Professional Documents
Culture Documents
Tax Cases Nos 1-5
Tax Cases Nos 1-5
DECISION
DAVIDE, JR., C.J.:
This Court is called upon to determine in this case whether the tax
planning scheme adopted by a corporation constitutes tax evasion that would
justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision of the Court of Appeals
[1]
held that the respondent Estate of Benigno P. Toda, Jr. is not liable for the
deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount
of P79,099,999.22 for the year 1989, and ordered the cancellation and setting
aside of the assessment issued by Commissioner of Internal Revenue
Liwayway Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from an
alleged simulated sale of a 16-storey commercial building known as Cibeles
Building, situated on two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on which the building stands for
an amount of not less than P90 million. [4]
On 30 August 1989, Toda purportedly sold the property for P100 million to
Rafael A. Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. These two transactions were
evidenced by Deeds of Absolute Sale notarized on the same day by the same
notary public. [5]
For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million. [6]
On 16 April 1990, CIC filed its corporate annual income tax return for the
[7]
year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes
of P254,497.00, it paidP26,341,207 for its net taxable income
[8]
of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T.
Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of
Stocks. Three and a half years later, or on 16 January 1994, Toda died.
[9]
Internal Revenue for deficiency income tax for the year 1989 in the amount
of P79,099,999.22, computed as follows:
alleging that the Commissioner erred in holding the Estate liable for income
tax deficiency; that the inference of fraud of the sale of the properties is
unreasonable and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.
In his Answer and Amended Answer, the Commissioner argued that the
[16] [17]
failed to prove that CIC committed fraud to deprive the government of the
taxes due it. It ruled that even assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. There being no proof of fraudulent transaction, the applicable period
for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of
1986, which is three years after the last day prescribed by law for the filing of
the return. Thus, the governments right to assess CIC prescribed on 15 April
1993. The assessment issued on 9 January 1995 was, therefore, no longer
valid. The CTA also ruled that the mere ownership by Toda of 99.991% of the
capital stock of CIC was not in itself sufficient ground for piercing the separate
corporate personality of CIC. Hence, the CTA declared that the Estate is not
liable for deficiency income tax of P79,099,999.22 and, accordingly, cancelled
and set aside the assessment issued by the Commissioner on 9 January
1995.
In its motion for reconsideration, the Commissioner insisted that the sale
[19]
of the property owned by CIC was the result of the connivance between Toda
and Altonaga. She further alleged that the latter was a representative,
dummy, and a close business associate of the former, having held his office in
a property owned by CIC and derived his salary from a foreign corporation
(Aerobin, Inc.) duly owned by Toda for representation services rendered. The
CTA denied the motion for reconsideration, prompting the Commissioner to
[20]
2. Has the period for assessment of deficiency income tax for the year
1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income tax of
CIC for the year 1989, if any?
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. [23]
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2)
an accompanying state of mind which is described as being evil, in bad
faith, willfull,or deliberate and not accidental; and (3) a course of action or
failure of action which is unlawful. [24]
All these factors are present in the instant case. It is significant to note
that as early as 4 May 1989, prior to the purported sale of the Cibeles property
by CIC to Altonaga on 30 August 1989, CIC received P40 million from
RMI, and not from Altonaga. That P40 million was debited by RMI and
[25]
reflected in its trial balance as other inv. Cibeles Bldg. Also, as of 31 July
[26]
1989, another P40 million was debited and reflected in RMIs trial balance as
other inv. Cibeles Bldg. This would show that the real buyer of the
properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a
close business associate and one of the many trusted corporate executives of
Toda. This information was revealed by Mr. Boy Prieto, the assistant
accountant of CIC and an old timer in the company. But Mr. Prieto did not
[27]
Petitioner, however, claims there was a change of structure of the proceeds of sale.
Admitted one hundred percent. But isnt this precisely the definition of tax planning?
Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the
Tax Code exists, allowing tax free transfers of property for stock, changing the
structure of the property and the tax to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower tax is not against the law. It is
absolutely allowed.
The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another. [30]
Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI would
then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax. Altonagas sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax ploy, a
sham, and without business purpose and economic substance. Doubtless,
the execution of the two sales was calculated to mislead the BIR with the end
in view of reducing the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which
was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion. [31]
Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax
is hereby imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, and partnerships, no matter how created or organized but not including
general professional partnerships, in accordance with the following:
Twenty-five percent upon the amount by which the taxable net income does not
exceed one hundred thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income exceeds one
hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the
NIRC of 1986 (now 6% under Section 24 (D) (1) of the Tax Reform Act of
[35]
1997) is inapplicable. Hence, the assessment for the deficiency income tax
issued by the BIR must be upheld.
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
Act of 1997) read:
deficiency income tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income tax was well within
the prescriptive period.
