[ G.R. No. 214933. February 15, 2022 ]
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE BUREAU
OF INTERNAL REVENUE, PETITIONER, VS. FIRST GAS POWER
CORPORATION, RESPONDENT.
DECISION
LOPEZ, J., J.:
This is a Petition for Review on Certiorari1 filed by petitioner Bureau of
Internal Revenue (BIR) assailing the Decision2 dated May 12, 2014 of the
Court of Tax Appeals (CTA) En Banc in CTA EB No. 972. The CTA En
Banc affirmed the Decision3 of the CTA Third Division dated September
24, 2012, which, in turn, granted respondent First Gas Power
Corporation's (First Gas) appeal assailing the Final Assessment Notices
and Formal Letters of Demand, all dated July 19, 2004, issued by
petitioner against respondent for deficiency income taxes and penalties for
the taxable years 2000 and 2001.1a⍵⍴ h!1
The Facts
On October 24, 2002, First Gas received a Letter of Authority from the
petitioner authorizing the BIR representative to examine the book of
accounts and other accounting records of First Gas for all revenue taxes
for the taxable years 2000 and 2001.4
On September 30, 2003, First Gas received a Notice to Taxpayer from
petitioner requesting it to appear for an informal conference on October
15, 2003.5
Thereafter, on March 11, 2004, First Gas received Preliminary
Assessment Notices (PAN) dated December 15, 2003 and January 28,
2004, wherein it was assessed for the following deficiency taxes and
penalties for the taxable years 2000 and 2001:
a. Deficiency
P84,571,959.65
Income Tax for
2000 b. Deficiency
P97,999,363.41
Income Tax for
2001 c. Late
Payment P4,670,630.18.6
Penalties for 2001
-
On April 6, 2004, First Gas filed its Preliminary Reply to the
PAN.7 Then on September 6, 2004, it received Final Assessment Notices
(FAN) and Formal Letters of Demand all dated July 19, 2004, wherein it
was assessed for the following deficiency taxes and penalties for the
taxable years 2000 and 2001:
a. Deficiency
P37,099,915.29
Income Tax for
2000
b. Deficiency
P82,365,799.90
Income Tax for
2001
c. Late
Payment P4,670,630.18.8
Penalties for 2001
For the calendar year ending December 31, 2000, First Gas was
assessed deficiency income tax for its unreported income on pre-income
tax holiday sale of electricity to Meralco and Siemens, as well as for its
alleged unreported interest income from foreign investments and dollar
loan proceeds realized prior to commercial operations.9
For the calendar year ending in December 31, 2001, First Gas was also
assessed deficiency income tax for its disallowed interest expense from
dollar deposits in foreign banks and its disallowed compensation
expense.10
Further, First Gas was assessed penalties for the calendar year ending
December 31,2001 due to the late payment of withholding tax on interest
on foreign loans and the late payment of excise tax on natural gas.11
Meanwhile, the record shows that First Gas, represented by Nestor H.
Vasay, and the BIR, represented by Celia C. King executed three (3)
Waivers of the Defense of Prescription under the Statue of Limitations, the
summary of which are as follows:
Waiver
First12
Date of Period
Waiver
Extended
April 12, June
2004
2004
Second13 June
14, August
Person
Signed
Waiver
Who
the
15, Celia C. King
15, Celia C. King
Third14
2004
2004
August
13, 2004
October 15, Celia C. King
2004
On October 5, 2004, First Gas filed a Letter of Protest before
respondent which was not acted upon.15 Thus, on June 30, 2005, it filed a
Petition for Review before the CTA to assail the FAN and Formal Letters of
Demand, all dated July 19, 2004.16
In a Decision17 dated September 24, 2012, the CTA Third Division
granted the petition of First Gas, the dispositive portion of which reads:
WHEREFORE, the instant Petition for Review is hereby GRANTED.
Accordingly, the following are hereby CANCELLED and WITHDRAWN:
1. Final Assessment Notice and Formal Letter of Demand for deficiency
income tax for Calendar Year ended December 31, 2000 in the total
amount of Php37,099,915.29 inclusive of surcharge, interest and
compromise penalties;
2. Final Assessment Notice and Formal Letter of Demand for deficiency
income tax for Calendar Year ended December 31, 2001 in the total
amount of Php82,365,799.90 inclusive of surcharge, interest and
compromise penalties; and
3. Final Assessment Notice and Formal Letter of Demand for penalties
assessment for Calendar Year ended December 31, 2001 in the total
amount of Php4,670,630.18 inclusive of surcharge, interest and
compromise penalties.
SO ORDERED.18 (Emphasis in the original)
The BIR moved for the reconsideration of the aforesaid Decision, which
was denied in a Resolution19 dated December 13, 2012.
This prompted the BIR to file a Petition for Review with the CTA En
Banc. Then, in a Decision20 dated May 12, 2014, the CTA En Banc denied
the petition, disposing as follows:
WHEREFORE, premises considered, the Petition for
Review is hereby DISMISSED for lack of merit. The
Decision and Resolution of the Third Division of this Court
in CTA Case No. 7281 dated September 24, 2012 and
December 13, 2012, respectively, are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.21
On June 11, 2014, petitioner filed a Motion for Reconsideration of the
Decision dated May 12, 2014 but the same was denied by the CTA En
Banc in a Resolution22 dated October 7, 2014.
Hence, the instant petition.
Issue
Whether the deficiency tax assessments for taxable years 2000 and
2001 issued by petitioner against respondent are valid.
Our Ruling
In the assailed Decision, the CTA En Banc affirmed the cancellation of
the FAN and Formal Letters of Demand, all dated July 19, 2004, issued by
petitioner against respondent for deficiency income taxes and penalties for
the taxable years 2000 and 2001 because they were all found to be
invalid.23
According to the CTA, the period to assess respondent for deficiency
income tax for taxable year 2000 has already prescribed because the
Waivers issued to extend the period to assess were not valid, finding the
dates of acceptance by petitioner were not indicated in the Waivers. Thus,
the FAN and the Formal Letter of Demand, which assessed respondent for
deficiency income tax for the taxable year 2000 are invalid because they
were issued beyond the three-year prescriptive period.24
The CTA also found that the FAN and the Formal Letter of Demand,
which assessed respondent for deficiency income tax for the taxable year
2001 are also not valid because the assessments did not indicate therein a
specific date or period within which the tax liabilities shall be paid by
respondent.25
In the instant Petition, petitioner contends otherwise.
According to petitioner, the absence of the dates of acceptance in the
Waivers was simply due to inadvertence or oversight on the part of the
person who received the same.26 It argues that the inadvertence is not a
fatal error that will invalidate the Waivers.27 It also submits that it can be
presumed that the date of acceptance of the Waivers by petitioner should
be the date of notarization since that would be the time when the Waivers
would become public instruments and be binding against other persons or
entities, aside from the one which executed the same.28 Petitioner also
asserts that the Waivers were signed and accepted by the authorized
official of petitioner before the expiration of the period of prescription, or
before the lapse of the period agreed upon in the case of the subsequent
Waivers.29
Petitioner further contends that respondent is now estopped from
assailing the validity of the Waivers because it was respondent that
requested for the execution and signing of the said Waivers.30 Petitioner
also contends that respondent should not be allowed to raise the issue of
prescription for the first time on appeal before the CTA because it did not
raise the same issue on the administrative level.31
With regard to the FAN and the Formal Letter of Demand, which
assessed respondent for deficiency income tax for the taxable year 2001,
petitioner contends that a notice of assessment need not state a date
therein.32 Petitioner argues that in order to be valid, the only requirement
is that a notice of assessment shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based.33 Thus,
petitioner contends that the date of payment is not material to validate
the notice of assessment.34 According to petitioner, for as long as the
date can be verified on the face of the notice of assessment or the formal
letter of demand, then such would already suffice to determine when the
tax deficiency should be payable.35
The Court will resolve first the validity of the FAN and the Formal
Letter of Demand for taxable year 2000.
The Court agrees with the CTA that the Waivers were defective; thus,
petitioner's period to issue the FAN and the Formal Letter of Demand for
taxable year 2000 has already prescribed.
The period of limitation in the assessment and collection of taxes is
governed by Section 203 of the National Internal Revenue Code (NIRC),
which provides:
SEC. 203. Period of Limitation Upon Assessment and
Collection. - Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after
the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration
of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)year period shall be counted from the day the return was
filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Meanwhile, Section 222(b) of the NIRC authorizes the extension of the
original three-year prescriptive period upon the execution of a valid waiver
between the taxpayer and the BIR, provided: (1) the agreement was
made before the expiration of the three-year period, and (2) the
guidelines in the proper execution of the waiver are strictly
followed,36 thus:
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes. –
xxx
(b) If before the expiration of the time
prescribed in Section 203 for the assessment
of the tax, both the Commissioner and the
taxpayer have agreed in writing to its
assessment after such time, the tax may be
assessed within the period agreed upon. The
period so agreed upon may be extended by
subsequent written agreement made before
the expiration of the period previously
agreed upon.
In this case, the records show that respondent filed two (2) Income
Tax Returns (ITR) for taxable year 2000. The first ITR was filed on
October 16, 2000 for the fiscal year ending on June 30, 2000, and the
second ITR was filed on April 16, 2001 for the calendar year ending on
December 31, 2000. According to respondent, this was due to the change
in its accounting period from fiscal year to calendar year. Thus, in
accordance with Section 203 of the NIRC, petitioner had until October 16,
2003 and April 16, 2004 within which to assess respondent for deficiency
income tax for taxable year 2000.
The record likewise reflect that respondent received the FAN and the
Formal Letter of Demand, all dated July 19, 2004, for taxable year 2000
only on September 6, 2004, which is clearly beyond the three-year
prescriptive period provided under Section 203 of the NIRC.
Petitioner, however, contends that the prescription had not set in
because the parties executed three (3) Waivers, as follows:
Waiver
Date of Period
Waiver
Extended
Person
Signed
Who
the
Waiver
First37
April 12, June
2004
2004
Second38 June 14, August
2004
2004
Third39
August
13, 2004
15, Celia C. King
15, Celia C. King
October 15, Celia C. King
2004
As shown above, the Waivers appear to have extended the period to
assess respondent for taxable year 2000 until October 15, 2004.
The Court agrees with the CTA that the Waivers are defective because
the date of acceptance by petitioner is not indicated therein.
In the case of Commissioner of Internal Revenue v. Kudos Metal
Corporation,40 (Kudos Metal case) the Court laid down the requirements
for the proper execution of waiver, to wit:
Section 222 (b) of the NIRC provides that the period to assess and
collect taxes may only be extended upon a written agreement between
the CIR and the taxpayer executed before the expiration of the three-year
period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on
August 2, 2001 lay down the procedure for the proper execution of the
waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90.
The phrase "but not after ______ 19 ____", which indicates the expiry
date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign
the waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be
indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the
prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance
by the Bureau should be before the expiration of the period of prescription
or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be executed in three copies, the original copy to
be attached to the docket of the case, the second copy for the taxpayer
and the third copy for the Office accepting the waiver. The fact of receipt
by the taxpayer of his/her file copy must be indicated in the original copy
to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement.41
As shown in the foregoing, RMO 20-90 and RDAO 05-01 clearly
mandate that the date of acceptance by the BIR should be indicated in the
waiver. In the case of Commissioner of Internal Revenue v. Standard
Chartered Bank,42 (Standard Chartered Bank case) this Court ruled that
the provisions of the RMO and RDAO are mandatory and require strict
compliance, hence, the failure to comply with any of the requisites renders
a waiver defective and ineffectual.
In Philippine Journalists, Inc. v.
Commissioner
of
Internal
Revenue,43 this Court discussed the importance of the date of acceptance
in a waiver, to wit:
The other defect noted in this case is the date of
acceptance which makes it difficult to fix with
certainty if the waiver was actually agreed before the
expiration of the three-year prescriptive period. The
Court of Appeals held that the date of the execution of the
waiver on September 22, 1997 could reasonably be
understood as the same date of acceptance by the BIR.
Petitioner points out however that Revenue District Officer
Sarmiento could not have accepted the waiver yet because
she was not the Revenue District Officer of RDO No. 33 on
such date. Ms. Sarmiento's transfer and assignment to RDO
No. 33 was only signed by the BIR Commissioner on
January 16, 1998 as shown by the Revenue Travel
Assignment Order No. 14-98. The Court of Tax Appeals
noted in its decision that it is unlikely as well that Ms.
Sarmiento made the acceptance on January 16, 1998
because "Revenue Officials normally have to conduct first
an inventory of their pending papers and property
responsibilities."44
In Commissioner of Internal Revenue v. FMF Development
Corporation,45 the waiver was likewise found defective, and thus, did not
validly extend the original three-year prescriptive period because it did not
contain the date of acceptance by the CIR. This Court said that this is
necessary to determine whether the waiver was validly accepted before
the expiration of the original three-year period, thus:
Applying RMO No. 20-90, the waiver in question here
was defective and did not validly extend the original threeyear prescriptive period. Firstly, it was not proven that
respondent was furnished a copy of the BIR-accepted
waiver. Secondly, the waiver was signed only by a revenue
district officer, when it should have been signed by the
Commissioner as mandated by the NIRC and RMO No. 2090, considering that the case involves an amount of more
than P1 million, and the period to assess is not yet about to
prescribe. Lastly, it did not contain the date of
acceptance by the Commissioner of Internal
Revenue, a requisite necessary to determine whether
the waiver was validly accepted before the expiration
of the original three-year period. Bear in mind that the
waiver in question is a bilateral agreement, thus
necessitating the very signatures of both the Commissioner
and the taxpayer to give birth to a valid agreement.46
In subsequent cases, this Court has consistently upheld the
importance of the date of acceptance in waivers to validly extend the
three-year period to assess the deficiency. In Kudos Metal, the waivers
were also found to be defective for the following reasons:
A perusal of the waivers executed by respondent's accountant reveals
the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco
to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in
the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes
was not extended. Consequently, the assessments were issued by the BIR
beyond the three-year period and are void.47
In Commissioner of Internal Revenue v. The Stanley Works Sales
(Phils.), Inc.,48 this Court nullified the waivers based on the following:
The resolution of the main issue requires a factual determination of
the proper execution of the Waiver. The CTA Division has already made a
factual finding on the infirmities of the Waiver executed by respondent on
16 November 1993. The Court found that the following requisites
were absent:
(1) Conformity of either petitioner or a duly authorized representative;
(2) Date of acceptance showing that both parties had agreed on the
Waiver before the expiration of the prescriptive period; and
(3) Proof that respondent was furnished a copy of the Waiver.49 (Emphasis
supplied)
In the Standard Chartered Bank case, this Court also invalidated the
waivers because the date of acceptance was not indicated therein, to wit:
Applying the rules and rulings, the waivers in question
were defective and did not validly extend the original threeyear prescriptive period. As correctly found by the CTA in
Division, and affirmed in toto by the CTA En Banc, the
subject waivers of the Statute of Limitations were in clear
violation of RMO No. 20-90:
1) This case involves assessment amounting to more than P1,000,000.00. For
this, RMO No. 20-90 requires the Commissioner of Internal Revenue to
sign for the BIR. A perusal of the First and Second Waivers of the Statute
of Limitations shows that they were signed by Assistant CommissionerLarge Taxpayers Service Virginia L. Trinidad and Assistant CommissionerLarge Taxpayers Service Edwin R. Abella[,] respectively, and not by the
Commissioner of Internal Revenue;
2) The date of acceptance by the Assistant Commissioner-Large
Taxpayers Service Virginia L. Trinidad of the First Waiver was not
indicated therein;
3) The date of acceptance by the Assistant Commissioner-Large
Taxpayers Service Edwin R. Abella of the Second Waiver was not
indicated therein;
4) The First and Second Waivers of Statute of Limitations did not specify the
kind and amount of the tax due; and
5) The tenor of the Waiver of the Statute of Limitations signed by petitioner's
authorized representative failed to comply with the prescribed
requirements of RMO No. 20-90. The subject waiver speaks of a request
for extension of time within which to present additional documents,
whereas the waiver provided under RMO No. 20-90 pertains to the
approval by the Commissioner of Internal Revenue of the taxpayer's
request for re-investigation and/or reconsideration of his/its pending
internal revenue case.50 (Emphasis supplied)
Similarly in this case, the failure to indicate the date of acceptance by
petitioner in the First Waiver means that the same is defective, and
therefore, the original three-year prescriptive period to assess the
deficiency income tax of respondent for the taxable year 2000 was never
extended. Consequently, the two (2) subsequent waivers were also invalid
because the original period was not extended and had already lapsed on
April 16, 2004, and there was no period to extend anymore.
Petitioner's contention that the date of the notarization should be
presumed as the date of acceptance is also untenable. The CTA correctly
observed that "the date of notarization cannot be regarded as the date of
acceptance for the same refers to different aspects, as the notary public is
distinct from the Commissioner of [the] BIR who is authorized by law to
accept Waivers of the Statute of Limitations."51 Besides, it appears that
petitioner's representative was not present during the notarization of the
Waivers. As found by the CTA, only the representative from respondent,
Vice-President Nestor H. Vasay, appeared before the notary public.52
Thus, the invalidity of the First Waiver and the subsequent waivers
resulted to the non-extension of the three-year prescriptive period to
assess respondent's deficiency income tax for the taxable year 2000.
