G.R. No.

179343 January 21, 2010 above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days
FISHWEALTH CANNING CORPORATION, Petitioner, vs.
CIR, Respondent.
The Commissioner of Internal Revenue (respondent), by Letter of
Authority dated May 16, 2000,1 ordered the examination of the internal
revenue taxes for the taxable year 1999 of Fishwealth Canning Corp.
(petitioner). The investigation disclosed that petitioner was liable in the
amount of 2,395,826.88 representing income tax, value added tax
(VAT), withholding tax deficiencies and other miscellaneous deficiencies.
Petitioner eventually settled these obligations on August 30, 2000.2
On August 25, 2000, respondent reinvestigated petitioners books of
accounts and other records of internal revenue taxes covering the same
period for the purpose of which it issued a subpoena duces tecum
requiring petitioner to submit its records and books of accounts. Petitioner
requested the cancellation of the subpoena on the ground that the same
set of documents had previously been examined.
As petitioner did not heed the subpoena, respondent thereafter filed a
criminal complaint against petitioner for violation of Sections 5 (c) and
266 of the 1997 Internal Revenue Code, which complaint was dismissed
for insufficiency of evidence.3
Respondent sent, on August 6, 2003, petitioner a Final Assessment
Notice of income tax and VAT deficiencies totaling 67,597,336.75 for
the taxable year 1999,4 which assessment petitioner contested by letter
of September 23, 2003.5
to appeal respondents denial of its protest to the CTA.
Since petitioner received the denial of its administrative protest on August
4, 2005, it had until September 3, 2005 to file a petition for review before
the CTA Division. It filed one, however, on October 20, 2005, hence, it
was filed out of time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to the
CTA.
On petitioners final contention that it has a meritorious case in view of
the dismissal of the above-mentioned criminal case filed against it for
violation of the 1997 Internal Revenue Code,19 the same fails. For the
criminal complaint was instituted not to demand payment, but to penalize
the taxpayer for violation of the Tax Code.20 WHEREFORE, the petition is
DISMISSED.
G.R. No. 175097
ALLIED BANKING CORPORATION, Petitioner, vs. CIR, Respondent.
The key to effective communication is clarity.
The Commissioner of Internal Revenue (CIR) as well as his duly
authorized representative must indicate clearly and unequivocally to the
taxpayer whether an action constitutes a final determination on a
disputed assessment.1 Words must be carefully chosen in order to avoid
any confusion that could adversely affect the rights and interest of the
taxpayer.

Respondent thereafter issued a Final Decision on Disputed Assessment

Assailed in this Petition for Review on Certiorari2 under Section 12 of
dated August 2, 2005, which petitioner received on August 4, 2005,
Republic Act (RA) No. 9282,3 in relation to Rule 45 of the Rules of Court,
denying its letter of protest, apprising it of its income tax and VAT
are the August 23, 2006 Decision4 of the Court of Tax Appeals (CTA) and
liabilities in the amounts of "15,396,905.24 and 63,688,434.40 [sic],
its October 17, 2006 Resolution5 denying petitioners Motion for
respectively, for the taxable year 1999,"6 and requesting the immediate
Reconsideration.
payment thereof, "inclusive of penalties incident to delinquency."
Respondent added that if petitioner disagreed, it may appeal to the Court
of Tax Appeals (CTA) "within thirty (30) days from date of receipt hereof, Factual Antecedents
otherwise our said deficiency income and value-added taxes
assessments shall become final, executory, and demandable."7
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a
Preliminary Assessment Notice (PAN) to petitioner Allied Banking
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Corporation for deficiency Documentary Stamp Tax (DST) in the amount
Letter of Reconsideration dated August 31, 2005.8 of 12,050,595.60 and Gross Receipts Tax (GRT) in the amount of
38,995,296.76 on industry issue for the taxable year 2001. 6 Petitioner
received the PAN on May 18, 2004 and filed a protest against it on May
By a Preliminary Collection Letter dated September 6, 2005, respondent
27, 2004.7
demanded payment of petitioners tax liabilities,9 drawing petitioner to file
on October 20, 2005 a Petition for Review10 before the CTA.
On July 16, 2004, the BIR wrote a Formal Letter of Demand with
11 Assessment Notices to petitioner, which partly reads as follows: 8
In his Answer, respondent argued, among other things, that the petition
was filed out of time which argument the First Division of the CTA upheld
and accordingly dismissed the petition.12 It is requested that the above deficiency tax be paid immediately upon
receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may appeal the
Petitioner filed a Motion for Reconsideration13 which was denied.14 The
final decision within thirty (30) days from receipt hereof, otherwise said
Resolution denying its motion for reconsideration was received by
deficiency tax assessment shall become final, executory and
petitioner on October 31, 2006.15
demandable.

On November 21, 2006, petitioner filed a petition for review before the
Petitioner received the Formal Letter of Demand with Assessment
CTA En Banc16 which, by Decision17 of July 5, 2007, held that the petition
Notices on August 30, 2004.9
before the First Division, as well as that before it, was filed out of time.

Proceedings before the CTA First Division

Hence, the present petition,18 petitioner arguing that the CTA En Banc
erred in holding that the petition it filed before the CTA First Division as
well as that filed before it (CTA En Banc) was filed out of time. On September 29, 2004, petitioner filed a Petition for Review10 with the
CTA which was raffled to its First Division and docketed as CTA Case
No. 7062.11
The petition is bereft of merit.