It is worth noting that when the late Toda sold his shares of stock to Le
Hun T. Choa, he knowingly and voluntarily held himself personally liable for all
the tax liabilities of CIC and the buyer for the years 1987, 1988, and
1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically
provides:
g. Except for transactions occurring in the ordinary course of business, Cibeles has no
liabilities or obligations, contingent or otherwise, for taxes, sums of money or
insurance claims other than those reported in its audited financial statement as of
December 31, 1989, attached hereto as Annex B and made a part hereof. The
business of Cibeles has at all times been conducted in full compliance with all
applicable laws, rules and regulations. SELLER undertakes and agrees to hold the
BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the
fiscal years 1987, 1988 and 1989. [Underscoring Supplied].
[39]
When the late Toda undertook and agreed to hold the BUYER and
Cibeles free from any all income tax liabilities of Cibeles for the fiscal years
1987, 1988, and 1989, he thereby voluntarily held himself personally liable
therefor. Respondent estate cannot, therefore, deny liability for CICs
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January 2001 in CA-
G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is
hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to
pay P79,099,999.22 as deficiency income tax of Cibeles Insurance
Corporation for the year 1989, plus legal interest from 1 May 1994 until the
amount is fully paid.
Costs against respondent.
SO ORDERED.
SECOND DIVISION
DECISION
TORRES, JR., J.:
"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos,
the former President of the Republic of the Philippines, the matter of the
settlement of his estate, and its dues to the government in estate taxes, are
still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of
the decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy of
Levy on Real Properties, estate and income tax delinquencies upon the estate
and properties of his father, despite the pendency of the proceedings on
probate of the will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition
for Certiorari and Prohibition with an application for writ of preliminary
injunction and/or temporary restraining order on June 28, 1993, seeking to -
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision on November 29, 1994, ruling that the deficiency assessments for
[2]
estate and income tax made upon the petitioner and the estate of the
deceased President Marcos have already become final and unappealable,
and may thus be enforced by the summary remedy of levying upon the
properties of the late President, as was done by the respondent
Commissioner of Internal Revenue.
No pronouncements as to cost.
SO ORDERED."
(1) The Notices of Levy on Real Property were issued beyond the period
provided in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the total
value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the estate
tax and their issuance of the Notices of Levy and Sale are premature, confiscatory
and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.
The facts as found by the appellate court are undisputed, and are hereby
adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an estate
tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, -all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to
no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
'Bongbong Marcos II, as well as the interest of the late president - copies of the
aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for
temporary restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the
enforcement of tax laws and the collection of taxes, is of paramount
importance for the sustenance of government. Taxes are the lifeblood of the
government and should be collected without unnecessary
hindrance. However, 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." [3]
specifically cited to bolster the argument that "the ordinary procedure by which
to settle claims of indebtedness against the estate of a deceased, person, as
in an inheritance (estate) tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to pay the amount
therefor." This remedy is allegedly, exclusive, and cannot be effected through
any other means.
Petitioner goes further, submitting that the probate court is not precluded
from denying a request by the government for the immediate payment of
taxes, and should order the payment of the same only within the period fixed
by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The
Administratrix of the Estate of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on the
proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the assessment was proper,
and that the tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs vs. Haygood,
supra., as to the procedure to be followed in a given case by the government to
effectuate the collection of the tax. Categorically stated, where during the pendency
of judicial administration over the estate of a deceased person a claim for taxes is
presented by the government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same. While there are cases
where courts are required to perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present character is not one of
them; and here, the court cannot be an organism endowed with latitude of judgment
in one direction, and converted into a mere mechanical contrivance in another
direction."
On the other hand, it is argued by the BIR, that the state's authority to
collect internal revenue taxes is paramount. Thus, the pendency of probate
proceedings over the estate of the deceased does not preclude the
assessment and collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment of estate and
income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be
paid immediately. The probate court is not the government agency to decide
whether an estate is liable for payment of estate of income taxes. Well-settled
is the rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with
limited jurisdiction, as a probate court over estate of deceased individual, is
not a trifling thing. The court's jurisdiction, once invoked, and made effective,
cannot be treated with indifference nor should it be ignored with impunity by
the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his
prospective heirs before final adjudication; to determine who are the heirs of
[5]
an heir by the testator; and to pass upon the validity of a waiver of hereditary
[9]
rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of
the Bureau of Internal Revenue to collect by the summary remedy of levying
upon, and sale of real properties of the decedent, estate tax deficiencies,
without the cognition and authority of the court sitting in probate over the
supposed will of the deceased.
The nature of the process of estate tax collection has been described as
follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of
distribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties,
nor is it an adversary proceeding between the state and the person who owes the tax
on the inheritance. However, under other statutes it has been held that the hearing
and determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding
in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax,
is executive in character, as the legislature has seen it fit to ascribe this task
to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue
Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws."
