G.R. No. 167134 March 18, 2015 Basic 8,414,192.45 14,679,645.

07
COMMISSIONER OF INTERNAL REVENUE,
vs. Add: 2,103,548.11 3,669,911.27
Surcharge
TRADERS ROYAL BANK, Respondent.
DECISION
TOTAL P 10,517,740.57 P 18,349,556.33 8

LEONARDO-DE CASTRO, J.: =============== ===============

Before this Court is a Petition for Review on Certiorari
filed by petitioner Commissioner of Internal Revenue
(CIR) assailing the Decision1 dated February 14, 2005 of
the Court of Tax: Appeals (CTA) en bane in C.T.A. EB No.
32, which denied the CIR's appeal of the Decision 2 dated
April 28, 2004 and Resolution3 dated September 10, 2004
of the CT A Division in C.T.A. Case No. 6392. The CTA
Division cancelled the assessments issued by the CIR
against respondent Traders Royal Bank (TRB) for
deficiency documentary stamp taxes (DST) on the latter's
Trust Indenture Agreements for taxable years 1996 and
1997, in the amounts of ₱10,517,740.57and1!
18,349,556.33, respectively.4
TRB is a domestic corporation duly registered with the
Securities and Exchange Commission and authorized by
the Bangko Sentral ng Pilipinas (BSP) to engage in
commercial banking.5 On the strength of the Letter of
Authority (L.A.) No. 000018565 dated July 27, 1998, the
Bureau of Internal Revenue (BIR) conducted an
investigation concerning all national internal revenue tax
liabilities of TRB for taxable years 1996-1997. Following
the investigation, the BIR issued a Pre-Assessment Notice
dated November 10, 1999 against TRB. Subsequently, the
BIR issued a Formal Letter of Demand and Assessment
Notice Nos. ST-DST-96-0234-996 and ST-DST-97-0233-
99,7 all dated December 27, 1999, against TRB for
deficiency DST for 1996 and 1997, in the total amount of
₱28,867,296.90, broken down as follows:
DEFICIENCY DOCUMENTARY STAMP TAX
Industry
1996 1997
Issues on:
Special ₱5,041,882,798.03 ₱9,579,733,184.65
Savings
Deposit
Trust Fund 567,500,927.00 55,783,860.92
Mega 77,911.32 150,872,997.87
Savings
Deposit
Total 5,609,461,636.35 9,786,390,043.44
Tax Rate .30/200 .30/200
TRB Vice President Bayani R. Navarro (Navarro) wrote a
letter dated January 7, 20009 protesting the foregoing
assessments of the BIR on the following grounds:
In response, we would like to point out that Special
Savings Deposits being savings deposit accounts are not
subject to the documentary stamp tax. Likewise, Trust
Indenture Agreement[s] are not subject to documentary
stamp tax for the reason that relationship established
between parties is that of the trustor and trustee,
wherein the funds and/or properties of the trustor are
given to the Trustee Bank not as a deposit but under a
Common Trust Fund maintained and to be managed by
the Trustee.
The same arguments are being invoked by other banks
using similar instruments and the imposition of the DST
is considered as an industry problem and is being
contested by the entire banking community.
In his Decision dated December 20, 2001, 10 the CIR
denied the protest of TRB. The CIR adopted the position
of the BIR examiners that the Special Savings Deposit
should be deemed a time deposit account subject to DST
under Section 180 of the Tax Code of 1977. The CIR
reasoned:
[T]his Office believes and so holds that the Special
Savings Deposit and Time Deposit are just one and the
same banking transaction. To evade payment of the DST,
efforts were made by banks to place a superficial
distinction between the two (2) deposit accounts by
introducing an innovation using a regular passbook to
document the Special Savings Deposit and by claiming
that the said special deposit has no specific maturity
date. At first glance, the innovative scheme may have
accomplished in putting a semblance of difference
between the aforesaid two (2) deposit accounts, but an
analytical look at the passbook issued clearly reveals that
although it does not have the form of a certificate nor
labelled as such, it has a fixed maturity date and for all
intents and purposes, it has the same nature and
substance as a "certificate of deposit bearing interest." In
fact, it could be said that the passbook is in itself a
"certificate of deposit."11
As for the Trust Indenture Agreements, the CIR opined
that they were but a form of deposit, likewise subject to
DST. According to the CIR:
In an earlier case involving the same industry issue, We
ruled that the essential features/characteristics of a Trust
Agreement are as follows:
 A) The required minimum deposit is ₱50,000.00;
B) The shortest maturity date is 30 days;
C) It is not payable on sight or demand, in case of
pretermination, prior written notice is required;
D) It is automatically renewed in case the
depositor fails to withdraw the deposit at
maturity date; E) The bank used confirmation of
participation to evidence the acceptance of the
funds from the trustor.
Based on the foregoing features, it is evident that the
contention of the bank is misplaced. Although the
contract is termed as "trust agreement," it can be
considered as a misnomer because the relationship
existing between the parties in the subject contract is
actually not a trustor-trustee relationship but that of a
creditor-debtor relationship, the same relationship
governing deposits of money in banks.
xxxx
In the said contract of trust under the Civil Code, there is
only an equitable transfer of ownership by the trustor to
the trustee, the trustor retains his legal title to the subject
property. On the other hand, in the bank’s "trust
agreement," once the specific funds or properties of the
trustor are placed under the common trust fund, there is
a complete transfer of ownership from the trustor to the
trustee-bank. It is manifested by the fact that said funds
or properties may be invested by the bank in whatever
manner it may deem necessary, the trustor has no control
whatsoever over his funds. Another point of distinction
between the two contracts is that, in the contract of trust
every transaction involving the trust property must be
entered into by the trustee for the benefit of the trustor
or his designated beneficiary; while in the bank’s "trust
agreement," all benefits from the transactions involving
properties from the common trust fund will be received
solely by the trustee-bank, the trustor’s only consolation
is limited to receiving higher rate of interest from his
property. In effect, the subject "trust agreement"
although termed as such is but a form of a deposit.
The fact that the subject trust agreement is evidenced by
a "confirmation of participation" and not by a certificate
of deposit is immaterial. As discussed above, what is
important and controlling is the nature or meaning
conveyed by the document and not the particular label or
nomenclature attached to it, inasmuch as its substance is
paramount than its form. Therefore, the examiners are
correct in imposing documentary stamp tax on the bank’s
"trust agreements."12
The CIR ruled in the end:
IN VIEW WHEREOF, this Office has resolved to DENY the
protest of herein protestant-bank. Assessment Notice
Nos. ST-DST-96-0234-99 and ST-DST-97-0233-99
demanding payment of the respective amounts of
₱10,517,740.57 and ₱18,349,556.33 as documentary
stamp taxes for the taxable years 1996 and 1997 are
hereby AFFIRMED in all respects. Consequently, the
protestant-bank is hereby ordered to pay the above-
stated amounts plus interest that may have accrued
thereon until actual payment, to the Collection Service,
BIR National Office, Diliman, Quezon City, within thirty
(30) days from receipt hereof, otherwise, collection shall
be effected through the summary remedies provided by
law.
This constitutes the final decision of this Office on the
matter.13
TRB filed a Petition for Review14 with the CTA, which was
docketed as C.T.A. Case No. 6392. The parties stipulated
the following issues to be resolved by the CTA Division:
A. Whether or not Special Saving Deposits and
Mega Savings Deposits [both are Special Savings
Accounts (SSA)] are subject to documentary
stamp tax (DST) under Section 180 of the Tax
Code.
B. Whether or not the ordinary saving account
passbook issued by [TRB] x x x can be
considered a certificate of deposit subject to
documentary stamp tax (DST).
C. Whether or not the Trust Indenture
Agreements are subject to documentary stamp
tax (DST) under Section 180 of the Tax Code.15
On April 28, 2004, the CTA Division rendered a Decision,
resolving the first two issues in favor of the CIR and the
last one in favor of TRB.
The CTA Division agreed with the CIR that the Special
Savings Deposits and Time Deposits were akin to each
other in that the bank would acknowledge the receipt of
money on deposit which the bank promised to pay to the
depositor, bearer, or to the order of the bearer after a
specified period of time. In both cases, the deposits could
be withdrawn anytime but the depositor would earn a
lower rate of interest. The only difference was the
evidence of the deposits: a passbook for Special Savings
Deposits and a certificate of deposit for Time Deposits.
Considering that the passbook and the certificate of time
deposit were evidence of transactions, then both should
be subject to DST, an excise tax on transactions.
The CTA Division, however, concurred with TRB that the
Trust Indenture Agreements were different from the
certificate of deposit, thus:
A Trust Indenture Agreement has a different feature and
concept from a certificate of deposit. When a depositor
enters into a trust agreement, what is created is a trustor-
trustee relationship. The money deposited is placed in
trust to a common fund and then invested by the Trust
Department into a profitable venture. The yield or return
of investment is higher and varies depending on the
actual profit earned. In some trust agreements, a
depositor may even get a negative return of investment.
The fact that there is an "expected rate of return" does
not necessarily convert a trust agreement into a time
deposit. Under Section X407 of the Manual of Regulations
for Banks it is provided that "the basic characteristic of
trust, other fiduciary and investment management
relationship is the absolute non-existence of a debtor-
creditor relationship, thus, there is no obligation on the
part of the trustee, fiduciary or investment manager to
guarantee returns on the funds or properties regardless
of the results of the investment."16
The CTA Division ultimately decreed:
WHEREFORE, the assessments for deficiency
documentary stamp taxes on trust fund against [TRB] for
taxable years 1996 and 1997 are hereby CANCELLED.
However, the assessments for deficiency documentary
stamp taxes on special savings deposit and mega savings
deposit for same taxable years 1996 and 1997 are hereby
AFFIRMED.
ACCORDINGLY, [TRB] is ORDERED TO PAY the [CIR] the
deficiency documentary stamp taxes for the years 1996
and 1997 in the respective amounts of ₱9,453,676.33 and
₱18,244,886.69 (all inclusive of 25% surcharge) totaling
₱27,698,562.92 x x x.
xxxx
In addition, [TRB] is ORDERED TO PAY the [CIR] 20%
delinquency interest on ₱27,698,562.92 computed from
February 14, 2002 until fully paid pursuant to Section
249 of the Tax Code, as amended.17
The parties each filed motions relative to the
aforementioned judgment of the CTA Division, to wit:
1. "Omnibus Motion for Substitution of Parties
and Motion for Reconsideration (Re: Decision
dated April 28, 2004)"filed on May 28, 2004 by
[TRB] seeking for the:
a. Substitution of parties from Traders
Royal Bank to Bank of Commerce;
b. Reconsideration and reversal of this
court’s Decision promulgated on April
28, 2004 finding [TRB] liable for
deficiency documentary stamp taxes for
the taxable years 1996 and 1997 in the
amounts of ₱9,453,676.33 and
₱18,244,886.69, respectively (all
inclusive of the 25% surcharge), plus
20% delinquency interest computed
from February 14, 2002 until fully paid;
and c. Cancellation of the subject
deficiency tax assessments.
2. "Motion for Partial Reconsideration" filed on
May 24, 2004 by [CIR] seeking for a partial
reversal of this court’s Decision promulgated on
April 28, 2004 with regard to the cancellation by
this court of [CIR’s] assessment for deficiency
documentary stamp taxes on the trust fund
against [TRB] for the taxable years 1996 and
1997.18
The CTA Division issued a Resolution dated September
10, 2004 denying the motions of the parties:
Based on the allegations of [TRB], the Purchase and Sale
Agreement [between TRB and the Bank of Commerce
(BOC)] was executed on November 9, 2001. Upon the
execution of the said agreement, the BOC assumed the
deposit liabilities of [TRB] for the taxable years covering
1996 and 1997. However, it is noteworthy to emphasize
that the Petition for Review was filed by [TRB] only on
February 15, 2002 after the alleged transfer of right
happened. To adopt the view of [TRB] and pursuant to
the quoted Section 19,Rule 3 of the 1997 Rules of Court,
it should have been the BOC that should have filed the
Petition for Review instead of [TRB]. Yet, this was not the
case. The petition was filed by petitioner Traders Royal
Bank, notwithstanding the alleged transfer of rights to
Bank of Commerce prior to the commencement of the
action. Failure of[TRB] to show justifiable reasons for
such negligence and blunder, this court cannot then allow
the substitution of parties.
xxxx
There being no other new issues raised by [TRB] which
this court has not yet passed upon in its Decision of April
28, 2004, this court hereby RESOLVES to DENY[TRB’s]
motion.
xxxx
Finding that the issue raised by the [CIR] had been
thoroughly discussed in the Decision of April 28, 2004,
this court finds no compelling reason to modify or alter
the same and thereby RESOLVES to DENY [CIR’s] Motion
for Partial Reconsideration.
WHEREFORE, both motions are hereby DENIED for lack
of merit. Accordingly, this court’s Decision promulgated
on April 28, 2004 is AFFIRMED in all respects.19
The CIR and TRB filed with the CTA en banc separate
Petitions for Review, docketed as C.T.A. EB Nos. 32 and
34, respectively, partially appealing the Decision dated
April 28, 2004 and Resolution dated September 10, 2004
of the CTA Division.
