as "ownership of stocks in a corporation possessing at least fifty-one percent (51%)
of the total voting power of all classes of stocks entitled to vote."

The requisites for the non-recognition of gain or loss are as follows:

1. The transferee is a corporation;

2. The transferee exchanges its shares of stock for property/ies of the transferor;
3. The transfer is made by a person, acting alone or together with others, not exceeding four persons; and,
4. As a result of the exchange the transferor, alone or together with others, not exceeding four, gains control of
the transferee.

As regards the element of control, the Court clarified that it is not necessary that, after the exchange, each of the
transferors individually gains control of the transferee corporation. It also does not prohibit instances when the
transferor gains further control of the transferee corporation. The element of control is satisfied even if one of the
transferors is already owning at least 51% of the shares of the transferee corporation, as long as after the exchange,
the transferors, not more than five, collectively increase their equity in the transferee corporation by 51% or more.

After the exchange, respondents collectively increased their control over Puregold from 66.57% to 75.83%. Respondents
cannot be held liable for income taxes on the supposed gain which may have resulted from such transfer. The CGT
paid by respondents on the subject transfer are considered erroneously paid taxes and must perforce be refunded
pursuant to Sec. 229 of NIRC.

No prior confirmatory ruling is required for tax exemption or refund

BIR rulings are the official position of the Bureau to queries raised by taxpayers relative to clarification and
interpretation of tax laws. The primary purpose of a BIR Ruling is simply to determine whether a certain transaction,
under the law, is taxable or not based on the circumstances provided by the taxpayer. Rulings merely operate to
"confirm" the existence of the conditions for exemption provided under the law. If all the requirements for exemption
set forth under the law are complied with, the transaction is considered exempt, whether or not a prior BIR ruling was
secured by the taxpayer.

In practice, a taxpayer often secures a BIR ruling, prior to entering into a transaction, to prepare for any tax liability.
However, in case a taxpayer already paid the tax, believing to be liable therefor, and later on files a claim for refund on
the basis of an exemption provided under the law, requiring a prior BIR ruling as a condition for the approval of the
refund claim is illogical.

Corollary thereto, Section 229 of the NIRC provides the taxpayer a remedy for tax recovery when there has been an
erroneous payment of tax. The outright denial of petitioner's claim for a refund, on the sole ground of failure to apply
for a tax treaty relief prior to the payment of the BPRT, would defeat the purpose of Section 229.

Moreover, there is nothing in Section 40(C)(2) of the NIRC of 1997 which requires the taxpayer to first secure a prior
confirmatory ruling before the transaction may be considered as a tax-free exchange. The BIR should not impose
additional requirements not provided by law, which would negate the availment of the tax exemption.

However, the Court notes that, in this case, the CIR not only failed to act on respondents' administrative claim for
refund, it also failed to present any evidence during trial before the CTA to prove that the subject transaction is not
covered by the tax exemption. Fortunately, CTA found that respondents were able to establish their entitlement to the
claimed refund. Accordingly, the Court finds no reason to reverse the findings of the CTA.

CIR V. DE LA SALLE UNIVERSITY, INC.

De La Salle University (“DLSU”) was assessed with deficiency taxes for taxable years 2001, 2002 and 2003, particularly:
  Income tax on rental earnings from restaurants/canteens and bookstores operating within the campus;
 Value-added tax (“vat”) on business income; and
 Documentary stamp tax (“dst”) on loans and lease contracts.

DLSU protested the assessment, citing Section 4(3), Article XIV of the Constitution, which provides that “all revenues and
assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes
shall be exempt from taxes and duties.”

Further, DLSU claims that the assessment is based on a defective Letter of Assessment (“LOA”) as it provides that it
covers the year 2003 and for “prior unverified years.”

On the other hand, the CIR argues that DLSU, a non-stock, non-profit educational institution, is subject to income tax,
regardless of the disposition made of such income, pursuant to Section 30(H) of the Tax Code. In other words, the Tax
Code qualified the exemption granted to non-stock, nonprofit educational institutions under the Constitution.