Accordingly, the FAN and the Formal Letter of Demand, which assessed
respondent for deficiency income tax for the taxable year 2000 is invalid
because it was issued beyond the three-year prescriptive period provided
under Section 203 of the NIRC.
Petitioner's contention that respondent is now estopped from assailing
the validity of the Waivers is also unavailing. In Kudos Metal, the Court
ruled that the doctrine of estoppel cannot be applied as an exception to
the statute of limitations on the assessment of taxes considering that
there is a detailed procedure for the proper execution of the waiver, which
the BIR must strictly follow. Thus:
The doctrine of estoppel cannot be applied in this case
as an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the
BIR must strictly follow. As we have often said, the doctrine
of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law
and right. As such, the doctrine of estoppel cannot give
validity to an act that is prohibited by law or one that is
against public policy. It should be resorted to solely as a
means of preventing injustice and should not be permitted
to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond
the requirements of the transactions in which they
originate. Simply put, the doctrine of estoppel must be
sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of
estoppel to cover its failure to comply with RMO 20-90 and
RDAO 05-01, which the BIR itself issued. As stated earlier,
the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant,
and to indicate the date of acceptance and the receipt by
the respondent of the waivers. Having caused the defects in
the waivers, the BIR must bear the consequence. It cannot
shift the blame to the taxpayer. To stress, a waiver of the
statute of limitations, being a derogation of the taxpayer's
right to security against prolonged and unscrupulous
investigations,
must
be
carefully
and
strictly
construed.53 (Citations omitted)
Meanwhile, petitioner's contention that respondent could not raise the
issue of prescription for the first time on appeal has long been settled in
the case of Bank of the Philippine Islands v. Commissioner of Internal
Revenue.54 Therein, it was only when the case ultimately reached this
Court that the issue of prescription was brought up. Nevertheless, this
Court ruled that the CIR could no longer collect the assessed tax due to
prescription, thus:
We deny the right of the BIR to collect the assessed
DST on the ground of prescription.
Section 1, Rule 9 of the Rules of Court expressly
provides that:
Section 1. Defenses and objections not
pleaded. – Defenses and objections not
pleaded either in a motion to dismiss or in
the answer are deemed waived. However,
when it appears from the pleadings or the
evidence on record that the court has no
jurisdiction over the subject matter, that
there is another action pending between the
same parties for the same cause, or that the
action is barred by prior judgment or by the
statute of limitations, the court shall dismiss
the claim.
If the pleadings or the evidence on record show that the
claim is barred by prescription, the court is mandated to
dismiss the claim even if prescription is not raised as a
defense. In Heirs of Valientes v. Ramas, we ruled that the
CA may motu proprio dismiss the case on the ground of
prescription despite failure to raise this ground on appeal.
The court is imbued with sufficient discretion to review
matters, not otherwise assigned as errors on appeal, if it
finds that their consideration is necessary in arriving at a
complete and just resolution of the case. More so, when the
provisions on prescription were enacted to benefit and
protect taxpayers from investigation after a reasonable
period of time.55 (Emphasis supplied; citations omitted)
In the case of Commissioner of Internal Revenue v. Lancaster
Philippines, Inc.,56 this Court categorically ruled that the Revised Rules of
the CTA clearly allowed it to rule on issues not stipulated by the parties to
achieve an orderly disposition of the case, thus:
On whether the CTA can resolve an issue which was not
raised by the parties, we rule in the affirmative.
Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or
the Revised Rules of the Court of Tax Appeals, the CTA is
not bound by the issues specifically raised by the parties
but may also rule upon related issues necessary to achieve
an orderly disposition of the case. The text of the provision
reads:
SECTION 1. Rendition of judgment. – x x
xx
In deciding the case, the Court may not
limit itself to the issues stipulated by the
parties but may also rule upon related issues
necessary to achieve an orderly disposition
of the case.1âшphi1
The above section is clearly worded. On the basis
thereof, the CTA Division was, therefore, well within its
authority to consider in its decision the question on the
scope of authority of the revenue officers who were named
in the LOA even though the parties had not raised the same
in their pleadings or memoranda. The CTA En Banc was
likewise correct in sustaining the CTA Division's view
concerning such matter.57 (Citations omitted)
In view of the foregoing, the CTA correctly ruled on the issue of
prescription even if it was only raised for the first time on appeal.
As regards the validity of the FAN and the Formal Letter of Demand for
taxable year 2001, this Court also agrees with the ruling of the CTA that
the same were not valid because they failed to indicate a definite due date
for payment.
In Commissioner of Internal Revenue v. Fitness By Design, Inc.,58 this
Court held that a Final Assessment Notice is not valid if it does not contain
a definite due date for payment by the taxpayer, thus:
Second, there are no due dates in the Final
Assessment Notice. This negates petitioner's demand
for payment. Petitioner's contention that April 15,
2004 should be regarded as the actual due date
cannot be accepted. The last paragraph of the Final
Assessment Notice states that the due dates for
payment were supposedly reflected in the attached
assessment:
In view thereof, you are requested to
pay your
aforesaid
deficiency
internal
revenue tax liabilities through the duly
authorized agent bank in which you are
enrolled within the time shown in the
enclosed assessment notice.
However, based on the findings of the Court of Tax
Appeals First Division, the enclosed assessment pertained
to remained unaccomplished.
Contrary to petitioner's view, April 15, 2004 was the
reckoning date of accrual of penalties and surcharges and
not the due date for payment of tax liabilities. The total
amount depended upon when respondent decides to pay.
The notice, therefore, did not contain a definite and actual
demand to pay.59 (Emphasis supplied; citations omitted)
Similarly, in this case, as pointed out by the CTA,60 the last paragraph
of each of the assessments stated the following:
In view thereof, you are requested to pay your
aforesaid deficiency income tax liability/penalties through
the duly authorized agent bank in which you are enrolled
within the time shown in the enclosed assessment
notice.61
However, the due date in each of the FAN was left blank. Clearly, the
FAN did not contain a definite due date and actual demand to pay.
Accordingly, the FAN and the Formal Letter of Demand for taxable year
2001 are not valid assessments.
In sum, the CTA did not err in cancelling the FAN and the Formal
Letters of Demand, all dated July 19, 2004. They are all invalid
assessments because the period of petitioner to issue the same for taxable
year 2000 has already prescribed, and the assessments for taxable year
2001 did not contain a definite due date for payment by respondent.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
assailed Decision of the Court of Tax Appeals En Banc dated May 12, 2014
in CTA EB No. 972 is AFFIRMED. Accordingly, the following are
hereby CANCELLED and WITHDRAWN:
1. Final Assessment Notice and Formal Letter of Demand for deficiency
income tax for Calendar Year ended December 31, 2000 in the total
amount of P37,099,915.29 inclusive of surcharge, interest and
compromise penalties;
2. Final Assessment Notice and Formal Letter of Demand for deficiency
income tax for Calendar Year ended December 31, 2001 in the total
amount of P82,365,799.90 inclusive of surcharge, interest and
compromise penalties; and
3. Final Assessment Notice and Formal Letter of Demand for penalties
assessment for Calendar Year ended December 31, 2001 in the total
amount of P4,670,630.18 inclusive of surcharge, interest and compromise
penalties.
SO ORDERED.
Gesmundo, C.J., (Chairperson), Caguioa, Lazaro-Javier, and M. Lopez, JJ.,
concur.
[ G.R. No. 211348. February 23, 2022 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
PHILIPPINE BANK OF COMMUNICATIONS, RESPONDENT.
DECISION
HERNANDO, J.:
This petition for review on certiorari1 challenges the October 7, 2013
Decision2 of the Court of Tax Appeals (CTA) en banc in CTA EB Case No.
933, and its February 10, 2014 Resolution,3 ordering petitioner
Commissioner of Internal Revenue (CIR) to issue a tax credit certificate
(TCC) in the amount of P4,624,554.63, to respondent Philippine Bank of
Communications (PBCOM), representing the latter's unutilized creditable
withholding tax (CWT) for taxable year 2006.
The facts of the case, as reiterated in the CTA en banc Decision and based
on the parties' stipulation of facts, are as follows:
On April 16, 2007, PBCOM filed with the Bureau of Internal Revenue (BIR)
its Annual Income Tax Return for the year 2006.4 Subsequently, on May
2, 2007, PBCOM filed an Amended Annual Income Tax Return for the
same year, reflecting a net loss of P903,582,307.00, and a creditable tax
withheld for the fourth quarter of 2006 in the amount of
P24,716,655.00.5 PBCOM also indicated in the said income tax return its
intention to apply for the issuance of a TCC for its excess/unutilized CWT
for the year 2006 in the amount of P24,716,655.00.6
After almost two years, on April 3, 2009, PBCOM filed with the BIR its
letter7 requesting the issuance of a TCC for the excess CWT covering the
year 2006 in the amount of P24,716,655.00.8
On April 15, 2009, PBCOM filed a petition for review with the CTA, praying
for the issuance of a TCC in the amount of P24,716,655.00, representing
its excess/unutilized CWT for the year 2006.9 PBCOM also alleged that it
was filing the said petition with the CTA due to the inaction of the CIR on
the former's claim for a TCC.10
In its answer,11 the CIR essentially argued that PBCOM's claim for the
issuance of a TCC is in the nature of a refund and is thus subject to
administrative examination by the BIR, and that PBCOM failed to fully
comply with the requirements provided in Revenue Regulations 6-86 and
jurisprudence.12
Ruling of the Court of Tax Appeals – Third Division:
After trial, the CTA, through its Third Division, partially granted PBCOM's
petition in its Decision dated June 6, 2012,13 ordering the CIR to issue a
TCC in the amount of P4,624,554.63, representing the excess/unutilized
CWT of PBCOM for the taxable year 2006. The dispositive portion of the
CTA Third Division reads:14
WHEREFORE,
the
instant
Petition
for
Review
is
hereby
PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO
ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of FOUR
MILLION SIX HUNDRED TWENTY-FOUR THOUSAND FIVE HUNDRED FIFTYFOUR AND 63/100 PESOS (P4,624,554.63), representing petitioners
unutilized creditable withholding tax for taxable year 2006.
SO ORDERED.15
The CTA Third Division ruled that PBCOM timely filed the claim for refund
within the two-year prescriptive period, but the other requirements were
only satisfied as to the amount of P4,624,554.63, to wit:16
Based on the above findings and the Court's ruling on strict compliance
with the required Certificates of Creditable Tax Withheld at Source or BIR
Form No. 2307 in claiming for CWT refund, petitioner was able to satisfy
the second requirement in the amount of P7,738,179.01, as presented
below:
xxxx
However, out of the amount of P7,738,179.01, which was supported with
BIR Form No. 2307, only the amount of P4,624,554.63 CWT shall be
granted considering that this is the amount which corresponds to the
income payments in the aggregate amount of P100,231,922.69; which the
Court verified to have been included in petitioner's General Ledger and
Annual Income Tax Return for taxable year 2006, in compliance with the
third requisite, to wit:17
Aside from ruling on the above issues, the CTA Third Division also held
that the claimed CWT in the amount of P24,716,655.00 for the year 2006
was not carried over to the succeeding quarters or taxable year.18
Dissatisfied, both parties filed their respective partial motions for
reconsideration, reiterating their claims and arguments, but were
promptly denied by the CTA Third Division in its Resolution dated August
28, 2012.19
On October 1, 2012, the CIR filed a petition for review with the CTA en
banc, challenging the CTA Third Division's Decision and praying that
judgment be rendered denying PBCOM's claim in its entirety.20
Ruling of the Court of Tax Appeals en banc:
On October 7, 2013, the CTA en banc rendered the assailed
Decision,21 denying the CIR's petition for lack of merit and affirming the
CTA Third Division's Decision and Resolution in toto. The dispositive
portion of the CTA en banc Decision reads:22
WHEREFORE, the instant Petition for Review is hereby DENIED for lack
of merit. The Assailed Decision dated June 6, 2012 and Assailed
Resolution dated August 28, 2012 are both AFFIRMED in toto.
SO ORDERED.23
Aggrieved, the CIR sought, for reconsideration, but it was denied by the
CTA en banc for lack of merit in a Resolution dated February 10, 2014.24
Hence, the instant petition.
Issue:
Whether or not PBCOM's failure to submit the required documents under
Revenue Memorandum Order No. 53-98 (RMQ No. 53-98), and Revenue
Regulation No. 2-2006 (RR No. 2-2006), to support its claim for the
issuance of a TCC with the CIR, rendered its administrative claim for said
benefit pro forma, and thus, the judicial claim with the CTA was
premature.
Our Ruling
We deny the CIR's petition for lack of merit.
It must be stressed at the outset that in petitions for review on certiorari,
as in this case, this Court addresses only questions of law. This Court's
function is not to analyze or weigh the evidence (which tasks belong to
the trial court as the trier of facts and to the appellate court as the
reviewer of facts). This Court is confined to the review of errors of law that
may have been committed in the judgment under review.
Fortune
Tobacco
Corporation
v.
Commissioner
of
Internal
Revenue elucidates this rule in relation to tax refunds as follows:25
Unlike in the proceeding had in G.R. Nos. 167274-75 and G.R. No.
180006, the denial of petitioner's claim for tax refund in this case is based
on the ground that petitioner failed to provide sufficient evidence to prove
its claim and the amount thereof. As a result, petitioner seeks that the
Court re-examine the probative value of its evidence and determine
whether it should be refunded the amount of excise taxes it allegedly
overpaid.1a⍵⍴ h!1
This cannot be done.
The settled rule is that only questions of law may be raised in a petition
under Rule 45 of the Rules of Court. It is not this Court's function to
analyze or weigh all over again the evidence already considered in the
proceedings below, the Court's jurisdiction being limited to reviewing only
errors of law that may have been committed by the lower court. The
resolution of factual issues is the function of the lower courts, whose
findings on these matters are received with respect. A question of law
which the Court may pass upon must not involve an examination of the
probative value of the evidence presented by the litigants. This is in
accordance with Section 1, Rule 45 of the Rules of Court, as amended,
which reads:
Section 1. Filing of petition with Supreme Court. – A party desiring to
appeal by certiorari from a judgment, final order or resolution of the Court
of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional
Trial Court or other courts, whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition
may include an application for a writ of preliminary injunction or other
provisional remedies and shall raise only questions of law, which must be
distinctly set forth. The petitioner may seek the same provisional remedies
by verified motion filed in the same action or proceeding at any time
during its pendency.26 (Underscoring in the original; citation omitted)
In the instant petition, mixed questions of fact and law were raised. It is a
question of fact insofar as the extent of PBCOM's compliance with the
applicable tax regulations as regards its application for the issuance of a
TCC. The question of law then reveals itself, i.e., whether PBCOM's
noncompliance with the requirements of the administrative claim for a
TCC would render its judicial claim premature.
Given that the latter issue is a procedural one it is but proper to discuss it
prior to the former, a mere question of fact that should need no further
discussion.
The failure in proving an administrative claim for a CWT
refund/credit does not preclude the judicial claim of the same.
We agree with the CTA en banc's ruling that the failure of PBCOM to
comply with the requirements of its administrative claim for CWT
refund/credit does not preclude its judicial claim.
In the case of Commisioner of Internal Revenue v. Manila Mining
Corporation,27 this Court held that cases before the CTA are litigated de
novo where party litigants should prove every minute aspect of their
cases, to wit:
Under Section 8 of Republic Act No. 1125 (RA 1125), the CTA is described
as a court of record. As cases filed before it are litigated de novo, party
litigants should prove every minute aspect of their cases. No evidentiary
value can be given the purchase invoices or receipts submitted to the BIR
as the rules on documentary evidence require that these documents must
be formally offered before the CTA. (Underscoring supplied)
As applied in the instant case, since the claim for tax refund/credit was
litigated anew before the CTA, the latter's decision should be solely based
on the evidence formally presented before it, notwithstanding any pieces
of evidence that may have been submitted (or not submitted) to the CIR.
Thus, what is vital in the determination of a judicial claim for a tax
credit/refund of CWT is the evidence presented before the CTA, regardless
of the body of evidence found in the administrative claim.
In Commissioner of Internal Revenue v. Univation Motor Philippines, Inc.
(Formerly Nissan Motor Philippines, Inc.),28 this Court has explained that
the CTA is not limited by the evidence presented in the administrative
claim, to wit:
The law creating the CTA specifically provides that proceedings before it
shall not be governed strictly by the technical rules of evidence. The
paramount consideration remains the ascertainment of truth. Thus, the
CTA is not limited by the evidence presented in the administrative claim in
the Bureau of Internal Revenue. The claimant may present new and
additional evidence to the CTA to support its case for tax refund.