The CTA en banc promulgated its Decision in C.T.A. EB
No. 32 on February 14, 2005, dismissing the Petition of
the CIR and affirming the cancellation by the CTA
Division of the assessments against TRB for DST on its
Trust Indenture Agreements for 1996 to 1997. According
to the CTA en banc:
[A]n examination of the Petition for Review revealed that
the issues raised therein by the [CIR] have been
discussed at length and directly ruled upon in the
assailed Decision and in the subsequent Resolution. The
Court is not convinced by [CIR’s] arguments on the
assigned errors to justify a reversal of the questioned
Decision.
The Manual for Regulations of Banks issued by the
Central Bank of the Philippines has defined the trust
business as "xx x any activity resulting from a trustor-
trustee relationship (trusteeship) involving the
appointment of a trustee by a trustor for the
administration, holding, management of funds and/or
properties of the trustor by the trustee for use, benefit or
advantage of the trustor or others called beneficiaries
(Sec.X403 [a])."
As correctly explained in the questioned Decision, "When
a depositor enters into a trust agreement, what is created
is a trustor-trustee relationship. The money deposited is
placed in trust to a common fund and then invested by
the Trust Department into a profitable venture". [CIR’s]
contention that there is a complete transfer of ownership
from the trustor to the trustee bank because the funds
may be invested by the bank in whatever manner it may
deem necessary and the trustor having no control
whatsoever over his funds runs counter to[CIR’s]
allegation in the Petition that "A contract of trust under
the Civil Code is defined as the legal relationship between
one person having an equitable ownership in property
and another person owning [the] legal title to such
property, the equitable ownership of the former entitling
him to the performance of duties and the exercise of
certain powers by the latter." (citing Commentaries and
Jurisprudence on the Civil Code of the Philippines, Arturo
Tolentino, Volume 4, p. 669). The [CIR], in effect, admits
that the trustee bank holds legal title over the funds (i.e.,
has legal ownership of the funds), and is entitled to
exercise certain powers such as the investment of the
funds in behalf of the trustor (which is the essence of the
trust business).
[TRB] likewise correctly pointed out that the trust funds
managed by its Trust Department cannot be
appropriately alleged as time deposits, because the
acceptance of deposits is beyond the realm of the
business of the trust department of banks as implied
under Section X407 of the Manual of Regulations for
Banks inasmuch as no debtor-creditor relationship exists
between the parties in the trust agreement.
The trust placement not being a time deposit, it cannot
therefore be subject to documentary stamp tax as a
certificate of deposit.20
Hence, the dispositive portion of the Decision dated
February 14, 2005 of the CTA en banc in C.T.A. EB No. 32
reads:
WHEREFORE, finding that the Petition for Review is
patently without merit, the same is denied due course.
Accordingly, the same is DISMISSED.21
The CTA en banc, in a Decision dated April 26, 2005 in
C.T.A. EB No. 34,22 similarly dismissed the Petition of TRB
and upheld the ruling of the CTA Division that TRB was
liable for DST on its Special Savings Deposits for 1996 to
1997, plus surcharge and delinquency interest. The CTA
en banc concluded:
For all intents and purposes, [TRB’s] Special Savings and
Mega Savings Deposit are deemed to be of the same
nature and substance as a certificate of deposit bearing
interest. Therefore, We hold that said Special Savings and
Mega Savings passbooks are in themselves certificates of
deposit, subject to documentary stamp tax in accordance
with Section 180, National Internal Revenue Code of
1993, as amended. While the DST is levied on the
document itself, it is not intended to be a tax on the
document alone. Rather, the DST is levied on the exercise
of a privilege of conducting a particular business or
transaction through the execution of specific instruments
or documents (Phil. Home Assurance Corp. vs. Court of
Appeals, 301 SCRA 435). Lastly, there is likewise no merit
to [TRB’s] contention that the Division erred in denying
the "Motion for Substitution of Parties".
Generally, there is no need of a substitution or joinder of
the transferee as a party-litigant for after all even if the
action is continued by or against the original party, the
judgment is binding on all the parties (original party,
adverse party and transferee) (Oria Hnos. v. Gutierrez
Hnos., 52 Phil. 156; Correa v. Pascual, 99 Phil.
696;Bustamante v. Azarcon, L-8939, May 28, 1957). This
is a settled rule in this jurisdiction. Indeed, We may say
that the transferee is a proper (or necessary) party, but
not an indispensable party to the original case (Fetalino
v. Sanz, 44 Phil. 69).
xxxx
Accordingly, no error was committed by the Division
when it denied the "Motion for Substitution of Parties." 23
Consequently, in its Decision dated April 26, 2005 in
C.T.A. EB No. 34, the CTA en banc adjudged:
All the foregoing considered, We see no reason to reverse
the assailed Decision and Resolution of the Division of
this Court.
WHEREFORE, premises considered, the instant petition
is hereby DENIED DUE COURSE, and accordingly,
DISMISSED for lack of merit.24
TRB filed a Motion for Reconsideration of the foregoing
Decision, but said Motion was denied by the CTA en banc
in a Resolution dated June 10, 2005.
The CIR filed a Petition for Review before the Court,
docketed as G.R. No. 167134, assailing the Decision dated
February 14, 2005 of the CTA en banc in C.T.A. EB No. 32.
TRB initially filed a Motion for Extension of Time to File
Petition for Review, requesting an extension of 30 days
(i.e., until August 1, 2005) within which to appeal the
Decision dated April 26, 2005 and Resolution dated June
10, 2005 of the CTA en banc in C.T.A. EB No. 34. The
Motion of TRB was docketed as G.R. No. 168491.
In a Resolution dated August 3, 2005, the Court
consolidated the Petitions in G.R. Nos. 167134 and
168491 considering that they "assail the same decision of
the Court of Tax Appeals, involve the same parties, and
raise interrelated issues."
Eventually, the Court issued a Resolution dated June26,
2006, in which it resolved as follows:
It appearing that [TRB] in G.R. No. 168491 failed to file a
petition for review on certiorari within the extended
period which expired on August 1, 2005, the Court
further resolves to CONSIDER G.R. No. 168491 CLOSED
and TERMINATED.25
The Resolution dated June 26, 2006 of the Court in G.R.
No. 168491 became final and executory and Entry of
Judgment was made in said case on August 24, 2006.
Presently pending resolution by the Court is the Petition
for Review of the CIR in G.R. No. 167134 which appealed
the Decision dated February 14, 2005 of the CTA en banc
in C.T.A. EB No. 32 based on the lone assignment of error,
viz:
THE COURT OF TAX APPEALS EN BANC ERRED IN
HOLDING THAT A TRUST INDENTURE AGREEMENT IS
NOT A CERTIFICATE OF DEPOSIT, HENCE, NOT SUBJECT
TO DOCUMENTARY STAMP TAX UNDER SECTION 180 OF
THE TAX CODE.26
Section 180 of the National Internal Revenue Code
(NIRC) of 1977, as amended by Republic Act No. 7660 –
in force in1996 and 1997 – imposed DST on the following
documents:
Sec. 180. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and
securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest
and others not payable on sight or demand. – On all loan
agreements signed abroad wherein the object of the
contract is located or used in the Philippines; bills of
exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or
any of its instrumentalities or certificates of deposits
drawing interest, or orders for the payment of any sum of
money otherwise than at sight or on demand, or on all
promissory notes, whether negotiable or nonnegotiable,
except bank notes issued for circulation, and on each
renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on
each two hundred pesos, or fractional part thereof, of the
face value of any such agreement, bill of exchange, draft,
certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan
agreement, or promissory notes issued to secure such
loan, whichever will yield a higher tax: Provided,
however, That loan agreements or promissory notes the
aggregate of which does not exceed Two hundred fifty
thousand pesos (₱250,000) executed by an individual for
his purchase on installment for his personal use or that of
his family and not for business, resale, barter or hire of a
house, lot, motor vehicle, appliance or furniture shall be
exempt from the payment of the documentary stamp tax
provided under this section.
The CIR maintains that the relationship between TRB and
its clients under the Trust Indenture Agreements was
debtor-creditors and the said Agreements were actually
certificates of deposit drawing/bearing interest subject
to DST under Section 180 of the NIRC of 1977, as
amended. The CIR points out that the only basis of the
CTA en banc in ruling that the relationship between TRB
and its clients under the Trust Indenture Agreements was
that of trustee-trustors was Section X407 of the 1993
Manual of Regulations for Banks (MORB) issued by the
BSP, which identified the basic characteristics of a trust.
The CIR argues, however, that the very same provision,
Section X407 of the 1993 MORB, identified exceptions,
that is, instances when the agreement or contract would
not constitute a trust. A trust as defined in Section X407
of the 1993 MORB would be in the nature of an
exemption from the payment of DST. Accordingly, TRB
had the burden of proving the legal and factual bases of
its claim that its Trust Indenture Agreements fell under
the definition of "trust" and not among the exceptions in
Section X407 of the 1993 MORB. TRB, though, was unable
to discharge such burden, failing to present evidence,
whether testimonial or documentary, to prove its
entitlement to DST exemption. The CIR, for its part,
claims that the Trust Indenture Agreements were akin to
certificates of deposit because said Agreements also
stated expected rates of return of the investment or for
the use of the amounts of deposits/trust funds for a
certain period, clearly falling under the exception to what
constituted a "trust" in Section X407, paragraph (d) of the
1993 MORB. The CIR also asserts that TRB should not be
permitted to escape/evade the payment of DST by simply
labeling its certificates of deposit drawing/bearing
interests as "trust funds." In determining whether a
certain contract/agreement/document/instrument is
subject to DST, substance should control over form and
labels.
In addition, the CIR insists that the Trust Indenture
Agreements between TRB and its clients were simple
loans governed by Article 1980 of the Civil Code. 27 The
trust funds, being generic, could not be segregated from
the other funds/deposits held by TRB. While TRB had the
obligation to return the equivalent amount deposited, it
had no obligation to return or deliver the same money
deposited. Legal title to the trust funds was
vested/transmitted to TRB upon perfection of the trust
agreement. It then followed that TRB could make use of
the funds/deposits for its banking operations, such as to
pay interest on deposits, to pay withdrawals and dispose
of the amount borrowed for any purpose such as
investing the funds/deposits into a profitable venture.
Currently, the CIR avers, the Trust Indenture Agreements
may be considered as "loan agreements" or "debt
instruments" subject to DST under Sections 173 28 and
17929 of the NIRC of 1997, as amended.
The Petition is meritorious.
Generally, the factual findings of the CTA, a special court
exercising expertise on the subject of tax, are regarded as
final, binding and conclusive upon this Court. 30 However,
there are well-recognized exceptions to this rule, 31 such
as when the conclusion is grounded entirely on
speculations, surmises, or conjectures, as well as when
the findings are conclusions without citation of specific
evidence on which they are based.
At the crux of the instant controversy are the Trust
Indenture Agreements of TRB. At issue is whether the
said Trust Indenture Agreements constituted deposits or
trusts. The BIR posits that the Agreements were deposits
subject to DST, while TRB proffers that the Agreements
were trusts exempt from DST.
Surprisingly, not a single copy of a Trust Indenture
Agreement and/or the Certificate of Participation (issued
to the client as evidence of the trust) could be found in
the records of the case.
The conduct by banks, such as TRB, of trusts and other
fiduciary business (in 1996 and 1997) was governed by
the 1993 MORB, which enumerated the minimum
documentary requirements for trusts, including a written
agreement or indenture and a plan (i.e., written
declaration of trust) for common trust funds (CTF).
Relevant provisions of the 1993 MORB are quoted in full
below:
Sec. X409 Trust and Other Fiduciary Business. The
conduct of trust and other fiduciary business shall be
subject to the following regulations.
§ X409.1 Minimum documentary requirements. Each
trust or fiduciary account shall be covered by a written
document establishing such account, as follows:
a. In the case of accounts created by an order of
the court or other competent authority, the
written order of said court or authority.
b. In the case of accounts created by
corporations, business firms, organizations or
institutions, the voluntary written agreement or
indenture entered into by the parties,
accompanied by a copy of the board resolution
or other evidence authorizing the establishment
of, and designating the signatories to, the trust or
other fiduciary account.
c. In the case of accounts created by individuals,
the voluntary written agreement or indenture
entered into by the parties.
The voluntary written agreement or indenture shall
include the following minimum provisions:
(1) Title or nature of contractual agreement in
noticeable print;
(2) Legal capacities, in noticeable print, of
parties sought to be covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of the
arrangement;
(5) Distribution of the funds and/or properties;
(6) Duties and powers of trustee or fiduciary;
(7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual arrangement and,
in appropriate cases, provision for successor-
trustee or fiduciary;
(10) The amount or rate of the compensation of
trustee or fiduciary;
(11) A statement in noticeable print to the effect
that trust and other fiduciary business are not
covered by the PDIC and that losses, if any, shall
be for the account of the client; and
(12) Disclosure requirements for transactions
requiring prior authority and/or specific written
investment directive from the client, court of
competent jurisdiction or other competent
authority. x x x x
Sec. X410 Common Trust Funds.(1)
The administration of CTFs shall be subject to the
provisions of Subsecs. X409.1 up to X409.6 and to the
following regulations.
As an alternative compliance with the required prior
authority and disclosure under Subsecs. X409.2 and
X409.3, a list which shall be updated quarterly of
prospective and/or outstanding investment outlets may
be made available by the trustee for the review of all CTF
clients.
xxxx
(3) Minimum documentary requirements for common
trust funds. In addition to the trust agreement or
indenture required under Subsec. X409.1, each CTF shall
be established, administered and maintained in
accordance with a written declaration of trust referred to
as the plan, which shall be approved by the board of
directors of the trustee and a copy submitted to the
appropriate supervising and examining department of
the BSP within thirty (30) banking days prior to its
implementation.