On December 7, 2004, respondent CIR filed his Answer. 12 On July 28,

Section 228 of the 1997 Tax Code provides that an assessment
2005, he filed a Motion to Dismiss13 on the ground that petitioner failed to
file an administrative protest on the Formal Letter of Demand with
x x x may be protested administratively by filing a request for Assessment Notices. Petitioner opposed the Motion to Dismiss on August
reconsideration or reinvestigation within thirty (30) days from receipt of 18, 2005.14
the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of
On October 12, 2005, the First Division of the CTA rendered a
the protest, all relevant supporting documents shall have been submitted;
Resolution15 granting respondents Motion to Dismiss. It ruled:
otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable. (underscoring
supplied)1avvphi1
In the case at bar, petitioners administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by
respondent and which petitioner received on August 4, 2005. Under the
Clearly, it is neither the assessment nor the formal demand letter itself
that is appealable to this Court. It is the decision of the Commissioner of
Internal Revenue on the disputed assessment that can be appealed to
this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As
correctly pointed out by respondent, a disputed assessment is one
wherein the taxpayer or his duly authorized representative filed an
administrative protest against the formal letter of demand and
assessment notice within thirty (30) days from date [of] receipt thereof. In
this case, petitioner failed to file an administrative protest on the formal
letter of demand with the corresponding assessment notices. Hence, the
assessments did not become disputed assessments as subject to the
Courts review under Republic Act No. 9282. (See also Republic v. Liam
Tian Teng Sons & Co., Inc., 16 SCRA 584.)
WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for
Review is hereby DISMISSED for lack of jurisdiction. SO ORDERED.16
Aggrieved, petitioner moved for reconsideration but the motion was
denied by the First Division in its Resolution dated February 1, 2006. 17
Proceedings before the CTA En Banc
On February 22, 2006, petitioner appealed the dismissal to the CTA En
Banc.18 The case was docketed as CTA EB No. 167.
Finding no reversible error in the Resolutions dated October 12, 2005
and February 1, 2006 of the CTA First Division, the CTA En Banc denied
the Petition for Review19as well as petitioners Motion for
Reconsideration.20
The CTA En Banc declared that it is absolutely necessary for the
taxpayer to file an administrative protest in order for the CTA to acquire
jurisdiction. It emphasized that an administrative protest is an integral part
of the remedies given to a taxpayer in challenging the legality or validity
of an assessment. According to the CTA En Banc, although there are
exceptions to the doctrine of exhaustion of administrative remedies, the
instant case does not fall in any of the exceptions.
Issue
Hence, the present recourse, where petitioner raises the lone issue of
whether the Formal Letter of Demand dated July 16, 2004 can be
construed as a final decision of the CIR appealable to the CTA under RA
9282.
Our Ruling
The petition is meritorious.
Section 7 of RA 9282 expressly provides that the CTA exercises
exclusive appellate jurisdiction to review by appeal decisions of the
CIR in cases involving disputed assessments
The CTA, being a court of special jurisdiction, can take cognizance only
of matters that are clearly within its jurisdiction. 21 Section 7 of RA 9282
provides:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein
provided:
(1) Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of
Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides
a specific period of action, in which case the inaction shall be
deemed a denial; (Emphasis supplied)
xxxx
The word "decisions" in the above quoted provision of RA 9282 has been
interpreted to mean the decisions of the CIR on the protest of the
taxpayer against the assessments.22 Corollary thereto, Section 228 of the
National Internal Revenue Code (NIRC) provides for the procedure for
protesting an assessment. It states:
SECTION 228. Protesting of Assessment. When the Commissioner or
his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the
following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing
on the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(c) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on excisable articles has not been
paid; or
(e) When an article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations,
the taxpayer shall be required to respond to said notice. If the taxpayer
fails to respond, the Commissioner or his duly authorized representative
shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of
the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable.
In the instant case, petitioner timely filed a protest after receiving the
PAN. In response thereto, the BIR issued a Formal Letter of Demand with
Assessment Notices. Pursuant to Section 228 of the NIRC, the proper
recourse of petitioner was to dispute the assessments by filing an
administrative protest within 30 days from receipt thereof. Petitioner,
however, did not protest the final assessment notices. Instead, it filed a
Petition for Review with the CTA. Thus, if we strictly apply the rules, the
dismissal of the Petition for Review by the CTA was proper.
The case is an exception to the rule on exhaustion of administrative
remedies
However, a careful reading of the Formal Letter of Demand with
Assessment Notices leads us to agree with petitioner that the instant
case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency
concerned.
In the case of Vda. De Tan v. Veterans Backpay Commission, 23 the
respondent contended that before filing a petition with the court, petitioner
should have first exhausted all administrative remedies by appealing to
the Office of the President. However, we ruled that respondent was
estopped from invoking the rule on exhaustion of administrative remedies
considering that in its Resolution, it said, "The opinions promulgated by
the Secretary of Justice are advisory in nature, which may either be
accepted or ignored by the office seeking the opinion, and any aggrieved
party has the court for recourse". The statement of the respondent in said
case led the petitioner to conclude that only a final judicial ruling in her
favor would be accepted by the Commission.
Similarly, in this case, we find the CIR estopped from claiming that the
filing of the Petition for Review was premature because petitioner failed to
exhaust all administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:
Based on your letter-protest dated May 26, 2004, you alleged the
following:
1. That the said assessment has already prescribed in
accordance with the provisions of Section 203 of the Tax Code.
2. That since the exemption of FCDUs from all taxes found in
the Old Tax Code has been deleted, the wording of Section
28(A)(7)(b) discloses that there are no other taxes imposable
upon FCDUs aside from the 10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for
taxable year 2001 has not prescribed for [sic] simply because no returns
were filed, thus, the three year prescriptive period has not lapsed.
With the implementation of the CTRP, the phrase "exempt from all taxes"
was deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new
Tax Code. Accordingly, you were assessed for deficiency gross receipts
tax on onshore income from foreign currency transactions in accordance
with the rates provided under Section 121 of the said Tax Code.
Likewise, deficiency documentary stamp taxes was [sic] also assessed
on Loan Agreements, Bills Purchased, Certificate of Deposits and related
transactions pursuant to Sections 180 and 181 of NIRC, as amended.
The 25% surcharge and 20% interest have been imposed pursuant to the
provision of Section 248(A) and 249(b), respectively, of the National
Internal Revenue Code, as amended.
It is requested that the above deficiency tax be paid immediately upon
receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may appeal this
final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and
demandable.24 (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already
made a final decision on the matter and that the remedy of petitioner is to
appeal the final decision within 30 days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal
Revenue,25 we considered the language used and the tenor of the letter
sent to the taxpayer as the final decision of the CIR.
In this case, records show that petitioner disputed the PAN but not the
Formal Letter of Demand with Assessment Notices. Nevertheless, we
cannot blame petitioner for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor
of the demand letter indicate that it is the final decision of the respondent
on the matter. We have time and again reminded the CIR to indicate, in a
clear and unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the
tax court accrues.26 Viewed in the light of the foregoing, respondent is
now estopped from claiming that he did not intend the Formal Letter of
Demand with Assessment Notices to be a final decision.
Moreover, we cannot ignore the fact that in the Formal Letter of Demand
with Assessment Notices, respondent used the word "appeal" instead of
"protest", "reinvestigation", or "reconsideration". Although there was no
direct reference for petitioner to bring the matter directly to the CTA, it
cannot be denied that the word "appeal" under prevailing tax laws refers
to the filing of a Petition for Review with the CTA. As aptly pointed out by
petitioner, under Section 228 of the NIRC, the terms "protest",
"reinvestigation" and "reconsideration" refer to the administrative
remedies a taxpayer may take before the CIR, while the term "appeal"
refers to the remedy available to the taxpayer before the CTA. Section 9
of RA 9282, amending Section 11 of RA 1125,27 likewise uses the term
"appeal" when referring to the action a taxpayer must take when
adversely affected by a decision, ruling, or inaction of the CIR. As we see
it then, petitioner in appealing the Formal Letter of Demand with
Assessment Notices to the CTA merely took the cue from respondent.
Besides, any doubt in the interpretation or use of the word "appeal" in the
Formal Letter of Demand with Assessment Notices should be resolved in
favor of petitioner, and not the respondent who caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section
228 of the NIRC, as implemented by Section 3 of BIR Revenue
Regulations No. 12-99.28 It is the Formal Letter of Demand and
Assessment Notice that must be administratively protested or disputed
within 30 days, and not the PAN. Neither are we deviating from our
pronouncement in St. Stephens Chinese Girls School v. Collector of
Internal Revenue,29 that the counting of the 30 days within which to
institute an appeal in the CTA commences from the date of receipt of the
decision of the CIR on the disputed assessment, not from the date the
assessment was issued.1avvphi1
What we are saying in this particular case is that, the Formal Letter of
Demand with Assessment Notices which was not administratively
protested by the petitioner can be considered a final decision of the CIR
appealable to the CTA because the words used, specifically the words
"final decision" and "appeal", taken together led petitioner to believe that
the Formal Letter of Demand with Assessment Notices was in fact the
final decision of the CIR on the letter-protest it filed and that the available
remedy was to appeal the same to the CTA.
We note, however, that during the pendency of the instant case,
petitioner availed of the provisions of Revenue Regulations No. 30-2002
and its implementing Revenue Memorandum Order by submitting an offer
of compromise for the settlement of the GRT, DST and VAT for the
period 1998-2003, as evidenced by a Certificate of Availment dated
November 21, 2007.30 Accordingly, there is no reason to reinstate the
Petition for Review in CTA Case No. 7062.
WHEREFORE, the petition is hereby GRANTED. The assailed August
23, 2006 Decision and the October 17, 2006 Resolution of the Court of
Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in
CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of
Internal Revenues acceptance of petitioners offer of compromise for the
settlement of the gross receipts tax, documentary stamp tax and value
added tax, for the years 1998-2003. SO ORDERED.
G.R. No. L-21731 March 31, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. LIM TIAN
TENG SONS and CO., INC., defendant-appellant.
Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal
office in Cebu City, engaged in 1951 and 1952, among others, in the
exportation of copra. The copra was weighed before shipment in the port
of departure and upon arrival in the port of destination. The weight before
shipment was called copra outturn. To allow for lose in weight due to
shrinkage, said exporter collected only 95% of the amount appearing in
the letter of credit covering every copra outturn. The 5% balance
remained outstanding until final liquidation and adjustment.
On March 30, 1953 Lim Tian Teng Sons & Co., Inc. filed its income tax
return for 1952 based on accrued income and expenses. Its return
showed a loss of P56,109.98. It took up as part of the beginning inventory
for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00
already partially collected, as part of its outstanding stock as of
December 31, 1951.
In the audit and examination of taxpayer's 1952 income tax return, the
Collector of Internal Revenue eliminated the P95,500.00 outturn from the
beginning inventory for 1952 and considered it as accrued income for
1951. This increased taxpayer's 1952 net income by P95,500.00 which,
considering disallowances in the sum of P9,980.85, raised the taxpayer's
net taxable income for 1952 to P50,370.87. Accordingly, in a letter dated