Cases filed in the CTA are litigated de novo as such, respondent "should
prove every minute aspect of its case by presenting, formally offering and
submitting x x x to the Court of Tax Appeals all evidence x x x required for
the successful prosecution of its administrative claim.' Consequently, the
CTA may give credence to all evidence presented by respondent, including
those that may not have been submitted to the CIR as the case is being
essentially decided in the first instance.29 (Citations omitted)
In any event, the independence of the judicial claim for a tax credit/refund
CWT from its administrative counterpart is implied in the National Internal
Revenue Code (NIRC), which allows the filing of both claims
contemporaneously within the two-year prescriptive period. Sections
204(C) and 229 of the NIRC provide:
SEC. 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. –
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps
when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, [t]hat a
return filed showing an overpayment shall be considered as a written
claim for credit or refund.
xxxx
SEC. 229. Recovery of Tax Erroneously or Illegally Collected.- no suit or
proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration
of two (2) years from the date of payment of the tax or penalty regardless
of
any
supervening
cause
that
may
arise
after
payment: Provided, however, [t]hat the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to
have been erroneously paid. (Underscoring supplied)
The above provisions require both administrative and judicial claims to be
filed within the same two-year prescriptive period. With reference to
Section 229 of the NIRC, the only requirement for a judicial claim of tax
credit/refund to be maintained is that a claim of refund or credit has been
filed before the CIR; there is no mention in the law that the claim before
the CIR should be acted upon first before a judicial claim may be filed.
Clearly, the legislative intent is to treat the judicial claim as independent
and separate action from the administrative claim; provided that the latter
must be filed in order for the former to be maintained. While the CIR
should be given opportunity to act on PBCOM's claim, PBCOM should not
be faulted for lawfully filing a judicial claim before the expiration of the
two-year prescriptive period, notwithstanding the alleged defects in its
administrative claim. This is considering that, unlike administrative claims
for Input Tax refund/credit before the CIR, which have a required specific
period of action (the expiration of which shall be deemed as a
denial),30 there is no such period of action required in administrative
claims for CWT refund/credit before the CIR.
Indeed, the CIR's arguments regarding the prematurity of the judicial
claims are untenable.
Now that the procedural issue has been ironed out, the more important
substantive issue, i.e., as to what extent did PBCOM comply with the legal
requirements in its claim for tax credit certificate for CWT, can be
discussed.
PBCOM is entitled to a tax credit/refund of its CWT in the amount of
P4,624,554.63.
The requisites for claiming a tax credit or a refund of CWT are as
follows:
1) The claim must be filed with the CIR within the two (2)-year period
from the date of payment of the tax;
2) It must be shown on the return that the income received was declared
as part of the gross income; and
3) The fact of withholding must be established by a copy of a statement
duly issued by the payor to the payee showing the amount paid and the
amount of the tax withheld.31
In applying the foregoing to the instant case, this Court must reiterate the
settled rule that only questions of law may be raised in a petition under
Rule 45 of the Rules of Court. It is not this Court's function to analyze or
Weigh all over again the evidence already considered in the proceedings
below, the Court's jurisdiction being limited to reviewing only errors of law
that may have been committed by the lower court.32
This rule is especially relevant to the instant case as the findings of
specialized courts, such as the CTA, are given not only great respect but
even finality in certain instances, because these specialized courts have
accordingly developed an expertise on the subject. As explained
in Fortune Tobacco Corporation v. Commissioner of Internal Revenue:33
In fact, the rule finds greater significance with respect to the findings of
specialized courts such as the CTA, the conclusions of which are not lightly
set aside because of the very nature of its functions which is dedicated
exclusively to the resolution of tax problems and has accordingly
developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority.
Moreover, it has been said that the proper interpretation of the provisions
on tax refund that does not call for an examination of the probative value
of the evidence presented by the parties-litigants is a question of law.
Conversely, it may be said that if the appeal essentially calls for the reexamination of the probative value of the evidence presented by the
appellant, the same raises a question of fact. Often repeated is the
distinction that there is a question of law in a given case when doubt or
difference arises as to what the law is on a certain state of facts; there is
a question of fact when doubt or difference arises as to the truth or
falsehood of alleged facts.1âшphi1
Verily, the sufficiency of a claimant's evidence and the determination of
the amount of refund, as called for in this case, are questions of fact,
which are for the judicious determination by the CTA of the evidence on
record.34 (Underscoring supplied; citations omitted)
After careful evaluation of the evidence on record, this Court finds no
reversible error committed by the CTA en banc in its findings.
PBCOM filed the present claim within the two (2)-year prescriptive
period, satisfying the first requirement.
As mentioned above, Sections 204(C) and 229 of the NIRC provide for a
two (2)-year prescriptive period in claiming a tax credit/refund from the
date of the filing of the final adjustment return.35 Commissioner of
Internal Revenue v. Univation Motor Philippines, Inc. (Formerly Nissan
Motor Philippines, Inc.) elucidates:36
Indeed, the two-year period in filing a claim for tax refund is crucial. While
the law provides that the two-year period is counted from the date of
payment of the tax, jurisprudence, however, clarified that the two-year
prescriptive period to claim a refund actually commences to run, at the
earliest, on the date of the filing of the adjusted final tax return because
this is where the figures of the gross receipts and deductions have been
audited and adjusted, reflective of the results of the operations of a
business enterprise. Thus, it is only when the Adjustment Return covering
the whole year is filed that the taxpayer would know whether a tax is still
due or a refund can be claimed based on the adjusted and audited
figures.37 (Citations omitted)
As applied in this case, PBCOM's claim covers its Annual Income Tax
Return for taxable year 2006, which it filed on April 16, 2007.38 Thus,
when PBCOM filed its administrative claim on April 3, 2009, and its judicial
claim before the CTA on April 15, 2009, both of these were within the twoyear prescriptive period.39 Clearly, the first requirement has been
satisfied.
PBCOM complied with the last two requirements as to the amount
of P4,624,554.63 which is the amount both verified by the CTA to
have been included in the former's General Ledger and Annual
Income Tax Return for taxable year 2006, and supported by the
required Certificates of Creditable Tax Withheld at Source (BIR
Form No. 2307).
Upon perusal of the records, the findings of the CTA would reveal that
PBCOM presented the required BIR Forms as to the amount of
P7,738,179.01,40 as seen below:
Findings
Supporting Reference Amount
of
BIR
Creditable
Returns
Withholding Tax
A. Lease of office space - PBCOM Tower
1.
Creditable 2307
withholding tax
payments
supported
by original BIR
Annex
P5,155,697.64
A2-1,
Exhibit F20
Form 2307
2.
Creditable 2307
withholding tax
payments
supported
by original BIR
Form
2307
with erasure in
the amount but
with
countersignature
Annex
1,378.13
A2-3,
Exhibit F20
B. Interest Income on commercial loans
1.
Creditable 2307
withholding tax
payments
supported
by original BIR
Form 2307
Annex
1,551,051.26
A3-1,
Exhibit F20
Annex
A2-1,
Exhibit L
432,560.44
2.
Creditable 2307
withholding tax
payments
supported
by photocopies
of BIR Form
2307
Annex
A2-5,
Exhibit L
77,305.11
3.
Creditable 2307
withholding tax
payments
supported
by photocopies
of BIR Form
2307 only.
Based on 12,733.49
Annex
A3-8.
Exhibit F20
in
relation to
Annex
A2-1
to
A2-6,
Exhibit L
C. Lease of office space - Real and Other Properties
Owned/Acquired (ROPOA)
1.
Creditable 2307
withholding tax
payments
supported
by original BIR
Form 2307
Annex
A3-1,
Exhibit L
53,857.24
2.
Creditable 2307
withholding tax
payments
supported
by photocopies
of BIR Form
2307
Based on 183,773.28
Annex
A3-2,
Exhibit L
3.
Creditable [2307]
withholding tax
payments
supported
by photocopies
of BIR Form
2307 only.
Based on 269,822.86
Annex
A4-2,
Exhibit F20
in
relation to
Annex
A3-1,
Exhibit L
Rounding-off
difference
(0.44)
TOTAL
P7,738,179.01
However, as discussed earlier, in determining the CWT amount to be
credited, the same must not only be supported by the required BIR Forms
but it must also correspond with the income included in the tax return of
the claimant, upon which the taxes were withheld.
Thus, as appropriately found by the CTA, PBCOM is only entitled to
P4,624,554.63 out of the P7,733,179.01 worth of CWT supported by the
required BIR Forms, as the former is the amount that corresponds to the
income payments in the aggregate amount of P100,231,922.69, which the
CTA verified to have been included in PBCOM's General Ledger and Annual
Income Tax Return for taxable year 2006.41
To put it simply, the amount of P4,624,554.63 is the only amount of CWT
claimed by PBCOM that complied with all the requirements under the law.
Therefore, given the above findings, this Court is constrained to deny the
instant petition, and affirm the Decision and Resolution of the CTA en
banc.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
assailed October 7, 2013 Decision and February 10, 2014 Resolution of
the Court of Tax Appeals en banc in CTA EB Case No. 933,
are AFFIRMED.
SO ORDERED.
[ G.R. No. 230104. March 16, 2022 ]
BUREAU OF INTERNAL REVENUE, PETITIONER, VS. SAMUEL B.
CAGANG, RESPONDENT.
DECISION
HERNANDO, J.:
This Petition for Review on Certiorari[1] seeks the reversal of the June 27,
2016 Decision[2] and the February 6, 2017 Resolution [3] of the Court of
Appeals (CA) in CA-G.R. SP No. 132453, which annulled and set aside the
August 13, 2013 Resolution[4] of the Department of Justice (DOJ) in NPS
No. XVI-INV-09H-00602. The said DOJ Resolution found probable cause
and recommended the filing of a criminal information against herein
respondent Samuel B. Cagang (Cagang) and Romulo M. Paredes (Paredes)
as treasurer and president, respectively, of CEDCO, Inc. (CEDCO) for their
alleged violation of Section 255 of the National Internal Revenue Code
(NIRC).[5]
The
Facts:
On March 4, 2003, CEDCO received from the BIR a letter of authority
(LOA) dated February 20, 2003, purportedly authorizing certain persons
named therein to examine CEDCO's books of accounts and other
accounting records.[6] Based on the letter, the examination was supposed
to
cover
taxable
years
1997
to
2001.[7]
On April 14, 2003, CEDCO sought the cancellation of the LOA. In a letter
of even date, CEDCO pointed out that its records had been examined
yearly by the BIR. It also emphasized that it had availed of the Voluntary
Assessment and Abatement Program for taxable years 2000 and 2001,
and that it had already paid all deficiency taxes against it. Further, CEDCO
informed the BIR that its records from 1997 to 2000 were no longer
available for examination, as it had already disposed of the same pursuant
to Section 235 of the NIRC.[8] However, the BIR denied CEDCO's request.
Thus, CEDCO had to submit all of its available records to the BIR.[9]
On May 24, 2005, CEDCO received a Preliminary Assessment Notice (PAN)
dated May 3, 2005. CEDCO was assessed the following taxes for taxable
years 2000 and 2001: (a) income tax; (b) Value-Added Tax (VAT); (c)
expanded withholding tax; and (d) withholding tax on compensation.[10]
CEDCO protested the said assessment through its letters dated June 5,
2005 and August 17, 2005.[11] Despite such protests, the BIR still issued a
Formal Letter of Demand (FLD) dated December 9, 2005,[12] with attached
details of the discrepancies and assessment notices of even
date,[13] demanding payment by CEDCO of the supposed deficiency taxes
in the amount of P126,564,315.98 covering taxable years 2000 and
2001.[14] In a letter dated February 8, 2006,[15] CEDCO, through Cagang,
as Director for Administration & Finance, appealed or protested the
FLD/Final Assessment Notice (FAN).[16] Nonetheless, BIR issued a Final
Decision on Disputed Assessment (FDDA) dated September 28, 2007,
which denied CEDCO's protest, to wit:
Referring to your letter dated February 8, 2006[,] please be informed that
your protest against our deficiency taxes for the taxable years 2000 and
2001 involving the amounts of P105,020,061.50 and P21,544,254.48,
respectively, the subject matter of our covering letter of demand dated
November 10, 2005, is hereby denied for lack of factual and legal basis.
There were no additional documents presented to us that would dispute
the
issues
raised
against
you.
x
x
x
x
The records of this case showed that you have not substantially introduced
any evidenced (sic) to overthrow the validity of our said findings, thus
your protest was considered void and without force and effect.[17]
Based on the FDDA, CEDCO had the following tax liabilities:
2000
2001
Income Tax
75,284,998.00
15,245,561.59
Expanded Withholding Tax
503,356.34
136,096.91
Value-Added Tax (VAT)
29,231,707.16
6,013,703.82
Withholding Tax Compensation
148,892.16[18]
Subsequently, on November 28, 2007, CEDCO availed of the tax amnesty
under Republic Act No. (RA) 9480.[19] The amnesty granted by the law
covered "all national internal revenue taxes for the taxable year 2005 and
prior years, with or without assessments duly issued therefor, and that
have remained unpaid as of December 31, 2005 x x x."[20] On the same
date, CEDCO filed its tax amnesty payment form. CEDCO then paid the
amnesty
tax
the
following
day.[21]
In a collection letter dated June 24, 2008, the BIR directed CEDCO to pay
its tax liabilities based on the FDDA.[22] For CEDCO's failure to settle its tax
obligations, a complaint-affidavit dated August 14, 2009 was filed against
Cagang and Paredes for violation of Section 255 of the NIRC.[23] In the
said complaint-affidavit, Cagang and Paredes, in their official capacities as
CEDCO's treasurer and president, respectively, were charged with the
alleged willful failure to pay CEDCO's deficiency taxes for taxable years
2000
and
2001.[24]
Ruling
Justice
Service
of
the
–
Department
National
of
Prosecution
(NPS).
After due hearing and the submission of the required pleadings by the
parties, the DOJ-NPS Task Force on Revenue Cases, through its
Resolution[25] dated March 12, 2010, resolved to dismiss the complaint
against Cagang and Paredes for lack of probable cause. It ruled that the
filing of the complaint before the Prosecutor's Office or with the Office of
the Chief State Prosecutor for purposes of preliminary investigation is not
the one contemplated in RA 9480 as "pending criminal cases for tax
evasion and other criminal cases" which has the effect of disqualifying a
person or entity from availing of the immunity under the law. Essentially,
the DOJ-NPS made a distinction between: (1) those cases for tax evasion
where an Information had already been filed in court; and (2) those which
are merely pending before the prosecutor's office.[26] The dispositive
portion of the Resolution states:
WHEREFORE, premises considered, it is respectfully recommended that
the instant complaint be DISMISSED for lack of probable cause.[27]
The BIR then filed a motion for reconsideration but the DOJ-NPS denied
the same for lack of merit through its Resolution dated January 5,
2011.[28]
Ruling
Justice:
of
the
Secretary
of
Undaunted, the BIR filed before the Secretary of Justice a petition for
review[29] dated March 30, 2011, challenging the ruling of the DOJ-NPS.
The petition was denied in a Resolution [30] dated February 27, 2012.
According to Undersecretary Francisco F. Baraan III, the issues raised
therein were "mere duplications of the issues raised in the motion for
reconsideration which have already been discussed in the assailed
resolution."[31] The BIR moved for another reconsideration,[32] which was
granted in a Resolution[33] dated August 13, 2013 by then Secretary of
Justice
Leila
M.
De
Lima.
The
August
13,
2013
Resolution
explained
that,
"the
questioned
interpretation that the term 'pending criminal cases' referred to in the
implementing rules means only those already filed in court cannot prevail
with what is expressly set forth in the said implementing rule as those
'filed in Court or in the Department of Justice.' Hence, the dismissal of the
complaint was premised on an unfounded interpretation of the
implementing
rule
in
question."[34]
Consequently, the Secretary of Justice found probable cause for the filing
of an information against Cagang and Paredes for violation of Section 255
of the NIRC. The fallo of the Resolution reads:
WHEREFORE, the assailed resolutions are hereby REVERSED AND SET
ASIDE. Accordingly, the investigating prosecutor concerned is
hereby DIRECTED to file the corresponding Information/s against the
respondents for violation of Section 255 of the NIRC before the proper
court of jurisdiction and to report the action taken hereon within ten (10)
days
from
receipt
hereof.
SO ORDERED.[35]
Aggrieved, Cagang filed a petition for certiorari with prayer for temporary
restraining order and/or writ of preliminary injunction [36] dated October
24, 2013 before the CA, raising the following grounds:
The Department of Justice acted with grave abuse of discretion amounting
to lack or excess of jurisdiction in reversing its Resolution Dated February
27,
2012.
I. The Department of Justice ignored essential facts on record showing
that Petitioner cannot be prosecuted for alleged willful refusal to pay
CEDCO Inc.'s taxes, as follows:
A. CEDCO Inc. had availed of the tax amnesty under R.A. No. 9480 and is
therefore
not
required
to
pay
tax.
B. CEDCO Inc. is qualified to immunity from criminal penalties under the
NIRC arising from the failure to pay taxes. BIR's complaint dated August
14, 2009 was not yet existing when R.A. No. 9480 took effect.
C. Petitioner was not a corporate officer or employee who was responsible
for the payment of CEDCO Inc.'s tax obligations.
II. The Resolution dated February 27, 2012 was already final and
executory when BIR filed its Motion for Reconsideration dated March 23,
2012.[37]
Meanwhile, Informations were filed against Cagang and Paredes before
the Court of Tax Appeals (CTA) on February 11, 2014. They were accused
of alleged willful refusal to pay income tax and VAT for taxable years 2000
and 2001, in violation of Section 255 in relation to Sections 253 (d) and
256 of the NIRC, as amended. The cases, entitled "People of the
Philippines v. Romulo M. Paredes and Samuel B. Cagang," were docketed
as Criminal Cases Nos. 0-350 to 0-353. The Informations were later
amended
to
include
CEDCO
as
one
of
the
accused.[38]
Subsequently, on September 17, 2014, Informations were also filed
against Cagang and Paredes before the Regional Trial Court of Cebu City.