The plan shall make provisions on the following matters:
a. Title of the plan;
b. Manner in which the plan is to be operated;
c. Investment powers of the trustee with respect
to the plan, including the character and kind of
investments which may be purchased;
d. Allocation, apportionment, distribution dates
of income, profit and losses;
e. Terms and conditions governing the admission
or withdrawal as well as expansion or
contraction of participation in the plan including
the minimum initial placement and account
balance to be maintained by the trustor;
f. Auditing and settlement of accounts of the
trustee with respect to the plan;
 g. Detailed information on the basis, frequency,
and method of valuing and accounting of CTF
assets and each participation in the fund;
h. Basis upon which the plan may be terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions which shall
be uniformly applied to all participants in a fund
and which shall not be changed between
valuation dates; and
k. Such other matters as may be necessary or
proper to define clearly the rights of participants
under the plan.
The legal capacity of the bank administering a CTF shall
be indicated in the plan and other related agreements or
contracts as trustee of the fund and not in any other
capacity such as fund manager, financial manager, or like
terms.
The provisions of the plan shall control all participations
in the fund and the rights and benefits of all parties in
interest.
The plan may be amended by resolution of the board of
directors of the trustee: Provided, however, That
participants in the fund shall be immediately notified of
such amendments and shall be allowed to withdraw their
participation if they are not in conformity with the
amendments made: Provided, further, That amendments
to the plan shall be submitted to the appropriate
supervising and examining department of the BSP within
ten (10) banking days from approval of the amendments
by the board of directors.
A copy of the plan shall be available at the principal office
of the trustee during regular office hours for inspection
by any person having an interest in a trust whose funds
are invested in the plan or by his authorized
representative. Upon request, a copy of the plan shall be
furnished such person.(Emphases supplied.)
The importance of the actual Trust Indenture
Agreements cannot be gainsaid. The only way the Court
can determine the actual relationship between TRB and
its clients is through a scrutiny of the terms and
conditions embodied in the said Agreements.
Article 1370 of the Civil Code provides:
Art. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
In the interpretation of contracts, the ascertainment of
the intention of the contracting parties is to be
discharged by looking to the words they used to project
that intention in their contract, all the words, not just a
particular word or two, and words in context, not words
standing alone.32 In Bautista v. Court of Appeals,33 this
Court said:
The rule is that where the language of a contract is plain
and unambiguous, its meaning should be determined
without reference to extrinsic facts or aids. The intention
of the parties must be gathered from that language, and
from that language alone. x x x.
Following the rules on interpretation of contracts, Rule
130, Section 9 of the Revised Rules of Court lays down
the parol evidence rule:
Sec. 9. Evidence of written agreements.– When the terms
of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and
there can be, between the parties and their successors in
interest, no evidence of such terms other than the
contents of the written agreement.
However, a party may present evidence to modify, explain
or add to the terms of the written agreement if he puts in
issue in his pleading:
(a) An intrinsic ambiguity, mistake or
imperfection in the written agreement;
(b) The failure of the written agreement to
express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the
parties or their successors in interest after the
execution of the written agreement.
The term "agreement" includes wills.
The burden fell upon TRB to produce the Trust Indenture
Agreements, not only because the said Agreements were
in its possession, but more importantly, because its
protest against the DST assessments was entirely
grounded on the allegation that said Agreements were
trusts. TRB was the petitioner before the CTA in C.T.A.
Case No. 6392 and it was among its affirmative
allegations that the said Trust Indenture Agreements
were trusts, thus, TRB had the obligation of proving this
fact. It is a basic rule of evidence that each party must
prove its affirmative allegation.34 As Rule 131, Section 1
of the Revised Rules of Court states:
Section 1. Burden of proof. — Burden of proof is the duty
of a party to present evidence on the facts in issue
necessary to establish his claim or defense by the amount
of evidence required by law.
TRB, in its Formal Offer of Evidence, 35 submitted only one
document, Exhibit "A," which was page 10 of the 1993
MORB containing Section X407 on Non-Trust, Non-
Fiduciary and/or Non-Investment Management
Activities.
Section X407 of the 1993 MORB is reproduced
hereunder:
Sec. X407Non-Trust, Non-Fiduciary and/or Non-
Investment Management Activities The basic
characteristic of trust, other fiduciary and investment
management relationship is the absolute non-existence
of a debtor-creditor relationship, thus, there is no
obligation on the part of the trustee, fiduciary or
investment manager to guarantee returns on the funds or
properties regardless of the results of the investment.
The trustee, fiduciary or investment manager is entitled
to fees/commissions which shall be stipulated and fixed
in the contract or indenture and the trustor or principal
is entitled to all the funds or properties less
fees/commissions, losses and other charges. Any
agreement/arrangement that does not conform to these
shall not be considered as trust, other fiduciary and/or
investment management relationship.
The following shall not constitute a trust, other fiduciary
and/or investment management relationship:
a. When there is a preponderance of purpose or
of intent that the arrangement creates or
establishes a relationship other than a trust,
fiduciary and/or investment management;
b. When the agreement or contract is itself used
as a certificate of indebtedness in exchange for
money placement from clients and/or as the
medium for confirming placements and
investment thereof;
c. When the agreement or contract of an account
is accepted under the signature(s) of those other
than the trust officer or subordinate officer of
the trust department or those authorized by the
board of directors to represent the trust officer;
d. Where there is a fixed rate or guaranty of
interest, income or return in favor of its client or
beneficiary: Provided, however, That where
funds are placed in fixed income-generating
investments, a quotation of income expectation
or like terms, shall neither be considered as
arrangements with a fixed rate nor a guaranty of
interest, income or return when the agreement
or indenture categorically states in bold letters
that the quoted income expectation or like terms
is neither assured nor guaranteed by the trustee
or fiduciary and it does not, therefore, entitle the
client to a fixed interest or return on his
investments: Provided, further, that any of the
following practices or practices similar and/or
tantamount thereto shall be construed as fixing
or guaranteeing the rate of interest, income or
return:
(1) Issuance of certificates, side
agreements, letters of undertaking, or
other similar documents providing for
fixed rates or guaranteeing interest,
income or return;
(2) Paying trust earnings based on
indicated or expected yield regardless of
the actual investment results;
(3) Increasing or reducing fees in order
to meet a quoted or expected yield;
(4) Entering into any arrangement,
scheme or practice which results in the
payment of fixed rates or yield on trust
investments or in the payment of the
indicated or expected yield regardless of
the actual investment results; and
e. Where the risk or responsibility is exclusively
with the trustee, fiduciary or investment
manager in case of loss in the investment of
trust, fiduciary or investment management
funds, when such loss is not due to the failure of
the trustee or fiduciary to exercise the skill, care,
prudence and diligence required by law.
Trust, other fiduciary and investment management
activities involving any of the foregoing which are
accepted, renewed or extended after 16 October 1990
shall be reported as deposit substitutes and shall be
subject to the reserve requirement for deposit substitutes
from the time of inception, without prejudice to the
imposition of the applicable sanctions provided for in
Sections 36 and 37 of R.A. No. 7653.
A reading of Section X407 of the 1993 MORB reveals that
it merely explained the basic characteristics of a trust or
other fiduciary and investment management
relationship, and expressly identified the instances which
would not constitute a trust, fiduciary and/or investment
management relationship. Simply put, Section X407 of
the MORB set the standards in determining whether a
contract was one of trust or some other agreement.
Therefore, it was still necessary for TRB to present the
Trust Indenture Agreements to test the terms and
conditions thereof against the standards set by Section
X407 of the 1993 MORB. Without the actual Trust
Indenture Agreements, there would be no factual basis
for concluding that the same were trusts under Section
X407 of the 1993 MORB. TRB called Mr. Navarro, its Vice
President, to the witness stand to testify on the terms and
conditions of the Trust Indenture Agreements. Mr.
Navarro’s testimony, though, cannot be accorded much
weight and credence as it is in violation of the parol
evidence rule.
TRB made no attempt to explain why it did not present
the Trust Indenture Agreements, and it also did not take
the effort to establish that any of the exceptional
circumstances under Rule 130, Section 9 of the Revised
Rules of Court, allowing "a party to modify, explain or add
to the terms of written agreement," was extant in this
case. Moreover, Mr. Navarro’s testimony consisted
essentially of conclusions of law and general descriptions
of trusts using the very same words and terms under
Section X407 of the 1993 MORB.
In contrast, records show that the BIR examiners
conducted a thorough audit and investigation of the
books of account of TRB. Mr. Alexander D. Martinez, a BIR
Total P 1,064,064.38 P 104,595.00 39
Revenue Officer, testified that it took the BIR team of
examiners more than one-year to conduct and complete
the audit and examination of the documents of TRB,
which consisted of approximately 20,000 pages. 36 The In addition, TRB is liable for 20%delinquency interest
audit and investigation resulted in the issuance of under Section 249 of the NIRC of 199340
Assessment Notices against TRB for DST tax liabilities for from February 14, 200241 until full payment of its
1996 and 1997, which were duly received by TRB. The foregoing tax liabilities.
tax assessments against TRB are presumed valid. In Sy Po
v. Court of Tax Appeals,37 the Court pronounced: WHEREFORE, premises considered, the instant Petition
for Review on Certiorari is GRANTED. The assailed
Tax assessments by tax examiners are presumed correct Decision dated February 14, 2005 of the CTA en bane in
and made in good faith. The taxpayer has the duty to C.T.A. EB No. 32, affirming the Decision dated April 28,
prove otherwise. In the absence of proof of any 2004 and Resolution dated September 10, 2004 of the CT
irregularities in the performance of duties, an assessment A Division in C.T.A. Case No. 6392, is REVERSED and SET
duly made by a Bureau of Internal Revenue examiner and ASIDE. Respondent Traders Royal Bank is ORDERED to
approved by his superior officers will not be disturbed. pay the deficiency Documentary Stamp Taxes on its Trust
All presumptions are in favor of the correctness of tax Indenture Agreements for the taxable years 1996 and
assessments. (Citations omitted.) 1997, in the amounts of Pl,064,064.38 and "1104, 595.00,
In Marcos II v. Court of Appeals, 38 the Court again had the respectively, plus 20% delinquency interest from
occasion to rule: February 14, 2002 until full payment thereof.
It is not the Department of Justice which is the SO ORDERED.
government agency tasked to determine the amount of TERESITA J. LEONARDO-DE CASTRO
taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and Associate Justice Acting Chairperson
assessments are presumed correct and made in good WE CONCUR:
faith. The taxpayer has the duty of proving otherwise. In
the absence of proof of any irregularities in the
performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is
prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show
clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the
judicial affirmance of said assessment. x x x. (Citations
omitted.)
Given the failure of TRB to present proof of error in the
tax assessments of the BIR, the Court affirms the same.
The liabilities of TRB for deficiency DST on its Trust
Indenture Agreements for 1996 and 1997 are computed
as follows:

1996 1997

Trust Fund P 567,500,927.000 P 55,783,860.92

Tax Rate .30/200 .30/200

Basic Tax 851,251.50 83,676.00

Add: Surcharge 212,812.88 20,919.00

G.R. No. 163445 December 18, 2007
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC
BAY MOTORS CORPORATION,
vs.
HON. GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue
(BIR), THE REGIONAL DIRECTOR, BIR, Region III, THE
At bar is a petition for review on certiorari seeking the
reversal of the decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 79329 declaring the Regional Trial Court
(RTC) of Olongapo City, Branch 74, without jurisdiction
over Civil Case No. 275-0-2003.
The facts are undisputed.
Congress enacted Republic Act (R.A.) No. 7227 creating
the Subic Special Economic Zone (SSEZ) and extending a
number of economic or tax incentives therein. Section 12
of the law provides:
(a) Within the framework and subject to the
mandate and limitations of the Constitution and
the pertinent provisions of the Local
Government Code, the [SSEZ] shall be developed
into a self-sustaining, industrial, commercial,
financial and investment center to generate
employment opportunities in and around the
zone and to attract and promote productive
foreign investments;
(b) The [SSEZ] shall be operated and managed as
a separate customs territory ensuring free flow
or movement of goods and capital within, into
and exported out of the [SSEZ], as well as
provide incentives such as tax and duty-free
importations of raw materials, capital and
equipment. However, exportation or removal
of goods from the territory of the [SSEZ] to
the other parts of the Philippine territory
shall be subject to customs duties and taxes
under the Customs and Tariff Code and other
relevant tax laws of the Philippines;
(c) The provision of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within
the [SSEZ]. In lieu of paying taxes, three percent
(3%) of the gross income earned by all
businesses and enterprise within the [SSEZ]
shall be remitted to the National Government,
one percent (1%) each to the local government
units affected by the declaration of the zone in
proportion to their population area, and other
factors. In addition, there is hereby established a
development fund of one percent (1%) of the
gross income earned by all business and
enterprise within the [SSEZ] to be utilized for the
development of municipalities outside the City of
Olongapo and the Municipality of Subic, and
other municipalities contiguous to the base
areas.
In case of conflict between national and local
laws with respect to tax exemption privileges in
the [SSEZ], the same shall be resolved in favor of
the latter;
(d) No exchange control policy shall be applied
and free markets for foreign exchange, gold,
securities and future shall be allowed and
maintained in the [SSEZ]; (emphasis supplied)
On January 24, 1995, then Secretary of Finance Roberto F.