January 16, 1957 (Exhibit C), received by Lim Tian Teng Sons & Co., Inc.
on January 30, 1957, the Collector of Internal Revenue assessed a
deficiency income tax of P10,074.00 and 50% surcharge thereon
amounting to P5,037.00 and demanded payment thereof not later than
February 15, 1957.
On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested
reinvestigation of its 1952 income tax liability. The Collector of Internal
Revenue did not reply; instead, he referred the case to the Solicitor
General for collection by judicial action.
On September 20, 1957 the Solicitor General demanded from Lim Tian
Teng Sons & Co., Inc. the payment of P15,111.50 within five days,
stating that otherwise judicial action would be instituted without further
notice. In a letter dated October 5, 1957, received by the Collector of
Internal Revenue on October 7, 1957, Lim Tian Teng Sons & Co., Inc.
reiterated its request for reinvestigation. It also wrote the Solicitor General
on October 8, 1957 requesting that it be allowed to present its
explanation together with supporting papers relative to its income tax
liability. The Solicitor General transmitted the letter to the Collection of
Internal Revenue. Thereupon, the Deputy Collector of Internal Revenue,
by his letter dated October 16, 1957, informed the taxpayer that its
request for reinvestigation would be granted provided it executed within
ten days a waiver of the statute of limitations as required in General
Circular V-258 dated August 20, 1957. In his letter dated December 10,
1957, the Deputy Collector of Internal Revenue extended the period
within which to execute and file with him the waiver of the statute of
limitations to December 31, 1957, but advised that if no waiver is
forthcoming on or before said date, judicial action for collection would be
instituted without further notice. Receipt of this letter is denied by
appellant company.
As Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the statute of
limitations, the Collector of Internal Revenue instituted eight months after,
specifically on September 2, 1958, an action in the Court of First Instance
of Cebu for the collection of deficiency income tax.
After hearing the parties, the court below rendered the following
judgment.
IN VIEW OF THE FOREGOING, judgment is hereby rendered,
declaring the assessment (Exh. D, D-1) of income tax in the
sum of P15,111.00 due from the defendant to the plaintiff for
the year 1952 valid, final and executory; condemning the
defendant to pay the same to the plaintiff with interest at one
(1) per centum monthly from October 28, 1957 until fully paid.
With costs against the defendant. IT IS SO ORDERED.
Not satisfied with the decision, the Collector of Internal Revenue moved
for its reconsideration on the ground that it did not include the 5%
surcharge for late payment of tax. The motion was denied for the reason
that the taxpayer has already been ordered to pay a surcharge of 50%.
Both parties appealed, raising only questions of law.
Plaintiff cites as errors the non-imposition of the 5% surcharge for the late
payment of tax and the computation of delinquency interest from October
8, 1957.
Defendant, on the other hand, assails the jurisdiction of the lower court,
its finding that the assessment in question has become final and
executory, the correctness of the assessment and the imposition of the
50% surcharge.1wph1.t
We will discuss first the taxpayer's appeal. It maintains that the lower
court has no jurisdiction to entertain this case on the ground that the
Collector of Internal Revenue has not yet issued his final decision on its
requests for reinvestigation. The taxpayer's stand is that final decision of
the Collector of Internal Revenue on the disputed assessment is a
condition precedent to the filing of an action in the Court of First Instance
for the collection of a tax. This argument has no merit. The Collector of
Internal Revenue is authorized to collect delinquent internal revenue
taxes either by distraint and levy or by judicial action or both
simultaneously.1 The only requisite before he can collect the tax is that he
must first assess the same within the time fixed by law.2 And in the case
of a false or fraudulent return with intent to evade the tax or of a failure to
file a return, a proceeding in court for the collection of such tax may be
begun without assessment.3
Nowhere in the Tax Code is the Collector of Internal Revenue required to
rule first on a taxpayer's request for reinvestigation before he can go to
court for the purpose of collecting the tax assessed. On the contrary,
Section 305 of the same Code withholds from all courts, except the Court
of Tax Appeals under Section 11 of Republic Act 1125, the authority to
restrain the collection of any national internal-revenue tax, fee or charge,
thereby indicating the legislative policy to allow the Collector of Internal
Revenue much latitude in the speedy and prompt collection of taxes. The
reason is obvious. It is upon taxation that the government chiefly relies to
obtain the means the carry on its operations, and it is of the utmost
importance that the modes adopted to enforce collection of taxes levied
should be summary and interfered with as little as possible. No
government could exist if all litigants were permitted to delay the
collection of its taxes.4
Moreover, before the creation of the Court of Tax Appeals the remedy of
a taxpayer who desired to contest an assessment issued, by the
Collector of Internal Revenue was to pay the tax and bring an action in
the ordinary courts for its recovery pursuant to Section 306 of the
Code.5 Collection or payment of the tax was not made, to, wait until after
the Collector of Internal Revenue has resolved all issues raised by the
taxpayer against an assessment. Republic Act 1125 creating the Court of
Appeals allows the taxpayer to dispute the correctness legality of an
assessment both in the purely administrative level and in said court, but it
does not stop the Collector of Internal Revenue from collecting the tax
through any of the means provided for in Section 316 of the Tax Code,
except when enjoined by said Court of Tax Appeals. Section 11 of
Republic Act 1125 states in part:
No appeal taken to the Court of Tax Appeals from the decision
of the Collector of Internal Revenue ... shall suspend the
payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by
existing law: Provided, however, That when in the opinion of
the Court the collection by the Bureau of Internal Revenue or
the Commissioner of Customs may jeopardize the interest of
the Government and/or the taxpayer the Court at any stage of
the proceeding may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court.
We will now resolve the issue of whether or not the court a quo erred in
considering as final and executory the assessment contained in the letter
of the Collector of Internal Revenue dated January 16, 1957. As stated,
defendant received said assessment on January 30, 1957 and on the
following day requested reinvestigation of its tax liability. The Collector of
Internal Revenue however did not reply to the request for reinvestigation.
Instead, he referred the case to the Solicitor General for collection of the
tax. The lower court interpreted this action of the Collector of Internal
Revenue as a denial of defendant's request for reinvestigation.
Said court, to our mind, committed no error. For what is more indicative of
the Collector's decision against reinvestigation than his insistence to
collect the tax? This decision was communicated to defendant in a letter
dated September 20, 1957 of the office of the Solicitor General which
must have been received by defendant not later than October 8, 1957 for
on said date it acknowledged receipt thereof. It had thirty days from
October 8, 1957 within which to appeal to the Court of Tax Appeals
pursuant to Section 11 of Republic Act 1125.6 Instead of appealing to the
Tax Court, however, the defendant herein in a letter dated October 8,
1957 reiterated its request for reinvestigation.
On October 15, 1957 the Collector of Internal Revenue wrote defendant
that its "request for a reinvestigation will be granted only upon compliance
with General Circular No. V-258 dated August 20, 1957, which requires
as a prerequisite to the grant of a reinvestigation the execution of a
waiver of the statute of limitations". In a subsequent letter, he extended
the period within which to submit the aforesaid waiver to December 31,
1957.
In effect, the Collector of Internal Revenue placed in the hands of the
defendant the holding of a reinvestigation. However, no such
reinvestigation was made inasmuch as taxpayer failed to submit a written
waiver of the statute of limitations on or before December 31, 1957. Such
omission automatically brought about the denial of the request for
reinvestigation.
Taxpayer however questions the legality of requiring waiver of the statute
of limitations before the grant of reinvestigation as provided for in General
Circular No.
V-258. This question was not raised in the Bureau of Internal Revenue.
Suffice it to say in this connection that General Circular No. V-258 was
promulgated pursuant to Section 338 of the Tax Code. The authority
thereunder of the Secretary of Finance to issue rules and regulations for
the effective enforcement of the provisions of the Tax Code has been
sustained by this Court in previous cases.7
Even if we do not count the period from October 8, 1957 (the date when
taxpayer received notice of the denial of its request for reinvestigation) to
December 31, 1957 (the deadline for the submission of the written waiver
of the statute of limitations) in reckoning the 30-day period within which
the taxpayer may appeal to the Court of Tax Appeals, said period had
long lapsed when the Collector of Internal Revenue filed the complaint in
this case on September 2, 1958.
Taxpayer failure to appeal to the Court of Tax Appeals in due time made
the assessment in question final, executory and demandable.8 And when
the action was instituted on September 2, 1958 to enforce the deficiency
assessment in question, it was already barred from disputing the
correctness of the assessment or invoking any defense that would
reopen the question of his tax liability on merits.9 Otherwise, the period of
thirty days for appeal to the Court of Tax Appeals would make little
sense. 10
In a proceeding like this the taxpayer's defenses are similar to those of
the defendant in a case for the enforcement of a judgment by judicial
action under Section 6 of Rule 39 of the Rules of Court. No inquiry can be
made therein as to the merits of the original case or the justness of the
judgment relied upon, other than by evidence of want of jurisdiction, of
collusion between the parties, or of fraud in the party offering the record
with respect to the proceedings. 11 As held by this Court in Insular
Government vs.
Nico 12 the taxpayer may raise only the questions whether or not the
Collector of Internal Revenue had jurisdiction to do the particular act, and
whether any fraud was committed in the doing of the act. In that case,
Doroteo Nico was fined by the Collector of Internal Revenue for violation
of subparagraphs (d), (e) and (g) of Section 28 as well as Sections 36,
101 and 107 of Act 1189. Under Section 54 of the same Act the taxpayer
was given the right to appeal from the decision of the Collector of Internal
Revenue to the Court of First Instance within a period of ten days from
notice of imposition of the fine. Nico did not appeal, neither did he pay the
fine. Pursuant to Section 33 of the Act, the Collector of Internal Revenue
filed an action in the Court of First Instance to enforce his decision and
collect the fine. The decision of the Collector of Internal Revenue having
become final, this Court, on appeal, allowed no further inquiry into the
merits of the same.
For the satisfaction of defendant, however, it may be worth stating that on
its merits, the assessment in question is correct. It is not controverted
that, as appearing from its 1952 income tax return Lim Tian Teng Sons &
Co., Inc. employs the "accrual" method of accounting. Following such
accounting method the copra outturn in the amount of P95,500.00
outstanding as of December 31, 1951, should have been treated as
accrued income for 1951, instead of as stock on hand on January 1,
1952.
Defendant took up the copra outturn in question as copra on hand in the
beginning inventory for 1952. Said beginning inventory, together with
expenses, copra purchased during the year and copra on hand as of
December 31, 1952 were deducted as "cost of goods sold" from the total
gross sales for the purpose of determining the net sales. Since the
P95,500.00 copra outturn formed part of the "cost of goods sold", it
diminished the net sales by P95,500.00, thereby also decreasing
defendant's net taxable income by the same amount. This procedure of
treating the copra outturn in question is inconsistent with defendants
accounting method.
From the record, then, there is every indication that taxpayer's 1952
income tax return is fraudulent, as alleged in paragraph (7) of the
complaint in this case. Firstly, taxpayer's beginning inventory for 1952 did
not state the truth in considering the copra outturn as copra on hand, for
on December 31, 1951 such copra was not any more in taxpayer's
bodega. It was in transit to a foreign port. And the taxpayer no longer
owned the copra. As a matter of fact, it already received payment for the
same. Secondly, by observing regularly its own system of accounting,
taxpayer had no choice but to account the copra outturn as accrued
income. This it did not do. For such deviation, we see no other purpose
than to lessen, if not obliterate as in fact it did, its income tax liability per
its return. The lower court therefore did not err in imposing the 50%
surcharge.
We now come to the appeal of the Government. It maintains that the