This time, they were accused of alleged willful refusal to pay expanded
withholding tax for taxable years 2000 and 2001 and withholding tax on
compensation for taxable year 2001 of CEDCO, in violation of Section 255
in relation to Sections 253(d) and 256 of the NIRC, as amended. The
cases, entitled, "People of the Philippines v. Romulo M. Parades and
Samuel B. Cagang," were docketed as Criminal Cases Nos. CBU-105579 to
105581.[39]
Ruling
of
the
Court
of
Appeals:
In a Decision[40] dated June 27, 2016, the CA granted Cagang's petition. It
held that the Secretary of Justice acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it found probable cause
to charge Cagang with the violation of Section 255 of the NIRC.[41] The CA
found that CEDCO was qualified to avail of the tax amnesty under RA
9480 and that Cagang cannot be held liable.[42] The dispositive portion of
the Decision reads:
WHEREFORE, the petition is GRANTED. The Resolution dated August 13,
2013 of the Department of Justice in NPS No. XVI-INV-09H-00602 is
hereby ANNULLED and SET ASIDE. Accordingly, its Resolution dated
February 27, 2012 which sustained the Resolution dated March 12, 2010
of the Task Force on Revenue Cases DISMISSING the complaint against
petitioner
Samuel
B.
Cagang
is
hereby REINSTATED.
[43]
SO ORDERED.
The DOJ and BIR then filed their motion for reconsideration [44] dated July
25, 2016, but the same was denied by the CA through its Resolution dated
February
6,
2017
for
lack
of
merit.[45]
Hence, the present petition, where the BIR, through the Office of the
Solicitor General (OSG), posits that: (1) CEDCO is disqualified from
availing of the tax amnesty provision of RA 9480 due to its existing
withholding tax liabilities; and (2) there is probable cause to charge
Cagang with violation of Section 255 of the NIRC, as amended, insofar as
he failed to cause the payment of the withholding taxes due the
government.[46]
Issues
The issues to be determined in the present case are whether: (1) CEDCO
is entitled to avail of the tax amnesty under RA 9480; and (2) there is
probable cause to charge Cagang with the violation of Section 255 of the
NIRC.
Our Ruling
The
petition
is
meritorious.
Tax amnesty refers to the "absolute waiver by a sovereign of its right to
collect taxes and power to impose penalties on persons or entities guilty of
violating a tax law. Tax amnesty aims to grant a general reprieve to tax
evaders who wish to come clean by giving them an opportunity to
straighten out their records."[47] Simply put, it partakes of an absolute
relinquishment by the government of its right to collect what is due it and
to give tax evaders who wish to relent a chance to start with a clean
slate.[48]
In 2007, Congress enacted RA 9480, which granted a tax amnesty
covering "all national internal revenue taxes for the taxable year 2005 and
prior years, with or without assessments duly issued therefor, that have
remained unpaid as of December 31, 2005."[49] These national internal
revenue taxes include (a) income tax; (b) VAT; (c) estate tax; (d) excise
tax; (e) donor's tax; (f) documentary stamp tax; (g) capital gains tax;
and (h) other percentage taxes.[50] Pursuant to Section 6 of RA 9480,
those who availed themselves of the benefits of the law became "immune
from the payment of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the National
Internal Revenue Code of 1997, as amended, arising from the failure to
pay any and all internal revenue taxes for taxable year 2005 and prior
years."[51]
However, RA 9480 is not without exceptions. Section 8 of the said law
enumerates those persons and cases that are not covered by the law, viz.:
Section 8. Exceptions. — The tax amnesty provided in Section 5 hereof
shall not extend to the following persons or cases existing as of the
effectivity
of
RA
9480:
(a) Withholding agents with respect to their withholding tax
liabilities;
(b) Those with pending cases falling under the jurisdiction of the
Presidential
Commission
on
Good
Government;
(c) Those with pending cases involving unexplained or unlawfully acquired
wealth, revenue or income under the Anti-Graft and Corrupt Practices Act;
(d) Those with pending cases filed in court involving violation of the AntiMoney
Laundering
Law;
(e) Those with pending criminal cases for tax evasion and other
criminal offenses under Chapter II of Title X of the National
Internal Revenue Code of 1997, as amended, and the felonies of
frauds, illegal exactions and transactions, and malversation of
public funds and property under Chapters III and IV of Title VII of
the
Revised
Penal
Code;
and
(f) Tax cases subject of final and executory judgment by the courts.
Meanwhile, the Department of Finance's Department Order No. 29-07,
which provides for the Implementing Rules and Regulations of RA 9480,
states that:
Section 5. Exceptions. — The tax amnesty shall not extend to the
following persons or cases existing as of the effectivity of this Act:
(a) Withholding agents with respect to their withholding tax
liabilities;
(b) Those with pending cases falling under the jurisdiction of the
Presidential
Commission
on
Good
Government;
(c) Those with pending cases involving unexplained or unlawfully acquired
wealth or under the Anti-Graft and Corrupt Practices Act;
(d) Those with pending cases filed in court involving violation of the AntiMoney
Laundering
Law;
(e) Those with pending criminal cases filed in court or in the
Department of Justice for tax evasion and other criminal offenses
under Chapter II of Title X of the National Internal Revenue Code
of
1997,
as
amended;
(f) Tax cases subject of final and executory judgment by the courts.
From the foregoing, it is crystal clear that withholding taxes are not
covered by the amnesty program. Thus, there is merit in the BIR's
submission that CEDCO is not qualified to avail of the tax amnesty with
respect to its withholding tax liabilities. The Court does not agree with the
CA's findings that "CEDCO was assessed by the BIR, not as a withholding
agent that failed to withhold and/or remit some of its tax liabilities but as
one that was directly liable for the tax and failed to pay the same on
time"[52] and "CEDCO's tax deficiencies involve indirect taxes such as VAT
and other excise taxes, not withholding taxes."[53] A perusal of the records
reveals that as early as September 28, 2007, CEDCO had been assessed
by the BIR for its failure to withhold taxes and to remit the same to the
government, as shown by the FDDA:
TAXABLE YEAR 2000
2.
EXPANDED
WITHHOLDING
TAX
–
(P503,356.34)
Verification disclosed that you have failed to comply with Section 57 of the
NIRC, as amended which require the withholding of a tax on the items of
income
payable
to natural
or
juridical
persons
by
payorcorporation/persons.
Section 57 – "Withholding of Creditable Tax at Source" – The Secretary of
Finance may, upon the recommendation of the Commissioner, require the
withholding of a tax on the items of income (underscore ours) payable to
natural juridical persons, residing in the Philippines, by payorcorporations/persons
as
provided
by
law......
You have admitted to the fact that payment of all monthly billings were
paid by the government agency to CEDCO account, which is alleged a
Project Office account, net of corresponding withholding taxes. This is so
because the government agency has to comply with Sec.57(B) of the
NIRC. Payments of DPWH constitutes a taxable income on the part of the
recipients, the members of the consortium.[54]
TAXABLE YEAR 2001
2.
EXPANDED
WITHHOLDING
TAX
–
(P136,096.91)
Verification disclosed that you have failed to comply with Section 57 of the
NIRC, as amended which require the withholding of a tax on the items of
income
payable
to natural
or
juridical
persons
by
payorcorporation/persons.
x
4.
x
WITHHOLDING
TAX
x
ON
COMPENSATION
x
–
(P
148,892.16)
Verification disclosed that you have failed to comply with Section 79 of the
NIRC, as amended which require every employer making payment of
wages to deduct and withhold the tax as prescribed by law. Investigation
disclosed that salaries & wages claimed per F/S amounting to P640,638.00
were not subjected to withholding tax.[55]
As such, while the CA was correct in ruling that "there was no pending
case yet against CEDCO whether before the courts of justice or at the
prosecutor's office"[56] considering that the complaint-affidavit was filed on
August 14, 2009, and the 2007 Tax Amnesty Law took effect on May 24,
2007 which CEDCO availed of on November 28, 2007,[57] CEDCO is
nevertheless disqualified to avail of the tax amnesty for its withholding tax
liabilities in accordance with Section 8(a) of RA 9480 and Section 5(a) of
its
IRR.
A tax amnesty, much like a tax exemption, is never favored or presumed
in law. The grant of a tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority.[58] Here, the Court finds that the tax amnesty under RA 9480
does not extend to CEDCO with respect to its existing withholding tax
liabilities,
as
explicitly
provided
in
the
said
law.
However, with respect to the deficiency taxes pertaining to CEDCO's
income tax and VAT for taxable years for 2000 and 2001, the Court finds
that CEDCO is entitled or qualified to avail of the tax amnesty considering
that it had submitted the necessary documents and complied with the
requirements under RA 9480,[59] which the BIR does not dispute.
Moreover, the Court is not unmindful of the CTA's Resolution dated
February 11, 2014 in Criminal Cases Nos. 0-350 to 0-353 where the tax
court granted Cagang and Paredes' demurrer to evidence and dismissed,
for insufficiency of the prosecution's evidence, the charges against them
for willful refusal to pay income tax and VAT for taxable years 2000 and
2001.[60] The said CTA Resolution became final and executory and was
entered in the CTA's Book of Judgments on February 4, 2016. [61]
Hence, CEDCO's outstanding deficiency taxes for income tax and VAT for
taxable years 2000 and 2001 are deemed fully settled pursuant to its
availment
of
the
tax
amnesty
program
under
RA
9480.
Anent the second issue as to whether there is probable cause to charge
Cagang for the violation of Section 255 of the NIRC, the Court rules in the
affirmative. Section 255 states:
SEC. 255. Failure to File Return, Supply Correct and Accurate Information,
Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on
Compensation. – Any person required under this Code or by rules and
regulations promulgated thereunder to pay any tax, make a return, keep
any record, or supply correct and accurate information, who willfully fails
to pay such tax, make such return, keep such record, or supply such
correct and accurate information, or withhold or remit taxes withheld, or
refund excess taxes withheld on compensation at the time or times
required by law or rules and regulations shall, in addition to other
penalties provided by law, upon conviction thereof, be punished by a fine
of not less than Ten thousand pesos (P10,000.00) and suffer
imprisonment of not less than one (1) year but not more than ten (10)
years.
In relation to this, Section 253(d) enumerates who can be found
responsible or criminally liable for violations of the NIRC, to wit:
SEC.
253.
General
Provisions.
x
x
x
x
(d) In the case of associations, partnerships or corporations, the penalty
shall be imposed on the partner, president, general manager, branch
manager, treasurer, officer-in-charge, and the employees responsible for
the violation.
In the present case, Cagang was charged with the alleged willful failure to
pay CEDCO's deficiency taxes for taxable years 2000 and 2001 under
Section 255 of the NIRC as the purported treasurer of CEDCO. However,
Cagang contends that he cannot be held liable because he was never
appointed as the company's treasurer. He claimed he held the positions of
Corporate Secretary and Director of Finance, which are not included under
the enumeration of corporate officers under Section 253 (d) of the NIRC.
The
Court
is
not
convinced.
A review of the records would reveal that evidence exists that Cagang was
appointed by CEDCO's Board of Directors as "the New Corporate
Secretary/Treasurer effective April 1, 1999" per Board Resolution No.
73.[62] Moreover, a certification dated June 26, 2000 shows that a certain
Glory M. Dela Cruz became treasurer of CEDCO.[63] Further, the General
Information Sheet filed with the Securities and Exchange Commission for
the fiscal year 2003 also shows that Cagang was the treasurer for
CEDCO.[64]
Based on the foregoing facts, the Court is inclined to agree with BIR that
there exists probable cause to charge Cagang with violation of Section 255
of the NIRC as he was, albeit for short period, the treasurer for CEDCO, to
wit:
The foregoing evidence shows that respondent Cagang was the treasurer
of CEDCO Inc. in April 1999, and that this was only interrupted on June
26, 2000 when Glory Dela Cruz was appointed Treasurer. Under this
circumstance, respondent has practically admitted the fact that he was
still the Treasurer from January to June 25, 2000. Bearing in mind the
above-quoted provisions of the NLRC on withholding tax, it is clear that
respondent had the obligation to pay such tax obligation of CEDCO, Inc.
for the first quarter of 2000 within twenty-five (25) days from the close of
[the] calendar quarter.[65]
Probable cause has been defined as the existence of such facts and
circumstances as would excite the belief in a reasonable mind, acting on
the facts within the knowledge of the prosecutor, that the person charged
was guilty of the crime for which he was prosecuted. The term does not
mean "actual or positive cause" nor does it import absolute certainty. It is
merely based on opinion and reasonable belief. Thus, a finding of probable
cause does not require an inquiry into whether there is sufficient evidence
to procure a conviction. It is enough that it is believed that the act or
omission complained of constitutes the offense charged. Precisely, there
is a trial for the reception of evidence of the prosecution in support
of
the
charge.[66]
WHEREFORE, premises considered, the petition is GRANTED. The June
27, 2016 Decision and the February 6, 2017 Resolution of the Court of
Appeals in CA-G.R. SP No. 132453 are ANNULLED AND SET ASIDE.
SO ORDERED.
[ G.R. No. 204226. April 18, 2022 ]
BUREAU OF INTERNAL REVENUE, PETITIONER, VS. TICO
INSURANCE COMPANY, INC., GLOWIDE ENTERPRISES, INC., AND
PACIFIC
MILLS,
INC.,
RESPONDENTS.
DECISION
HERNANDO, J.:
This resolves a Petition for Review on Certiorari[1] filed by petitioner
Bureau of Internal Revenue (BIR) assailing the December 16, 2011
Decision[2] and October 22, 2012 Resolution[3] of the Court of Appeals (CA)
in CA-G.R. CV. No. 91856. The CA reversed and set aside the March 25,
2008 Decision[4] of Regional Trial Court of Makati, Branch 147 (RTC
Makati), thereby ruling that the claim of Glowide Enterprises, Inc.
(Glowide) and Pacific Mills, Inc. (PMI), over the subject condominium
units,
is
superior
to
the
BIR's
claim.
The
Antecedent
Facts:
Respondent TICO Insurance Company, Inc. (TICO) is an insurance
company duly organized and existing under Philippine laws. It is engaged
in the sale of life insurance until it was placed under liquidation by the
Insurance Commission in 2002. Respondents Glowide and PMI are clients
of TICO that took out a fire insurance policy over several properties in
1997.[5]
On August 7, 2006, respondent TICO filed a Complaint [6] for interpleader
with the RTC Makati to determine who between respondents Glowide and
PMI, on one hand, and petitioner BIR on the other, has a superior right
over Units 7A and 7B of the Trafalgar Plaza Condominium covered by
Condominium Certificates of Title (CCT) Nos. 39452 and 39453 and
registered under TICO's name. TICO alleged that Glowide and PMI had
attached the condominium units to cover their claim for the balance of
their insurance proceeds after they had obtained a judgment in their
favor, while the BIR issued a warrant of distraint and/or levy on the real
and personal properties of TICO, and a notice of tax lien covering the
condominium units, to answer for TICO's tax liabilities. The case was
docketed as Special Civil Action No. 06-667 and heard by the RTC
Makati.[7]
Glowide
and
PMI's
Claims:
While Glowide and PMI's fire insurance policy with TICO over certain
properties was in effect, a fire broke out that destroyed the said
properties.[8] Due to TICO's failure to pay the full amount of the insurance
proceeds despite demand, Glowide and PMI filed a Complaint for sum of
money and damages, with prayer for a writ of preliminary attachment
against TICO before the RTC of Quezon City, Branch 98 (RTC QC),
docketed
as
Civil
Case
No.
Q-00-42328.[9]
The RTC QC, in its November 23, 2000 Order, granted Glowide and PMI's
application for the issuance of a writ of preliminary attachment to attach
all properties of TICO as would be sufficient to satisfy its principal claim.
On December 22, 2000, the corresponding notice of levy on attachment
was issued on TICO's condominium units covered by CCT Nos. 39452 and
39453.[10]
In its October 3, 2001 Judgment, the RTC QC ordered TICO to pay
Glowide and PMI the amount of P5,442,209.97 plus interest, attorney's
fees, and costs of suit.[11] On January 8, 2002, Glowide and PMI moved for
execution of the October 3, 2001 Judgment as a matter of right, averring
that TICO has received a copy of the October 3, 2001 Judgment, and has
not filed a motion for reconsideration or appeal from the said judgment.
The motion for execution of the said judgment was granted, the
corresponding writ of execution was issued on June 3, 2002, and the
notices of levy on execution were subsequently annotated on CCT Nos.