De Ocampo, through the recommendation of then
Commissioner of Internal Revenue (CIR) Liwayway
Vinzons-Chato, issued Revenue Regulations [Rev. Reg.]
No. 1-95,2 providing the "Rules and Regulations to
Implement the Tax Incentives Provisions Under
Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227,
[o]therwise known as the Bases Conversion and
Development Act of 1992." Subsequently, Rev. Reg. No.
12-973 was issued providing for the "Regulations
Implementing Sections 12(c) and 15 of [R.A.] No. 7227
and Sections 24(b) and (c) of [R.A.] No. 7916 Allocating
Two Percent (2%) of the Gross Income Earned by All
Businesses and Enterprises Within the Subic, Clark, John
Hay, Poro Point Special Economic Zones and other Special
Economic Zones under PEZA." On September 27, 1999,
Rev. Reg. No. 16-994 was issued "Amending [RR] No. 1-95,
as amended, and other related Rules and Regulations to
Implement the Provisions of paragraphs (b) and (c) of
Section 12 of [R.A.] No. 7227, otherwise known as the
‘Bases Conversion and Development Act of 1992’ Relative
to the Tax Incentives Granted to Enterprises Registered in
the Subic Special Economic and Freeport Zone."
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued
Revenue Memorandum Circular (RMC) No. 31-2003
setting the "Uniform Guidelines on the Taxation of
Imported Motor Vehicles through the Subic Free Port
Zone and Other Freeport Zones that are Sold at Public
Auction." The assailed portions of the RMC read:
II. Tax treatments on the transactions involved in the
importation of motor vehicles through the SSEFZ and
other legislated Freeport zones and subsequent sale
thereof through public auction.—Pursuant to existing
revenue issuances, the following are the uniform tax
treatments that are to be adopted on the different
transactions involved in the importation of motor
vehicles through the SSEFZ and other legislated Freeport
zones that are subsequently sold through public auction:
A. Importation of motor vehicles into the freeport zones
1. Motor vehicles that are imported into the
Freeport zones for exclusive use within the zones
are, as a general rule, exempt from customs
duties, taxes and other charges, provided that
the importer-consignee is a registered enterprise
within such freeport zone. However, should
these motor vehicles be brought out into the
 customs territory without returning to the
freeport zones, the customs duties, taxes and
other charges shall be paid to the BOC before
release thereof from its custody.
xxx
3. For imported motor vehicles that are imported
by persons that are not duly registered
enterprises of the freeport zones, or that the
same are intended for public auction within the
freeport zones, the importer-
consignee/auctioneer shall pay the value-added
tax (VAT) and excise tax to the BOC before the
registration thereof under its name with the LTO
and/or the conduct of the public auction.
xxx
B. Subsequent sale/public auction of the motor vehicles
1. Scenario One – The public auction is
conducted by the consignee of the imported
motor vehicles within the freeport zone
xxx
1.2. In case the consignee-auctioneer is a
registered enterprise and/or locator not
entitled to the preferential tax treatment or if
the same is entitled from such incentive but its
total income from the customs territory exceeds
30% of its entire income derived from the
customs territory and the freeport zone, the
income derived from the public auction shall be
subjected to the regular internal revenue taxes
imposed by the Tax Code.
xxx
1.4. In the event that the winning bidder shall
bring the motor vehicles into the customs
territory, the winning bidder shall be deemed
the importer thereof and shall be liable to pay
the VAT and excise tax, if applicable, based on
the winning bid price. However, in cases where
the consignee-auctioneer has already paid the
VAT and excise tax on the motor vehicles before
the registration thereof with LTO and the
conduct of public auction, the additional VAT
and excise tax shall be paid by winning bidder
resulting from the difference between the
winning bid price and the value used by the
consignee-auctioneer in payment of such taxes.
For excise tax purposes, in case the winning bid
price is lower than the total costs to import,
reconditioning/rehabilitation of the motor
vehicles, and other administrative and selling
expenses, the basis for the computation of the
excise tax shall be the total costs plus ten
percent (10%) thereof. The additional VAT and
excise taxes shall be paid to the BIR before the
auctioned motor vehicles are registered with
the LTO.
1.5 In case the services of a professional
auctioneer is employed for the public auction,
the final withholding tax of 25%, in case he/she
is a non-resident citizen or alien, or the
expanded withholding tax of 20%, in case
he/she is a resident citizen or alien, shall be
withheld by the consignee-auctioneer from the
amount of consideration to be paid to the
professional auctioneer and shall be remitted
accordingly to the BIR.
This was later amended by RMC No. 32-2003,5 to wit:
II. The imported motor vehicles after its release
from Customs custody are sold through public
auction/negotiated sale by the consignee within
or outside of the Freeport Zone:
A. The gross income earned by the consignee-seller from
the public auction/negotiated sale of the imported
vehicles shall be subject to the preferential tax rate of five
percent (5%) in lieu of the internal revenue taxes
imposed by the National Internal Revenue Code of 1997,
provided that the following conditions are present:
1.That the consignee-seller is a duly registered enterprise
entitled to such preferential tax rate as well as a
registered taxpayer with the Bureau of Internal
Revenue (BIR).
2.That the total income generated by the consignee-seller
from sources within the customs territory does not
exceed thirty percent (30%) of the total income
derived from all sources.
B. In case the consignee-seller is a registered enterprise
and/or locator not entitled to the preferential tax
treatment or if the same is entitled from such incentive
but its total income from the customs territory exceeds
thirty percent (30%) of its entire income derived from
the customs territory and the freeport zone, the sales or
income derived from the public auction/negotiated sale
shall be subjected to the regular internal revenue taxes
imposed by the Tax Code. The consignee-seller shall also
observe the compliance requirements prescribed by the
Tax Code. When public auction or negotiated sale is
conducted within or outside of the freeport zone, the
following tax treatment shall be observed:
1. Value Added Tax (VAT)/ Percentage Tax (PT) –
VAT or PT shall be imposed on every public auction
or negotiated sale.
2. Excise Tax – The imposition of excise tax on
public auction or negotiated sale shall be held in
abeyance pending verification that the importer’s
selling price used as a basis by the Bureau of
Customs in computing the excise tax is correctly
determined.
Petitioners Asia International Auctioneers, Inc. (AIAI)
and Subic Bay Motors Corporation are corporations
organized under Philippine laws with principal place of
business within the SSEZ. They are engaged in the
importation of mainly secondhand or used motor
vehicles and heavy transportation or construction
equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo
City, praying for the nullification of RMC No. 31-2003 for
being unconstitutional and an ultra vires act. The
complaint was docketed as Civil Case No. 275-0-2003 and
raffled to Branch 74. Subsequently, petitioners filed their
"First Amended Complaint to Declare Void, Ultra Vires,
and Unconstitutional [RMC] No. 31-2003 dated June 3,
2003 and [RMC] No. 32-2003 dated June 5, 2003, with
Application for a Writ of Temporary Restraining Order
and Preliminary Injunction"6 to enjoin respondents from
implementing the questioned RMCs while the case is
pending. Particularly, they question paragraphs II(A)(1)
and (3), II(B)(1.2), (1.4) and (1.5) of RMC No. 31-2003
and paragraphs II(A)(2) and (B) of RMC No. 32-2003.
Before a responsive pleading was filed, petitioners filed
their Second Amended Complaint7 to include Rev. Reg.
Nos. 1-95, 12-97 and 16-99 dated January 24, 1995,
August 7, 1997 and September 27, 1999, respectively,
which allegedly contain some identical provisions as the
questioned RMCs, but without changing the cause of
action in their First Amended Complaint.
The Office of the Solicitor General (OSG) submitted its
"Comment (In Opposition to the Application for Issuance
of a Writ of Preliminary Injunction)." 8 Respondents CIR,
Regional Director and Revenue District Officer submitted
their joint "Opposition (To The Prayer for Preliminary
Injunction and/or Temporary Restraining Order by
Petitioners)."9
Then Secretary of Finance Jose Isidro N. Camacho filed a
Motion to Dismiss the case against him, alleging that he is
not a party to the suit and petitioners have no cause of
action against him.10 Respondents CIR, BIR Regional
Director and BIR Revenue District Officer also filed their
joint Motion to Dismiss on the grounds that "[t]he trial
court has no jurisdiction over the subject matter of the
complaint" and "[a] condition precedent, that is,
exhaustion of administrative remedies, has not been
complied with."11 Petitioners filed their "Motion to
Expunge from the Records the Respondents[’] Motion to
Dismiss"12 for allegedly failing to comply with Section 4,
Rule 15 of the Rules of Court. To this, the respondents
filed their Opposition.13
Meantime, BIR Revenue District Officer Rey Asterio L.
Tambis sent a 10-Day Preliminary Notice14 to the
president of petitioner AIAI for unpaid VAT on auction
sales conducted on June 6-8, 2003, as per RMC No. 32-
2003.
On August 1, 2003, the trial court issued its
order15 granting the application for a writ of preliminary
injunction. The dispositive portion of the order states:
WHEREFORE, premises considered, petitioners’
application for the issuance of a writ of preliminary
injunction is hereby GRANTED. Let the writ issue
upon the filing and approval by the court of an
injunction bond in the amount of Php 1 Million.
SO ORDERED.16
Consequently, respondents CIR, the BIR Regional Director
of Region III, the BIR Revenue District Officer of the SSEZ,
and the OSG filed with the CA a petition for certiorari
under Rule 65 of the Rules of Court with prayer for the
issuance of a Temporary Restraining Order and/or Writ
of Preliminary Injunction to enjoin the trial court from
exercising jurisdiction over the case.17
Meantime, BIR Regional Director Danilo A. Duncano sent
a Preliminary Assessment Notice 18 to the President of
AIAI, informing him of the VAT due from the company for
the auction sales conducted on June 6-8, 2003 as per
RMC No. 32-2003, plus surcharge, interest and
compromise penalty. Thereafter, a Formal Letter of
Demand19 was sent to the President of petitioner AIAI by
the Officer-in-Charge of the BIR Office of the Regional
Director.
On March 31, 2004, the CA issued its assailed decision,
the dispositive portion of which states:
WHEREFORE, the petition is GRANTED. Public
respondent Regional Trial Court, Branch 74, of
Olongapo City is hereby declared bereft of
jurisdiction to take cognizance of Civil Case No. 275-
0-2003. Accordingly, said Civil Case No. 275-0-2003
is hereby DISMISSED and the assailed Order dated
August 1, 2003, ANNULLED and SET ASIDE.
SO ORDERED.20
Hence, this Petition for Review on Certiorari 21 with an
application for a temporary restraining order and a writ
of preliminary injunction to enjoin respondents "from
pursuing sending letters of assessments to petitioners."
Petitioners raise the following issues:
[a] [W]hether a petition for certiorari under Rule 65
of the New Rules is proper where the issue raised
therein has not yet been resolved at the first instance
by the Court where the original action was filed, and,
necessarily, without first filing a motion for
reconsideration;
[b] [W]hich Court- the regular courts of justice
established under Batas Pambansa Blg. 129 or the
Court of Tax Appeals – is the proper court of
jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional and against
an existing law where the challenge does not involve
the rate and figures of the imposed taxes;
[c] [D]ependent on an affirmative resolution of the
second issue in favor of the regular courts of justice,
whether the writ of preliminary injunction granted by
the Court at Olongapo City was properly and legally
issued.22
Petitioners contend that there were fatal procedural
defects in respondents’ petition for certiorari with the
CA. They point out that the CA resolved the issue of
jurisdiction without waiting for the lower court to first
rule on the issue. Also, respondents did not file a motion
for reconsideration of the trial court’s order granting the
writ of preliminary injunction before filing the petition
with the CA.
The arguments are unmeritorious.
Jurisdiction is defined as the power and authority of a
court to hear, try and decide a case. 23 The issue is so basic
that it may be raised at any stage of the proceedings, even
on appeal.24 In fact, courts may take cognizance of the
issue even if not raised by the parties themselves. 25 There
is thus no reason to preclude the CA from ruling on this
issue even if allegedly, the same has not yet been resolved
by the trial court.
As to respondents’ failure to file a motion for
reconsideration, we agree with the ruling of the CA,
which states:
It is now settled that the filing of a motion for
reconsideration is not always sine qua non before
availing of the remedy of certiorari.26 Hence, the
general rule of requiring a motion for reconsideration
finds no application in a case where what is precisely
being assailed is lack of jurisdiction of the respondent
court.27 And considering also the urgent necessity for
resolving the issues raised herein, where further delay
could prejudice the interests of the government, 28 the
haste with which the Solicitor General raised these
issues before this Court becomes understandable.29
Now, to the main issue: does the trial court have
jurisdiction over the subject matter of this case?
Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an
action to declare as unconstitutional, void and against the
provisions of [R.A. No.] 7227" the RMCs issued by the
CIR. They explain that they "do not challenge the rate,
structure or figures of the imposed taxes, rather they
challenge the authority of the respondent Commissioner
to impose and collect the said taxes." They claim that the
challenge on the authority of the CIR to issue the RMCs
does not fall within the jurisdiction of the Court of Tax
Appeals (CTA).
Petitioners’ arguments do not sway.