Thus, it was in Vera vs. Fernandez that the court recognized the liberal
[12]
"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15,
1967.)
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was
required to seek first the probate court's sanction. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any
party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This
provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative
and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never
questioned the assessments served upon them, allowing the same to lapse
into finality, and prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may
have been validly undertaken by the Government, collection thereof may have
been done in violation of the law. Thus, the manner and method in which the
latter is enforced may be questioned separately, and irrespective of the finality
of the former, because the Government does not have the unbridled discretion
to enforce collection without regard to the clear provision of law." [14]
We hold otherwise. The Notices of Levy upon real property were issued
within the prescriptive period and in accordance with the provisions of the
present Tax Code. The deficiency tax assessment, having already become
final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the
assessment and collection of tax deficiency in this instance is Article 223 of
the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of
taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's
cause, as under the above-cited provision, in case of failure to file a return,
the tax may be assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real property within three
years following the assessment of the tax. Since the estate tax assessment
had become final and unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now no reason why the
BIR cannot continue with the collection of the said tax. Any objection against
the assessment should have been pursued following the avenue paved in
Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several properties
(both real and personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary determination at this
time. Thus, respondents' assessment of the estate tax and their issuance of
the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which
were filed by the government to question the ownership and interests of the
late President in real and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege whether the properties levied
upon by the BIR in the collection of estate taxes upon the decedent's estate
were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are
relevant to the matter at issue. The mere fact that the decedent has pending
cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates
from the findings of the Department of Justice's Panel of Prosecutors as per
its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of
the late President.
This is, to our mind, the petitioner's last ditch effort to assail the
assessment of estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked
to determine the amount of taxes due upon the subject estate, but the Bureau
of Internal Revenue whose determinations and assessments are presumed
[16]
correct and made in good faith. The taxpayer has the duty of proving
[17]
pointed out one single provision in the Memorandum of the Special Audit
Team which gave rise to the questioned assessment, which bears a trace of
falsity. Indeed, the petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments should have been raised,
considering the ample remedies afforded the taxpayer by the Tax Code, with
the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established institutions for
governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the
main, Certiorari may not be used as a substitute for a lost appeal or
remedy. This judicial policy becomes more pronounced in view of the
[19]
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker
of Mrs. Marcos at the latter's last known address, on August 26, 1991 and September
12, 1991, as well as the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 - the subsequent
notices given thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible persons of
sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to
a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos -
Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."
[20]
Petitioner argues that all the questioned Notices of Levy, however, must
be nullified for having been issued without validly serving copies thereof to the
petitioner. As a mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its properties should
have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is the Estate of the decedent,
and not necessarily, and exclusively, the petitioner as heir of the deceased. In
the same vein, in the matter of income tax delinquency of the late president
and his spouse, petitioner is not the taxpayer liable. Thus, it follows that
service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law, as under Section 213 of the NIRC, which
pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants
of distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
office at the Batasang Pambansa. We cannot therefore, countenance
[21]
petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints his
name, but ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present
petition. The Decision of the Court of Appeals dated November 29, 1994 is
hereby AFFIRMED in all respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.
Republic of the Philippines
Supreme Court
Manila
THIRD DIVISION
DECISION
PERALTA, J.:
SO ORDERED.[5]
On April 26, 1996, the RTC issued an Order[8] denying the motion for
partial reconsideration filed by petitioner as well as the motion for reconsideration
filed by respondent Imelda Marcos, the penultimate portion of which reads:
One has to review the previous orders issued by the Court in this
case, e.g., the orders dated September 9, 1994, November 25, 1994, as
well as October 3, 1995, to see that even as far back then, the Court has
considered the matter of competency of the oppositors and of
Commissioner Liwayway Vinzons-Chato as having been settled.
SO ORDERED.[9]
On June 6, 1996, petitioner filed with this Court a Petition for Review
on Certiorari, under Ruled 45 of the Rules of Court, questioning the
aforementioned RTC Orders granting letters testamentary to respondents.
x x x x
The special civil action for certiorari as well as all the other
pleadings filed herein are REFERRED to the Court of Appeals for
consideration and adjudication on the merits or any other action as
it may deem appropriate, the latter having jurisdiction concurrent with
this Court over the Case, and this Court having been cited to no special
and important reason for it to take cognizance of said case in the first
instance.[10] (Emphasis and Underscoring Supplied)
SO ORDERED.[12]
I.
II.
III.
IV.
V.
SO ORDERED.