39452
and
39453
on
June
13,
2002.[12]
Meanwhile, on April 22, 2002, the Insurance Commission placed TICO
under liquidation, and appointed Atty. Rommel A. Frias as liquidator. TICO
moved to hold in abeyance the implementation of the writ of execution,
and filed a petition for relief from judgment and writ of execution. In its
September 3, 2003 Order, the RTC QC ruled that the petition for relief was
filed out of time. TICO moved for reconsideration claiming, among others,
that it has tax assessments from 1996-1998 which enjoy preference
above all other credits, and the enforcement of the writ of execution would
prejudice TICO's other creditors, and violate the laws on preference of
credits, which was denied by the RTC QC in its February 16, 2004
Order.[13] In so ruling, the RTC QC noted that Glowide and PMI's claims
are preferred over the BIR's claims since tax assessments are not
preferred credits in reference to specific immovable property.[14]
TICO assailed the September 3, 2003 and February 16, 2004 Orders of
the RTC QC via a Petition for Certiorari. In its August 23, 2007 Decision,
the CA in CA-G.R. SP No. 83365 dismissed TICO's petition, finding that the
RTC QC did not commit grave abuse of discretion when it issued the
assailed Orders. TICO no longer appealed the said CA Decision. [15]
In the meantime, the sheriff issued on March 17, 2004 a notice of sheriffs
sale covering the condominium units, and set the auction sale on April 14,
2004. The condominium units were sold to Glowide and PMI as the highest
bidders, and the corresponding certificate of sale was issued. The
certificate of sale was annotated on CCT Nos. 39452 and 39453 on April
15, 2004. After the lapse of the redemption period without any
redemption being made, the sheriff of RTC QC executed the corresponding
final deed of sale in favor of Glowide and PMI on April 15, 2005. [16]
Moreover, Glowide and PMI questioned the propriety of the interpleader
case. They contended that they had acquired all rights and interests of
TICO over the condominium units on June 3, 2002, at which date the
notices of levy on execution were annotated on the CCTs of the
condominium units, after the one-year period of redemption expired
without
TICO
having
redeemed
the
same.[17]
The
BIR's
Claims:
For its part, the BIR alleged that on January 31, 2000, it served on TICO
several final assessment notices for its alleged deficiency in internal
revenue taxes, namely income tax, annual registration fee, value-added
tax, percentage tax, withholding tax on wages, expanded withholding tax,
and documentary stamp tax, for the calendar years 1996 and 1997,
amounting to a total amount of P73,020,590.12. TICO protested the said
deficiency tax assessment on March 2, 2000, but the protest was denied
for lack of merit. However, in view of the protest, TICO's tax liabilities was
reduced
to
P69,479,440.59.[18]
The BIR averred that TICO's tax liabilities remained unpaid. Thus, it
resorted to the issuance and service to TICO, and the Register of Deeds of
Makati City, of a warrant of distraint and/or levy on the real and personal
properties of TICO, and a notice of tax lien covering CCT Nos. 39452 and
39453. On February 15, 2005, the BIR caused the annotation of the notice
of tax lien on CCT Nos. 39452 and 39453.[19] Moreover, the BIR posited
that it has a superior claim over the condominium units, considering its
claim for unpaid revenue taxes enjoys absolute preference under Articles
2241(1), 2242(1), and 2246-2249 of the New Civil Code, and a tax lien
over TICO's properties had already attached at the time the assessments
were
made.[20]
Ruling
of
the
RTC
Makati.
On March 25, 2008, RTC Makati rendered a Decision[21] holding that the
claim of BIR over the condominium units is superior to that of Glowide and
PMI. The relevant portion of the RTC Makati's March 25, 2008 Decision
provides:
What remains in issue is: to whom should the properties subject of this
action, be given in payment of plaintiff's obligation. In the resolution of
this issue the provisions of the Civil Code on concurrence and preference
of credits apply. Under Article 2242 of the Civil Code (with respect to
specific real property), Taxes are given preference with respect to claims
enumerated in Art. 2241 and 2242, only the claims for taxes are given
preference over the other enumerated claims. The latter shall have the
same preference and rank will accordingly be paid pro rata xxx. Except for
taxes, the credits listed in Art. 2242 when they concur with respect to
specific real properties, shall be satisfied pro rata x x x.
On the basis of and pursuant to the foregoing, defendant BIR has the
preferred claim to the subject properties. With respect to costs and
expenses recoverable in the action, plaintiff is deemed to have waived the
same when it failed to pursue the same and instead, filed a Manifestation
stating that plaintiffs purpose in filing his action is for the Court to
determine who as between the two defendants is entitled to the properties
subject hereof, hence, dispensing with the submission if the
M[e]morandum
agreed
upon.
SO ORDERED.[22] (Citations omitted)
Glowide and PMI filed a Motion for Reconsideration of the RTC's Decision,
which was denied in its July 19, 2008 Order.[23] Aggrieved, Glowide and
PMI
appealed
the
case
to
the
CA.[24]
Ruling
of
the
Court
of
Appeals:
In its December 16, 2011 Decision,[25] the CA ruled in favor of Glowide
and PMI. The dispositive portion states:
WHEREFORE, the assailed March 25, 2008 Decision and June 19, 2008
Order of the RTC of Makati City, Branch 145 in Special Civil Case No. 06667 are REVERSED and SET ASIDE. In lieu thereof, a new one is
rendered declaring the validity of auction sale of the Condominium Units
subject of the instant case, which retroacts to the date of the annotation
of the Notice of Levy on Attachment, and that GLOWIDE and PMI, as
against BIR, have superior right over the subject condominium units,
hence,
entitled
to
the
same.
SO ORDERED.[26]
The CA ruled that Glowide and PMI are entitled to the possession and
conveyance of the condominium units, since their rights over the
condominium units which revert to the date of the annotation of the levy
on attachment, i.e., December 22, 2000, are superior to the BIR's claim,
since the latter's notice of tax lien on CCT Nos. 39452 and 39453 was
annotated only on February 15, 2005.[27] The CA further opined that
TICO's resort to an action for interpleader is improper since Glowide and
PMI had already succeeded in securing a favorable final judgment against
TICO, and the institution of the complaint for interpleader gave occasion
for the RTC Makati and RTC QC to render conflicting rulings. [28]
The BIR belatedly filed its Motion for Reconsideration. In its October 22,
2012 Resolution,[29] the CA denied the BIR's Motion for Reconsideration for
lack
of
merit.
Hence, this petition.[30]
Issues
The main issues for resolution are:
1. Whether the BIR's petition should be dismissed on technical
grounds;
2. Whether TICO's complaint for interpleader is improper; and
3. Which between the BIR, on the one hand, and Glowide and PMI, on
the other, is entitled to ownership of the condominium units.
Our Ruling
The
Court
denies
the
petition.
The
BIR's
failure
to
timely
file
a
motion
for
reconsideration
of
the
CA's
December
16,
2011
Decision
rendered
the
same
final
and
immutable.
GLOWIDE and PMI assert that the BIR's failure to timely file a motion for
reconsideration rendered the CA's December 16, 2011 Decision final and
executory.[31] While the BIR admits that it filed its motion for
reconsideration with the CA one day after the expiration of the period for
filing such motion, it maintains that the issue has been settled by the CA
in its February 21, 2012 Resolution, which admitted the motion for
reconsideration in the interest of justice, and its October 22, 2012
Resolution which dismissed the motion for lack of merit.[32] Moreover, the
BIR maintains that the Court may still give due course to the instant
petition, and resolve the case according to its merits in the interest of
substantial
justice.[33]
We
agree
with
Glowide
and
PMI.
It is settled that the perfection of an appeal in the manner and within the
period prescribed by law is not only mandatory but jurisdictional. This
means that the failure to interpose a timely appeal deprives the appellate
body of any jurisdiction to alter the final judgment, more so to entertain
the appeal. Once a decision attains finality, it becomes the law of the case
irrespective of whether the decision is erroneous or not, and no court —
not even the Supreme Court — has the power to revise, review, change or
alter the same.[34] The right to appeal is not a part of due process of law,
but is a mere statutory privilege to be exercised only in the manner, and
in accordance with, the provisions of the law. After a decision is declared
final and executory, vested rights are acquired by the winning party. [35]
In the same vein, "a motion for reconsideration must necessarily be filed
within the period to appeal. When filed beyond such period, the motion for
reconsideration ipso facto forecloses the right to appeal."[36] "Under
Section 1, Rule 52 of the Rules of Court, a motion for reconsideration of a
judgment or final resolution should be filed within 15 days from notice. If
no appeal or motion for reconsideration is filed within this period, the
judgment or final resolution shall forthwith be entered by the clerk in the
book of entries of judgment, as provided under Section 10 of Rule 51. The
15-day reglementary period for filing a motion for reconsideration is nonextendible."[37]
Provisions of the Rules of Court prescribing the time within which certain
acts must be done, or certain proceedings taken, are absolutely
indispensable to the prevention of needless delays, and to the orderly and
speedy discharge of judicial business. While this Court has previously
allowed the liberal application of procedural rules, these are exceptions
that are sufficiently justified by meritorious and exceptional circumstances
attendant therein, which are notably not present in the instant petition.
Not every plea for relaxation of rules of procedure shall be granted by the
Court
for
it
will
render
such
rules
inutile.[38]
Significantly, the BIR failed to adduce any cogent or exceptional reason
that would warrant the liberal application of the rules. It merely invoked
the inadvertence of its counsel's Document Management Division in failing
to file its motion for reconsideration on time. However, a counsel's
tardiness in complying with reglementary periods for filing pleadings that
are attributed to the negligence of said counsel's secretary or clerk is not
a valid reason.[39] "It is the counsel's duty to adopt and to strictly maintain
a system that ensures that all pleadings should be filed and duly served
within the period; and if he fails to do so, the negligence of his secretary
or clerk to file such pleading is imputable to the said counsel." [40]
That the motion for reconsideration was filed only one day late is
immaterial; the Court has similarly refused to admit motions for
reconsideration
which
were
filed
late
without
sufficient
justification.[41] Indeed, "[j]ust as a losing party has the right to appeal
within the prescribed period, the winning party has the correlative right to
enjoy
the
finality
of
the
case."[42]
In fine, the BIR's failure to seasonably file its motion for reconsideration
rendered the December 16, 2011 Decision of the CA final and executory,
and beyond the courts' power to amend or revoke. Moreover, even if the
petition is not dismissed due to its procedural infirmity, a careful study of
the other issues clearly shows that the petition should be denied for lack
of
merit.
TICO's
improper
collateral
executed
Glowide
interpleader
since
it
attack
on
judgment
and
complaint
amounts
to
the
final
in
favor
is
a
and
of
PMI.
Glowide and PMI assert that TICO's complaint for interpleader is improper
since it collaterally attacks a final and executed judgment in favor of
Glowide and PMI.[43] The BIR counters that the suit for interpleader is
proper since it is only intended to determine which of TICO's creditors had
a better right to its condominium units, which are the only properties left
that TICO may dispose of to pay its outstanding debts to different
creditors, in contrast to the earlier case which only determined TICO's
liability
to
Glowide
and
PMI.[44]
The special civil action of interpleader is designed to protect a person
against double vexation in respect of a single liability. It requires, as an
indispensable requisite, that conflicting claims upon the same subject
matter are or may be made against the stakeholder (the possessor of the
subject matter) who claims no interest whatsoever in the subject matter
or an interest which in whole or in part is not disputed by the claimants.
Through this remedy, the stakeholder can join all competing claimants in a
single proceeding to determine conflicting claims without exposing the
stakeholder to the possibility of having to pay more than once on a single
liability. "In short, the remedy of interpleader, when proper, merely
provides an avenue for the conflicting claims on the same subject matter
to
be
threshed
out
in
an
action."[45]
However, a successful litigant who has secured a final judgment in its
favor cannot later be impleaded by its defeated adversary in an
interpleader suit, and compelled to prove its claim anew against other
adverse claimants, as that would in effect be a collateral attack upon the
judgment.[46] In other words, an action for interpleader may not be
utilized to circumvent the immutability of a final and executory judgment.
It is settled that when a decision has attained finality, it "may no longer be
modified in any respect, even if the modification is meant to correct
erroneous conclusions of fact and law."[47] The doctrine is grounded on the
public policy that at the risk of occasional errors, litigation should end at
some definite date fixed by law.[48] "This is a fundamental principle in our
justice system, without which there would be no end to litigations. Utmost
respect and adherence to this principle must always be maintained by
those who exercise the power of adjudication. Any act, which violates such
principle, must be immediately struck down."[49] While the rule admits of
exceptions,
none
obtains
in
this
case.[50]
Thus, in Wack Wack Golf & Country Club, Inc. v. Won,[51] we ruled that an
interpleader suit to determine the ownership of a membership fee
certificate is barred by laches since the party who initiated the suit filed
the same when it had already been held independently liable in a final and
executory suit by one of the claimants. The Court observed therein that
the suit for interpleader may not prosper since it is a collateral attack
upon a final judgment in favor of one of the claimants:
A stakeholder should use reasonable diligence to hale the contending
claimants to court. He need not await actual institution of independent
suits against him before filing a bill of interpleader. He should file an
action of interpleader within a reasonable time after a dispute has
arisen without waiting to be sued by either of the contending
claimants. Otherwise, he may be barred by laches or undue
delay. But where he acts with reasonable diligence in view of the
environmental
circumstances,
the
remedy
is
not
barred.
Has the Corporation in this case acted with diligence, in view of all the
circumstances, such that it may properly invoke the remedy of
interpleader? We do not think so. It was aware of the conflicting
claims of the appellees with respect to the membership fee
certificate 201 long before it filed the present interpleader suit. It
had been recognizing Tan as the lawful owner thereof. It was sued
by Lee who also claimed the same membership fee certificate. Yet
it did not interplead Tan. It preferred to proceed with the litigation
(civil case 26044) and to defend itself therein. As a matter of fact,
final judgment was rendered against it and said judgment has
already been executed. It is now therefore too late for it to invoke
the
remedy
of
interpleader.
It has been held that a stakeholder's action of interpleader is too late
when filed after judgment has been rendered against him in favor of one
of the contending claimants, especially where he had notice of the
conflicting claims prior to the rendition of the judgment and neglected the
opportunity to implead the adverse claimants in the suit where judgment
was entered. This must be so, because once judgment is obtained against
him by one claimant he becomes liable to the latter xxx.
x
x
x
x
Indeed, if a stakeholder defends a suit filed by one of the adverse
claimants and allows said suit to proceed to final judgment against
him, he cannot later on have that part of the litigation repeated in
an interpleader suit. In the case at hand, the Corporation allowed civil
case 26044 to proceed to final judgment. And it offered no satisfactory
explanation for its failure to implead Tan in the same litigation. In this
factual situation, it is clear that this interpleader suit cannot prosper
because
it
was
filed
much
too
late.
x
x
x
x
In fine, the instant interpleader suit cannot prosper because the
Corporation had already been made independently liable in civil
case 26044 and, therefore, its present application for interpleader
would in effect be a collateral attack upon the final judgment in
the said civil case; the appellee Lee had already established his
rights to membership fee certificate 201 in the aforesaid civil case
and, therefore, this interpleader suit would compel him to
establish his rights anew, and thereby increase instead of diminish
litigations, which is one of the purposes of an interpleader suit,
with the possibility that the benefits of the final judgment in the
said civil case might eventually be taken away from him; and
because the Corporation allowed itself to be sued to final
judgment in the said case, its action of interpleader was filed
inexcusably late, for which reason it is barred by laches or
unreasonable delay.[52] (Emphases supplied)
In light of the foregoing, the Court agrees with the findings of the CA that
the filing of the instant complaint is improper, since it is a belated attempt
on TICO's part to assail the final and executed judgment in favor of
Glowide and PMI. Aside from the October 3, 2001 Judgment in Civil Case
No. Q-00-42328, which ruled in favor of Glowide and PMI, the RTC QC in
its February 16, 2004 Order had previously ruled that Glowide and PMI's
credits enjoy preference over BIR's claim over the condominium units.
This was then affirmed by the CA in its August 23, 2007 Decision, which
became final and executory. Moreover, despite knowledge of its unpaid
tax liabilities with the BIR, TICO failed to implead the BIR in the
proceedings before the RTC QC, and initiated the complaint for
interpleader only after it was defeated in the said proceedings. As a result,
the interpleader suit has forced Glowide and PMI to defend their rights
anew over the condominium units, and has unduly deferred their right to a
satisfaction of their claims under a final court decision in their favor.
Verily, the RTC Makati should not have allowed TICO to disturb the final
and executed ruling in Glowide and PMI's favor through an interpleader
suit.
Moreover, it is settled that a court has no power to modify or interfere
with the judgment or order of another co-equal court, "as that action may
lead to confusion, and seriously hinder the administration of
justice."[53] Here, the improper filing of the subject complaint gave
occasion for RTC Makati – a coequal court — to render a conflicting ruling
against the RTC QC's February 16, 2004 Order, which already ruled that
Glowide and PMI's credits enjoy preference over the condominium
units vis-à-vis the claims of other creditors of TICO. True enough, RTC
Makati's decision in the subject complaint where it held that the BIR's
claim should be preferred over those of Glowide and PMI, is clearly
inconsistent
to
that
of
RTC
QC's
February
16,
2004
Order.
For the foregoing reasons, RTC Makati should have already dismissed
TICO's complaint for interpleader. Even assuming that TICO's filing of the
interpleader complaint is proper, a review of the applicable laws inevitably
shows that Glowide and PMI has superior rights over the condominium
units.
GLOWIDE
and
PMI's
rights
over
the
condominium
units
are
superior
to
the
BIR's
claim,
and
are
thus
entitled
to
possession
and
conveyance
of
the
condominium
units.