R.A. No. 1125, as amended, states:
Sec. 7. Jurisdiction.—The Court of Tax Appeals shall
exercise 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 imposed in relation
thereto, or other matters arising under the
National Internal Revenue Code or other laws or
part of law administered by the Bureau of
Internal Revenue; x x x (emphases supplied)
We have held that RMCs are considered
administrative rulings which are issued from time to time
by the CIR.30
Rodriguez v. Blaquera31 is in point. This case involves
Commonwealth Act No. 466, as amended by R.A. No. 84,
which imposed upon firearm holders the duty to pay an
initial license fee of P15 and an annual fee of P10 for each
firearm, with the exception that in case of "bona fide and
active members of duly organized gun clubs and
accredited by the Provost Marshal General," the annual
fee is reduced to P5 for each firearm. Pursuant to this, the
CIR issued General Circular No. V-148 which stated that
"bona fide and active members of duly organized gun
clubs and accredited by the Provost Marshal General…
shall pay an initial fee of fifteen pesos and an annual fee
of five pesos for each firearm held on license except
caliber .22 revolver or rifle." The General Circular further
provided that "[m]ere membership in the gun club does
not, as a matter of right, entitle the member to the
reduced rates prescribed by law. The licensee must be
accredited by the Chief of Constabulary… [and] the
firearm covered by the license of the member must be of
the target model in order that he may be entitled to the
reduced rates." Rodriguez, as manager of the Philippine
Rifle and Pistol Association, Inc., a duly accredited gun
club, in behalf of the members who have paid under
protest the regular annual fee of P10, filed an action in
the Court of First Instance (now RTC) of Manila for the
nullification of the circular and the refund of P5. On the
issue of jurisdiction, plaintiff similarly contended that the
action was not an appeal from a ruling of the CIR but
merely an attempt to nullify General Circular No. V-148,
hence, not within the jurisdiction of the CTA. The Court,
in finding this argument unmeritorious, explained:
We find no merit in this pretense. General Circular
No. V-148 directs the officers charged with the
collection of taxes and license fees to adhere strictly
to the interpretation given by the defendant to the
statutory provision above mentioned, as set forth in
the circular. The same incorporates, therefore, a
decision of the Collector of Internal Revenue (now
Commissioner of Internal Revenue) on the manner
of enforcement of said statute, the administration of
which is entrusted by law to the Bureau of Internal
Revenue. As such, it comes within the purview of
[R.A.] No. 1125, section 7 of which provides that the
[CTA] "shall exercise exclusive appellate jurisdiction
to review by appeal * * * decisions of the Collector of
Internal Revenue in * * * matters arising under the
National Internal Revenue Code or other law or part
of law administered by the Bureau of Internal
Revenue." Besides, it is plain from plaintiff’s original
complaint that one of its main purposes was to
secure an order for the refund of the sums collected
in excess of the amount he claims to be due by way
of annual fee from the gun club members,
regardless of the class of firearms they have.
Although the prayer for reimbursement has been
eliminated from his amended complaint, it is only
 too obvious that the nullification of General Circular
No. V-148 is merely a step preparatory to a claim for
refund.
Similarly, in CIR v. Leal,32 pursuant to Section 116 of
Presidential Decree No. 1158 (The National Internal
Revenue Code, as amended) which states that "[d]ealers
in securities shall pay a tax equivalent to six (6%) per
centum of their gross income. Lending investors shall pay
a tax equivalent to five (5%) per cent, of their gross
income," the CIR issued Revenue Memorandum Order
(RMO) No. 15-91 imposing 5% lending investor’s tax on
pawnshops based on their gross income and requiring all
investigating units of the BIR to investigate and assess
the lending investor’s tax due from them. The issuance of
RMO No. 15-91 was an offshoot of the CIR’s finding that
the pawnshop business is akin to that of "lending
investors" as defined in Section 157(u) of the Tax Code.
Subsequently, the CIR issued RMC No. 43-91 subjecting
pawn tickets to documentary stamp tax. Respondent
therein, Josefina Leal, owner and operator of Josefina’s
Pawnshop, asked for a reconsideration of both RMO No.
15-91 and RMC No. 43-91, but the same was denied by
petitioner CIR. Leal then filed a petition for prohibition
with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders.
The CIR, through the OSG, filed a motion to dismiss on the
ground of lack of jurisdiction. The RTC denied the motion.
Petitioner filed a petition for certiorari and prohibition
with the CA which dismissed the petition "for lack of
basis." In reversing the CA, dissolving the Writ of
Preliminary Injunction issued by the trial court and
ordering the dismissal of the case before the trial court,
the Supreme Court held that "[t]he questioned RMO No.
15-91 and RMC No. 43-91 are actually rulings or opinions
of the Commissioner implementing the Tax Code on the
taxability of pawnshops." They were issued pursuant to
the CIR’s power under Section 24533 of the Tax Code "to
make rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws, including ruling on the classification of articles of
sales and similar purposes." The Court held that under
R.A. No. 1125 (An Act Creating the Court of Tax Appeals),
as amended, such rulings of the CIR are appealable to the
CTA.
In the case at bar, the assailed revenue regulations and
revenue memorandum circulars are actually rulings or
opinions of the CIR on the tax treatment of motor
vehicles sold at public auction within the SSEZ to
implement Section 12 of R.A. No. 7227 which provides
that "exportation or removal of goods from the territory
of the [SSEZ] to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of
the Philippines." They were issued pursuant to the power
of the CIR under Section 4 of the National Internal
Revenue Code,34 viz:
Section 4. Power of the Commissioner to Interpret
Tax Laws and to Decide Tax Cases.-- The power to
interpret the provisions of this Code and other
tax laws shall be under the exclusive and
original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto,
or other matters arising under this Code or
other laws or portions thereof administered by
the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
(emphases supplied)
Petitioners point out that the CA based its decision on
Section 7 of R.A. No. 1125 that the CTA "shall exercise
exclusive appellate jurisdiction to review by appeal…"
decisions of the CIR. They argue that in the instant case,
there is no decision of the respondent CIR on any
disputed assessment to speak of as what is being
questioned is purely the authority of the CIR to impose
and collect value-added and excise taxes.
Petitioners’ failure to ask the CIR for a reconsideration of
the assailed revenue regulations and RMCs is another
reason why the instant case should be dismissed. It is
settled that the premature invocation of the court's
intervention is fatal to one's cause of action. If a remedy
within the administrative machinery can still be resorted
to by giving the administrative officer every opportunity
to decide on a matter that comes within his jurisdiction,
then such remedy must first be exhausted before the
court’s power of judicial review can be sought. 35 The
party with an administrative remedy must not only
initiate the prescribed administrative procedure to
obtain relief but also pursue it to its appropriate
conclusion before seeking judicial intervention in order
to give the administrative agency an opportunity to
decide the matter itself correctly and prevent
unnecessary and premature resort to the court. 36
Petitioners’ insistence for this Court to rule on the merits
of the case would only prove futile. Having declared the
court a quo without jurisdiction over the subject matter
of the instant case, any further disquisition would
be obiter dictum.
IN VIEW WHEREOF, the petition is DENIED.
COMMISSIONER OF INTERNAL REVENUE A Corporate Annual Income Tax Return covering
income of respondents CBU for the year
Vs.
ended December 31, 1994 together with
FAR EAST BANK attachments
G.R. No. 173854 March 15, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x B Corporate Annual Income Tax Return covering
income of respondents FCDU for the year
Entitlement to a tax refund is for the taxpayer to prove and not
ended December 31, 1994 together with
for the government to disprove.
attachments
This Petition for Review on Certiorari assails the
C Corporate Annual Income Tax Return covering
January 31, 2006 Decision[1] of the Court of Appeals (CA) in CA-
income of respondents CBU for the year
G.R. SP No. 56773 which reversed and set aside the October 4,
ended December 31, 1995 together with
1999 Decision[2] of the Court of Tax Appeals (CTA) in CTA Case
attachments
No. 5487. Also assailed is the July 19, 2006 Resolution[3] of the
CA denying the motion for reconsideration. D Corporate Annual Income Tax Return covering
income of respondents FCDU for the year
The CTA found that respondent Far East Bank & Trust
ended December 31, 1995 together with
Company failed to prove that the income derived from rentals
attachments
and sale of real property from which the taxes were withheld
were reflected in its 1994 Annual Income Tax Return. The CA
found otherwise.
N to Z; Certificates of Creditable
Factual Antecedents
AA to UU Withholding Tax and Monthly
On April 10, 1995, respondent filed with the Bureau Remittance Returns of Income Taxes Withheld
of Internal Revenue (BIR) two Corporate Annual Income Tax issued by various withholding agents for the year
Returns, one for its Corporate Banking Unit (CBU) [4] and ended December 31, 1994
another for its Foreign Currency Deposit Unit (FCDU),[5] for the
VV Letter claim for refund dated May 8,
taxable year ending December 31, 1994. The return for the
1996 filed with the Revenue District Office No. 33
CBU consolidated the respondents overall income tax liability
on May 17, 1996[9]
for 1994, which reflected a refundable income tax
of P12,682,864.00, computed as follows: Petitioner, on the other hand, did not present any
evidence.
Pursuant to Section 69 of the old National Internal
[7]

Revenue Code (NIRC), Ruling of the Court of Tax Appeals

the amount of P12,682,864.00 was carried over and applied On October 4, 1999, the CTA rendered a Decision denying
against respondents income tax liability for the taxable year respondents claim for refund on the ground that respondent
ending December 31, 1995. On April 15, 1996, respondent failed to show that the income derived from rentals and sale of
filed its 1995 Annual Income Tax Return, which showed a total real property from which the taxes were withheld were
overpaid income tax in the amount of P17,443,133.00, detailed reflected in its 1994 Annual Income Tax Return.
as follows:
On October 20, 1999, respondent filed a Motion for
XXXXXXXXXX New Trial based on excusable negligence. It prayed that it be
allowed to present additional evidence to support its claim for
Out of the P17,433,133.00 refundable income tax,
refund.
only P13,645,109.00 was sought to be refunded by
respondent. As to the remaining P3,798,024.00, respondent However, the motion was denied on December 16,
opted to carry it over to the next taxable year. 1999 by the CTA. It reasoned, thus:
On May 17, 1996, respondent filed a claim for refund of the [Respondent] is reminded that this
amount of P13,645,109.00 with the BIR. Due to the failure of case was originally submitted for decision as
petitioner Commissioner of Internal Revenue (CIR) to act on early as September 22, 1998 (p. 497, CTA
the claim for refund, respondent was compelled to bring the Records). In view, however, of the Urgent
matter to the CTA on April 8, 1997 via a Petition for Review Motion to Admit Memorandum filed on
docketed as CTA Case No. 5487. April 27, 1999 by Atty. Louella Martinez,
who entered her appearance as
After the filing of petitioners Answer, trial ensued.
collaborating counsel of Atty. Manuel
To prove its entitlement to a refund, respondent presented the Salvador allegedly due to the latter counsels
following documents: absences, this Court set aside its resolution
of September 22, 1998 and considered this
Exhibits Nature and Description
case submitted for decision as of May 7,
1999. Nonetheless, it took [respondent]
 another five months after it was represented
by a new counsel and after a decision
unfavorable to it was rendered before
[respondent] realized that an additional
material documentary evidence has to be
presented by way of a new trial, this time
initiated by a third counsel coming from the
same law firm. x x x
Furthermore, in ascertaining
whether or not the income upon which the
taxes were withheld were included in the
returns of the [respondent], this Court
based its findings on the income tax returns
and their supporting schedules prepared
and reviewed by the [respondent] itself and
which, to Us, are enough to support the
conclusion reached.
WHEREFORE, in view of the
foregoing, [respondents] Motion for New
Trial is hereby DENIED for lack of merit.
SO ORDERED.[10]
Ruling of the Court of Appeals
On appeal, the CA reversed the Decision of the
CTA. The CA found that
respondent has duly proven that the income derived from
rentals and sale of real property upon which the taxes were
withheld were included in the return as part of the gross
income.
Hence, this present recourse.
Issue
The lone issue presented in this petition is whether
respondent has proven its entitlement to the refund.[11]
Our Ruling
We find that the respondent miserably failed to prove
its entitlement to the refund. Therefore, we grant the petition
filed by the petitioner CIR for being meritorious.
A taxpayer claiming for a tax credit or refund of
creditable withholding tax must comply with the following
requisites:
1) The claim must be filed with the CIR within the
two-year period from the date of payment of the tax;
2) It must be shown on the return that the income
received was declared as part of the gross income;
and
3) The fact of withholding must be established by a
copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of
the tax withheld.[12]
The two-year period requirement is based on Section 229 of
the NIRC of 1997 which provides that:
SECTION 229. Recovery of Tax Erroneously or Illegally
Collected. No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessive
or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or
proceeding shall be filed after the expiration
of two (2) years from the date of payment of
the tax or penalty regardless of any
supervening cause that may arise after
payment: Provided, however, 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. (Formerly Section 230 of the old NIRC)
While the second and third requirements are found under
Section 10 of Revenue Regulation No. 6-85, as amended, which
reads:
Section 10. Claims for tax credit or
refund. Claims for tax credit or refund of income
tax deducted and withheld on income payments
shall be given due course only when it is shown
on the return that the income payment received
was declared as part of the gross income and the
fact of withholding is established by a copy of the
statement duly issued by the payer to the payee
(BIR Form No. 1743.1) showing the amount paid
and the amount of tax withheld therefrom.
Respondent timely filed its claim for refund.
There is no dispute that respondent complied with the first
requirement. The filing of respondents administrative claim for
refund on May 17, 1996 and judicial claim for refund on April
8, 1997 were well within the two-year period from the date of
the filing of the return on April 10, 1995.[13]
Respondent failed to prove that the income derived from
rentals and sale of real property were included in the gross
income as reflected in its return.
