FACTS:

This case involves a petition for review on certiorari assailing the decision of the Court of Appeals in CA G.R. SP No. 27134. The case arose from the issue of whether political contributions made by the petitioners are subject to donor's tax. During the 1987 national elections, the petitioners, who are partners in a law firm, contributed money to the campaign funds of Senator Edgardo Angara. The Bureau of Internal Revenue (BIR) assessed each of the petitioners for donor's tax in relation to their contributions. The petitioners argued that political contributions are not considered gifts under the National Internal Revenue Code (NIRC) and therefore, they are not liable for donor's tax. However, their claim for exemption was denied by the BIR. The petitioners filed a petition for review with the Court of Tax Appeals (CTA), which ruled in their favor. The Commissioner of Internal Revenue appealed the CTA decision to the Court of Appeals, which reversed and set aside the CTA decision and ordered the petitioners to pay donor's tax. The petitioners filed a motion for reconsideration, which was denied. Hence, they filed a petition for review on certiorari with the Supreme Court.

ISSUES:

1. Are political contributions considered taxable gifts?

2. Should the Court of Appeals have considered American jurisprudence in interpreting the Philippine Gift Tax Law?

3. Did the Court of Appeals err in relying on a ruling issued by the respondent after the assessments were made?

4. Did the Court of Appeals err in not construing the Gift Tax Law liberally in favor of the taxpayer?

5. Whether political contributions can be considered as donations

6. Whether political contributions are subject to donor's tax

7. Whether the prolonged practice of not subjecting political contributions to donor's tax contributes to an authoritative interpretation of the law

8. Whether the Court of Appeals decision based on a BIR ruling is valid

9. Whether tax laws should be construed liberally in favor of the taxpayer

RULING:

1. Yes, political contributions are considered taxable gifts. The elements of a donation, as defined in the Civil Code, are present in this case, namely the reduction of the donor's patrimony, the increase in the donee's patrimony, and the intent to do an act of liberality. The provisions of the National Internal Revenue Code (NIRC) are clear and unambiguous, leaving no room for construction. Therefore, the Court must apply the law as it is written.

2. No, the Court of Appeals was correct in not considering American jurisprudence in interpreting the Philippine Gift Tax Law. The Court's first and fundamental duty is to apply the law, and when the law is clear and unambiguous, there is no need for interpretation or construction. American jurisprudence is not applicable in this case because it was not known at the time the Philippine Gift Tax Law was adopted in 1939.

3. No, the Court of Appeals did not err in considering a ruling issued by the respondent after the assessments were made. The ruling provided guidance on the interpretation and application of the Gift Tax Law, and it was within the discretion of the Court of Appeals to consider this ruling in resolving the case.

4. No, the Court of Appeals did not err in not construing the Gift Tax Law liberally in favor of the taxpayer. The law is clear and unambiguous, and the court must see to it that its mandate is obeyed. The principle of liberal construction in favor of the taxpayer only applies when the law is ambiguous or of doubtful meaning, which is not the case here.

5. Political contributions can be considered as donations. The purpose for which the contributions were given, which was to fund the campaign of a senatorial candidate, does not amount to a valuable material consideration that would negate a donation.

6. Political contributions are subject to donor's tax. The law is clear and unambiguous in stating that donations are taxable.

7. The prolonged practice of not subjecting political contributions to donor's tax does not preclude the BIR from making a new interpretation of the law. The government agency is not estopped by mistakes or errors of its agents.

8. The Court of Appeals decision based on a BIR ruling is immaterial to the case. The relevant provisions of the law are clear and do not require further elucidation.

9. Tax laws cannot be construed liberally in favor of the taxpayer when the law is clear and unambiguous.

PRINCIPLES:

• The Court's first and fundamental duty is to apply the law as it is written when it is clear and unambiguous.

• American jurisprudence is not applicable in interpreting Philippine laws if it was not known at the time the Philippine law was adopted.

• A ruling issued by the respondent after the assessments were made may be considered by the court for guidance in interpreting and applying the law.

• The principle of liberal construction in favor of the taxpayer applies only when the law is ambiguous or of doubtful meaning.

• Donative intent is not negated by the presence of other intentions, motives, or purposes that do not contradict donative intent.

• The consideration for a political contribution is the desire to influence the result of an election, rather than a valuable material consideration.

• Erroneous application and enforcement of the law do not block subsequent correct application of the statute.

• The government is not estopped by mistakes or errors of its agents.

• Tax laws are not construed liberally in favor of the taxpayer when the law is clear and unambiguous.

• Subsequent legislation exempting political contributions from gift tax does not apply retrospectively.