The BIR avers that its annotation of the notice of tax lien before the
Register of Deeds on February 15, 2005, retroacts to the date when the
BIR assessed TICO of tax liabilities, i.e., January 31, 2000, which is earlier
than the notice of levy annotated by GLOWIDE and PMI on December 22,
2000.[54] GLOWIDE and PMI maintain that they have valid and superior
rights to the condominium units, since BIR's tax lien was annotated on the
titles of the condominium units when the properties had already been
purchased by GLOWIDE and PMI in an auction sale. Moreover, since the
auction or execution sale retroacts to the date of levy of the lien on
attachment, GLOWIDE and PMI acquired all rights, title, and claim over
the condominium units on December 22, 2000, before the same was
burdened
with
any
registered
claim
of
the
BIR.[55]
On the other hand, TICO manifests that the condominium units are in the
possession of the Insurance Commission for its preservation. It reiterates
that TICO filed the action for interpleader since Glowide and PMI have
attached the properties while the BIR issued a warrant of distraint and
levy for TICO's aggregate tax liabilities, and leaves the resolution of the
case
to
the
sound
judgment
of
the
Court.[56]
We
rule
for
Glowide
and
PMI.
It is settled that execution is enforced by the fact of levy and sale. As a
result of such execution, title over the subject property vests immediately
in the purchaser, subject only to the right to redeem the property within
the period provided by law. While the right acquired by the purchaser at
an execution sale is inchoate, and does not become absolute until after
the expiration of the redemption period without the right of redemption
having been exercised, the purchaser's right is still entitled to protection,
and must be respected until extinguished by redemption. If there is a
failure to redeem the subject property within the period allowed by law,
the redemptioner is divested of its rights over the property.[57]
In the case at bench, the judgment in Civil Case No. Q-00-42328 in favor
of Glowide and PMI has already attained finality, and enforced through the
sale of the condominium units to Glowide and PMI. The corresponding
certificate of sale was issued, and also annotated on the certificates of title
of the condominium units in April 2004. As a result of the execution sale,
title to the condominium units vested immediately in Glowide and PMI,
subject only to TICO's right to repurchase.[58] When TICO failed to redeem
the property after the expiration of the redemption period, it was divested
of its rights over the condominium units, and the sheriff of RTC QC
executed the corresponding final deed of sale in favor of Glowide and PMI
on
April
15,
2005.
Moreover, "the prior registration of a lien creates a preference as the act
of registration is the operative act that conveys and affects the land, even
against subsequent judgment creditors."[59] An auction sale conducted
pursuant to an order of execution retroacts to the date of annotation of
the levy on attachment, and the purchaser in the auction sale has the
concomitant right to have a certificate of title issued in his favor on the
basis thereof as if it were annotated on the same date. Further, the
annotation of the levy on attachment, or on execution, creates a
preference that retroacts to the date of the levy.[60] Hence, even if a prior
unregistered sale is subsequently registered before the sale on execution
but after the levy is made, the validity of the execution sale should be
upheld because it retroacts to the date of levy. "The priority enjoyed by
the levy on attachment extends, with full force and effect, to the buyer at
the auction sale conducted by virtue of such levy."[61] When the
condominium units were sold on execution to Glowide and PMI in 2004,
the sale – and the rights acquired by Glowide and PMI when it purchased
the condominium units - retroacted to the date of inscription of their
notice
of
levy
on
December
22,
2000.
and PMI had already taken effective rights, control, and possession over
the
property
in
question.
On the other hand, the Tax Code[62] provides that a tax lien is enforceable
against all property and rights to property belonging to the taxpayer, and
retroacts to the time when the tax assessment was made. However, the
tax lien shall not be valid against any judgment creditor until notice of
such lien is filed with the Register of Deeds of the city, or province, where
the taxpayer's properties are located:
Section 219. Nature and Extent of Tax Lien. — If any person, corporation,
partnership, joint-account (cuentas en participation), association or
insurance company liable to pay an internal revenue tax, neglects or
refuses to pay the same after demand, the amount shall be a lien in
favor of the Government of the Philippines from the time when the
assessment was made by the Commissioner until paid, with interests,
penalties, and costs that may accrue in addition thereto upon all
property and rights to property belonging to the taxpayer:
Provided, That this lien shall not be valid against any mortgagee,
purchaser or judgment creditor until notice of such lien shall be
filed by the Commissioner in the office of the Register of Deeds of
the province or city where the property of the taxpayer is situated
or located. (Emphasis supplied)
The proviso in Section 219 of the Tax Code precludes any effect of the tax
lien against any judgment creditor prior to the annotation of the tax lien
on the title of the property concerned. In other words, it is only after the
notice of tax lien is annotated on the pertinent title that a judgment
creditor's rights can be affected and the tax lien may be considered to
retroact to the date of assessment. Guided by the foregoing, the BIR's tax
lien could only have been enforceable against Glowide and PMI when it
annotated its tax lien on February 15, 2005, which was already after the
annotation of their levy on attachment and sale of the condominium units
in Glowide and PMI's favor. At this point, Glowide and PMI already had
rights over the condominium units, subject only to TICO's right of
redemption. Moreover, considering GLOWIDE and PMI's rights over the
condominium units retroact to December 22, 2000, the condominium units
may no longer be considered TICO's property when the BIR annotated its
tax lien in 2005. Glowide and PMI could no longer be bound by the BIR's
tax lien, which only became valid against judgment creditors after Glowide
Notwithstanding the foregoing, the BIR maintains that it has a superior
right over the claim of Glowide and PMI, since the proceedings which gave
rise to the latter's claim, and alleged ownership over the condominium
units, are void. It avers that the liquidator of TICO was not furnished with
any notice commanding it to pay the judgment obtained by Glowide and
PMI in Civil Case No. Q-00-42328, in violation of Section 9, Rule 39 of the
Rules of Court, and was not aware of such claim prior to the levy of the
condominium units; thus, the levy of properties of TICO by Glowide and
PMI could not have produced a lien on the said properties.[63] However,
the question of whether or not the sheriff demanded payment of the
judgment credit from TICO or its liquidator, is a factual issue beyond the
purview of a Rule 45 petition.[64] The BIR also failed to adduce evidence to
prove this contention. In the absence of contrary evidence, what will
prevail is the presumption that the sheriff regularly performed his or her
official
duties.[65]
The BIR also maintains that the writ of execution varied the order that it
seeks to enforce since the writ was addressed to the sheriff, in contrast to
the May 15, 2002 Order of RTC QC which provides that "all monetary
claims against defendant should be coursed thru the "conservator[,]" and
"a writ of execution be issued against [TICO] thru Atty. Rommel A. Frias,
appointed Conservator." [66] This contention is misplaced. It is basic that a
sheriff or other proper officer to whom the writ was issued has the duty to
enforce the writ according to its terms.[67] Sheriffs play an important part
in the administration of justice, because they are tasked to execute the
final judgments of courts. "When a writ is placed in the hands of the
sheriff, it is his or her duty, in the absence of any instructions to the
contrary, to proceed with reasonable celerity and promptness to
implement
it
in
accordance
with
its
mandate."[68]
Here, the writ of execution was properly addressed to the sheriff who duly
implemented it by levying on the condominium units, and selling the
condominium units to Glowide and PMI. Moreover, TICO's conservator
may not be considered as an "other proper officer" who should carry out
the writ of execution. As observed by the CA, it would be highly irregular if
the writ of execution was addressed to the conservator, who was
appointed by the Insurance Commission, and who acted as TICO's
counsel-representative during the proceedings before RTC QC. He
certainly could not be expected to implement a final judgment of the RTC
QC, the validity of which was subsequently assailed by TICO, the party he
represents, before the CA. In truth, the RTC QC's May 15, 2002 Order
merely intended that the sheriff, in implementing the writ of execution,
should notify or deal solely with TICO's conservator, and not any other
officers of TICO. Thus, contrary to the BIR's assertion, the writ of
execution conformed to the RTC QC's May 15, 2002 Order in Civil Case
No.
Q-00-42328.
Even assuming arguendo that the proceedings were valid, the BIR
maintains that its claim is still preferred over Glowide and PMI's claim,
since it enjoys absolute preference over any other claims pursuant to
Articles 2241, 2242 (1), and 2246 to 2249, of the Civil Code, which
provide that tax claims have preference over any other claim of any other
creditor in respect of any, and all properties, of the insolvent.[69] This
contention
has
no
merit.
Under the system of concurrence and preference of credits, which finds
application in insolvency proceedings, "credits are classified into three
general categories: (a) special preferred credits listed in Articles
2241[70] and 2242,[71] (b) ordinary preferred credits listed in Article 2244,
and (c) common credits under Article 2245. The special preferred credits
enumerated in Articles 2241 (with respect to movable property) and 2242
(with respect to immovable property) are considered as mortgages or
pledges of real or personal property, or liens within the purview of Act No.
1956.[72] These credits, which enjoy preference with respect to a specific
movable or immovable property, exclude all others to the extent of the
value of the property. x x x x Credits which are specially preferred
because they constitute liens (tax or non-tax) in turn take precedence
over ordinary preferred credits so far as [they concern] the property to
which the liens have attached. The specially preferred credits must be
discharged first out of the proceeds of the property to which they relate,
before ordinary preferred creditors may lay claim to any part of such
proceeds. In contrast with Articles 2241 and 2242, Article 2244 creates no
liens on determinate property which follow such property. What Article
2244 creates are simply rights in favor of certain creditors to have the
cash and other assets of the insolvent applied in a certain sequence or
order
of
priority."[73]
Guided by the foregoing, the Court finds no reason to depart from the
CA's findings that Glowide and PMI's claim is preferred over the BIR's.
TICO's tax claim is only an ordinary preferred credit under Article 2244
since it is not based on taxes due on the condominium units but on TICO's
deficiency in payment of its income tax, annual registration fees, valueadded tax, percentage tax, withholding tax on wages, expanded
withholding tax, and documentary stamp tax. On the other hand, Glowide
and PMI's claim is a special preferred credit under Article 2242 (7) of the
Civil Code, and thus superior to BIR's tax claim which is only an ordinary
preferred credit. Indeed, "[d]uties, taxes, and fees due the Government
enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property,
under Article 2242(1) of the same Code. However, with reference to the
other real and personal property of the debtor, sometimes referred to as
"free property," the taxes and assessments due the National Government,
other than those in Articles 2241(1) and 2242(1) of the Civil Code, will
come only in ninth place in the order of preference."[74]
All told, the Court finds no cogent reason to reverse the CA's Decision.
More than two decades have passed since Glowide and PMI sought legal
recourse to recover their claim from TICO, which was unduly and grossly
delayed by TICO's interpleader complaint. It is about time to write finis to
the
present
dispute.
WHEREFORE, the petition for review is DENIED. The December 16, 2011
Decision and the October 22, 2012 Resolution of the Court of Appeals in
CA-G.R.
CV.
No.
91856
are
hereby AFFIRMED.
SO ORDERED.
(GR NO. 222548 separate sheet)
G.R. No. 242670, May 10, 2021
COMMISSIONER
OF
INTERNAL
REVENUE,
Petitioner,
v.
MCDONALD'S PHILIPPINES REALTY CORP., Respondent.
DECISION
LOPEZ, J.:
The practice of reassigning or transferring revenue officers originally
named in the Letter of Authority (LOA) and substituting or replacing them
with new revenue officers to continue the audit or investigation without a
separate or amended LOA (i) violates the taxpayer's right to due process
in tax audit or investigation; (ii) usurps the statutory power of the
Commissioner of Internal Revenue (CIR) or his duly authorized
representative to grant the power to examine the books of account of a
taxpayer; and (iii) does not comply with existing Bureau of Internal
Revenue (BIR) rules and regulations on the requirement of an LOA in the
grant of authority by the CIR or his duly authorized representative to
examine
the
taxpayer's
books
of
accounts.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
seeks to set aside the Decision2 dated January 4, 2018, and the
Resolution3 dated September 27, 2018 of the Court of Tax Appeals
(CTA) En Banc in CTA EB No. 1535, which affirmed the CTA Division's
Decision dated June 1, 2016 and the Resolution dated October 3,2016 in
CTA Case No. 8655, invalidating the P16,229,506.83 assessment of
deficiency value-added tax (VAT) for calendar year (C.Y.) 2006 against the
respondent.
The Facts
The CIR (petitioner), is the duly appointed Commissioner of the BIR, with
the authority to carry out the functions, duties and responsibilities of the
said office under the National Internal Revenue Code of 1997 (NIRC), as
amended, including the power to decide disputed assessments.4 The
petitioner holds office at the BIR National Office Building, Agham Road,
Diliman,
Quezon
City.5
McDonald's Philippines Realty Corporation (respondent), is a corporation
organized and existing under the laws of Delaware, USA, and is licensed to
do business in the Philippines through its branch office, with office address
at 17th Floor, Citibank Center Building, Paseo de Roxas, Salcedo Village,
Makati
City.6
Respondent established its branch office in the Philippines for the purpose
of purchasing and leasing back two existing McDonald's Restaurants to
Golden Arches Development Corporation, and to engage in the
development of new McDonald's restaurant sites, which would then be
leased
to
McGeorge
Foods,
Inc.7
On August 31, 2007, the BIR Large Taxpayers Service issued LOA No.
00006717 (August 31, 2007 LOA) to the following revenue officers:
Eulema Demadura (Demadura), Lover Loveres, Josa Gomez, and Emalyn
dela Cruz.8 The LOA authorized the said revenue officers to examine the
books of accounts and other accounting records of the respondent for all
internal revenue taxes for January 1, 2006 to December 31, 2006. 9
On December 2, 2008, the BIR transferred the assignment of Demadura
and, pursuant to Referral Memorandum No. 122-LOA-1208-00039,
directed and designated Rona Marcellano (Marcellano) to continue the
audit
of
the
respondent's
books
of
accounts.10
No new LOA was issued in the name of Marcellano to continue the conduct
of audit of the respondent's books of accounts. Moreover, the August 31,
2007 LOA was not amended or modified to include the name of
Marcellano. The referral memorandum states that Marcellano will continue
the pending audit of Demadura pursuant to the August 31, 2007 LOA. 11
On January 25, 2011, the petitioner issued a Formal Letter of Demand
(FLD) dated January 11, 2011 to the respondent. The FLD demands
payment of deficiency income tax and VAT liabilities for C.Y. 2006 in the
aggregate
amount
of
P17,486,224.38,
inclusive
of
interest.12
On February 23, 2011, the respondent filed a protest letter with the
petitioner, requesting the cancellation and withdrawal of the deficiency
income
tax
and
VAT
assessments
for
C.Y.
2006.13
On April 18, 2013, the petitioner issued the Final Decision on Disputed
Assessment (FDDA).14 The FDDA (i) granted the respondent's request for
cancellation of deficiency income tax assessments for C.Y. 2006, and (ii)
reiterated the petitioner's demand for payment of the respondent's
deficiency VAT for C.Y. 2006 in the total amount of P16,229,506.83. 15
On May 20, 2013, the respondent filed a petition for review with the CTA
Division.16 The CTA Division declared the C.Y. 2006 assessment void on
the ground that Marcellano was not authorized by way of an LOA to
investigate the books of accounts of the respondent.17 The petitioner filed
a motion for reconsideration with the CTA Division.18 The CTA Division
denied
the
motion.19
On November 7, 2016, the petitioner filed a petition for review with the
CTA En Banc.20 The CTA En Banc denied the petition for lack of merit.
Ruling of the CTA En Banc
The CTA En Banc ruled: (i) that the revenue officer who conducted the
audit of the respondent's books of accounts acted without authority; 21 (ii)
that the absence of an LOA issued in the name of the substitute or
replacement revenue officer violated the respondent's right to due
process;22 and (iii) that the respondent is not estopped from questioning
the
revenue
officer's
lack
of
authority.23
The dispositive portion of the CTA En Banc Decision dated January 4, 2018
states:chanroblesvirtualawlibrary
WHEREFORE, premises considered, the instant Petition for Review is
hereby DENIED for lack of merit. Accordingly, the Decision dated June 1,
2016 and the Resolution dated October 3, 2016 of the Court in Division,
are
hereby AFFIRMED and UPHELD.
SO ORDERED.24 (Emphasis in the original)
The petitioner filed a motion for reconsideration, which was denied by the
CTA En Banc.25
The Issue
Whether a separate or amended LOA must be issued in the name of a
substitute or replacement revenue officer in case of reassignment or
transfer of a revenue officer originally named in a previously issued LOA.
Petitioner's Arguments
The petitioner claims that once an LOA had issued, the revenue officer
originally named in the LOA may be substituted or replaced by another
revenue officer in case the original revenue officer is reassigned or
transferred to another case, without the need to amend the said LOA or to
issue a separate and new LOA in the name of the substitute or
replacement
revenue
officer.26
To support this claim, the petitioner argues: (i) that the LOA is not in fact
issued to the revenue officer, but to the taxpayer, and thus "any" revenue
officer may act under the validly issued LOA during the period of audit or
investigation;27 (ii) that Revenue Memorandum Order (RMO) No. 43-90
dated September 20, 1990, entitled "Amendment of Revenue
Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for
Examination of Returns and Issuance of Letters of Authority to Audit",
which requires the issuance of a new and separate LOA in case of
reassignment or transfer of cases of revenue officers, is no longer in
effect, considering that it was issued prior to the National Internal
Revenue Code;28 (iii) that assuming RMO No. 43-90 dated September 20,
1990 is still in effect, nothing in the said issuance provides that the effect
of a lack of LOA results in the nullity of the assessment; 29 (iv)
that Commissioner
of
Internal
Revenue
v.