CTA Division partially granted DLSU's petition for review. The DST assessment on the loan transactions of [DLSU] in the is
CANCELLED. However, [DLSU] is ORDERED TO PAY deficiency income tax, VAT and DST on its lease contracts.

The CTA En Banc sustained the findings of the CTA Division

ISSUES:

1. Whether or not DLSU’s income and revenues proved to have been used actually, directly, and exclusively for
educational purposes are exempt from duties and taxes. [YES]
2. Whether or not the entire tax assessment should be declared null and void because of the defective Letter of
Assessment [Void only for the unverified taxable years but valid for year 2003].

The revenues and assets of non-stock, non-profit educational institutions proved to have been used actually, directly, and
exclusively for educational purposes are exempt from duties and taxes.

The Court noted that there are two kinds of educational institutions – (1) non-stock, non-profit educational institutions,
and (2) proprietary educational institutions. The tax exemption granted to non-stock, non-profit educational institutions
is conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes. On the
other hand, tax exemptions may also be granted to proprietary educational institutions, subject to limitations imposed
by Congress. As such, the tax-exemption constitutionally granted to non-stock, non-profit educational institutions is not
subject to limitations imposed by law.

The following are the requisites for availing of the tax exemption under Article IV, Section 4 (3) of the Constitution:

a. The taxpayer falls under the classification non-stock, non-profit educational institution; and
b. The income it seeks to be exempted from taxation is used actually, directly and exclusively for educational
purposes.

The tax exemption granted to non-stock, non-profit educational institutions covers (1) revenues and income, regardless
of its source, and (2) assets; provided that, the revenues and assets are used actually, directly and exclusively for
educational purposes.

The crucial point of inquiry then is two tiered - (1) the use of the assets or (2) the use of the revenues.

Revenues consist of the amounts earned by a person or entity from the conduct of business operations. It may refer to
the sale of goods, rendition of services, or the return of an investment. Revenue is a component of the tax base in
income tax,VAT and local business tax (LBT).

Assets, on the other hand, are the tangible and intangible properties owned by a person or entity. It may refer to real
estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any property from which
the person or entity may derive income or use to generate the same. In Philippine taxation, the fair market value of real
property is a component of the tax base in real property tax (RPT). Also, the landed cost of imported goods is a
component of the tax base in VAT on importation88 and tariff duties.

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand, when it
also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from RPT.

The use of the revenues or assets for commercial purposes (or for any other purpose other than educational purposes)
effectively removes the tax exemption of non-stock, non-profit educational institutions. The commercial use of the
property, i.e. cafeteria or lease of school building, is not incidental to and reasonably necessary for the accomplishment
of the main purpose of a university, which is to educate its students. However, if the university actually, directly and
exclusively used the proceeds of its revenues from commercial use for educational purposes, then the same is exempt
from taxes.

The Supreme Court held that the last paragraph of Section 30 (H) of the Tax Code is without force and effect with
respect to non-stock, non-profit educational institutions, provided that the non-stock, non-profit educational institution
prove that its assets and revenues are used actually, directly and exclusively for educational purposes.

Further, the tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is not subject to
limitations imposed by law.

Only the assessment for taxable year 2003 is valid. The assessment issued on “prior unverified years” is void.

A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer’s correct internal revenue liabilities and for the purpose of
collecting the correct amount of tax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to
obtain information, to summon/examine, and take testimony of persons. The LOA commences the audit process and
informs the taxpayer that it is under audit for possible deficiency tax assessment.

Section C of Revenue Memorandum Order No. 43-90 prohibits the practice of issuing LOAs covering audit of unverified
prior years, but it did not provide that the LOA which contains the unverified prior years is void. It merely prescribes
that if the audit includes more than one taxable period, the other periods or years must be specified . The requirement
to specify the taxable period covered by LOA is simply to inform the taxpayer of the extent of the audit and the scope of
the revenue officer’s authority. As such, the assessment for taxable year 2003 is valid because this taxable period is
specified in the LOA. On the other hand, assessments for taxable years 2001 and 2002 are void for having been
unspecified on separate LOAs as required under RMO No. 43-90.