lower court erred in not imposing on defendant's tax liability a surcharge
of 5% for late payment. Subsection (c), Section 51 of the Tax Code
states:
SEC. 51. Assessment and payment of income tax.
xxx xxx xxx
(c) Surcharge and interest in case of delinquency. - To any
sum or sums due and unpaid after the dates prescribed in
subsections (b), (c) and (d) for the payment of the same, there
shall be added the sum of five per centum on the amount of tax
unpaid and interest at the rate of one per centum a month upon
said tax from the time the same became due . . . . (Emphasis
supplied)
As may be gleaned from the above-quoted provision, the 5% surcharge is
mandatory and automatically due, once the tax is not paid on time.
"Shall" is the word that law uses a word normally imperative and a
"language of demand". 13 Applicable herein is what has been said of a
similar provision the present Section 183 of the Tax Code stating
that:
If the percentage tax on any business is not paid within the
time prescribed above the amount of the tax shall be increased
by twenty-five per centum, the increment to be part of the tax.
(Emphasis supplied)
Said this Court in Lim Co Chui vs. Posadas 14:
This provision is mandatory. It provides a plan which works out
automatically. It confers no discretion on the Collector of
Internal Revenue. That, official may not disregard the law and
substitute therefor his own personal judgment.
Finally, the Government questions the computation of the delinquency
interest, due on the deficiency tax, from October 8, 1957. It insists that
payment of such interest should commence from February 15, 1957.
Such contention is well-founded. Pursuant to Section 51(d), "the
assessment made by the Collector of Internal Revenue shall be paid ...
immediately upon notification of the amount of such assessment." Now,
the income tax assessment notice gave defendant up to February 15,
1957 to pay the deficiency tax in question. No payment was made.
Hence, pursuant to Section 51 (e), quoted earlier, interest on the unpaid
tax fell due starting February 16, 1957 and continues to accrue until full
payment of the tax.
Wherefore, the decision appealed from is modified. Lim Tian Teng Sons
& Co., Inc. is hereby ordered to pay the sum of P10,074.00 as deficiency
income tax for 1952 plus 50% and 5% surcharges thereon for fraud and
late payment, respectively, and 1% monthly interest upon said tax of
P10,074.00, computed from February 16, 1957 until the tax is fully paid.
With costs against defendant-appellant. So ordered.
G.R. No. L-59758 December 26, 1984
ADVERTISING ASSOCIATES, INC., petitioner, vs. COURT OF
APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
This case is about the liability of Advertising Associates, lnc. for
P382,700.16 as 3% contractor's percentage tax on its rental income from
the lease of neon signs and billboards imposed by section 191 of the Tax
Code (as amended by Republic Acts Nos. 1612 and 6110) on business
agents and independent contractors. Parenthetically, it may be noted that
Presidential Decree No. 69, effective November 24, 1972, added
paragraph 17 to section 191 by taxing lessors of personal property.
Section 191 defines an independent contractor as including all persons
whose activity consists essentially of the sale of all kinds of services for a
fee. Section 194(v) of the Tax Code defines a business agent as
including persons who conduct advertising agencies.
It should be noted that in Advertising Associates, Inc. vs. Collector of
Internal Revenue, 97 Phil. 636, the taxpayer was held liable as a
manufacturer for the.90% sales tax on its sales of neon-tube signs under
section 185(k) of the Tax Code as amended. It paid P11,986.18 as sales
tax for the 4th quarter of 1948 to 1951.
This Court rejected the taxpayer's contention that it was only a contractor
of neon-tube signs and that it should pay only the 3% contractor's tax
under section 191 of the Tax Code.
In the instant case, Advertising Associates alleged that it sold in 1949 its
advertising agency business to Philippine Advertising Counsellors, that its
business is limited to the making, construction and installation of
billboards and electric signs and making and printing of posters, signs,
handbills, etc. (101 tsn). It contends that it is a media company, not an
advertising company,
It paid sales taxes for selling billboards, electric signs, calendars, posters,
etc., realty dealer's tax for leasing billboards and electric signs and 3%
contractor's tax for repairing electric signs.
The billboards and electric signs manufactured by it are either sold or
leased, As already stated, the Commissioner of Internal Revenue
subjected to 3% contractor's tax its rental income from billboards and
electric signs (p. 10, Appellant's brief ).
The Commissioner required Advertising Associates to pay P297,927.06
and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively,
including 25% surcharge (the latter amount includes interest) on its
income from billboards and neon signs.
The basis of the assessment is the fact that the taxpayer's articles of
incorporation provide that its primary purpose is to engage in general
advertising business. Its income tax returns indicate that its business was
advertising (Exh. 14 and 15, etc.).
It is supposed "to conduct a general advertising business, both as
principal and agent, including the preparation and arrangements of
advertising devices and novelties; to erect, construct, purchase, lease or
otherwise acquire fences, billboards, signboards, buildings and other
structures suitable for advertising purposes; to carry on the business of
printers, publishers, binders, and decorators in connection with
advertising business and to make and carry out contracts of every kind
and character that may be necessary or conducive to the
accomplishment of any of the purposes of the company; to engage in and
carry on a general advertising business by the circulation and distribution
and the display of cards, signs, posters, dodgers, handbills, programs,
banners and flags to be placed in and on railroad cars, street cars, steam
boats, cabs, hacks, omnibuses, stages and any and all kinds of
conveyances used for passengers or for any other purposes; to display
moveable or changeable signs, cards, pictures, designs, mottoes, etc.,
operated by clockwork, electricity or any other power; to use, place and
display the same in depots, hotels, halls, and other public places, to
advertise in the air by airplanes, streamers, skywriting and other similar
or dissimilar operation." (Exh. 14-A, pp. 48-49, BIR Records, Vol. I).
Advertising Associates contested the assessments in its 'letters of June
25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the
1972 deficiency). The Commissioner reiterated the assessments in his
letters of July 12 and September 16,1974 (p. 3, Rollo).
The taxpayer requested the cancellation of the assessments in its letters
of September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for
about four years there was no movement in the case. Then, on March 31,
1978, the Commissioner resorted to the summary remedy of issuing two
warrants of distraint, directing the collection enforcement division to levy
on the taxpayer's personal properties as would be sufficient to satisfy the
deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served
upon the taxpayer on April 18 and May 25, 1978.
More than a year later, Acting Commissioner Efren I. Plana wrote a letter
dated May 23, 1979 in answer to the requests of the taxpayer for the
cancellation of the assessments and the withdrawal of the warrants of
distraint(Annex C of Petition, pp. 31-32, Rollo).
He justified the assessments by stating that the rental income of
Advertising Associates from billboards and neon signs constituted fees or
compensation for its advertising services. He requested the taxpayer to
pay the deficiency taxes within ten days from receipt of the demand;
otherwise, the Bureau would enforce the warrants of distraint. He closed
his demand letter with this paragraph:
This constitutes our final decision on the matter. If
you are not agreeable, you may appeal to the Court
of Tax Appeals within 30 days from receipt of this
letter.
Advertising Associates received that letter on June 18, 1979. Nineteen
days later or on July 7, it filed its petition for review. In its resolution of
August 28, 1979, the Tax Court enjoined the enforcement of the warrants
of distraint.
The Tax Court did not resolve the case on the merits. It ruled that the
warrants of distraint were the Commissioner's appealable
decisions. Since Advertising Associates appealed from the decision of
May 23, 1979, the petition for review was filed out of time. It was
dismissed. The taxpayer appealed to this Court.
We hold that the petition for review was filed on time. The reviewable
decision is that contained in Commissioner Plana's letter of May 23, 1979
and not the warrants of distraint.
No amount of quibbling or sophistry can blink the fact that said letter, as
its tenor shows, embodies the Commissioner's final decision within the
meaning of section 7 of Republic Act No. 1125. The Commissioner said
so. He even directed the taxpayer to appeal it to the Tax Court. That was
the same situation in St. Stephen's Association and St. Stephen's
Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314,
317-318.
The directive is in consonance with this Court's dictum that the
Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the
disputed assessment. That procedure is demanded by the pressing need
for fair play, regularity and orderliness in administrative action (Surigao
Electric Co., Inc. vs. Court of Tax Appeals, L-25289, June 28, 1974, 57
SCRA 523).
On the merits of the case, the petitioner relies on the Collector's rulings
dated September 12, 1960 and June 20, 1967 that it is neither an
independent contractor nor a business agent (Exh. G and H).
As already stated, it considers itself a media company, like a newspaper
or a radio broadcasting company, but not an advertising agency in spite
of the purpose stated in its articles of incorporation. It argues that its act
of leasing its neon signs and billboards does not make it a business
agent or an independent contractor. It stresses that it is a mere lessor of
neon signs and billboards and does not perform advertising services.
But the undeniable fact is that neon signs and billboards are primarily
designed for advertising. We hold that the petitioner is a business agent
and an independent contractor as contemplated in sections 191 and
194(v).
However, in view of the prior rulings that the taxpayer is not a business
agent nor an independent contractor and in view of the controversial
nature of the deficiency assessments, the 25% surcharge should be
eliminated (C. M. Hoskins & Co., Inc. vs. Commissioner of Internal
Revenue, L-28383, June 22, 1976, 71 SCRA 511, 519; Imus Electric Co.,
Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1084).
Petitioner's last contention is that the collection of the tax had already
prescribed. Section 332 of the 1939 Tax Code, now section 319 of the
1977 Tax Code, Presidential Decree No. 1158, effective on June 3, 1977,
provides that the tax may be collected by distraint or levy or by a judicial
proceeding begun 'within five years after the assessment of the tax".
The taxpayer received on June 18, 1973 and March 5, 1974 the
deficiency assessments herein. The warrants of distraint were served
upon it on April 18 and may 25,1978 or within five years after the
assessment of the tax. Obviously, the warrants were issued to interrupt
the five-year prescriptive period. Its enforcement was not implemented
because of the pending protests of the taxpayer and its requests for
withdrawal of the warrants which were eventually resolved in
Commissioner Plana's letter of May 23, 1979.
It should be noted that the Commissioner did not institute any judicial
proceeding to collect the tax. He relied on the warrants of distraint to
interrupt the running of the statute of limitations. He gave the taxpayer
ample opportunity to contest the assessments but at the same time
safeguarded the Government's interest by means of the warrants of
distraint.
WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The Commissioner's deficiency assessments are modified by requiring
the petitioner to pay the tax proper and eliminating the 25% surcharge,
interest and penalty. In case of non-payment, the warrants of distrant
should be implemented. The preliminary injunction issued by the Tax
Court on August 28, 1979 restraining the enforcement of said warrants is
lifted. No costs. SO ORDERED.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE,
INC., and THE COURT OF TAX APPEALS, respondents.
Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance On the other hand, such collection should
be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of the common
good, may be achieved.
The main issue in this case is whether or not the Collector of Internal
Revenue correctly disallowed the P75,000.00 deduction claimed by
private respondent Algue as legitimate business expenses in its income
tax returns. The corollary issue is whether or not the appeal of the private
respondent from the decision of the Collector of Internal Revenue was
made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a
domestic corporation engaged in engineering, construction and other
allied activities, received a letter from the petitioner assessing it in the
total amount of P83,183.85 as delinquency income taxes for the years
1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or
request for reconsideration, which letter was stamp received on the same
day in the office of the petitioner. 2 On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of
the case proved fruitless. Atty. Guevara produced his file copy and gave
a photostat to BIR agent Ramon Reyes, who deferred service of the
warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the
BIR was not taking any action on the protest and it was only then that he