Supreme Court Circular No. 2-90,[17] which was then in effect, reads:
The pertinent portions of Section 17[18] of the Judiciary Act of 1948 read:
The Supreme Court shall further have exclusive jurisdiction to
review, revise, reverse, modify or affirm on certiorari as the law or rules
of court may provide, final judgments and decrees of inferior courts as
herein provided, in
(1) All cases in which the constitutionality or validity of any treaty, law,
ordinance, or executive order or regulation is in question;
(2) All cases involving the legality of any tax, impost, assessment or toll,
or any penalty imposed in relation thereto;
(3) All cases in which the jurisdiction of any inferior court is in issue;
(4) All other cases in which only errors or questions of law are involved:
Provided, however, That if, in addition to constitutional, tax or
jurisdictional questions, the cases mentioned in the three next preceding
paragraphs also involve questions of fact or mixed questions of fact and
law, the aggrieved party shall appeal to the Court of Appeals; and the
final judgment or decision of the latter may be reviewed, revised,
reversed, modified or affirmed by the Supreme Court on writ
of certiorari; and
(5) Final awards, judgments, decision or orders of the Commission on
Elections, Court of Tax Appeals, Court of Industrial Relations, the
Public Service Commission, and the Workmens Compensation
Commission.
The special civil action for certiorari as well as all the other
pleadings filed herein are REFERRED to the Court of Appeals for
consideration and adjudication on the merits or any other action as it
may deem appropriate, the latter having jurisdiction concurrent with
this Court over the Case, and this Court having been cited to no special
and important reason for it to take cognizance of said case in the first
instance.[25]
Based thereon, this Court agrees with the ruling of the CA that said
resolution gave the CA discretion and latitude to decide the petition as it may deem
proper. The resolution is clear that the petition was referred to the CA for
consideration and adjudication on the merits or any other action as it may deem
appropriate. Thus, no error can be attributed to the CA when the action it deemed
appropriate was to dismiss the petition for having availed of an improper remedy.
More importantly, the action of the CA was sanctioned under Section 4 of
Supreme Court Circular 2-90 which provides that an appeal taken to either the
Supreme Court or the Court of Appeals by the wrong mode or inappropriate mode
shall be dismissed.
Moreover, petitioner mistakenly relies in Oriental Media, Inc. v. Court of
Appeals,[26] in which this Court made the following pronouncements:
In the case at bar, there was no urgency or need for Oriental
to resort to the extraordinary remedy of certiorari for when it learned
of the case and the judgment against it on July 25, 1986, due to its
receipt of a copy of the decision by default; no execution had as yet been
ordered by the trial court. As aforementioned, Oriental had still the time
and the opportunity to file a motion for reconsideration, as was actually
done. Upon the denial of its motion for reconsideration in the first
case, or at the latest upon the denial of its petition for relief from
judgment, Oriental should have appealed. Oriental should have
followed the procedure set forth in the Rules of Court for
Rules of procedure are intended to ensure the orderly
administration of justice and the protection of substantive
rights in judicial and extrajudicial proceedings. It is a
mistake to purpose that substantive law and adjective law
are contradictory to each other or, as has often been
suggested, that enforcement of procedural rules should
never be permitted if it will result in prejudice to the
substantive rights of the litigants. This is not exactly true;
the concept is much misunderstood. As a matter of fact, the
policy of the courts is to give effect to both kinds of law, as
complementing each other, in the just and speedy
resolution of the dispute between the parties. Observance of
both substantive rights is equally guaranteed by due process
whatever the source of such rights, be it the Constitution
itself or only a statute or a rule of court.[27]
In the case at bar, as found by this Court in its February 5, 1997 Resolution,
therein petition offered no important or special reason for the Court to take
cognizance of it at the first instance. Petitioner offered no plausible reason why it
went straight to this Court when an adequate and proper remedy was still available.
The CA was thus correct that the remedy that petitioner should have availed of was
to file an appeal under Rule 109 of the Rules of Court which states:
x x x x
Section 1(c), Rule 78 of the Rules of Court defines who are incompetent to
serve as executors, to wit:
In the case at bar, petitioner anchored its opposition to the grant of letters
testamentary to respondents, specifically on the following grounds: (1) want of
integrity, and (2) conviction of an offense involving moral turpitude. Petitioner
contends that respondents have been convicted of a number of cases [30] and, hence,
should be characterized as one without integrity, or at the least, with questionable
integrity.[31]
The RTC, however, in its January 11, 1996 Order, made the following
findings:
On the other hand, the eight cases filed against respondent Ferdinand Marcos
II involve four charges for violation of Section 45 (failure to file income tax
returns) and four charges for violation of Section 50 (non-payment of deficiency
taxes) of the National Internal Revenue Code of 1977 (NIRC).