However, as to the second and third requirements, the
tax court and the appellate court arrived at different factual
findings.
The CTA ruled that the income derived from rentals
and sales of real property were not included in respondents
gross income. It noted that in respondents 1994 Annual
Income Tax Return, the phrase NOT APPLICABLE was printed
on the space provided for rent, sale of real property and trust
income. The CTA also declared that the certifications issued by
respondent cannot be considered in the absence of the
Certificates of Creditable Tax Withheld at Source. The CTA
ruled that:
x x x the Certificates of Creditable Tax
Withheld at Source submitted by
[respondent] pertain to rentals of real
property while the Monthly Remittance
Returns of Income Taxes Withheld refer to
sales of real property. But, if we are to look
at Schedules 3, 4, and 5 of the Annual
Income Tax Return of [respondent] for 1994
(Exhibit A), there was no showing that the
Rental Income and Income from Sale of
Real Property were included as part of
the gross income appearing in Section A
of the said return. In fact, under the said
schedules, the phrase NOT APPLICABLE
was printed by [respondent]. Verily,
the income of [respondent] coming from
rent and sale of real property upon
which the creditable taxes withheld were
based were not duly reflected. As to the
certifications issued by the [respondent]
(Exh. UU), the same cannot be considered
in the absence of the requisite
Certificates of Creditable Tax Withheld at
Source.
Based on the
foregoing, [respondent] has failed to
comply with two essential requirements
for a valid claim for refund. Consequently,
the same cannot be given due
course. [14] (Emphasis supplied)
On the other hand, the CA found thus:
We disagree with x x x CTAs
findings. In the case of Citibank, N.A. vs.
Court of Appeals (280 SCRA 459), the
Supreme Court held that:
a refund claimant is
required to prove the
inclusion of the income
payments which were the
basis of the withholding
taxes and the fact of
withholding. However, a
detailed proof of the
truthfulness of each and every
item in the income tax return is
not required. x x x
x x x The grant of a refund is
founded on the assumption
that the tax return is valid; that
is, the facts stated therein are
true and correct. x x x
In the case at bench, the BIR
examined [respondent] Banks Corporate
Annual Income Tax Returns for the years
1994 and 1995 when they were filed
on April 10, 1995 and April 15, 1996,
respectively.Presumably, the BIR found no
false declaration in them because it did not
allege any false declaration thereof in its
Answer (to the petition for review) filed
before x x x CTA. Nowhere in the Answer,
did the BIR dispute the amount of tax refund
being claimed by [respondent] Bank as
inaccurate or erroneous. In fact, the reason
given by the BIR (in its Answer to the
petition for review) why the claimed tax
refund should be denied was that x x x the
amount of P13,645,109.00 was not illegally
or erroneously collected, hence, the petition
for review has no basis [see Record, p.
32]. The amount
of P17,433,133.00 reflected as refundable
income tax in [respondent] Banks Corporate
Annual Income Tax Return for the year 1995
was not disputed by the BIR to be inaccurate
because there were certain income not
included in the return of the
[respondent]. Verily, this leads Us to a
conclusion that [respondent] Banks
Corporate Annual Income Tax Returns
submitted were accepted as regular and
even accurate by the BIR.
Incidentally, under Sec. 16 of the
NIRC, the Commissioner of the BIR is
tasked to make an examination of
returns and assess the correct amount of
tax, to wit:
Sec. 16. Power of
the Commissioner to make
assessment and prescribe
additional requirements for
tax administration and
enforcement.
(a) After a return is
filed as required under the
provision of this Code, the
Commissioner shall examine
it and assess the correct
amount of tax. x x x
which the [petitioner] Commissioner undeniably
failed to do. Moreover, noteworthy is the fact that
during the hearing of the petition for review before
the CTA, [petitioner] Commissioner of the BIR
submitted the case for decision in view of the fact that
he has no evidence to present nor records to submit
relative to the case x x x
Thus, although it is a fact that [respondent] failed to
indicate said income payments under the appropriate
Schedules 3, 4, and 5 of Section C of its 1994 Annual
Income Tax Return (Exhibit A), however, We give
credence to [respondent] Banks assertion that it
reported the said income payments as part of its
gross income when it included the same as part of
the Other Income, Trust Income, and Interest
Income stated in the Schedule of Income (referred to
as an attachment in Section C of Exhibit A, x x x and in
the 1994 audited Financial Statements (FS)
supporting [respondents] 1994 Annual Corporate
Income Tax Return. The reason why the phrase NOT
APPLICABLE was indicated in schedules 3, 4, and 5 of
Section C of [respondents] 1994 Annual Income Tax
Return is due to the fact that [respondent] Bank
already reported the subject rental income and
income from sale of real property in the Schedule of
Income under the headings Other Income/Earnings,
Trust Income and Interest Income. Therefore,
[respondent] Bank still complied with the second
requirement that the income upon which the taxes
were withheld are included in the return as part of
the gross income.
xxxx
[Respondent] Banks various documentary evidence
showing that it had satisfied all requirements under
the Tax Code vis--vis the Bureau of Internal
Revenues failure to adduce any evidence in
support of their denial of the claim, [respondent]
Bank should, therefore, be granted the present claim
for refund.[15] (Emphasis supplied)
Between the decision of the CTA and the CA, it is the
formers that is based on the evidence and in accordance with
the applicable law and jurisprudence.
To establish the fact of withholding, respondent
submitted Certificates of Creditable Tax Withheld at Source and
Monthly Remittance Returns of Income Taxes Withheld, which
pertain to rentals and sales of real property,
respectively. However, a perusal of respondents 1994 Annual
Income Tax Return shows that the gross income was
derived solely from sales of services. In fact, the phrase NOT
APPLICABLE was printed on the schedules pertaining to rent,
sale of real property, and trust income.[16] Thus, based on the
entries in the return, the income derived from rentals and
sales of real property upon which the creditable taxes were
withheld were not included in respondents gross income
as reflected in its return. Since no income was reported, it
follows that no tax was withheld. To reiterate, it is incumbent
upon the taxpayer to reflect in his return the income upon
which any creditable tax is required to be withheld at the
source.[17]
Respondents explanation that its income derived
from rentals and sales of real properties were included in the
gross income but were classified as Other Earnings in its
Schedule of Income[18] attached to the return is not supported
by the evidence. There is nothing in the Schedule of Income to
show that the income under the heading Other Earnings
includes income from rentals and sales of real property. No
documentary or testimonial evidence was presented by
respondent to prove this. In fact, respondent, upon realizing its
omission, filed a motion for new trial on the ground of
excusable negligence with the CTA. Respondent knew that it
had to present additional evidence showing the breakdown of
the Other Earnings reported in its Schedule of Income attached
to the return to prove that the income from rentals and sales of
real property were actually included under the heading Other
Earnings.[19] Unfortunately, the CTA was not convinced that
there was excusable negligence to justify the granting of a new
trial.
Accordingly, the CA erred in ruling that respondent
complied with the second requirement.
Respondent failed to present all the Certificates of
Creditable Tax Withheld at Source.
The CA likewise failed to consider in its Decision the
absence of several Certificates of Creditable Tax Withheld at
Source. It immediately granted the refund without first
verifying whether the fact of withholding was established by
the Certificates of Creditable Tax Withheld at Source as
required under Section 10 of Revenue Regulation No. 6-85. As
correctly pointed out by the CTA, the certifications (Exhibit
UU) issued by respondent cannot be considered in the absence
of the required Certificates of Creditable Tax Withheld at
Source.
The burden is on the taxpayer to prove its entitlement to
the refund.
Moreover, the fact that the petitioner failed
to present any evidence or to
refute the evidence presented by respondent does not ipso
facto entitle the respondent to a tax refund. It is not the duty of
the government to disprove a taxpayers claim for
refund. Rather, the burden of establishing the factual basis of a
claim for a refund rests on the taxpayer.[20]
And while the petitioner has the power to make an
examination of the returns and to assess the correct amount of
tax, his failure to exercise such powers does not create a
presumption in favor of the correctness of the returns. The
taxpayer must still present substantial evidence to prove his
claim for refund. As we have said, there is no automatic grant of
a tax refund.[21]
Hence, for failing to prove its entitlement to a tax
refund, respondents claim must be denied. Since tax refunds
partake of the nature of tax exemptions, which are
construed strictissimi juris against the taxpayer, evidence in
support of a claim must likewise be strictissimi scrutinized and
duly proven.[22]
WHEREFORE, the petition is GRANTED. The
assailed January 31, 2006 Decision of the Court of Appeals in
CA-G.R. SP No. 56773 and its July 19, 2006 Resolution
are REVERSED and SET ASIDE. The October 4, 1999 Decision
of the Court of Tax Appeals denying respondents claim for tax
refund for failure to prove that the income derived from rentals
and sale of real property from which the taxes were withheld
were reflected in its 1994 Annual Income Tax
Return, is REINSTATED and AFFIRMED.
SO ORDERED.
FISHWEALTH vs. COMMISSIONER OF INTERNAL On November 21, 2006, petitioner filed a petition for
REVENUE GR NO. 179343, 2010 review before the CTA En Banc[16] which, by
Decision of July 5, 2007, held that the petition before the
[17]
x------------------------------------------x
First Division, as well as that before it, was filed out of time.
The Commissioner of Internal Revenue
Hence, the present petition,[18] petitioner arguing
(respondent), by Letter of Authority dated May 16, 2000,
that the CTA En Banc erred in holding that the petition it filed
[1]
ordered the examination of the internal revenue taxes for
before the CTA First Division as well as that filed before it
the taxable year 1999 of Fishwealth Canning Corp.
(CTA En Banc) was filed out of time.
(petitioner). The investigation disclosed that petitioner was
liable in the amount of P2,395,826.88 representing income The petition is bereft of merit.
tax, value added tax (VAT), withholding tax deficiencies and
Section 228 of the 1997 Tax Code provides that an
other miscellaneous deficiencies. Petitioner eventually
assessment
settled these obligations on August 30, 2000.[2]
x x x may be protested administratively by filing a
On August 25, 2000, respondent reinvestigated petitioners
request for reconsideration or reinvestigation within
books of accounts and other records of internal revenue taxes
thirty (30) days from receipt of the assessment in such
covering the same period for the purpose of which it issued a
form and manner as may be prescribed by
subpoena duces tecum requiring petitioner to submit its
implementing rules and regulations. Within sixty (60)
records and books of accounts. Petitioner requested the
days from filing of the protest, all relevant supporting
cancellation of the subpoena on the ground that the same set
documents shall have been submitted; otherwise, the
of documents had previously been examined.
assessment shall become final.
As petitioner did not heed the subpoena, respondent
If the protest is denied in whole or in part, or is
thereafter filed a criminal complaint against petitioner for
not acted upon within one hundred eighty (180) days
violation of Sections 5 (c) and 266 of the 1997 Internal
from submission of documents, the taxpayer adversely
Revenue Code, which complaint was dismissed for
affected by the decision or inaction may appeal to the
insufficiency of evidence.[3]
Court of Tax Appeals within thirty (30) days from
Respondent sent, on August 6, 2003, petitioner receipt of the said decision, or from the lapse of the
a Final Assessment Notice of income tax and VAT one hundred eighty (180)-day period; otherwise, the
deficiencies totaling P67,597,336.75 for the taxable year decision shall become final, executory and
1999,[4] which assessment petitioner contested by letter of demandable. (underscoring supplied)
September 23, 2003.[5]
In the case at bar, petitioners administrative
Respondent thereafter issued a Final Decision on protest was denied by Final Decision on Disputed
Disputed Assessment dated August 2, 2005, which petitioner Assessment dated August 2, 2005 issued by
received on August 4, 2005, denying its letter of protest, respondent and which petitioner received on August
apprising it of its income tax and VAT liabilities in the 4, 2005. Under the above-quoted Section 228 of the
amounts of P15,396,905.24 and P63,688,434.40 [sic], 1997 Tax Code, petitioner had 30 days to appeal
respectively, for the taxable year 1999,[6] and requesting the respondents denial of its protest to the CTA.
immediate payment thereof, inclusive of penalties incident to
Since petitioner received the denial of its
delinquency. Respondent added that if petitioner disagreed,
administrative protest on August 4, 2005, it had
it may appeal to the Court of Tax Appeals (CTA) within thirty
until September 3, 2005 to file a petition for review before
(30) days from date of receipt hereof, otherwise our said
the CTA Division. It filed one, however, on October 20, 2005,
deficiency income and value-added taxes assessments shall
hence, it was filed out of time. For a motion for
become final, executory, and demandable.[7]
reconsideration of the denial of the administrative
Instead of appealing to the CTA, petitioner filed, protest does not toll the 30-day period to appeal to the CTA.
on September 1, 2005, a Letter of Reconsideration
On petitioners final contention that it has a
dated August 31, 2005.[8]
meritorious case in view of the dismissal of the above-
By a Preliminary Collection Letter dated September mentioned criminal case filed against it for violation of the
6, 2005, respondent demanded payment of petitioners tax 1997 Internal Revenue Code,[19] the same fails. For the
liabilities,[9] drawing petitioner to file on October 20, 2005 a criminal complaint was instituted not to demand payment,
Petition for Review[10] before the CTA. but to penalize the taxpayer for violation of the Tax Code. [20]
In his Answer,[11] respondent argued, among other WHEREFORE, the petition is DISMISSED.
things, that the petition was filed out of time which argument
the First Division of the CTA upheld and accordingly
dismissed the petition.[12]
Petitioner filed a Motion for
Reconsideration[13] which was denied.[14] The Resolution
denying its motion for reconsideration was received by
petitioner on October 31, 2006.[15]
RCBC vs. CIR
x -----------------------------------------------------------------------
This is a petition for review on certiorari under
Rule 45 seeking to set aside the July 27, 2005 Decision [1] and
October 26, 2005 Resolution [2] of the Court of Tax
Appeals En Banc (CTA-En Banc) in C.T.A. E.B. No. 83
entitled Rizal Commercial Banking Corporation v.