accepted the warrant of distraint and levy earlier sought to be
served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the Commissioner of Internal Revenue with the
Court of Tax Appeals.6
The above chronology shows that the petition was filed seasonably.
According to Rep. Act No. 1125, the appeal may be made within thirty
days after receipt of the decision or ruling challenged. 7 It is true that as a
rule the warrant of distraint and levy is "proof of the finality of the
assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and
makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted
doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy
was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be
served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by
private respondent was not pro forma and was based on strong legal
considerations. It thus had the effect of suspending on January 18, 1965,
when it was filed, the reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The period started
running again only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said protest and the
warrant was finally served on it. Hence, when the appeal was filed on
April 23, 1965, only 20 days of the reglementary period had been
consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was
properly disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees. These were collected
by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of
the properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally
claimed these promotional fees to be personal holding company
income 12 but later conformed to the decision of the respondent court
rejecting this assertion.13 In fact, as the said court found, the amount was
earned through the joint efforts of the persons among whom it was
distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara,
Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it.14 Ultimately, after its incorporation largely through
the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission
of P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals.16
There is no dispute that the payees duly reported their respective shares
of the fees in their income tax returns and paid the corresponding taxes
thereon.17 The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.18
The petitioner claims that these payments are fictitious because most of
the payees are members of the same family in control of Algue. It is
argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax
dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the accountant,
Cecilia V. de Jesus, testified that the payments were not made in one
lump sum but periodically and in different amounts as each payee's need
arose. 19 It should be remembered that this was a family corporation
where strict business procedures were not applied and immediate
issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all
of the fees received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional
fees was not excessive. The total commission paid by the Philippine
Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of
P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
This finding of the respondent court is in accord with the following
provision of the Tax Code:
SEC. 30. Deductions from gross income.--In
computing net income there shall be allowed as
deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on any trade or business, including a
reasonable allowance for salaries or other
compensation for personal services actually
rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--
Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be
included a reasonable allowance for salaries or other
compensation for personal services actually
rendered. The test of deductibility in the case of
compensation payments is whether they are
reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of
compensation payments is whether they are
reasonable and are, in fact, payments purely for
service. This test and its practical application may be
further stated and illustrated as follows:
Any amount paid in the form of compensation, but
not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a
corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries
are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or
bear a close relationship to the stockholdings of the
officers of employees, it would seem likely that the
salaries are not paid wholly for services rendered,
but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11,
1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the
regular employ of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present
case, however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees
in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it
was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities,
every person who is able to must contribute his share in the running of
the government. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives
of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the
seat of power.
But even as we concede the inevitability and indispensability of taxation,
it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not,
then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.
We hold that the appeal of the private respondent from the decision of the
petitioner was filed on time with the respondent court in accordance with
Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is
AFFIRMED in toto, without costs.SO ORDERED.
G.R. No. L-46954 July 20, 1982
ELPIDIO YABES and SEVERINO YABES, petitioners, vs. THE HON.
NAPOLEON FLOJO, in his capacity as Presiding Judge of Branch II,
Court of First Instance of Cagayan and THE REPUBLIC OF THE
PHILIPPINES, respondents.
The lone issue raised in this petition for certiorari and prohibition, which
seeks to annul the Order dated June 22, 1971 issued by the Court of First
Instance of Cagayan in Civil Case No. II-7, which denied the motion to
dismiss said case dated March 25, 1971, filed by petitioner; 1 the Order
dated June 7, 1977 of the respondent District Judge of said Court in the
same civil case denying petitioners' motion for reconsideration of the said
Order of denial dated June 22, 1971; 2 and the Order dated July 21,
1977, issued by the said respondent Judge of said Court in the same civil
case denying petitioners' motion for leave to file a second motion for
reconsideration of the aforesaid order of denials; 3 is whether or not
respondent Court of First Instance can lawfully acquire jurisdiction over a
contested assessment made by the Commissioner of Internal Revenue
against the deceased taxpayer Doroteo Yabes, which has not yet
become final, executory and incontestable, and which assessment is
being contested by petitioners in the Court of Tax Appeals, Case No.
2216, and still pending consideration.
After this Court required respondents to comment on the petition and
issued a temporary restraining order in the Resolution dated September
28, 1977, 4 the Solicitor General, in his Comment dated November 21,
1977, submitted that the petition be given due course, and thereafter
judgment be rendered setting aside the questioned orders issued by the
respondent Court of First Instance of Cagayan in Civil Case No. II-7,
directing said lower Court to hold in abeyance any action or proceeding in
Civil Case No. II-7, until after the Court of Tax Appeals shall have finally
decided CTA Case No. 2216. 5 The Solicitor General also filed a
Manifestation dated November 22, 1977, stating that "in their Comment
dated November 21, 1977, they have limited their appearance as counsel
only for the Republic of the Philippines and not for the respondent Judge
on the ground that they do not agree with the latter's orders which are
being questioned in the instant petition." 6
Undisputed facts of record are as follows:
(1) Doroteo Yabes of Calamaniugan Cagayan, who was for
sometime an exclusive dealer of products of the International
Harvester Macleod, Inc., received on or about May 1, 1962, a
letter from the Commissioner of Internal Revenue dated March
27, 1962, demanding payment of the amount of P15,976.81, as
commercial broker's fixed and percentage taxes plus
surcharges and the sum of P2,530 as compromise penalty
alledgely due from Yabes for the years 1956-1960; 7
(2) On May 11, 1962, Doroteo Yabes, through his counsel, filed
with the Commissioner's Office his letter dated May 10, 1962,
protesting the assessment of commercial broker's fixed and
percentage taxes plus penalties against him on the ground that
his agreements with the International Harvester Macleod, Inc.
were of purchase and sale, and not of agency, hence he
claimed he was not able to pay such kind of taxes; 8
(3) Thereafter, there ensued an exchange of correspondence
between the lawyers of Doroteo Yabes and the Commissioner;
the Commissioner in a letter dated August 3, 1962, informed
Doroteo Yabes that he acted as a commercial broker "in
accordance with the ruling of this Office in the case of Cirilo D.
Constantino;" 9 in turn, Doroteo Yabes, in a letter dated August
22, 1962, requested for the reinvestigation, or review of the
case by the appellate division of the Bureau of Internal
Revenue in accordance with standing rules, regulations or
practice on the matter; 10 Yabes also wrote the Commissioner
on August 24, 1962, requesting that the appeal be held in
abeyance pending final decision of the Case of Cirilo D.
Constantino; 11 in reply, the Commissioner informed Doroteo
Yabes in a letter dated September 18, 1962, that the latter's
request for reinvestigation was denied on the ground that he
has "not submitted any evidence to offset the findings of this
Office as to warrant a reinvestigation thereof"; 12 but eight days
later or on September 26, 1962, the Commissioner wrote a
letter advising Doroteo Yabes that "the administrative appeal ...
will be held in abeyance pending the resolution of the issues in
a similar case (obviously referring to the aforesaid Constantino
case)";
(4) To give time for the Commissioner to study the case and
several other cases similar thereto, the lawyers of Doroteo
Yabes agreed to file, and their client, Doroteo Yabes did file a
tax waiver on October 20, 1962, extending the period of
prescription to December 31, 1967; 13
(5) Doroteo Yabes died on March 13, 1963 and no estate
proceedings were instituted for the settlement of his estate; his
widow also died during the pendency of the case; the
petitioners are the children of the deceased taxpayer; 14
(6) On March 14, 1966, the Court of Tax Appeals decided the
Constantino "test" case. The Court of Tax Appeals ruled that
agreements entered into by Constantino with the International
Harvester Macleod, Inc. were of purchase and sale, and not of
agency, hence no commercial broker's fixed and percentage
fees could be collected from the said taxpayer; however this
Court on February 27, 1970, in G.R. No. L-25926 reversed the
Court of Tax Appeals and ruled in favor of the Commissioner of
Internal Revenue; 15
(7) After a lapse of about five years, the heirs of the deceased
Doroteo Yabes, through their lawyers, received on August 4,
1967, a letter from the Commissioner dated July 27, 1967,
requesting that they "waive anew the Statute of Limitations"
and further confirming the previous understanding that the final
resolution of the protest of the deceased Doroteo Yabes was
"being held in abeyance until the Supreme Court renders its
decision on a similar case involving the same factual and legal
issues brought to it on appeal" (referring to the Constantino
"test" case); 16 conformably with the request of the
Commissioner, the heirs of Doroteo Yabes filed a revised
waiver further extending the period of prescription to December
31, 1970; 17
(8) Thereafter, no word was received by the petitioners or their
lawyers during the interim of more than three (3) years, but on
January 20, 1971, petitioners as heirs of the deceased Doroteo
Yabes received the summons and a copy of the complaint filed
by the Commissioner on December 4, 1970 with the Court of
First Instance of Cagayan which seeks to collect from the
petitioners the sum of P 15,976.82, as deficiency commercial
broker's fixed and percentage taxes, including surcharges and
interest thereon, due from their predecessor-in-interest,
Doroteo Yabes, by reason of the latter's income derived from
transactions as dealer of the products of the International
Harvester Macleod, Inc.;
(9) Taking the complaint as the final decision of the
Commissioner on the disputed assessment against the
deceased taxpayer Doroteo Yabes, petitioners filed on
February 12, 1971, a petition for review of said disputed
assessment with the Court of Tax Appeals; 18 later on the same
day, February 12, 1971, petitioners filed their answer to the
complaint of the Commissioner before the Court of First
Instance of Cagayan; 19 and alleged therein, by way of special
defense, that the Court of Tax Appeals has exclusive
jurisdiction of the action and that there is another action of the
same nature between the parties relating to the same
assessment pending before the Court of Tax Appeals;
(10) On the other hand, the Commissioner filed a motion to
dismiss dated March 24, 1971, with the Court of Tax Appeals in
CTA Case No. 2216, and subsequently filed a memorandum in
support of said motion to dismiss, on the ground that the
assessment against Doroteo Yabes had already become final,
executory and incontestable, and the Court of Tax Appeals had
no jurisdiction over the case;
(11) On March 25, 1971, petitioners filed a formal motion to
dismiss Civil Case No. II-7 with the Court of First Instance of
Cagayan on the grounds that said Court has no jurisdiction
over the case and that there is another action pending between
the same parties for the same cause before a competent
court; 20
(12) On June 22, 1971, the respondent Court of First Instance
of Cagayan, through its former presiding judge issued the