CIR v. MITSUBISHI METAL CORPORATION

On April 1970, Atlas Consolidated Mining and Development Corporation (Atlas) entered into a Loan and Sales Contract
with Mitsubishi Metal Corporation (Mitsubishi), a Japanese corporation licensed to engage in business in the Philippines,
for projected expansion of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan
to Atlas in the amount of $20 MILLION for the installation of a new concentrator for copper production. Atlas, in turn,
undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a period of fifteen (15)
years.

Mitsubishi applied for a loan with the Export-Import Bank of Japan (Eximbank) for purposes of its obligation under said
contract. The records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to Mitsubishi
was subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for
importing copper concentrates from Atlas, and that Mitsubishi had to pay back the total amount of the loan by
September 1981.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made. The corresponding 15% tax
thereon was withheld pursuant to Section 24(b)(1) and Section 53(b)(2) of the National Internal Revenue Code, as
amended by Presidential Decree No. 131, and duly remitted to the Government.

Respondents filed a claim for tax credit requesting that the sum be applied against their existing and future tax liabilities.
It was later noted by Court of Tax Appeals that Mitsubishi executed a waiver and disclaimer of its interest in the claim for
tax credit in favor of Atlas.

Petitioner CIR did not act on the claim for tax credit, so respondents filed a petition for review with the CTA. The petition
was grounded on the claim that Mitsubishi was a mere agent of Eximbank. Such governmental status of Eximbank is the
basis for respondents' claim for exemption from paying the tax on the interest payments on the loan. It was further
claimed that the interest payments on the loan from the consortium of Japanese banks were likewise exempt because
said loan supposedly came from or were financed by Eximbank. Based on Section 29(b)(7)(A) of the Tax Code, which
excludes from gross income:

"Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or
from interest on their deposits in banks in the Philippines by (1) foreign governments, (2) financing institutions
owned, controlled, or enjoying refinancing from them, and (3) international or regional financing institutions
established by governments."

CTA ordered petitioner to grant a tax credit in favor of Atlas. They concluded that the ultimate creditor of Atlas was
Eximbank with Mitsubishi acting as a mere "arranger".

While CTA Case was still pending before the tax court, the 15% tax was withheld and remitted to the Government

ISSUE: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excluded from gross
income taxation pursuant to Section 29(b)(7)(A) of the tax code and, therefore, exempt from withholding tax. (NO)

The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential reference to
Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of loan and Atlas as the
seller of the copper concentrates

Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan
application was that the amount being procured would be used as a loan to and in consideration for importing copper
concentrates from Atlas. Such statement could not constitute, a contract of agency.

When MITSUBISHI secured such loans, it was in its own independent capacity as a private entity and not as a conduit of
the consortium of EXIMBANK. While the loans were secured by MITSUBISHI, the fact remains that it was a loan by
EXIMBANK of Japan to MITSUBISHI and not to ATLAS. Thus, the transaction between MITSUBISHI and EXIMBANK of
Japan was a distinct and separate contract from that entered into by MITSUBISHI and ATLAS.

The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from the interest income
paid by MITSUBISHI to EXIMBANK of Japan. What was the subject of the 15% withholding tax is not the interest income
paid by MITSUBISHI to EXIMBANK but the interest income earned by MITSUBISHI from the loan to ATLAS.

Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Respondents are not among the entities which, under Section 29(b)(7)(A) of the tax code, are entitled to
exemption.

The taxability of a party cannot be without substantial evidence. Otherwise, governmental operations suffer due to
diminution of much needed funds and the mere expedient of having a Philippine corporation enter into a contract for
loans or other domestic securities with private foreign entities, which in turn will negotiate independently with their
governments, could be availed of to take advantage of the tax exemption law under discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA are hereby REVERSED and SET ASIDE.

CIR V. ST. LUKE'S MEDICAL CENTER, INC.