Commissioner of Internal Revenue.
THE FACTS
Petitioner Rizal Commercial Banking
Corporation (RCBC) is a corporation engaged in general
banking operations. It seasonably filed its Corporation
Annual Income Tax Returns for Foreign Currency Deposit
Unit for the calendar years 1994 and 1995.[3]
On August 15, 1996, RCBC received Letter of
Authority No. 133959 issued by then Commissioner of
Internal Revenue (CIR) Liwayway Vinzons-Chato,
authorizing a special audit team to examine the books of
accounts and other accounting records for all internal
revenue taxes from January 1, 1994 to December 31, 1995.[4]
On January 23, 1997, RCBC executed two Waivers
of the Defense of Prescription Under the Statute of
Limitations of the National Internal Revenue Code covering
the internal revenue taxes due for the years 1994 and 1995,
effectively extending the period of the Bureau of Internal
Revenue (BIR) to assess up to December 31, 2000.[5]
Subsequently, on January 27, 2000, RCBC received a
Formal Letter of Demand together with Assessment Notices
from the BIR for the following deficiency tax assessments: [6]
XXXXXXXXXXXXXXX
(table)
Disagreeing with the said deficiency tax
assessment, RCBC filed a protest on February 24, 2000 and
later submitted the relevant documentary evidence to
support it. Much later on November 20, 2000, it filed a
petition for review before the CTA, pursuant to Section 228
of the 1997 Tax Code.[7]
On December 6, 2000, RCBC received another
Formal Letter of Demand with Assessment Notices
dated October 20, 2000, following the reinvestigation it
requested, which drastically reduced the original amount of
deficiency taxes to the following:[8]
XXXXXXXX
(table)
RCBC argued that the waivers of the Statute of
Limitations which it executed on January 23, 1997 were not
valid because the same were not signed or conformed to by
the respondent CIR as required under Section 222(b) of the
Tax Code.[11] As regards the deficiency FCDU onshore tax,
RCBC contended that because the onshore tax was collected
in the form of a final withholding tax, it was the borrower,
constituted by law as the withholding agent, that was
primarily liable for the remittance of the said tax.[12]
On December 15, 2004, the First Division of the
Court of Tax Appeals (CTA-First Division) promulgated its
Decision[13] which partially granted the petition for review. It
considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax,
deficiency final withholding tax, deficiency expanded
withholding tax, and deficiency documentary stamp tax (not
an industry issue) for 1994 and 1995.[14] It, however, upheld
the assessment for deficiency final tax on FCDU onshore
income and deficiency documentary stamp tax for 1994 and
1995 and ordered RCBC to pay the following amounts plus
20% delinquency tax:[15]
XXXXX
(table)
Unsatisfied, RCBC filed its Motion for Reconsideration on
January 21, 2005, arguing that: (1) the CTA erred in its
addition of the total amount of deficiency taxes and the
correct amount should only be ₱132,654,261.69 and not
₱171,822,527.47; (2) the CTA erred in holding that RCBC
was estopped from questioning the validity of the waivers;
(3) it was the payor-borrower as withholding tax agent, and
not RCBC, who was liable to pay the final tax on FCDU, and
(4) RCBCs special savings account was not subject to
documentary stamp tax.[16]
In its Resolution[17] dated April 11, 2005, the CTA-First
Division substantially upheld its earlier ruling, except for its
inadvertence in the addition of the total amount of
deficiency taxes. As such, it modified its earlier decision and
ordered RCBC to pay the amount of ₱132,654,261.69 plus
20% delinquency tax.[18]
RCBC elevated the case to the CTA-En Banc where it
raised the following issues:
I. Whether or not the right of the respondent to
assess deficiency onshore tax and documentary
stamp tax for taxable year 1994 and 1995 had
already prescribed when it issued the formal letter of
demand and assessment notices for the said taxable
years.
II. Whether or not petitioner is liable for
deficiency onshore tax for taxable year 1994 and
1995.
III. Whether or not petitioners special savings
account is subject to documentary stamp tax under
then Section 180 of the 1993 Tax Code. [19]
The CTA-En Banc, in its assailed Decision, denied
the petition for lack of merit. It ruled that by receiving,
accepting and paying portions of the reduced assessment,
RCBC bound itself to the new assessment, implying that it
recognized the validity of the waivers. [20] RCBC could not
assail the validity of the waivers after it had received and
accepted certain benefits as a result of the execution of the
said waivers.[21] As to the deficiency onshore tax, it held that
because the payor-borrower was merely designated by law
to withhold and remit the said tax, it would then follow that
the tax should be imposed on RCBC as the payee-bank.
[22]
Finally, in relation to the assessment of the deficiency
documentary stamp tax on petitioners special savings
account, it held that petitioners special savings account was
a certificate of deposit and, as such, was subject to
documentary stamp tax.[23]
Hence, this petition.
While awaiting the decision of this Court, RCBC
filed its Manifestation dated July 22, 2009, informing the
Court that this petition, relative to the DST deficiency
assessment, had been rendered moot and academic by its
payment of the tax deficiencies on Documentary Stamp
Tax (DST) on Special Savings Account (SSA) for taxable years
1994 and 1995 after the BIR approved its applications for
tax abatement.[24]
In its November 17, 2009 Comment to the Manifestation, the
CIR pointed out that the only remaining issues raised in the
present petition were those pertaining to RCBCs deficiency
tax on FCDU Onshore Income for taxable years 1994 and
1995 in the aggregate amount of ₱80,161,827.56 plus 20%
delinquency interest per annum. The CIR prayed that RCBC
be considered to have withdrawn its appeal with respect to
the CTA-En Banc ruling on its DST on SSA deficiency for
taxable years 1994 and 1995 and that the questioned CTA
decision regarding RCBCs deficiency tax on FCDU Onshore
Income for the same period be affirmed. [25]
THE ISSUES
Thus, only the following issues remain to be resolved by this
Court:
Whether petitioner, by paying the other tax
assessment covered by the waivers of the statute of
limitations, is rendered estopped from questioning
the validity of the said waivers with respect to the
assessment of deficiency onshore tax.[26]
and
Whether petitioner, as payee-bank, can be held
liable for deficiency onshore tax, which is
mandated by law to be collected at source in the
form of a final withholding tax.[27]
THE COURTS RULING
Petitioner is estopped from
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of
limitations on the ground that the said waivers were merely
attested to by Sixto Esquivias, then Coordinator for the CIR,
and that he failed to indicate acceptance or agreement of the
CIR, as required under Section 223 (b) of the 1977 Tax Code.
[28]
RCBC further argues that the principle of estoppel cannot
be applied against it because its payment of the other tax
assessments does not signify a clear intention on its part to
give up its right to question the validity of the waivers. [29]
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of
estoppel is anchored on the rule that an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon. A party is precluded from denying
his own acts, admissions or representations to the prejudice
of the other party in order to prevent fraud and falsehood. [30]
Estoppel is clearly applicable to the case at bench.
RCBC, through its partial payment of the revised
assessments issued within the extended period as provided
for in the questioned waivers, impliedly admitted the
validity of those waivers. Had petitioner truly believed that
the waivers were invalid and that the assessments were
issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised
assessment. RCBCs subsequent action effectively belies its
insistence that the waivers are invalid. The records show
that on December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning
the validity of the waivers. To hold otherwise and allow a
party to gainsay its own act or deny rights which it had
previously recognized would run counter to the principle of
equity which this institution holds dear. [31]
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as
withholding agent, who is directly liable for the payment of
onshore tax, citing Section 2.57(A) of Revenue Regulations
No. 2-98 which states:
(A) Final Withholding Tax. Under the final
withholding tax system the amount of income tax
withheld by the withholding agent is constituted as a
full and final payment of the income tax due from the
payee on the said income. The liability for payment
of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to
withhold the tax or in case of under withholding,
the deficiency tax shall be collected from the
payor/withholding agent. The payee is not
required to file an income tax return for the
particular income. (Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that
RCBC erred in citing the abovementioned Revenue
Regulations No. 2-98 because the same governs collection at
source on income paid only on or after January 1, 1998. The
deficiency withholding tax subject of this petition was
supposed to have been withheld on income paid during the
taxable years of 1994 and 1995. Hence, Revenue Regulations
No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders Associations, Inc. v.
The Executive Secretary,[32] the Court has explained that the
purpose of the withholding tax system is three-fold: (1) to
provide the taxpayer with a convenient way of paying his tax
liability; (2) to ensure the collection of tax, and (3) to
improve the governments cashflow. Under the withholding
tax system, the payor is the taxpayer upon whom the tax is
imposed, while the withholding agent simply acts as an
agent or a collector of the government to ensure the
collection of taxes.[33]
It is, therefore, indisputable that the withholding
agent is merely a tax collector and not a taxpayer, as
elucidated by this Court in the case of Commissioner of
Internal Revenue v. Court of Appeals,[34] to wit:
In the operation of the withholding tax system, the
withholding agent is the payor, a separate entity
 acting no more than an agent of the government for including branches of foreign banks that may be
the collection of the tax in order to ensure its authorized by the Central Bank to transact business
payments; the payer is the taxpayer he is the person with foreign currency depository system units and
subject to tax imposed by law; and the payee is the other depository banks under the expanded foreign
taxing authority. In other words, the withholding currency deposit system shall be exempt from all
agent is merely a tax collector, not a taxpayer. Under taxes, except taxable income from such transactions
the withholding system, however, the agent-payor as may be specified by the Secretary of Finance,
becomes a payee by fiction of law. His (agent) upon recommendation of the Monetary Board to be
liability is direct and independent from the subject to the usual income tax payable by banks:
taxpayer, because the income tax is still imposed Provided, That interest income from foreign
on and due from the latter. The agent is not currency loans granted by such depository
liable for the tax as no wealth flowed into him he banks under said expanded system to residents
earned no income. The Tax Code only makes the (other than offshore banking units in the
agent personally liable for the tax arising from the Philippines or other depository banks under the
breach of its legal duty to withhold as distinguished expanded system) shall be subject to a 10%
from its duty to pay tax since: tax. (Emphasis supplied)
the governments cause of action against the As a final note, this Court has consistently held that
withholding agent is not for the collection of findings and conclusions of the CTA shall be accorded the
income tax, but for the enforcement of the highest respect and shall be presumed valid, in the absence
withholding provision of Section 53 of the of any clear and convincing proof to the contrary. [36] The
Tax Code, compliance with which is imposed on CTA, as a specialized court dedicated exclusively to the study
the withholding agent and not upon the and resolution of tax problems, has developed an expertise
taxpayer.[35](Emphases supplied) on the subject of taxation. [37] As such, its decisions shall not
be lightly set aside on appeal, unless this Court finds that the
Based on the foregoing, the liability of the withholding agent
questioned decision is not supported by substantial
is independent from that of the taxpayer. The former cannot
evidence or there is a showing of abuse or improvident
be made liable for the tax due because it is the latter
exercise of authority on the part of the Tax Court. [38]
who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to WHEREFORE, the petition is DENIED.
perform his duty to withhold the tax and remit the same to
the government. The liability for the tax, however, remains
with the taxpayer because the gain was realized and
received by him.
While the payor-borrower can be held accountable for its
negligence in performing its duty to withhold the amount of
tax due on the transaction, RCBC, as the taxpayer and the
one which earned income on the transaction, remains liable
for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any
penalty that may arise from the non-payment of the
withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by
shifting the blame on the payor-borrower as the withholding
agent. As such, it is liable for payment of deficiency onshore
tax on interest income derived from foreign currency loans,
pursuant to Section 24(e)(3) of the National Internal
Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic
corporations
xxxx
(3) Tax on income derived under the Expanded
Foreign Currency Deposit System. Income derived
by a depository bank under the expanded foreign
currency deposit system from foreign currency
transactions with nonresidents, offshore banking
units in the Philippines, local commercial banks
CIR vs. Kudos
x--------------------------------------------------
The prescriptive period on when to assess taxes benefits both
the government and the taxpayer.[1] Exceptions extending the
period to assess must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set
aside the Decision[2] dated March 30, 2007 of the Court of Tax
Appeals (CTA) affirming the cancellation of the assessment
notices for having been issued beyond the prescriptive period
and the Resolution[3] dated May 18, 2007 denying the motion
for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal
Corporation filed its Annual Income Tax Return (ITR) for the
taxable year 1998.
Pursuant to a Letter of Authority dated September 7,
1999, the Bureau of Internal Revenue (BIR) served upon
respondent three Notices of Presentation of
Records. Respondent failed to comply with these notices,
hence, the BIR issued a Subpeona Duces Tecum dated
September 21, 2006, receipt of which was acknowledged by
respondents President, Mr. Chan Ching Bio, in a letter
dated October 20, 2000.
A review and audit of respondents records then
ensued.