The failure to file an income tax return is not a crime involving moral
turpitude as the mere omission is already a violation regardless of the fraudulent
intent or willfulness of the individual. This conclusion is supported by the
provisions of the NIRC as well as previous Court decisions which show that with
regard to the filing of an income tax return, the NIRC considers three distinct
violations: (1) a false return, (2) a fraudulent return with intent to evade tax, and
(3) failure to file a return.
Anent the third error raised by petitioner, the same has no merit.
Petitioner contends that respondents denied the existence of the will, and are,
therefore, estopped from claiming to be the rightful executors thereof. Petitioner
further claims that said actions clearly show that respondents lack the competence
and integrity to serve as officers of the court.
This Court does not agree with the posture taken by petitioner, and instead,
accepts the explanation given by respondents, to wit:
Respondents opposed the petition for probate not because they are
disclaiming the existence of the will, but because of certain legal
grounds, to wit: (a) petitioner does not have the requisite interest to
institute it; (b) the original copy of the will was not attached to the
petition for probate as required by the rules; and (c) the Commissioner of
the Bureau of Internal Revenue is not qualified to be appointed as
administrator of the estate.[43]
As for the remaining errors assigned by petitioner, the same are bereft of
merit.
The Regional Trial Court of Pasig City, Branch 156, acting as a probate
court in Special Proceeding No. 10279, is hereby ORDERED to issue letters
testamentary, in solidum, to Imelda Romualdez-Marcos and Ferdinand Marcos II.
SO ORDERED.
THIRD DIVISION
DECISION
NACHURA, J.:
The Facts
Petitioner alleged that several requests for extension of the period to file the
required estate tax return were granted by the BIR since the assets of the estate, as
well as the claims against it, had yet to be collated, determined and identified.
Thus, in a letter[8] dated March 14, 1990, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required
estate tax return and to represent the same in securing a Certificate of Tax
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter[9] addressed
to the BIR Regional Director for San Pablo City and filed the estate tax
return[10] with the same BIR Regional Office, showing therein a NIL estate tax
liability, computed as follows:
COMPUTATION OF TAX
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G.
Umali issued Certification Nos. 2052[12] and 2053[13] stating that the taxes due on
the transfer of real and personal properties[14] of Jose had been fully paid and said
properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon
passed away. Thus, on October 22, 1990, the probate court appointed petitioner as
the administrator of the Estate.[15]
In his letter[19] dated December 12, 1991, Atty. Gonzales moved for the
reconsideration of the said estate tax assessment. However, in her
letter[20] dated April 12, 1994, the BIR Commissioner denied the request and
reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency
estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2,
1994, petitioner filed a petition for review[21] before respondent CTA. Trial on the
merits ensued.
As found by the CTA, the respective parties presented the following pieces
of evidence, to wit:
Nature of Document
(sic) Exhibits
Documents/
Signatures BIR Record
4. Signature of Alberto S.
Enriquez appearing at the
lower portion on p. 2 of Exh. "2"; -do-
6. Signature of Raymund S.
Gallardo appearing at the
Lower portion on p. 2 of Exh. "2"; -do-
7. Signature of Maximino V.
Tagle also appearing on
p. 2 of Exh. "2"; -do-
8. Summary of revenue
Enforcement Officers Audit
Report, dated July 19, 1991; p. 139
9. Signature of Alberto
Enriquez at the lower
portion of Exh. "3"; -do-
On June 17, 1997, the CTA denied the said petition for review. Citing this
Court's ruling in Vda. de Oate v. Court of Appeals,[23] the CTA opined that the
aforementioned pieces of evidence introduced by the BIR were admissible in
evidence. The CTA ratiocinated:
Although the above-mentioned documents were not formally offered as
evidence for respondent, considering that respondent has been declared
to have waived the presentation thereof during the hearing on March 20,
1996, still they could be considered as evidence for respondent since
they were properly identified during the presentation of respondent's
witness, whose testimony was duly recorded as part of the records of this
case. Besides, the documents marked as respondent's exhibits formed
part of the BIR records of the case.[24]
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it
came up with its own computation of the deficiency estate tax, to wit:
exclusive of 20% interest from due date of its payment until full payment
thereof
[Sec. 283 (b), Tax Code of 1987].[25]
SO ORDERED.[26]
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the
CTA's findings, the CA ruled that the petitioner's act of filing an estate tax return
with the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not
deprive the BIR Commissioner of her authority to re-examine or re-assess the said
return filed on behalf of the Estate.[28]
On May 31, 1999, petitioner filed a Motion for Reconsideration[29] which the
CA denied in its Resolution[30] dated November 3, 1999.
2. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in recognizing/considering the estate tax return prepared and
filed by respondent BIR knowing that the probate court appointed
administrator of the estate of Jose P. Fernandez had previously filed
one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had
been issued in the estate's favor;
3. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in disallowing the valid and enforceable claims of creditors
against the estate, as lawful deductions despite clear and convincing
evidence thereof; and
4. Whether or not the Court of Tax Appeals and the Court of Appeals
erred in validating erroneous double imputation of values on the very
same estate properties in the estate tax return it prepared and filed
which effectively bloated the estate's assets.[31]
The petitioner claims that in as much as the valid claims of creditors against
the Estate are in excess of the gross estate, no estate tax was due; that the lack of a
formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda.
de Oate has already been abandoned in a long line of cases in which the Court
held that evidence not formally offered is without any weight or value; that Section
34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is
mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his
testimony before the CTA identified the pieces of evidence aforementioned such
that the same were marked, BIR's failure to formally offer said pieces of evidence
and depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de
Oate is still applicable, BIR failed to comply with the doctrine's requisites
because the documents herein remained simply part of the BIR records and were
not duly incorporated in the court records; that the BIR failed to consider that
although the actual payments made to the Estate creditors were lower than their
respective claims, such were compromise agreements reached long after the
Estate's liability had been settled by the filing of its estate tax return and the
issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of
the claims against the Estate and the settlement of the estate tax due should be at
the time the estate tax return was filed by the judicial administrator and the
issuance of said BIR Certifications and not at the time the aforementioned
Compromise Agreements were entered into with the Estate's creditors.[32]
On the other hand, respondent counters that the documents, being part of the
records of the case and duly identified in a duly recorded testimony are considered
evidence even if the same were not formally offered; that the filing of the estate tax
return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did
not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be
reviewed by this Court via a petition for review.[33]
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the
admission of the pieces of evidence which were not formally offered by the BIR;
and
Second. Whether or not the CA erred in affirming the CTA in the latter's
determination of the deficiency estate tax imposed against the Estate.
The CTA and the CA rely solely on the case of Vda. de Oate, which
reiterated this Court's previous rulings in People v. Napat-a[35] and People v.
Mate[36] on the admission and consideration of exhibits which were not formally
offered during the trial. Although in a long line of cases many of which were
decided after Vda. de Oate, we held that courts cannot consider evidence which
has not been formally offered,[37] nevertheless, petitioner cannot validly assume
that the doctrine laid down in Vda. de Oate has already been abandoned.
Recently, in Ramos v. Dizon,[38] this Court, applying the said doctrine, ruled that
the trial court judge therein committed no error when he admitted and considered
the respondents' exhibits in the resolution of the case, notwithstanding the fact that
the same
were not formally offered. Likewise, in Far East Bank & Trust Company v.
Commissioner of Internal Revenue,[39] the Court made reference to said doctrine in
resolving the issues therein. Indubitably, the doctrine laid down in Vda. De
Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:
In this case, we find that these requirements have not been satisfied. The
assailed pieces of evidence were presented and marked during the trial particularly
when Alberto took the witness stand. Alberto identified these pieces of evidence in
his direct testimony.[41] He was also subjected to cross-examination and re-cross
examination by petitioner.[42] But Albertos account and the exchanges between
Alberto and petitioner did not sufficiently describe the contents of the said pieces
of evidence presented by the BIR. In fact, petitioner sought that the lead examiner,
one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was
incompetent to answer questions relative to the working papers.[43] The lead
examiner never testified. Moreover, while Alberto's testimony identifying the
BIR's evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case.
A common fact threads through Vda. de Oate and Ramos that does not exist
at all in the instant case. In the aforementioned cases, the exhibits were marked at
the pre-trial proceedings to warrant the pronouncement that the same were duly
incorporated in the records of the case. Thus, we held in Ramos:
In this case, we find and so rule that these requirements have been
satisfied. The exhibits in question were presented and marked
during the pre-trial of the case thus, they have been incorporated
into the records. Further, Elpidio himself explained the contents of
these exhibits when he was interrogated by respondents' counsel...
xxxx
Per the records of this case, the BIR was directed to present its evidence[48] in
the hearing of February 21, 1996, but BIR's counsel failed to appear.[49] The CTA
denied petitioner's motion to consider BIR's presentation of evidence as waived,
with a warning to BIR that such presentation would be considered waived if BIR's
evidence would not be presented at the next hearing. Again, in the hearing of
March 20, 1996, BIR's counsel failed to appear.[50]Thus, in its Resolution[51] dated
March 21, 1996, the CTA considered the BIR to have waived presentation of its
evidence. In the same Resolution, the parties were directed to file their respective
memorandum. Petitioner complied but BIR failed to do so.[52] In all of these
proceedings, BIR was duly notified. Hence, in this case, we are constrained to
apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]
Strict adherence to the said rule is not a trivial matter. The Court
in Constantino v. Court of Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit
an offer of evidence made after a lapse of three (3) months because
to do so would "condone an inexcusable laxity if not non-compliance
with a court order which, in effect, would encourage needless delays
and derail the speedy administration of justice."
