Tan v Del Rosario, Jr.

Facts:

This is a consolidated case involving the constitutionality of RA 7496 or the Simplified Net Income Taxation (SNIT) scheme.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the SNIT. In the 1^st case, they contend that the House Bill which eventually became RA 7496 is a misnomer or deficient because it was named as “Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession” while the actual title contains the said words with the additional phrase, “…Amending Section 21 and 29 of the National Internal Revenue Code”.

In the 2^nd case, they argue that respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships by issuing Revenue Regulation 2-93 to carry out the RA.

Issue:

Whether or not general professional partnerships may be taxed under SNIT

Held:

No. A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. There is no distinction in income tax liability between a person who practices his profession alone and one who does it through partnership with others in the exercise of a common profession.

In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently subject to the payment of income tax.

***

Notes:

*2 KINDS OF PARTNERSHIPS UNDER TAX CODE

1. Taxable Partnerships – no matter how it was created or organized, they are subject to income tax by law.

2. Exempt Partnerships – the partners, not the partnership (although obligated to file an income tax return for administration and data) are liable for income tax in their individual capacity.

Mapa v CA

Facts:

High Peak Mining Exploration Corporation borrowed money from Land Bank, the latter acting as trustee. Loans are evidence by a Promissory Note (PN) but there was no further security attached for it. High peak failed to pay loans so LBP sent demand letters.  The PNs became the subject matter of a complaint for the recovery of sum of money where Deputy Sheriff Romulo Flores filed a return of service of summons stating that since Mapa (Chairman of High Peak) could not be found in the given business address( 2^nd flr, First Midland Condominium, Makati), he gave a substituted service to Susan dela Torre, an employee of the High Peak. Mapa filed a Motion to Dismiss on the ground that the service of summons was highly defective because the sheriff’s return did not show that the sheriff exerted efforts to personally serve the summons, thus substituted summons was not warranted.

Issue:

Whether or not there was a valid substituted service of summons.

Held:

Yes. The absence in the sheriff’s return of a statement about the impossibility of personal service does not conclusively prove that the service is invalid. It must be emphasized that the absence in the sheriff’s return of a statement about the impossibility of personal service does not conclusively prove that the service is invalid. While the sheriff’s return carries with it the presumption of regularity of duties, it does not necessarily follow that an act done in relation to duty was not done simply because it was not disclosed.

In the case, Mapa did not deny the statements made by the sheriff – that Susan is authorized to receive processes of this nature. Until rebutted by competent evidence, returns would enjoy the presumption of regularity. Thus, Susan may be deemed as an agent of High Peak to whom a substituted service of summons can be made. 

Wonder Mechanical Engineering Corp. v CTA

Facts:

Wonder Corp. was engaged in the business of manufacturing auto spare parts, lamp shades, rice threshers and other articles. It was also engaged in the business of electroplating and repair of machines. However, it did not pay sales tax on the sale of articles and the percentage tax on its electroplating and repair business.

Commissioner of Internal Revenue caused the investigation of Wonder Corp. for the purpose of ascertaining its tax liability. Revenue Examiner Pedro Cabigao reported that Corp. manufactured and sold other articles subject to 7% sales tax but not covered by the Corp’s tax exemption privilege. The Corp. was assessed with a deficiency percentage tax of P25, 080. and a 25% surcharge.

Wonder Corp. contends that it was a given a Certificate of Tax  Exemption with respect to the manufacture of machines for making cigarette paper, pails, lead washer, nails… (those which are determined as new and necessary by RA 901).

Issue:

Whether or not the manufacture and sale of steel chairs, jeep parts… which are not machines for making other products are tax exempt under RA 901.

Held:

No. Wonder Corp. was granted the tax exemption in the manufacture and sale of machines but not manufacture and sale of the articles produced by the machines. Such was the intention of the State for new and necessary industries as an incentive to greater and adequate production of products made scarce by World War II. Tax exemptions are highly disfavored in law and those who claim them must be able to justify his claim and must be clearly expressed in the law. Tax exemptions cannot be established by implication.

In the case, Wonder Corp. was granted tax exemption in the manufacture of cigarette paper, pails, lead washers, nails…  as explicitly stated in the Certificate of Tax Exemption. The manufacture of steel chairs, jeep parts and other articles not constituting machines for making certain products does not fall under RA 901.