questioned order in Civil Case No. II-7, which is the main
subject of the instant petition, denying the petitioners' motion to
dismiss on the ground that the petitioners "have already made
a previous answer wherein they categorically admitted the
jurisdiction of the court over the subject matter and the Court
believes that, granting for the sake of argument, there is a
pending action between the same parties for the same cause
yet the judgment which may be rendered in the first cited case
does not necessarily bar the present action"; 21
(13) On September 1, 1972, the respondent Court of First
Instance of Cagayan issued an order holding the trial of Civil
Case No. I I-7, in abeyance upon the joint motion of the
parties; 22
(14) On September 29, 1974, the Court of Tax Appeals denied
the Commissioner's motion to dismiss CTA Case No.
2216. 23 Accordingly, on October 30, 1975, the Commissioner
filed his Answer to the petition for review. 24
(15) On December 17, 1976, however, the Court of First
Instance of Cagayan, this time presided by the respondent
Judge Napoleon Flojo, upon motion of counsel for the plaintiff
therein, set Civil Case No. II-7 for trial on January 27 and 28,
1977. 25
(16) On February 9, 1977, the respondent Judge Flojo denied
the petitioners' motion to suspend further proceedings and set
the trial of the case for March 5, 1977. 26
(17) On May 3, 1977, the herein petitioners filed a motion for
the reconsideration of the order issued on June 22, 1971 and
for a ruling on their affirmative defense that the Court of First
Instance of Cagayan has no jurisdiction over the case. 27
(18) On June 7, 1977, the respondent Judge denied the
aforementioned motion for reconsideration for lack of merit,
and set the trial of the case for June 23, 1977. 28
(19) On July 8, 1977, the petitioners filed a motion seeking
leave to file a second motion for reconsideration of the order
issued on June 7, 1977, 29 attaching thereto a copy of their
motion for reconsideration. 30 The motions were denied on July
21, 1977, and trial was set for August 18, and 19, 1977 31 which
was postponed to September 23, 1977. 32
Hence, the present recourse. As prayed for, a temporary restraining order
was issued on September 28, 1977. 33
As to the issue of whether or not the assessment made by the
Commissioner of Internal Revenue against the deceased taxpayer
Doroteo Yabes, as contained in the letter dated March 27, 1962, has
become final, executory and incontestable, after Doroteo Yabes had
received the Commissioner's letter dated August 3, 1962, denying the
latter's protest against the said assessment on September 18, 1962 and
his failure to appeal therefrom within the 30-day period contemplated
under Section 11, of Republic Act 1125, We are constrained to agree with
the Court of Tax Appeals, when it denied the Commissioner's motion to
dismiss CTA Case No. 2216, that:
the period for appeal to this Court should not be counted from
September 18, 1962. In a letter of July 27, 1967, respondent
informed petitioners that a resolution of their protest was being
held in abeyance until the Supreme Court renders a decision
on a similar case "involving the same factual and legal issues".
As a matter of fact, in an earlier letter dated September 26,
1962, respondent also informed petitioners' counsel that
"administrative appeal for and in behalf of their clients win be
held in abeyance pending resolution of the issues on a similar
case which was appealed by you to the Court of Tax Appeals".
It is thus clear in these letters that respondent reconsidered the
finality of his decision of August 3, 1962,
assuming arguendo that the letter had a tenor of finality. 34
The Court of Tax Appeals in CTA Case No. 2216, stated further:
The records show that a warrant of distraint and levy was
issued on October 2, 1970. Had this been served on Doroteo
Yabes, it would have been equivalent to a final decision, ...
There is, however, nothing to show that it was ever served on
Yabes. Neither is there anything in the record to show that a
formal decision of denial was made after respondent's letter of
July 27, 1967. 35
There is no reason for Us to disagree from or reverse the Court of Tax
Appeals' conclusion that under the circumstances of this case, what may
be considered as final decision or assessment of the Commissioner is the
filing of the complaint for collection in the respondent Court of First
Instance of Cagayan, the summons of which was served on petitioners
on January 20, 1971, and that therefore the appeal with the Court of Tax
Appeals in CTA Case No. 2216 was filed on time. 36 The respondent
Court of First Instance of Cagayan can only acquire jurisdiction over this
case filed against the heirs of the taxpayer if the assessment made by the
Commissioner of Internal Revenue had become final and incontestable. If
the contrary is established, as this Court holds it to be, considering the
aforementioned conclusion of the Court of Tax Appeals on the finality and
incontestability of the assessment made by the Commissioner is correct,
then the Court of Tax Appeals has exclusive jurisdiction over this case.
Petitioners received the summons in Civil Case No. II-7 of the respondent
Court of First Instance of Cagayan on January 20, 1971, and petitioners
filed their appeal with the Court of Tax Appeals in CTA Case No. 2216,
on February 12, 1971, well within the thirty-day prescriptive period under
Section 11 of Republic Act No. 1125. The Court of Tax Appeals has
exclusive appellate jurisdiction to review on appeal any decision of the
Collector of Internal Revenue in cases involving disputed assessments
and other matters arising under the National Internal Revenue Code. 37
For want of jurisdiction over the case, the Court of First Instance of
Cagayan should have dismissed the complaint filed in Civil Case No. II-7.
The recommendation of the Solicitor General that the lower court hold in
abeyance any action or proceeding in Civil Case No. II-7 until after the
Court of Tax Appeals shall have finally decided CTA Case No. 2216, is
untenable since the lower court has no jurisdiction over the case.
Jurisdiction over an action includes jurisdiction over all interlocutory
matters incidental to the case and deemed necessary to preserve the
subject matter of the suit or protect interests of the parties. Absent
jurisdiction over the case, it would be improper for the Court of First
Instance of Cagayan to take cognizance over the case and act upon
interlocutory matters of the case, as well.
The dismissal of the complaint, however, is not sufficient. The ends of
justice would best be served by considering the complaint filed in Civil
Case No. II-7 not only as a final notice of assessment but also as a
counterclaim in CTA Case No. 2216, in order to avoid mutiplicity of suits,
as well as to expedite the settlement of the controversy between the
parties. After all, the two cases involve the same parties, the same
subject matter, and the same issue, which is the liability of the heirs of the
deceased Doroteo Yabes for commercial broker's fixed and percentage
taxes due from the said deceased.
WHEREFORE, the petition is granted and the writs prayed for are hereby
issued. The questioned orders dated June 22, 1971, June 7, 1977 and
July 21, 1977 are hereby annulled and set aside and the complaint filed
in Civil Case No. II-7 of the Court of First Instance of Cagayan, entitled:
"Republic of the Philippines, plaintiff, versus Nicolasa Jurado Yabes, et
al., defendants," should be, as it is hereby, dismissed, the same to be
transferred to the Court of Tax Appeals to be considered therein as a
counterclaim in CTA Case No. 2216. The temporary restraining order
heretofore issued is hereby made permanent. Without costs. SO
ORDERED.
G.R. No. L-66160 May 21, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNION
SHIPPING CORPORATION and THE COURT OF TAX
APPEALS, respondents.
This is a petition for review on certiorari of the December 9, 1983
decision * of the Court of Tax Appeals in CTA Case No. 2989 reversing
the Commissioner of Internal Revenue.
In a letter dated December 27, 1974 (Exhibit "A") herein petitioner
Commissioner of Internal Revenue assessed against Yee Fong Hong,
Ltd. and/or herein private respondent Union Shipping Corporation, the
total sum of P583,155.22 as deficiency income taxes due for the years
1971 and 1972. Said letter was received on January 4, 1975, and in a
letter dated January 10, 1975 (Exhibit "B"), received by petitioner on
January 13, 1975, private respondent protested the assessment.
Petitioner, without ruling on the protest, issued a Warrant of Distraint and
Levy (Exhibit "C"), which was served on private respondent's counsel,
Clemente Celso, on November 25, 1976.
In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner
on November 29, 1976 (Exhibit "D-1") private respondent reiterated its
request for reinvestigation of the assessment and for the reconsideration
of the summary collection thru the Warrant of Distraint and Levy.
Petitioner, again, without acting on the request for reinvestigation and
reconsideration of the Warrant of Distraint and Levy, filed a collection suit
before Branch XXI of the then Court of First Instance of Manila and
docketed as Civil Case No. 120459 against private respondent.
Summons (Exhibit "E") in the said collection case was issued to private
respondent on December 28, 1978.
On January 10, 1979, private respondent filed with respondent court its
Petition for Review of the petitioner's assessment of its deficiency income
taxes in a letter dated December 27, 1974, docketed therein as CTA
Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing,
judgment be rendered holding that it is not liable for the payment of the
income tax herein involved, or which may be due from foreign shipowner
Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29,
1979 (Rollo, pp. 50-53).
Respondent Tax Court, in a decision dated December 9, 1983, ruled in
favor of private respondent
WHEREFORE, the decision of the Commissioner of Internal
Revenue appealed from, assessing against and demanding
from petitioner the payment of deficiency income tax, inclusive
of 50% surcharge, interest and compromise penalties, in the
amounts of P73,958.76 and P583,155.22 for the years 1971
and 1972, respectively, is reversed.
Hence, the instant petition.
The Second Division of this Court, after the filing of the required
pleadings, in a resolution dated January 28, 1985, resolved to give due
course to the petition, and directed petitioner therein, to file his brief
(Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985
(Rollo, p. 151). Respondents, on the other hand, filed their brief on June
6, 1985 (Rollo, p. 156).
The main issues in this case are: (a) on the procedural aspect, whether
or not the Court of Tax Appeals has jurisdiction over this case and (b) on
the merits, whether or not Union Shipping Corporation acting as a mere
"husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes
on the gross receipts or earnings of the latter.
The main thrust of this petition is that the issuance of a warrant of
distraint and levy is proof of the finality of an assessment because it is the
most drastic action of all media of enforcing the collection of tax, and is
tantamount to an outright denial of a motion for reconsideration of an
assessment. Among others, petitioner contends that the warrant of
distraint and levy was issued after respondent corporation filed a request
for reconsideration of subject assessment, thus constituting petitioner's
final decision in the disputed assessments (Brief for petitioner, pp. 9 and
12).
Petitioner argues therefore that the period to appeal to the Court of Tax
Appeals commenced to run from receipt of said warrant on November 25,
1976, so that on January 10, 1979 when respondent corporation sought
redress from the Tax Court, petitioner's decision has long become final
and executory.
On this issue, this Court had already laid down the dictum that the
Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the
disputed assessment.
Specifically, this Court ruled:
. . . we deem it appropriate to state that the Commissioner of
Internal Revenue should always indicate to the taxpayer in
clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by
sections 7 and 11 of Republic Act 1125, as amended. On the
basis of this statement indubitably showing that the
Commissioner's communicated action is his final decision on
the contested assessment, the aggrieved taxpayer would then
be able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
This rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually delay the
finality of the assessment and, consequently, the collection
of the amount demanded as taxes by repeated requests for
recomputation and reconsideration. On the part of the
Commissioner, this would encourage his office to conduct a
careful and thorough study of every questioned assessment
and render a correct and definite decision thereon in the first
instance. This would also deter the Commissioner from unfairly
making the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable to the tax
court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in
administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57
SCRA 523, 528, [1974]).
There appears to be no dispute that petitioner did not rule on private
respondent's motion for reconsideration but contrary to the above ruling
of this Court, left private respondent in the dark as to which action of the
Commissioner is the decision appealable to the Court of Tax Appeals.
Had he categorically stated that he denies private respondent's motion for
reconsideration and that his action constitutes his final determination on
the disputed assessment, private respondent without needless difficulty
would have been able to determine when his right to appeal accrues and
the resulting confusion would have been avoided.
Much later, this Court reiterated the above-mentioned dictum in a ruling