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the
highest respect and will not be disturbed on appeal unless it is shown that the lower
courts committed gross error in the appreciation of facts.[54] In this case, however,
we find the decision of the CA affirming that of the CTA tainted with palpable
error.
allowable deductions from the gross estate of the decedent. The specific question is
whether the actual claims of the aforementioned creditors may be fully allowed as
deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate
with its creditors.
Claims against the estate, as allowable deductions from the gross estate
under Section 79 of the Tax Code, are basically a reproduction of the deductions
allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA
466), otherwise known as the National Internal Revenue Code of 1939, and which
was the first codification of Philippine tax laws. Philippine tax laws were, in turn,
based on the federal tax laws of the United States. Thus, pursuant to established
rules of statutory construction, the decisions of American courts construing the
federal tax code are entitled to great weight in the interpretation of our own tax
laws.[60]
On the other hand, the Internal Revenue Service (Service) opines that post-
death settlement should be taken into consideration and the claim should be
allowed as a deduction only to the extent of the amount actually
paid.[64]Recognizing the dispute, the Service released Proposed Regulations in
2007 mandating that the deduction would be limited to the actual amount paid.[65]
In announcing its agreement with Propstra,[66] the U.S. 5th Circuit Court of
Appeals held:
SO ORDERED.
SECOND DIVISION
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court
of Appeals,[1] affirming the decision of the Court of Tax Appeals (which denied petitioner Bank
of the Philippine Islands claim for tax refund for 1985), and the appeals courts resolution, dated
August 21, 2000, denying reconsideration.
The facts are as follows:
Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1, 1985, the
Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased
properties and interest from its treasury notes for the period January 1 to June 30, 1985. As
required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent
of the rental income, in the amount of P118,609.17, while the Central Bank, from which the
treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon.
Creditable withholding taxes in the total amount of P174,065.77 were remitted to respondent
Commissioner of Internal Revenue.
FBTC, however, suffered a net loss of about P64,000,000.00 during the period in
question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its
dissolution in 1985, FBTC had a refundable amount of P2,320,138.34, representing that years
tax credit of P174,065.77 and the previous years excess credit of P2,146,072.57.
As FBTCs successor-in-interest, petitioner BPI claimed this amount as tax refund, but
respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57,
leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court
of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount.[2] However,
in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioners
petition for review and denied its claim for refund on the ground that the claim had already
prescribed.[3] In its resolution, dated August 4, 1995, the Court of Tax Appeals denied
petitioners motion for reconsideration.[4]
Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000,
the appeals court affirmed the decision of the CTA.[5] The appeals court subsequently denied
petitioners motion for reconsideration.[6] Hence this petition.
The sole issue in this case is whether petitioners claim is barred by prescription. The
resolution of this question requires a determination of when the two-year period of prescription
under 292 of the Tax Code started to run. This provision states:
In any case, no such suit or proceeding shall be begun after the expiration of two years
from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to have been
erroneously paid.
There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with
petitioner BPI. The merger was approved by the Securities and Exchange Commission on July 1,
1985. Petitioner contends, however, that its claim for refund has not yet prescribed because the
two-year prescriptive period commenced to run only after it had filed FBTCs Final Adjustment
Return on April 15, 1986, pursuant to 46(a) of the National Internal Revenue Code of 1977 (the
law applicable at the time of this transaction) which provided that
On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be
counted from July 31, 1985, 30 days after the approval by the SEC of the plan of dissolution in
view of 78 of the Code, which provided that
Every corporation shall, within thirty days after the adoption by the corporation of a
resolution or plan for the dissolution of the corporation or for the liquidation of the
whole or any part of its capital stock, including corporations which have been notified
of possible involuntary dissolution by the Securities and Exchange Commission,
render a correct return to the Commissioner of Internal Revenue, verified under oath,
setting forth the terms of such resolution or plan and such other information as the
Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior
to the issuance of the Certificate of Dissolution by the Securities and Exchange
Commission shall secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange
Commission.
Failure to render the return and secure the certificate of tax clearance as above-
mentioned shall subject the officer(s) of the corporation required by law to file the
return under Section 46(a) of this Code, to a fine of not less than Five Thousand Pesos
or imprisonment of not less than two years and shall make them liable for all
outstanding or unpaid tax liabilities of the dissolving corporation.