St. Luke’s Medical Center, Inc. (“St. Luke’s”) is a hospital organized as a non-stock and non-profit corporation. It provides
service to both paying and non-paying clients.

The BIR assessed St. Luke’s of deficiency taxes for the taxable year 1998 on the ground that St. Luke’s was actually
operating for profit in 1998 because only 13% of its revenues came from charitable purposes. As such, the BIR imposed
the 10% preferential tax rate on the income of proprietary non-profit hospitals, arguing that the tax exemption on non-
profit hospitals (which were previously categorized as non-stock, non-profit corporations under Section 26 of the NIRC)
was removed with the inclusion of Section 27(B) which provides that non-profit hospitals are subject to the preferential
rate of 10% income tax.

St. Luke's contended that the BIR should not consider its total revenues, because its free services to patients was 65.20%
of its 1998 operating income (total revenues less operating expenses). St. Luke's also claimed that its income does not
inure to the benefit of any individual. It argued that the making of profit per se does not destroy its income tax
exemption.

CTA held that Section 27(B) of the NIRC does not apply to St. Luke's.

ISSUE: WON St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which imposes a
preferential tax rate of 10% on the income of proprietary non-profit hospitals. (Yes, insofar as the income obtained from
paying clients.)

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of:

1. Proprietary nonprofit educational institutions and

2. Proprietary non-profit hospitals.

The only qualifications for hospitals are that they must be proprietary and non-profit.

“Proprietary” means private, while “non-profit” means no net income or asset accrues to or benefits any member or
specific person, with all the net income or asset devoted to the institution’s purposes and all its activities conducted for
profit. “Non-profit” does not necessarily mean “charitable.”

Charity provide for free goods and services to the public which would otherwise fall on the shoulders of government.
Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs,
because certain private entities already assume a part of the burden. This is the rationale for the tax exemption of
charitable institutions is that the loss of taxes by the government is compensated by its relief from doing public works
which would have been funded by appropriations from the Treasury. Charitable institutions, however, are not ipso facto
entitled to a tax exemption. The requirements for a tax exemption are specified by the law granting it.

Section 30(E) of the NIRC provides that a charitable institution must be: (1) a non-stock corporation or association; (2)
organized exclusively for charitable purposes; (3) operated exclusively for charitable purposes; and (4) no part of its net
income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person.

Thus, both the organization and operations of the charitable institution must be devoted “exclusively” for charitable
purposes.

Charitable institution is nevertheless allowed to engage in “activities conducted for profit” without losing its tax exempt
status for its not-for-profit activities.

The only consequence is that the “income of whatever kind and character” of a charitable institution “from any of its
activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax.” Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary corporate rate
under Section 27(A). With the introduction of Section 27(B) the tax rate is now 10%.

Thus, although St. Luke’s is a non-stock, non-profit institution, considering that it receives income from paying patients, it
is not an institution “operated exclusively” for charitable purposes.

Clearly, revenues from paying patients are income received from “activities conducted for profit”. Services to paying
patients are activities conducted for profit. There is a “purpose to make profit over and above the cost” of services.” As
such, income from its paying clients are subject to the preferential rate of 10% tax.

Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution from tax.
An institution cannot use its corporate form to prevent its profitable activities from being taxed. Tax exemptions for
charitable institutions should therefore be limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government and
other taxpayers.

Finally, the Court held that St. Luke’s is not liable for interest and surcharges, as it has good reasons to rely on the letter
by the BIR, which opined that St. Luke’s is “a corporation for purely charitable and social welfare purposes” and thus,
exempt from income tax. Good faith and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest.

St. Luke's Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 based on the 10% preferential
income tax rate under Section 27(B) of the National Internal Revenue Code. However, it is not liable for surcharges and
interest on such deficiency income tax.

SMI-ED Phil. Technology, Inc. v. CIR

SMI-ED Philippines Technology, Inc. is a PEZA-registered corporation that has never commenced operations. During its
existence, it subjected itself to 5% final tax imposed upon PEZA registered corporations. The amount of tax it paid is
Php44M.

