06-02-2019, 02:45 PM
Compensation takes place when two persons, in their own right, are creditors and debtors of each other (Civil Code, Art. 1278). This presupposes mutual obligations between the parties, and that they are mutual creditors and debtors of each other.
In Taxation
The Government may be allowed to set-off a taxpayer's claim for refund that has been finally adjudged by the courts in favor of the taxpayer as against a tax assessment that the Government issued to such taxpayer even if such assessment is not yet final and executory (CIR vs. Cebu Portland, GR No. L-29059, December 15, 1987).
General Rule
Taxes are not subject to set-off or legal compensation (Republic vs. Mambulao, GR No. L-177225, Feb. 28, 1962).
Reasons
Taxes and debts are of different nature and character. The taxes assessed are the obligations of the taxpayer arising from law, while the money judgment against the government is an obligation arising from contract, whether express or implied (Francia vs. IAC, GR No. L-67649, June 28, 1988).
Taxes are not in the nature of contracts between the parties but grow out of duty to, and are positive acts of the government to the making and enforcing of which, the personal consent of the individual taxpayers is not required (Republic vs. Mambulao, GR No. L-177225, Feb. 28, 1962).
Exception
When the set-off took place because both the claim of the Government for inheritance taxes and the claim of the estate for services rendered have already become overdue, demandable, and fully liquidated. Further, an amount for the claim of the estate had already been appropriated by the government by virtue of a law (Domingo vs. Garlitos, GR No. L-18994, June 29, 1963; see also Article 1279 of Civil Code for legal compensation).
In Taxation
The Government may be allowed to set-off a taxpayer's claim for refund that has been finally adjudged by the courts in favor of the taxpayer as against a tax assessment that the Government issued to such taxpayer even if such assessment is not yet final and executory (CIR vs. Cebu Portland, GR No. L-29059, December 15, 1987).
General Rule
Taxes are not subject to set-off or legal compensation (Republic vs. Mambulao, GR No. L-177225, Feb. 28, 1962).
Reasons
Taxes and debts are of different nature and character. The taxes assessed are the obligations of the taxpayer arising from law, while the money judgment against the government is an obligation arising from contract, whether express or implied (Francia vs. IAC, GR No. L-67649, June 28, 1988).
Taxes are not in the nature of contracts between the parties but grow out of duty to, and are positive acts of the government to the making and enforcing of which, the personal consent of the individual taxpayers is not required (Republic vs. Mambulao, GR No. L-177225, Feb. 28, 1962).
Exception
When the set-off took place because both the claim of the Government for inheritance taxes and the claim of the estate for services rendered have already become overdue, demandable, and fully liquidated. Further, an amount for the claim of the estate had already been appropriated by the government by virtue of a law (Domingo vs. Garlitos, GR No. L-18994, June 29, 1963; see also Article 1279 of Civil Code for legal compensation).