GR No 198756
January 13, 2015
Facts
The case involves a petition for certiorari, prohibition and or mandamus filed by the petitioners under Rule 65 of the Rules of Court.
The case involves the proper tax treatment of the discount or interest income arising from 35 billion worth of 10-year zero coupon treasury bonds issued by the Bureau of Treasury. The Commissioner of Internal Revenue issued Bureau of Internal Revenue (BIR) Ruling No 370-2011 declaring that all PEACe Bonds – being deposit substitutes – be subject to 20% final withholding tax. Pursuant to this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a 20% final tax from the face value of the PEACe Bonds upon their payment at maturity.
Petitioners contend that the retroactive application of BIR Ruling 370-2011 without prior notice to them is a violation of their property rights, right to due process, as well as Section 246 of the 1997 National Internal Revenue Code. Moreover, they assert that the Commissioner of Internal Revenue gravely abused her discretion in the exercise of her rule making power.
On the other hand, respondents argue that the direct resort of the petitioner to the Supreme Court violates the doctrines of exhaustion of administrative remedies and the doctrine of hierarchy of courts.
Issue
W/N the doctrine of Hierarchy of Courts was violated by the petitioners by directly going to the Supreme Court when in fact the Court of Tax Appeals has the proper jurisdiction?
Ruling
No. Under Section 7 of RA No. 1125 as amended by RA 9282, the Court of Tax Appeals shall exercise jurisdiction over the rulings of the Decision of the Commissioner of Internal Revenue. However, the Supreme Court (SC) ruled that in exceptional cases, the SC can entertain the petition even with the violation of the hierarchy of courts or the lack of proper jurisdiction when it is “dictated by public welfare and the advancement of public policy, or demanded by the broader interest of justice.”
In the case at bar, the nature and importance of the issues raised to the investment and banking industry with regard to a defi nitive declaration of whether government debt instruments are deposit substitutes under existing laws, and the novelty thereof, constitute exceptional and compelling circumstances to justify resort to this court in the first
instance. Tax provision on deposit substitutes affects not only the PEACe Bonds but also any other financial instrument or product that may be issued and traded in the market. Due to the changing positions of the Bureau of Internal Revenue on this issue, there is a need for a final ruling from this court to stabilize the expectations in the financial market.
Hence, there is a compelling and exceptional circumstances justifying the resort to this court in the first instance for the tax provision on deposit substitutes affects not only the PEACe Bonds but also other financial instruments.