However, upon finding that it made erroneous payment of taxes, it filed with the BIR an administrative claim for tax
refund. The BIR, however, did not act in its claim. Court of Tax Appeals, after finding that SMI-Ed Philippines sold
properties that were capital assets under Section 39(A)(1) of the National Internal Revenue Code of 1997, the Court of
Tax Appeals Second Division subjected the sale of SMI-Ed Philippines’ assets to 6% capital gains tax under Section 27(D)
(5) of the same Code and Section 2 of Revenue Regulations No. 8-98.

It was found liable for capital gains tax amounting to P53,613,000.00 Therefore, SMI-Ed Philippines must still pay the
balance of P8,935,500.00 as deficiency tax, “which respondent should perhaps look into.

Court of Tax Appeals En Banc affirmed the decision of Court of Tax Appeals Division.

Petitioner argued that the Court of Tax Appeals has no jurisdiction to make an assessment since its jurisdiction is merely
appellate. Moreover, the power to make assessment had already prescribed under Section 203 of the National Internal
Revenue Code of 1997 since the return for the erroneous payment was filed on September 13, 2000, or more than three
(3) years from the last day prescribed by law for the filing of the return.

Petitioner also argued that the Court of Tax Appeals En Banc erroneously subjected petitioner’s machineries to 6%
capital gains tax. Section 27(D)(5) of the National Internal Revenue Code of 1997 is clear that the 6% capital gains tax on
domestic corporations applies only on the sale of lands and buildings and not to machineries and equipment.

ISSUE: WON Court of Tax Appeals is correct when it found that petitioner's sale of its properties is subject to capital
gains tax. (NO)
For petitioner's properties to be subjected to capital gains tax, the properties must form part of petitioner's capital
assets.

Section 39(A)(1) of the National Internal Revenue Code of 1997 defines "capital assets":

Property held by the taxpayer (whether or not connected with his trade or business), but does not include any of
the following:

 Stock in trade;
 Property that should be included in the taxpayer's inventory at the close of the taxable year;
 Property held for sale in the ordinary course of the taxpayer's business;
 Depreciable property used in the trade or business; and
 Real property used in the trade or business.

The properties involved in this case include petitioner's buildings, equipment, and machineries. They are not among the
exclusions enumerated in Section 39(A)(1) of the National Internal Revenue Code of 1997. None of the properties were
used in petitioner's trade or ordinary course of business because petitioner never commenced operations. They were
not part of the inventory. None of them were stocks in trade. Based on the definition of capital assets under Section
39 of the National Internal Revenue Code of 1997, they are capital assets.

Capital gains of individuals and corporations from the sale of real properties are taxed differently. Individuals are taxed
on capital gains from sale of all real properties located in the Philippines and classified as capital assets. While domestic
corporations are imposed a 6% capital gains tax only on the presumed gain realized from the sale of lands and/or
buildings. The National Internal Revenue Code of 1997 does not impose the 6% capital gains tax on the gains realized
from the sale of machineries and equipment under section 27(D)(5).

(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. - A final tax of six
percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition
of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital
assets, based on the gross selling price of fair market value as determined in accordance with Section 6(E) of this
Code, whichever is higher, of such lands and/or buildings.

Only the presumed gain from the sale of petitioner's land and/or building may be subjected to the 6% capital gains
tax. The income from the sale of petitioner's machineries and equipment is subject to the provisions on normal
corporate income tax.

To determine, therefore, if petitioner is entitled to refund, the amount of capital gains tax for the sold land and/or
building of petitioner and the amount of corporate income tax for the sale of petitioner's machineries and equipment
should be deducted from the total final tax paid.

Petitioner indicated, however, in its income tax return that it suffered a net loss.

The BIR did not make a deficiency assessment for this declaration. Neither did the BIR dispute this statement in its
pleadings filed before this court. There is, therefore, no reason to doubt the truth that petitioner indeed suffered a net
loss.

Since petitioner had not started its operations, it was also not subject to the minimum corporate income tax of 2% on
gross income. Therefore, petitioner is not liable for any income tax.