Sony
Philippines,
Inc.30 and Medicard Philippines, Inc. v. Commissioner of Internal
Revenue,31 where We held that an LOA must authorize a revenue officer to
examine taxpayer's books of accounts, which are not squarely applicable
to this case;32 (v) that there is no requirement that a revenue officer
should be identified in the LOA itself;33 (vi) that the LOA at the time
Marcellano conducted the audit was not yet ineffective for lack of
revalidation;34 and (vii) that the BIR's General Audit Procedures and
Documentation, which provides the standard operating procedures in
examining books of accounts of taxpayers, is not applicable.35
Respondent's Arguments
The respondent claims that in case the original revenue officer is
reassigned or transferred to another case, the substitute or replacement
revenue officer must hold a new or amended LOA issued in his/her name
in order to prove the grant of authority to examine the books of accounts
of
the
taxpayer
and
to
assess
the
correct
tax.36
To support this claim, the respondent argues: (i) that Section 13 of the
NIRC provides that a revenue officer may only examine taxpayers
pursuant to an LOA, and this requirement demands that the LOA must
identify the revenue officer duly authorized to conduct the
examination;37 (ii) that RMO No. 43-90 dated September 20, 1990 was
not invalidated by the promulgation of the NIRC, since the provisions of
this issuance are not inconsistent with the NIRC;38 (iii) that the revenue
officer's lack of authority to examine a taxpayer's books of accounts
constitutes a violation of the taxpayer's right to due process which,
consequently, invalidates the resulting assessment;39 (iv) that the referral
memorandum issued in favor of Marcellano is not a valid substitute for the
LOA required to be issued under Section 13 of the NIRC; 40 and (v) that
the cases of Commissioner of Internal Revenue v. Sony Philippines,
Inc.41 and Medicard Philippines, Inc. v. Commissioner of Internal
Revenue42 are applicable to this case.43
The Court's Ruling
This practice of reassigning or transferring revenue officers, who are the
original authorized officers named in the LOA, and subsequently
substituting or replacing them with new revenue officers who do not have
a new or amended LOA issued in their name, has been the subject of
several CTA decisions, including Ithiel Corporation v. CIR,45Strawberry
Foods Corporation v. CIR,46Sugar Crafts, Inc. v. CIR,47CIR v. Marketing
Convergence, Inc.,48Exclusive Networks-PH Inc. v. CIR,49 and the decision
in
the
court a
quo.50
The
An LOA is the authority given to the appropriate revenue officer assigned
to perform assessment functions.51 It empowers and enables said revenue
officer to examine the books of accounts and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax.52 The
issuance of an LOA is premised on the fact that the examination of a
taxpayer who has already filed his tax returns is a power that statutorily
belongs only to the CIR himself or his duly authorized representatives.53
petition
is
denied
for
lack
of
merit.
This case is an occasion for the Court to rule on a disturbing trend of tax
audits or investigations conducted by revenue officers who are not
specifically named or authorized in the LOA, under the pretext that the
original revenue officer authorized to conduct the audit or investigation
has been reassigned or transferred to another case or place of
assignment, or has retired, resigned or otherwise removed from handling
the
audit
or
investigation.
This practice typically occurs as follows: (i) a valid LOA is issued to an
authorized revenue officer; (ii) the revenue officer named in the LOA is
reassigned or transferred to another office, case or place of assignment,
or retires, resigns, or is otherwise removed from handling the case
covered by the LOA; (iii) the revenue district officer or a subordinate
official issues a memorandum of assignment, referral memorandum, or
such equivalent document to a new revenue officer for the continuation of
the audit or investigation; and (iv) the new revenue officer continues the
audit or investigation, supposedly under the authority of the previously
issued
LOA.44
The Court hereby puts an end to this practice.
I. The Reassignment or Transfer of a Revenue Officer
Requires the Issuance of a New or Amended LOA for the
Substitute or Replacement Revenue Officer to Continue
the Audit or Investigation
Section 6 of the NIRC provides:chanroblesvirtualawlibrary
SECTION 6. Power of the Commissioner to Make Assessments and
Prescribe Additional Requirements for Tax Administration and
Enforcement.
(A) Examination of Return and Determination of Tax Due. - After a return
has been filed as required under the provisions of this Code,
the Commissioner or his
duly
authorized
representative may
authorize the examination of any taxpayer and the assessment of the
correct amount of tax[.] (Emphasis supplied)
Section 10(c) of the NIRC provides:chanroblesvirtualawlibrary
SECTION 10. Revenue Regional Director. - Under rules and regulations,
policies and standards formulated by the Commissioner, with the approval
of the Secretary of Finance, the Revenue Regional Director shall, within
the region and district offices under his jurisdiction, among others:
authority, in the form of a LOA, before any revenue officer can conduct an
examination or assessment.56 The revenue officer so authorized must not
go beyond the authority given.57 In the absence of such an authority, the
assessment or examination is a nullity.58
x
A. Due Process Requires Identification of Revenue
Officers Authorized to Continue the Tax Audit or
Investigation
x
x
(c) Issue Letters of Authority for the examination of taxpayers within
the region[.] (Emphasis supplied)
Section 13 of the NIRC provides:chanroblesvirtualawlibrary
SECTION 13. Authority of a Revenue Officer. - Subject to the rules and
regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned to
perform assessment functions in any district may, pursuant to a Letter of
Authority issued by the Revenue Regional Director, examine
taxpayers within the jurisdiction of the district in order to collect the
correct amount of tax, or to recommend the assessment of any deficiency
tax due in the same manner that the said acts could have been performed
by the Revenue Regional Director himself. (Emphasis supplied)
Section D(4) of RMO No. 43-90 dated September 20, 1990
provides:chanroblesvirtualawlibrary
For the proper monitoring and coordination of the issuance of Letter of
Authority, the only BIR officials authorized to issue and sign Letters of
Authority are the Regional Directors, the Deputy Commissioners and
the Commissioner.
For
the
exigencies
of
the
service, other
officials may be authorized to issue and sign Letters of Authority but only
upon prior authorization by the Commissioner himself. (Emphasis
supplied)
Pursuant to the above provisions, only the CIR and his duly authorized
representatives may issue the LOA. The authorized representatives include
the Deputy Commissioners, the Revenue Regional Directors, and such
other
officials
as
may
be
authorized
by
the
CIR.
Unless authorized by the CIR himself or by his duly authorized
representative,
an
examination
of
the
taxpayer
cannot
be
undertaken.54 Unless undertaken by the CIR himself or his duly authorized
representatives, other tax agents may not validly conduct any of these
kinds of examinations without prior authority.55 There must be a grant of
The issuance of an LOA prior to examination and assessment is a
requirement of due process. It is not a mere formality or technicality.
In Medicard Philippines, Inc. v. Commissioner of Internal Revenue, We
have ruled that the issuance of a Letter Notice to a taxpayer was not
sufficient if no corresponding LOA was issued.59 In that case, We have
stated that "[d]ue process demands x x x that after [a Letter Notice] has
serve its purpose, the revenue officer should have properly secured an
LOA before proceeding with the further examination and assessment of
the petitioner. Unfortunately, this was not done in this case."60 The result
of the absence of a LOA is the nullity of the examination and assessment
based on the violation of the taxpayer's right to due process. 61
To comply with due process in the audit or investigation by the BIR, the
taxpayer needs to be informed that the revenue officer knocking at his or
her door has the proper authority to examine his books of accounts. The
only way for the taxpayer to verify the existence of that authority is when,
upon reading the LOA, there is a link between the said LOA and the
revenue officer who will conduct the examination and assessment; and the
only way to make that link is by looking at the names of the revenue
officers who are authorized in the said LOA. If any revenue officer other
than those named in the LOA conducted the examination and assessment,
taxpayers would be in a situation where they cannot verify the existence
of the authority of the revenue officer to conduct the examination and
assessment. Due process requires that taxpayers must have the right to
know that the revenue officers are duly authorized to conduct the
examination and assessment, and this requires that the LOAs must
contain the names of the authorized revenue officers. In other words,
identifying the authorized revenue officers in the LOA is a jurisdictional
requirement of a valid audit or investigation by the BIR, and therefore of a
valid
assessment.
We do not agree with the petitioner's statement that the LOA is not issued
to the revenue officer and that the same is rather issued to the
taxpayer.62 The petitioner uses this argument to claim that once the LOA
is issued to the taxpayer, "any" revenue officer may then act under such
validly
issued
LOA.63
The LOA is the concrete manifestation of the grant of authority bestowed
by the CIR or his authorized representatives to the revenue officers,
pursuant to Sections 6, 10(c) and 13 of the NIRC. Naturally, this grant of
authority is issued or bestowed upon an agent of the BIR, i.e., a revenue
officer. Hence, petitioner is mistaken to characterize the LOA as a
document "issued" to the taxpayer, and that once so issued, "any"
revenue officer may then act pursuant to such authority.
B. The Use of Memorandum of Assignment, Referral
Memorandum, or Such Equivalent Document, Directing the
Continuation of Audit or Investigation by an Unauthorized
Revenue Officer Usurps the Functions of the LOA
It is true that the service of a copy of a memorandum of assignment,
referral memorandum, or such other equivalent internal BIR document
may notify the taxpayer of the fact of reassignment and transfer of cases
of revenue officers. However, notice of the fact of reassignment and
transfer of cases is one thing; proof of the existence of authority to
conduct an examination and assessment is another thing. The
memorandum of assignment, referral memorandum, or any equivalent
document is not a proof of the existence of authority of the substitute or
replacement revenue officer. The memorandum of assignment, referral
memorandum, or any equivalent document is not issued by the CIR or his
duly authorized representative for the purpose of vesting upon the
revenue officer authority to examine a taxpayer's books of accounts. It is
issued by the revenue district officer or other subordinate official for the
purpose of reassignment and transfer of cases of revenue officers.
The petitioner wants the Court to believe that once an LOA has been
issued in the names of certain revenue officers, a subordinate official of
the BIR can then, through a mere memorandum of assignment, referral
memorandum, or such equivalent document, rotate the work assignments
of revenue officers who may then act under the general authority of a
validly issued LOA. But an LOA is not a general authority to any revenue
officer. It is a special authority granted to a particular revenue officer.
The practice of reassigning or transferring revenue officers, who are the
original authorized officers named in the LOA, and subsequently
substituting them with new revenue officers who do not have a separate
LOA issued in their name, is in effect a usurpation of the statutory power
of the CIR or his duly authorized representative. The memorandum of
assignment, referral memorandum, or such other equivalent internal
document of the BIR directing the reassignment or transfer of revenue
officers, is typically signed by the revenue district officer or other
subordinate official, and not signed or issued by the CIR or his duly
authorized representative under Sections 6, 10(c) and 13 of the NIRC.
Hence, the issuance of such memorandum of assignment, and its
subsequent use as a proof of authority to continue the audit or
investigation, is in effect supplanting the functions of the LOA, since it
seeks to exercise a power that belongs exclusively to the CIR himself or
his duly authorized representatives.
C. Revenue Memorandum Order No. 43-90 dated
September 20, 1990 Expressly and Specifically Requires
the Issuance of a New LOA if Revenue Officers are
Reassigned or Transferred
Section D(5) of RMO No. 43-90 dated September 20, 1990
provides:chanroblesvirtualawlibrary
Any re-assignment/transfer of cases to another RO(s)64 , and revalidation
of L/As65 which have already expired, shall require the issuance of a new
L/A, with the corresponding notation thereto, including the previous L/A
number and date of issue of said L/As.
The above provision expressly and specifically requires the issuance of a
new LOA if revenue officers are reassigned or transferred to other cases.
The provision
involves
the following two
separate
phrases:
"re�assignment/transfer of cases to another RO(s)", on the one hand,
and "revalidation of LIAs which have already expired", on the other hand.
The occurrence of one, independently of the other, requires the issuance
of a new LOA. The new LOA must then have a corresponding relevant
notation, including the previous LOA number and date of issue of the said
LOAs.
The petitioner claims that RMO No. 43-90 dated September 20, 1990 is
not the implementing rule for Section 13 of the NIRC. RMO No. 43-90 was
promulgated on September 20, 1990, which is seven years prior to the
law it supposedly implemented. Because of this, the petitioner implies that
RMO No. 43-90 dated September 20, 1990 is not a valid legal basis in the
position that a reassignment and transfer of cases requires the issuance of
a new and separate LOA for the substitute revenue officer.
The
petitioner
is
mistaken.
Section
291
of
the
NIRC
states:chanroblesvirtualawlibrary
SECTION 291. In General. - All laws, decrees, executive orders, rules
and regulations or parts thereof which are contrary to or inconsistent with
this Code are hereby repealed, amended or modified accordingly.
Section D(5) of RMO No. 43-90 dated September 20, 1990 is not contrary
to or inconsistent with the NIRC. In fact, the NIRC codifies the LOA
requirement in RMO No. 43-90. While RMO No. 43-90 was issued under
the old tax code, nothing in Section D(5) RMO No. 43-90 is repugnant to
Sections 6(A), 10 and 13 of the NIRC. Hence, pursuant to Section 291 of
the NIRC, RMO No. 43-90 remains effective and applicable.
Even the Operations Group of the BIR now recognizes that the practice of
reassigning or transferring revenue officers originally named in the LOA
and substituting them with new revenue officers to continue the audit or
investigation without a separate LOA, is no longer tenable. Thus, in
Operations Memorandum No. 2018-02-03 dated February 9, 2018, the
Operations Group has decided that "the issuance of a MOA for
reassignment of cases in the aforementioned instances [i.e., the original
revenue officer's transfer to another office, resignation, retirement, etc.]
shall be discontinued."
D.
Revenue
Officer
Marcellano
Was
Not
Authorized to Continue the Audit of the
Respondent's Books of Accounts for C.Y. 2006,
Rendering the Assessment Void
Applying the above principles to the case at bar, it is clear that Marcellano
was not authorized under a new and separate, or amended, LOA to
continue the audit or investigation of the respondent's books of accounts
for C.Y. 2006. The August 31, 2007 LOA was originally issued to revenue
officers Eulema Demadura, Lover Loveres, Josa Gomez, and Emalyn dela
Cruz. The original revenue officer, Demadura, was transferred to another
assignment. Pursuant to a mere referral memorandum, revenue officer
Marcellano continued the audit of the respondent's books of accounts. No
new LOA was issued in the name of Marcellano to conduct the audit of the
respondent's books of accounts. Moreover, the August 31, 2007 LOA was
not amended or modified to include the name of Marcellano. Hence, the
authority under which Marcellano continued the audit or investigation was
not pursuant to the statutory power of the CIR or his duly authorized
representative to grant the authority to examine the taxpayer's books of
accounts.
In summary, We rule that the practice of reassigning or transferring
revenue officers originally named in the LOA and substituting them with
new revenue officers to continue the audit or investigation without a
separate or amended LOA (i) violates the taxpayer's right to due process
in tax audit or investigation; (ii) usurps the statutory power of the CIR or
his duly authorized representative to grant the power to examine the
books of account of a taxpayer; and (iii) does not comply with existing BIR
rules and regulations, particularly R.MO No. 43-90 dated September 20,
1990.
WHEREFORE, the Petition for Review on Certiorari is DENIED for lack of
merit. The Decision dated January 4, 2018 and the Resolution dated
September 21, 2018 of the Court of Tax Appeals En Banc in CTA EB No.
1535, which affirmed the CTA Division's Decision dated June 1, 2016 and
the Resolution dated October 3, 2016 in CTA Case No. 8655, invalidating
the P16,229,506.83 assessment of deficiency value-added tax for calendar
year
2006
against
the
respondent,
are AFFIRMED.chanroblesvirtualawlibrary
SO ORDERED
3&epublic of tbe ~bilippine%
$,Upreme QCourt
;ff-lllmtiln
SECOND DIVISION
FRITZ BRYN ANTHONY
DELOS SANTOS,
M.
Present:
Petitioner,
LEONEN, J, Chairperson,
LAZARO-JAVIER,
LOPEZ, M.,
LOPEZ, J., and
KHO, JR., JJ.
-versus-
COMMISSIONER OF INTERNAL
REVENUE,
Resp ondent.
G.R. No. 222548
Promulgated :
rJlJN 2 2 20??
<------~
~-------
x----------------------------------------------------------------------------------------x
DECISION
LEONEN, J.:
This Court resolves a Petition for Certiorari under Rule 65 of the Rules
of Court filed directly by Fritz Bryn Anthony M. Delos Santos (Delos Santos)
assailing the validity of Revenue Memorandum Circular No. 65-2012 1 (the
The Circular clarifies the taxab ility of association dues,
Circu lar).
membership fees , and other assessments or charges collected by condominium
corporations.
On April 29, 2013 , Delos Santos became a res ident of Makati C ity
where he lived at his father's condominium unit in Unit 12H, Classica Tower
2. He pays condominium association dues to Classica Tower Condominium
Association, Inc . (Classica). 2
Revenue
Memorandum
Circu lar
No.