applicable on all fours to the issue in the case at bar, that the reviewable
decision of the Bureau of Internal Revenue is that contained in the letter
of its Commissioner, that such constitutes the final decision on the matter
which may be appealed to the Court of Tax Appeals and not the warrants
of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA
769 [1984] emphasis supplied). It was likewise stressed that the
procedure enunciated is demanded by the pressing need for fair play,
regularity and orderliness in administrative action.
Under the circumstances, the Commissioner of Internal Revenue, not
having clearly signified his final action on the disputed assessment,
legally the period to appeal has not commenced to run. Thus, it was only
when private respondent received the summons on the civil suit for
collection of deficiency income on December 28, 1978 that the period to
appeal commenced to run.
The request for reinvestigation and reconsideration was in effect
considered denied by petitioner when the latter filed a civil suit for
collection of deficiency income. So. that on January 10, 1979 when
private respondent filed the appeal with the Court of Tax Appeals, it
consumed a total of only thirteen (13) days well within the thirty day
period to appeal pursuant to Section 11 of R.A. 1125.
On the merits, it was found fully substantiated by the Court of Tax
Appeals that, respondent corporation is the husbanding agent of the
vessel Yee Fong Hong, Ltd. as follows:
Coming to the second issue, petitioner contended and was
substantiated by satisfactory uncontradicted testimonies of
Clemente Celso, Certified Public Accountant, and Rodolfo C.
Cabalquinto, President and General Manager, of petitioner that
it is actually and legally the husbanding agent of the vessel of
Yee Fong Hong, Ltd. as (1) it neither performed nor transacted
any shipping business, for and in representation, of Yee Fong
Hong, Ltd. or its vessels or otherwise negotiated or procured
cargo to be loaded in the vessels of Yee Fong Hong, Ltd. (p.
21, t.s.n., July 16, 1980); (2) it never solicited or procured cargo
or freight in the Philippines or elsewhere for loading in said
vessels of Yee Fong Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had
 not collected any freight income or receipts for the said Yee
Fong Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14,
1980.); (4) it never had possession or control, actual or
constructive, over the funds representing payment by
Philippine shippers for cargo loaded on said vessels (pp. 21 &
38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong
Hong, Ltd. any sum of money representing freight incomes of
Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the
freight payments made for cargo loaded in the Philippines for
foreign destination were actually paid directly by the shippers to
the said Yee Fong Hong, Ltd. upon arrival of the goods in the
foreign ports. (Rollo, pp. 58-59).
On the same issue, the Commissioner of Internal Revenue Misael P.
Vera, on query of respondent's counsel, opined that respondent
corporation being merely a husbanding agent is not liable for the payment
of the income taxes due from the foreign ship owners loading cargoes in
the Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66).
Neither can private respondent be liable for withholding tax under Section
53 of the Internal Revenue Code since it is not in possession, custody or
control of the funds received by and remitted to Yee Fong Hong, Ltd., a
non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if
an individual or corporation like the petitioner in this case, is not in the
actual possession, custody, or control of the funds, it can neither be
physically nor legally liable or obligated to pay the so-called withholding
tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67).
Finally, it must be stated that factual findings of the Court of Tax Appeals
are binding on this Court (Industrial Textiles Manufacturing Company of
the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al.
(136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for
review of the decisions of the Court of Tax Appeals, this Court is
generally confined to questions of law. The findings of fact of said Court
are not to be disturbed unless clearly shown to be unsupported by
substantial evidence (Commissioner of Internal Revenue v. Manila
Machinery & Supply Company, 135 SCRA 8 [1985]).
A careful scrutiny of the records reveals no cogent reason to disturb the
findings of the Court of Tax Appeals. PREMISES CONSIDERED, the
instant petition is hereby DISMISSED and the assailed decision of the
Court of Tax Appeals is hereby AFFIRMED. SO ORDERED.
G.R. No. 135210 July 11, 2001
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA
CULTURAL CORPORATION, respondent.
A final demand letter from the Bureau of Internal Revenue, reiterating to
the taxpayer the immediate payment of a tax deficiency assessment
previously made, is tantamount to a denial of the taxpayer's request for
reconsideration. Such letter amounts to a final decision on a disputed
assessment and is thus appealable to the Court of Tax Appeals (CTA).
The Case
Before this Court is a Petition for Review on Certiorari1 pursuant to Rule
45 of the Rules of Court, seeking to set aside the August 19, 1998
Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 46383 and
ultimately to affirm the dismissal of CTA Case No. 5211. The dispositive
portion of the assailed Decision reads as follows:
"WHEREFORE, the assailed decision is REVERSED and SET
ASIDE. Accordingly, judgment is hereby rendered
REMANDING the case to the CTA for proper disposition."4
The Facts
The facts are undisputed. The Court of Appeals quoted the summary of
the CTA as follows:
"As succinctly summarized by the Court of Tax appeals (CTA
for brevity), the antecedent facts are as follows:
'In an investigation conducted on the 1986 books of
account of [respondent, petitioner] had the
preliminary [finding] that [respondent] incurred a total
income tax deficiency of P9,985,392.15, inclusive of
increments. Upon protest by [respondent's] counsel,
the said preliminary assessment was reduced to the
amount of P325,869.44, a breakdown of which
follows:
Deficiency Income Tax
Deficiency Expanded Withholding Tax
Total
(pp. 187-189, BIR records)'
On February 23, 1990, [respondent] received from [petitioner]
an assessment letter, dated February 9, 1990, demanding
payment of the amounts of P333,196.86 and P4,897.79 as
deficiency income tax and expanded withholding tax inclusive
of surcharge and interest, respectively, for the taxable period
from January 1, 1986 to December 31, 1986. (pp. 204 and 205,
BIR rec.)
In a letter, dated March 22, 1990, filed with the [petitioner's]
office on March 23, 1990 (pp. 296-311, BIR rec.), [respondent]
requested x x x a reconsideration of the subject assessment.
Supplemental to its protest was a letter, dated April 2, 1990,
filed with the [petitioner's] office on April 18, 1990 (pp. 224 &
225, BIR rec.), to which x x x were attached certain documents
supportive of its protest, as well as a Waiver of Statute of
Limitation, dated April 17, 1990, where it was indicated that
[petitioner] would only have until April 5, 1991 within which to
asses and collect the taxes that may be found due from
[respondent] after the re-investigation.
On February 9, 1995, [respondent] received from [petitioner] a
Final Notice Before Seizure, dated December 22, 1994 (p. 340,
BIR rec.). In said letter, [petitioner] demanded payment of the
subject assessment within ten (10) days from receipt thereof.
Otherwise, failure on its part would constrain [petitioner] to
collect the subject assessment through summary remedies.
[Respondent] considered said final notice of seizure as
[petitioner's] final decision. Hence, the instant petition for
review filed with this Court on March 9, 1995.
The CTA having rendered judgment dismissing the petition,
[respondent] filed the instant petition anchored on the argument
that [petitioner's] issuance of the Final Notice Before Seizure
constitutes [its] decision on [respondent's] request for
reinvestigation, which the [respondent] may appeal to the
CTA."5
Ruling of the Court of Appeals
In its Decision, the Court of Appeals reversed the Court of Tax Appeals.
The CA considered the final notice sent by petitioner as the latter's
decision, which was appealable to the CTA. The appellate court
reasoned that the final Notice before seizure had effectively denied
petitioner's request for a reconsideration of the commissioner's
assessment. The CA relied on the long-settled tax jurisprudence that a
demand letter reiterating payment of delinquent taxes amounted to a
decision on a disputed assessment.
Hence, this recourse.6
Issues
In his Memorandum,7 petitioner presents for this Court's consideration a
solitary issue:
"Whether or not the Final Notice Before Seizure dated
February 9, 1995 signed by Acting Chief Revenue Collection
Officer Milagros Acevedo against ICC constitutes the final
decision of the CIR appealable to the CTA."8
The Court's Ruling
The Petition is not meritorious.
Sole Issue:
The Nature of the Final Notice Before Seizure
The Final Notice Before Seizure sent by the Bureau of Internal Revenue
(BIR) to respondent reads as follows:
"On Feb. 9, 1990, [this] Office sent you a letter requesting you
to settle the above-captioned assessment. To date, however,
despite the lapse of a considerable length of time, we have not
been honored with a reply from you.
In this connection, we are giving you this LAST
OPPORTUNITY to settle the adverted assessment within ten
(10) days after receipt hereof. Should you again fail, and refuse
to pay, this Office will be constrained to enforce its collection by
summary remedies of Warrant of Levy of Road Property,
Distraint of Personal Property or Warrant of Garnishment,
and/or simultaneous court action.
Please give this matter your preferential attention.
Very truly yours,
ISIDRO B. TECSON, JR.
Revenue District Officer
By:
P321,022.68
(Signed)
MILAGROS M. ACEVEDO
4,846.76
Actg. Chief Revenue Collection Officer"9
Petitioner maintains that this Final Notice was a mere reiteration of the
P325,869.44
delinquent taxpayer's obligation to pay the taxes due. It was supposedly a
mere demand that should not have been mistaken for a decision on a
protested assessment. Such decision, the commissioner contends, must
unequivocably indicate that it is the resolution of the taxpayer's request
for reconsideration and must likewise state the reason therefor.
Respondent, on the other hand, points out that the Final Notice Before
Seizure should be considered as a denial of its request for
reconsideration of the disputed assessment. The Notice should be
deemed as petitioner's last act, since failure to comply with it would lead
to the distraint and levy of respondent's properties, as indicated therein.
We agree with respondent. In the normal course, the revenue district
officer sends the taxpayer a notice of delinquent taxes, indicating the
period covered, the amount due including interest, and the reason for the
delinquency. If the taxpayer disagrees with or wishes to protest the
assessment, it sends a letter to the BIR indicating its protest, stating the
reasons therefor, and submitting such proof as may be necessary. That
letter is considered as the taxpayer's request for reconsideration of the
delinquent assessment. After the request is filed and received by the BIR,
the assessment becomes a disputed assessment on which it must render
a decision. That decision is appealable to the Court of Tax Appeals for
review.
Prior to the decision on a disputed assessment, there may still be
exchanges between the commissioner of internal revenue (CIR) and the
taxpayer. The former may ask clarificatory questions or require the latter
to submit additional evidence. However, the CIR's position regarding the
disputed assessment must be indicated in the final decision. It is this
decision that is properly appealable to the CTA for review.
Indisputably, respondent received an assessment letter dated February
9, 1990, stating that it had delinquent taxes due; and it subsequently filed
its motion for reconsideration on March 23, 1990. In support of its request
for reconsideration, it sent to the CIR additional documents on April 18,
1990. The next communication respondent received was already the
Final Notice Before Seizure dated November 10, 1994.
Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals12 and again
in CIR v. Union Shipping Corp.,13 we ruled:
"x x x. The letter of demand dated April 29, 1963
unquestionably constitutes the final action taken by the
commissioner on the petitioner's several requests for
reconsideration and recomputation. In this letter the
commissioner not only in effect demanded that the petitioner
pay the amount of P11,533.53 but also gave warning that in the
event it failed to pay, the said commissioner would be
constrained to enforce the collection thereof by means of the
remedies provided by law. The tenor of the letter, specifically
the statement regarding the resort to legal remedies,
unmistakably indicate[d] the final nature of the determination
made by the commissioner of the petitioner's deficiency
franchise tax liability."
As in CIR v. Union Shipping,14 petitioner failed to rule on the Motion for
Reconsideration filed by private respondent, but simply continued to
demand payment of the latter's alleged tax delinquency. Thus, the Court
reiterated the dictum that the BIR should always indicate to the taxpayer
in clear and unequivocal language what constitutes final action on a
disputed assessment. The object of this policy is to avoid repeated
requests for reconsideration by the taxpayer, thereby delaying the finality
of the assessment and, consequently, the collection of the taxes due.
Furthermore, the taxpayer would not be groping in the dark, speculating
as to which communication or action of the BIR may be the decision
appealable to the tax court.15

