FACTS
Pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue, petitioner Hilado claimed P12,837.65 as a deductible item from his gross income upon filing his income tax return for the year 1951.
This circular, however, was revoked by the Secretary of Finance who considered it as a wrong interpretation of the National Internal Revenue Code.
As a consequence, Hilado's deductible claim was disallowed and he was ordered to pay the sum of P3,546 as deficiency income tax. Hilado argued that the Secretary of Finance acted beyond his authority in revoking the aforesaid circular for two reasons: (a) first, only the courts can declare an existing interpretative statute as invalid; and (b) the new circular overturning General Circular No. V-123 was prejudicial to Hilado, who had already acquired a vested right under the old one. In addition, Hilado argued that he cannot be made to pay income tax during the war years because internal revenue laws were unenforceable at the time.
RULING
For the CIR and CTA.
The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given.
Granted, General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer because a vested right cannot spring from a wrong interpretation.
More importantly, it cannot be said that tax laws were unenforceable during the war years. This is because our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Law, once established, continues until changed by some competent legislative power, not merely by change of sovereignty.