65-20 12
(20 12),
avai lab le
at
<chrome
extens ion://efaidnbm n1111 ibpcaj peg le lefi ndm kaj/https://www.b ir.gov.ph/ im ages/b ir_ ti Ies/o ld_ ti Jes/pd f/6
60 I9RMC% 20No% 2065-20 12.pdt>.
Rollo, p. 4 .
Decision
2
G.R. No. 222548
On October 31, 2012, Commissioner of Internal Revenue Kim S.
Jacinto-Henares of the Bureau of Internal Revenue issued the Circular3
imposing Value-Added Tax on condominium owners' association dues:
The taxability of association dues, membership fees, and other
assessments/charges collected by a condominium corporation from its
members, tenants and other entities are discussed hereunder.
I. Income Tax -- The amounts paid in as dues or fees by members
and tenants of a condominium corporation form part of the gross income of
the latter subject to income tax. This is because a condominium corporation
furnishes its members and tenants with benefits, advantages, and privileges
in return for such payments. For tax purposes, the association dues,
membership fees, and other assessments/charges collected by a
condominium corporation constitute income payments or compensation for
beneficial services it provides to its members and tenants. The previous
interpretation that the assessment dues are funds which are merely held in
trust by a condominium corporation lacks legal basis and is hereby
abandoned.
Moreover, since a condominium corporation is subject to income
tax, income payments made to it are subject to applicable withholding taxes
under existing regulations.
II. Value-Added Tax (VAT) - Association dues, membership fees ,
and other assessments/charges co llected by a condominium corporatio n are
subject to VAT since they constitute income payment or compensation for
the beneficial services it provides to its members and tenants.
Accordingly, the gross receipts of condominium corporations
including association dues, membership fees, and other assessments/charges
are subject to VAT, income tax and income payments made to it are subject
to applicable withholding taxes under existing regulations. 4
On November 26, 2015, Classica informed its unit owners and tenants
that its Board of Trustees had decided that it will no longer shoulder the ValueAdded Tax on association dues starting on January 3, 2016. 5
On January 4, 2016, Classica sent Delos Santos a billing statement for
his association dues that included the additional Value-Added Tax imposed by
The s ubject of the Circu lar is "C la rifying the Taxability of Assoc iation Dues. Members h ip Fees, and
Other Assessments/Charges Collected by Condominium Corporations."
Revenue Memorandum C ircular No. 65-20 I 2 (20 12), pp. 1-3, available at <chrome
ex tens io n ://efa idn bm nnn ibpcaj pcglclefi ndmkaj/https://www.bir.gov. ph/images/ bir_ fi les/o Id_ ti les/pdf/6
6019RMC%20No%2065-2012.pdt>.
Rollo, p. 4.
/
Decision
3
G.R. No. 222548
the Circular. He then paid his association dues on January 21, 2016. 6
Subsequently, he filed a Petition before this Court.
Petitioner Delos Santos alleges that he has legal standing to challenge
the Circular's constitutionality. He claims that his payment of Value-Added
Tax for his association dues to Classica resulted in his direct injury. The
Circular' s direct adverse monetary effect satisfies the actual case or
controversy requirement of judicial review.
Moreover, petitioner assails the Circular's constitutionality for
violating substantive due process because there is no legal or judicial basis for
its issuance. Since the President has failed to correct public respondent
Comm issioner of Internal Revenue's issuance of the Circular, there has been
a continued breach of the President's constitutional duty to ensure the faith fol
execution of laws. 7
Petit ioner argues that the issue is capable of repetition but evading
review since there is nothing that prevents the Bureau of Internal Revenue
from issuing a similar regulation. The doctrine of hierarchy of courts should
be waived considering the exceptionally compelling and important issue
raised in the Petition. 8
Petitioner contends that Section 105 of the National Internal Revenue
Code of 19979 does not apply to condominium owners' or tenants' payment
of association dues. In paying their association dues, they do not buy, transfer,
or lease any good, property, or services from the condominium corporation.
The association dues are contributions to defray the condominium's
maintenance costs.
The condominium corporation does not acquire
ownership over the association dues, but only holds the same in a fiduciary
capacity for payment of periodic maintenance costs of the project. 10
Moreover, the condominium corporation earns no mcome from the
6
10
Id. at 5.
Id. at 7.
Id. at 10.
TAX CODE, sec. I 05 provides: SECTION I 05. Persons Liable. - Any person who, in the cou rse of trade
or business, sells barters, exchanges, leases goods or properties, renders serv ices, and any person who
impo rts goods shall be subject to the value-added tax (VAT) imposed in Sections I 06 to I 08 of th is Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed o n to the buyer,
transferee or lessee of the goods, properties o r serv ices. This rule sha ll li kewise apply to exist ing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
No. 77 16.
The phrase "in the course of trade or business" means the regu lar conduct or pursuit ofa commercial or
an economic activity, inc lud ing transactions incidenta l thereto, by any person regardless of whether o r
not the person engaged therein is a non-stock, nonprofit private organization (i rrespective of the
disposition of its net income and whether or not it se lls exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in th is Code rendered in the
Philippines by nonres ident forei g n persons shall be considered as being rendered in the course of trade
or business.
Rollo, pp. 12-13 .
/
Decision
4
G.R. No. 222548
association dues. These monies are not intended for their benefit and cannot
be considered as taxable revenue for purposes of income tax. Those who
receive income are the employees of the condominium corporation, the sellers
of the maintenance services and commodities, all of whom are separate from
the condominium corporation. 11
Thus, petitioner concludes that the C ircular is an invalid subordinate
legislation for modifying Sections 105 and 108 12 of the National Internal
Revenue Code. Value-Added Tax is a tax on consumption. The unit owners
do not consume anything from the condominium association dues. There is
also no production chain involved in the condominium corporation's
maintenance. 13 Since the Circular involves a tax imposition, it must be strictly
construed against the taxing authority and must be struck down. 14
II
I'.!
14
Id. at 14.
TAX CODI::, sec. I 08 provides:
SECTION. 108. Value-added Tax on Sale ofServices and Use or Lease r~f'Pmperties. (A) Rate and Base of Tax. - There shall be levied, assessed and col lected, a value-added tax eq uivalent
to twelve percent ( 12%) of gross receipts der ived fro m the sa le or exchange of services, including the
use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of se rv ices in the
Ph ilippines for others for a fee, remuneration or consideration, inc luding those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehous ing serv ices; lessors or distributors of
cinematographic films; persons engaged in mi lling process ing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eat ing p laces, including clubs
and caterers; dea lers in securities; lending investors; transportation contractors on the ir transport of goods
or cargoes, including persons who transport goods or cargoes for hire another domestic common carriers
by land re lative to their transport of goods or cargoes; common carriers by air and sea re lative to their
transport of passengers, goods or cargoes from one place in the Phil ippines to another place in the
Philippines; sales of electricity by generat ion companies, transmission by any means entity, and
disrribution companies, including electric cooperatives; serv ices of franchise grantees of electr ic utiliti es.
telephone and telegraph, radio and television broadcasting and al l other franchise g rantees except those
under section 11 9 of this Code, and non-life insurance companies (except their crop insurances),
including surety, fide lity, indemnity, and bonding companies; and similar services regardless of whether
or not the performance thereof cal ls for the exerci se or use of the physical or mental faculties . The phrase
'·sale or exchange of services" shall likew ise include :
(I) The lease o r the use of or the right or privilege to use any copyri ght, pate nt, design or mode l, plan
secret fo rmula o r process, goodwill, trademark, trade brand or other li ke property or right;
(2) The lease of the use of, or the rig ht to use of any industrial, commercial or scienti fie equipment;
(3) The supply of sc ientific, technical, industrial or commercial knowledge or information;
(4) Th e supply of any assistance that is ancillary and s ubsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any
such knowledge or information as is mentioned in s ubparagraph (3);
(5) The supply of service!; by a nonres ident person or his ernployee in connection with the use of p ro perty
or ri ghts belonging to, or the installation or operation of any brand, mach inery or other apparatus
purchased from such nonresident person.
(6) The supply of technical advice, assistance o r services rendered in connection with technical
management or administration of any sc ientific, industrial or commerc ial undertaki ng, venture, project
or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cab le te levision
time . Lease of properties shall be subject to the tax herein imposed irrespective of the p lace where the
co ntract of lease or licensing agreement was executed if the property is leased or used in the Phil ippines.
The term "gross receipts" means the total amount of money or its equivale nt representin g the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials suppli ed
w ith the services a nd deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding value-added
tax.
Rollo, p. 15.
Id. at 16.
Decision
s
G.R. No. 222548
On Apri l 6, 2016, this Court required the Commissioner of Internal
Revenue to file a comment. 15
In lieu of a comment, the Office of Solicitor General filed a
Manifestation and Motion to direct Commissioner of Internal Revenue to file
its Comment, joining petitioner in declaring the Circular void. The Office of
Solicitor General argues that the Petition should have been dismissed, because
certiorari is not the correct remedy to assail the Circular. However, it joins
petitioner in urging this Court to revisit the Circular.
The Office of Solicitor General opines that when association dues
exceed what is required in maintenance and administrative expenses, they
should only be considered as part of the gross income of condominium
corporations. A condominium corporation acts only in a fiduciary capacity,
and there is a trust created between the corporation and its owners or tenants. 16
This Court noted and granted the Office of Solicitor General's
Manifestation and Motion and required the Commissioner of Internal
Revenue to file its Cornment. 17 Afterward, this Court required the
Commissioner of Internal Revenue to show cause for its failure to file its
Comment on or before January 26, 2017. 18 On October 9, 2017, the
Commissioner of Internal Revenue filed its Compliance and Motion. 19
On November 8, 2017, the Commissioner of Internal Revenue filed its
Comment20 arguing that a Rule 65 Petition for Certiorari is not proper because
the Circular was issued using the Commissioner of Internal Revenue's quasilegislative powers. 21 The Petition is in the nature of a declaratory relief and
should have been filed before the Regional Trial Court. 22 Moreover, petitioner
should have first questioned the Circular before the Secretary of Finance. 23
The Commissioner of Internal Revenue asserts the Circular's validity.
The management of a condominium is a beneficial service, and payment in
exchange for these services is included in the condominium corporation's
gross income. 24 The Commissioner of Internal Revenue contends that it has
the power to interpret the provisions of the National Internal Revenue Code
on income tax and Value-Added Tax. The Circular was simply a clarification
15
ic,
17
18
1')
20
21
21
1
'
21
Id. at 29- 30.
Id. at 60-64.
Id. at 90- -9 I.
Id. at 92.
Id. at 95-100.
ld. at!03-- 12 I.
Id. at 105- 108.
Id. at 109.
Id. at 114.
Id. at 11 7.
/
Decision
6
G.R. No. 222548
ancl correction of previous rulings on association dues. 25
On January 15, 2018, this Court noted the Commissioner of Internal
Revenue's Compliance and Motion. Petitioner was also directed to file his
Reply.26
On March 28, 2018, petitioner filed his Reply27 alleging that a Rule 65
Petition for Certiorari has been recognized as a permissive remedy to
challenge a legally infirm administrative issuance. 28 He asserts that the
Commissioner of Internal Revenue failed to observe due process in failing to
give prior notice and hearing before implementing the C ircular. 29
Petitioner reiterates the invalidity of the Circular. 30 Petitioner invokes
the amendment of the Tax Reform for Acceleration and Inclusion (TRAIN)
Law, which expressly provides that "association dues, membership fees, and
other assessments and charges collected by homeowners associations and
condominium corporations" 31 are Value-Added Tax exempt. Thus, the
Circular has been automatically revoked by the TRAIN Law.32
Petitioner contends that even if this revocation mooted the Petition, this
Court should still give it consideration since there is a need: ( 1) to curb the
Circular's effects on erroneously collected Value-Added Tax; (2) for this
Court to fix the nature of activities that should be subjected to Value-Added
Tax; and (3) to prevent a similar Circular from being enacted in the future. 33
T his Court does not need to resolve the instant Petition for being moot
and academic.
On January 15, 2020, this Court's First Division, through the ponencia
of Associate Justice Amy Lazaro-Javier, promulgated G.R . Nos. 215801 and
218924 3-i where this Court held that the Commissioner of Internal Revenue
gravely abused its authority in issuing Revised M emorandum Circular No. 65,
and that in doing so, "[the C ircular] did not merely interpret or clarify[,] but
changed altogether the long standing rules of the Bureau of Internal
25
26
27
2s
29
,o
11
·
'
2
D
34
Id. at I I 9.
Id. at 125- 126.
Id. at 127-140.
Id. at 128- 129.
Id. at 131
Id. at 135- 136.
Tax Reform for Acce leration and Inclusion (20 17), sec. 34(Y).
Id. at 136 .
Id.at 137 - 138.
Bureau of/11/ernal Revenue v. Firs/ £ -Bank Tower Condominium Corp., G.R. Nos. 2 1580 I and 2 18924,
January 15, 2020, <https://e library.judiciary.gov.ph/thebookshelf/showdocs/ I/66002> [Per. J. LazaroJavier, First Division]. The twin cases are both entitled " In the Matter of Declaratory Relief on the
Invalidity of Bl R Revenue Memorandu m Circular No. 65-2012 'Clarifyi ng the Taxab ili ty of Association
Dues, Membership Pees and Other Assessments/Charges Co llected by Condom inium Corporations."
/
Decision
7
G .R. No. 222S48
[R]evenue. " 35
Here, this Court likewise declared that the Commissioner of Internal
Revenue gravely abused its discretion in issuing the same Circular and for
declaring that association dues, membership fees, and other assessments or
charges are subject to income tax, Value-Added Tax, and withholding tax.
This Court reiterated the pronouncement in Yamane v. BA Lepanto
Condominium Cmporation,36 that a condominium corporation is not engaged
in trade or business. Association dues are not intended for profit, but for the
maintenance of the condominium project. The collection of association dues,
membership fees, and other charges is purely for the benefit of the
condominium owners:
For when a condominium corporation manages, maintains, and preserves
the common areas in the building, it does so only for the benefit of the
condominium owners. It cannot be said to be engaged in trade or business,
thus, the coll ection of association clues, membership fees, and other
assessments/charges is not a result of the regular conduct or pursuit of a
commercial or an economic activity, or any transactions incidental thereto.
Neither can it be said that a condominium corporation is rendering
services to the unit owners for a fee, remuneration or consideration.
Association dues, membership fees, and other assessments/charges form
part of a pool from which a condominium corporation must draw funds in
order to bear the costs for maintenance, repair, improvement,
reconstruction expenses and other administrative expenses.
Indisputably, the nature and purpose of a condominium corporation
negates the carte blanche application of our value-added tax provisions on
its transactions and activities. 37
The Circular unduly expanded and modified several provisions of the
National Internal Revenue Code. Section 32 of the National Internal Revenue
Code does not include these charges in its enumeration of sources of gross
income. Moreover, Sections l 05 to 108 of the National Internal Revenue
Code imposes Value-Added Tax on transactions involving sale, barter, or
exchange of goods, rendition of services, and the use or lease of properties.
However, condominium association dues, membership fees, and other charges
also do not arise from these transactions. The very nature of a condominium
corporation negates the application of the National Internal Revenue Code
provisions on Value-Added Tax.
Thus, the promulgation of G.R. Nos. 215801 and 218924 declaring the
35
Id.
16
510 Phil. 750 (2005) [PerJ. Tinga, Second Division].
811rea11 o/lnfemal Revenue v. First £-Bank Tower Condominium Corp., G .R. Nos. 21580 I and 2 18924,
.January 15, 2020 <https://elibrary.judiciary.gov.ph/thebookshel f/showdocs/ I/66002> (Per J. Lazaro.Javier, First Division].
37
Decision
8
G.R. No. 222548
Circular invalid has mooted the Petition.
A case is moot and academic when it loses its justiciability due to a
supervening event, which takes away its practical use or value. 38 This Court
cannot render judgment after the issue has already been resolved by or through
external developments, and no relief prayed for can be granted or denied. 39
Generally, this Court declines jurisdiction over such cases, except when:
[F]irst, there is a grave violation of the Constitution; second, the exceptional
character of the situation and the paramount public interest is invo lved;
third, when constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the pub! ic: and fourth, the case is
capable of repetition yet evading review. 40 (Citations omitted)
None of the foregoing exceptions are present in this case. This Court
abstains from passing upon the other issues raised in the Petition, since the
main relief prayed for has already been resolved in G.R. Nos. 2 15801 and
218924 .
WHEREFORE, the Petition is DISMISSED for being MOOT and
ACADEMIC.
SO ORDERED.
Associate Justice
WE CONCUR:
AM
Associate J ustice
38
3•i
10
•
Funa v. Agra, 704 Phil. 205 (20 13) [Per J. Bersamin. En Banc].
Kilusang
Mayo
Uno
v.
Aquino,
G.R.
No.
210500,
April
2,
<https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1 /65208> [Per J. Leonen, En Banc] .
David v. /\;/acapagal-Arroyo, 522 Phi l. 705. 754 (2006) [Per J. Sandoval-Gutierrez. En Banc l.
20 19
Decision
9
G.R. No. 222548
JHOSEmOPEZ
Associate Justice
~,# ~---~ ANT<JNfO
T~KHO, JR.
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
M.V.F. LEONE~
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.