Before this Court can rule on the issue of prescription, it is noteworthy to point out
that based on the financial statements of FBTC and the independent auditors opinion
(Exhs. A-7 to A-17), FBTC operates on a calendar year basis. Its twelve (12)
months accounting period was shortened at the time it was merged with BPI. Thereby,
losing its corporate existence on July 1, 1985 when the Articles of Merger was
approved by the Security and Exchange Commission. Thus, respondent[s] stand that
FBTC operates on a fiscal year basis, based on its income tax return, holds no
ground. This Court believes that FBTC is operating on a calendar year period based
on the audited financial statements and the opinion thereof. The fiscal period ending
June 30, 1985 on the upper left corner of the income tax return can be concluded as an
error on the part of FBTC. It should have been for the six month period ending June
30, 1985. It should also be emphasized that where one corporation succeeds another
both are separate entities and the income earned by the predecessor corporation before
organization of its successor is not income to the successor (Mertens, Law of Federal
Income Taxation, Vol. 7 S 38.36).
Ruling now on the issue of prescription, this Court finds that the petition for review is
filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should
have filed its income tax return within thirty days after the cessation of its business or
thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of
the Tax Code and under Sec. 244 of Revenue Regulation No. 2. . .[9]
As the FBTC did not file its quarterly income tax returns for the year 1985, there was no
need for it to file a Final adjustment Return because there was nothing for it to adjust or to
audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months,
from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was
contemplated under 78 of the Tax Code. It thus became necessary for FBTC to file its income
tax return within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months
after it ceased its operations, before filing its income tax return.
Thus, 46(a) of the Tax Code applies only to instances in which the corporation remains
subsisting and its business operations are continuing. In instances in which the corporation is
contemplating dissolution, 78 of the Tax Code applies. It is a rule of statutory construction that
[w]here there is in the same statute a particular enactment and also a general one which in its
most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases
within its general language as are not within the provisions of the particular enactment.[10]
Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that
78 applies in case a corporation contemplates dissolution would lead to absurd results. It
contends that it is not feasible for the certified public accountants to complete their report and
audited financial statements, which are required to be submitted together with the plan of
dissolution to the SEC, within the period contemplated by 78. It maintains that, in turn, the
SEC would not have sufficient time to process the papers considering that 78 also requires the
submission of a tax clearance certificate before the SEC, can approve the plan of dissolution.
As the Court of Tax Appeals observed, however, petitioner could have asked for an
extension of time to file its income tax return under 47 of the NIRC which provides:
Petitioner further argues that the filing of a Final Adjustment Return would fall due on July
30, 1985, even before the due date for filing the quarterly return. This argument begs the
question. It assumes that a quarterly return was required when the fact is that, because its taxable
year was shortened, the FBTC did not have to file a quarterly return. In fact, petitioner presented
no evidence that the FBTC ever filed such quarterly return in 1985.
Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would
convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but
would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the
same on October 1, 2000. Following 78 of the Tax Code, the corporation would be required to
submit its complete return on October 31, 2000, although its actual dissolution would take place
only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to 47 of the Tax
Code. The corporation can ask for an extension of time to file a complete income tax return until
December 31, 2000, when it would cease operations. This would obviate any difficulty which
may arise out of the discrepancies not covered by 78 of the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos,[11] Debatable questions
are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.
Second. Petitioner contends that what 78 required was an information return, not an
income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting
Commissioner of Internal Revenue Ruben B. Ancheta, referring to an information return in
interpreting Executive Order No. 1026, which amended 78.[12]
The contention has no merit. The circular in question must be considered merely as an
administrative interpretation of the law which in no case is binding on the courts.[13] The opinion
in question cannot be given any effect inasmuch as it is contrary to 244 of Revenue Regulation
No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority
granted to him by 78 of the Tax Code. This provision states:
This regulation prevails over the memorandum circular of the Acting Commissioner of Internal
Revenue, which petitioner invokes.
Thus, as required by 244 of Revenue Regulation No. 2, any corporation contemplating
dissolution must submit tax return on the income earned by it from the beginning of the year up
to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the
Commissioner of Internal Revenue. Nothing in 78 of the Tax Code limited the return to be
filed by the corporation concerned to a mere information return.
It is noteworthy that 78 of the Tax Code was substantially reproduced first in 45(c), of the
amendments to the same Tax Code, and later in 52(C) of the National Internal Revenue Code of
1997. Through all the re-enactments of the law, there has been no change in the authority
granted to the Secretary (formerly Minister) of Finance to require corporations to submit such
other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence
prior to these amendments. Had Congress intended only information returns, it would have
expressly provided so.
Third. Considering that 78 of the Tax Code, in relation to 244 of Revenue Regulation No.
2, applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e.,
30 days after the approval by the SEC of its plan for dissolution. In accordance with 292 of the
Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes
withheld on the earned income. Consequently, the two-year period of prescription ended on July
30, 1987. As petitioners claim for tax refund before the Court of Tax Appeals was filed only on
December 29, 1987, it is clear that the claim is barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.