In the light of the above facts, the Final Notice Before Seizure cannot but In the instant case, the second notice received by private respondent
be considered as the commissioner's decision disposing of the request verily indicated its nature that it was final. Unequivocably, therefore, it
for reconsideration filed by respondent, who received no other response was tantamount to a rejection of the request for reconsideration.
to its request. Not only was the Notice the only response received; its
content and tenor supported the theory that it was the CIR's final act
Commissioner v. Algue16 is not in point here. In that case, the Warrant of
regarding the request for reconsideration. The very title expressly
Distraint and Levy, issued to the taxpayer without any categorical ruling
indicated that it was a finalnotice prior to seizure of property. The letter
on its request for reconsideration, was not deemed equivalent to a denial
itself clearly stated that respondent was being given "this LAST
of the request. Because such request could not in fact be found in its
OPPORTUNITY" to pay; otherwise, its properties would be subjected to
records, the BIR cannot be presumed to have taken it into consideration.
distraint and levy. How then could it have been made to believe that its
The request was considered only when the taxpayer gave a copy of it,
request for reconsideration was still pending determination, despite the
duly stamp-received by the BIR. Hence, the Warrant was deemed
actual threat of seizure of its properties?
premature.1wphi1.nt

Furthermore, Section 228 of the National Internal Revenue Code states

In the present case, petitioner does not deny receipt of private
that a delinquent taxpayer may nevertheless directly appeal a disputed
respondent's protest letter. As a matter of fact, it categorically relates the
assessment, if its request for reconsideration remains unacted upon 180
following in its "Statement of Relevant Facts":17
days after submission thereof. We quote:
"3. On March 23, 1990, respondent ICC wrote the CIR
"Sec. 228. Protesting an Assessment. x x x
requesting for a reconsideration of the assessment on the
Within a period to be prescribed by implementing rules and
ground that there was an error committed in the computation of
regulations, the taxpayer shall be required to respond to said
interest and that there were expenses which were disallowed
notice. If the taxpayer fails to respond, the Commissioner or his
(Ibid., pp. 296-311).
duly authorized representative shall issue an assessment
based on his findings.
"4. On April 2, 1990, respondent ICC sent the CIR additional
documents in support of its protest/reconsideration. The letter
Such assessment may be protested administratively by filing a
was received by the BIR on April 18, 1990. Respondent ICC
request for reconsideration or reinvestigation within thirty (30)
further executed a Waiver of Statute of Limitation (dated April
days from receipt of the assessment in such form and manner
17, 1990) whereby it consented to the BIR to assess and
as may be prescribed by implementing rules and regulations.
collect any taxes that may be discovered in the process of
Within sixty (60) days from filing of the protest, all relevant
reinvestigation, until April 3, 1991 (Ibid., pp. 296-311). A copy
supporting documents shall have become final.
of the waiver is hereto attached as Annex 'C'."

If the protest is denied in whole or in part, or is not acted upon

Having admitted as a fact private respondent's request for
within one hundred eighty (180) days from submission of
reconsideration, petitioner must have passed upon it prior to the issuance
documents, the taxpayer adversely affected by the decision or
of the Final Notice Before Seizure. WHEREFORE, the Petition is
inaction may appeal to the Court of Tax Appeals within (30)
hereby DENIED and the assailed Decision AFFIRMED. SO ORDERED.
days from receipt of the said decision, or from the lapse of the
one hundred eighty (180)-day period; otherwise the decision
shall become final, executory and demandable."10
In this case, the said period of 180 days had already lapsed when
respondent filed its request for reconsideration on March 23, 1990,
without any action on the part of the CIR.

Lastly, jurisprudence dictates that a final demand letter for payment of

delinquent taxes may be considered a decision on a disputed or
protested assessment. In Commissioner of Internal Revenue v. Ayala
Securities Corporation, this Court held:

"The letter of February 18, 1963 (Exh. G), in the view of the
Court, is tantamount to a denial of the reconsideration or
[respondent corporation's] x x x protest o[f] the assessment
made by the petitioner, considering that the said letter [was] in
itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made,
and for the immediate payment of the sum of P758,687.04 in
spite of the vehement protest of the respondent corporation on
April 21, 1961. This certainly is a clear indication of the firm
stand of petitioner against the reconsideration of the disputed
assessment, in view of the continued refusal of the respondent
corporation to execute the waiver of the period of limitation
upon the assessment in question.

This being so, the said letter amount[ed] to a decision on a

disputed or protested assessment and, there, the court a
quo did not err in taking cognizance of this case."11