On December 10, 2001, Nelia Pasco (Pasco),
respondents accountant, executed a Waiver of the Defense of
Prescription,[4] which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31,
2002 and by the BIR Tax Fraud Division on February 4, 2002,
and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of
Prescription[5] executed by Pasco on February 18, 2003,
notarized on February 19, 2003, received by the BIR Tax Fraud
Division on February 28, 2003 and accepted by Assistant
Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary
Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand
with Assessment Notices for taxable year 1998,
dated September 26, 2003 which was received by respondent
on November 12, 2003.
Respondent challenged the assessments by filing its
Protest on Various Tax Assessments on December 3, 2003 and
its Legal Arguments and Documents in Support of Protests
against Various Assessments on February 2, 2004.
On June 22, 2004, the BIR rendered a final
Decision[6] on the matter, requesting the immediate payment of
the following tax liabilities:
Kind of Tax Amount
Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the governments right to assess taxes
had prescribed, respondent filed on August 27, 2004 a Petition
for Review[7] with the CTA. Petitioner in turn filed his Answer.[8]
On April 11, 2005, respondent filed an Urgent Motion
for Preferential Resolution of the Issue on Prescription.[9]
On October 4, 2005, the CTA Second Division issued a
Resolution[10] canceling the assessment notices issued against
respondent for having been issued beyond the prescriptive
period. It found the first Waiver of the Statute of Limitations
incomplete and defective for failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-
90. Thus:
First, the Assistant Commissioner
is not the revenue official authorized to sign
the waiver, as the tax case involves more
than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into
agreement with the petitioner in extending
the period of assessment;
Secondly, the waiver failed to
indicate the date of acceptance. Such date of
acceptance is necessary to determine
whether the acceptance was made within
the prescriptive period;
Third, the fact of receipt by the
taxpayer of his file copy was not indicated on
the original copy. The requirement to
furnish the taxpayer with a copy of the
waiver is not only to give notice of the
existence of the document but also of the
acceptance by the BIR and the perfection of
the agreement.
The subject waiver is therefore
incomplete and defective. As such, the three-
year prescriptive period was not tolled or
extended and continued to run. x x x[11]
Petitioner moved for reconsideration but the CTA
Second Division denied the motion in a
Resolution[12] dated April 18, 2006.
Ruling of the Court of Tax Appeals, En BancOn appeal, the
CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was
authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first
waiver was still invalid based on the second and third grounds
stated by the CTA Second Division. Pertinent portions of the
Decision read as follows:
 While the Court En Banc agrees with
the second and third grounds for
invalidating the first waiver, it finds that the
Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver
pursuant to RDAO No. 05-01, which
provides in part as follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax
fraud and policy
Enforcement Service cases
2. ACIR, Large Taxpayers Service For large
taxpayers cases than those cases falling
under Subsection B hereof
3. ACIR, Legal Service For cases pending
verification and awaiting resolution of
certain legal issues prior to prescription and
for issuance/compliance of Subpoena Duces
Tecum
4. ACIR, Assessment
Service (AS) For cases
which are pending in or
subject to review or
approval by the ACIR, AS
Based on the foregoing, the
Assistant Commissioner, Enforcement
Service is authorized to sign waivers in tax
fraud cases. A perusal of the records reveals
that the investigation of the subject
deficiency taxes in this case was conducted
by the National Investigation Division of the
BIR, which was formerly named the Tax
Fraud Division. Thus, the subject
assessment is a tax fraud case.
Nevertheless, the first waiver is still
invalid based on the second and third
grounds stated by the Court in
Division. Hence, it did not extend the
prescriptive period to assess.
Moreover, assuming arguendo that
the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the
1997 Tax Code which mandates that the
period agreed upon in a waiver of the statute
can still be extended by subsequent written
agreement, provided that it is executed prior
to the expiration of the first period agreed
upon. As previously discussed, the
exceptions to the law on prescription must
be strictly construed.
In the case at bar, the period agreed
upon in the subject first waiver expired
on December 31, 2002. The second waiver
in the instant case which was supposed to
extend the period to assess to December 31,
2003 was executed on February 18,
2003 and was notarized on February 19,
2003. Clearly, the second waiver was
executed after the expiration of the first
period agreed upon. Consequently, the same
could not have tolled the 3-year prescriptive
period to assess.[13]
Petitioner sought reconsideration but the same was
unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN
BANC ERRED IN RULING THAT THE
GOVERNMENTS RIGHT TO ASSESS UNPAID
TAXES OF RESPONDENT PRESCRIBED.[14]
Petitioners Arguments
Petitioner argues that the governments right to assess
taxes is not barred by prescription as the two waivers executed
by respondent, through its accountant, effectively tolled or
extended the period within which the assessment can be
made. In disputing the conclusion of the CTA that the waivers
are invalid, petitioner claims that respondent is estopped from
adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during
the period specified in the waivers, respondent led the
government to believe that the delay in the process would not
be utilized against it. Thus, respondent may no longer
repudiate the validity of the waivers and raise the issue of
prescription.
Respondents Arguments
Respondent maintains that prescription had set in due to the
invalidity of the waivers executed by Pasco, who executed the
same without any written authority from it, in clear violation of
RDAO No. 5-01. As to the doctrine of estoppel by acquiescence
relied upon by petitioner, respondent counters that the
principle of equity comes into play only when the law is
doubtful, which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 203[15] of the National Internal Revenue Code
of 1997 (NIRC) mandates the government to assess internal
revenue taxes within three years from the last day prescribed
by law for the filing of the tax return or the actual date of filing
of such return, whichever comes later. Hence, an assessment
notice issued after the three-year prescriptive period is no
longer valid and effective. Exceptions however are provided
under Section 222[16] of the NIRC.
The waivers executed by respondents accountant did not
extend the period within which the assessment can be
made
 Petitioner does not deny that the assessment notices
were issued beyond the three-year prescriptive period, but
claims that the period was extended by the two waivers
executed by respondents accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period
to assess and collect taxes may only be extended upon a
written agreement between the CIR and the taxpayer executed
before the expiration of the three-year period. RMO 20-
90[17] issued on April 4, 1990 and RDAO 05-01[18] issued
on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:
1. The waiver must be in the proper form
prescribed by RMO 20-90. The phrase
but not after ______ 19 ___, which
indicates the expiry date of the period
agreed upon to assess/collect the tax
after the regular three-year period of
prescription, should be filled up.
2. The waiver must be signed by the
taxpayer himself or his duly authorized
representative. In the case of a
corporation, the waiver must be signed
by any of its responsible officials. In
case the authority is delegated by the
taxpayer to a representative, such
delegation should be in writing and
duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized
by him must sign the waiver indicating
that the BIR has accepted and agreed to
the waiver. The date of such acceptance
by the BIR should be
indicated. However, before signing the
waiver, the CIR or the revenue official
authorized by him must make sure that
the waiver is in the prescribed form,
duly notarized, and executed by the
taxpayer or his duly authorized
representative.
5. Both the date of execution by the taxpayer
and date of acceptance by the Bureau
should be before the expiration of the
period of prescription or before the
lapse of the period agreed upon in case
a subsequent agreement is executed.
6. The waiver must be executed in three
copies, the original copy to be attached
to the docket of the case, the second
copy for the taxpayer and the third copy
for the Office accepting the waiver. The
fact of receipt by the taxpayer of his/her
file copy must be indicated in the
original copy to show that the taxpayer
was notified of the acceptance of the
BIR and the perfection of the
agreement.[19]
A perusal of the waivers executed by respondents
accountant reveals the following infirmities:
1. The waivers were executed without
the notarized written authority
of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the
date of acceptance.
3. The fact of receipt by the
respondent of its file copy was not
indicated in the original copies of the
waivers.
Due to the defects in the waivers, the period to assess
or collect taxes was not extended. Consequently, the
assessments were issued by the BIR beyond the
three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioners claim that respondent
is now estopped from claiming prescription since by executing
the waivers, it was the one which asked for additional time to
submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated
Mining Company,[20] the doctrine of estoppel prevented the
taxpayer from raising the defense of prescription against the
efforts of the government to collect the assessed tax. However,
it must be stressed that in the said case, estoppel was applied
as an exception to the statute of limitations on collection of
taxes and not on the assessment of taxes, as the BIR was able to
make an assessment within the prescribed period. More
important, there was a finding that the taxpayer made several
requests or positive acts to convince the government to
postpone the collection of taxes, viz:
It appears that the first assessment
made against respondent based on its
second final return filed on November 28,
1946 was made on February 11, 1947.
Upon receipt of this assessment respondent
requested for at least one year within which
to pay the amount assessed although it
reserved its right to question the correctness
of the assessment before actual payment.
Petitioner granted an extension of only three
months. When it failed to pay the tax within
the period extended, petitioner sent
respondent a letter on November 28,
1950 demanding payment of the tax as
assessed, and upon receipt of the letter
respondent asked for a reinvestigation and
reconsideration of the assessment. When
this request was denied, respondent again
requested for a reconsideration on April 25,
1952, which was denied on May 6, 1953,
which denial was appealed to the
Conference Staff. The appeal was heard by
the Conference Staff from September 2,
1953 to July 16, 1955, and as a result of
these various negotiations, the assessment
was finally reduced on July 26, 1955. This is
the ruling which is now being questioned
after a protracted negotiation on the ground
that the collection of the tax has already
prescribed.
It is obvious from the foregoing
that petitioner refrained from collecting the
tax by distraint or levy or by proceeding in
court within the 5-year period from the
filing of the second amended final return
due to the several requests of respondent for
extension to which petitioner yielded to give
it every opportunity to prove its claim
regarding the correctness of the assessment.
Because of such requests, several
reinvestigations were made and a hearing
was even held by the Conference Staff
organized in the collection office to consider
claims of such nature which, as the record
shows, lasted for several months. After
inducing petitioner to delay collection as he
in fact did, it is most unfair for respondent to
now take advantage of such desistance to
elude his deficiency income tax liability to
the prejudice of the Government invoking
the technical ground of prescription.
While we may agree with the Court
of Tax Appeals that a mere request for
reexamination or reinvestigation may not
have the effect of suspending the running of
the period of limitation for in such case there
is need of a written agreement to extend the
period between the Collector and the
taxpayer, there are cases however where a
taxpayer may be prevented from setting up
the defense of prescription even if he has not
previously waived it in writing as when by
his repeated requests or positive acts the
Government has been, for good reasons,
persuaded to postpone collection to make
him feel that the demand was not
unreasonable or that no harassment or
injustice is meant by the Government. And
when such situation comes to pass there are
authorities that hold, based on weighty
reasons, that such an attitude or behavior
should not be countenanced if only to
protect the interest of the Government.
This case has no precedent in this
jurisdiction for it is the first time that such
has risen, but there are several precedents
that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has
said: The applicable principle is
fundamental and unquestioned. He who
prevents a thing from being done may not
avail himself of the nonperformance which
he has himself occasioned, for the law says
to him in effect this is your own act, and
therefore you are not damnified. (R. H.
Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was
aptly said, The tax could have been collected,
but the government withheld action at the
specific request of the plaintiff. The plaintiff
is now estopped and should not be
permitted to raise the defense of the Statute
of Limitations. [Newport Co. vs. U.S., (DC-
WIS), 34 F. Supp. 588].[21]
Conversely, in this case, the assessments were issued
beyond the prescribed period. Also, there is no showing that
respondent made any request to persuade the BIR to postpone
the issuance of the assessments.
The doctrine of estoppel cannot be applied in this
case as an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR
must strictly follow. As we have often said, the doctrine of
estoppel is predicated on, and has its origin in, equity which,
broadly defined, is justice according to natural law and right.
[22]
As such, the doctrine of estoppel cannot give validity to an
act that is prohibited by law or one that is against public policy.
[23]
It should be resorted to solely as a means of preventing
injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure
an undue advantage, or to extend beyond them requirements
of the transactions in which they originate.[24] Simply put, the
doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of
estoppel to cover its failure to comply with RMO 20-90 and
RDAO 05-01, which the BIR itself issued. As stated earlier, the
BIR failed to verify whether a notarized written authority was
given by the respondent to its accountant, and to indicate the
date of acceptance and the receipt by the respondent of the
waivers. Having caused the defects in the waivers, the BIR must
bear the consequence. It cannot shift the blame to the
taxpayer. To stress, a waiver of the statute of limitations, being a
derogation of the taxpayers right to security against prolonged
and unscrupulous investigations, must be carefully and strictly
construed.[25]
As to the alleged delay of the respondent to furnish
the BIR of the required documents, this cannot be taken against
respondent. Neither can the BIR use this as an excuse for
issuing the assessments beyond the three-year period because
with or without the required documents, the CIR has the
power to make assessments based on the best evidence
obtainable.[26]
WHEREFORE, the petition is DENIED. The assailed
Decision dated March 30, 2007 and Resolution dated May 18,
2007 of the Court of Tax Appeals are hereby AFFIRMED.
SO ORDERED.
PHILIPPINE JOURNALISTS, INC., G.R. No. 162852
- versus
COMMISSIONER OF INTERNAL REVENUE
December 16, 2004
x --------------------------------------------------------------------- x
This is a petition for review filed by Philippine
Journalists, Incorporated (PJI) assailing the Decision [1] of
the Court of Appeals dated August 5, 2003, [2] which
ordered petitioner to pay the assessed tax liability of
P111,291,214.46 and the Resolution[3] dated March 31,
2004 which denied the Motion for Reconsideration.
The case arose from the Annual Income Tax Return
filed by petitioner for the calendar year ended December
31, 1994 which presented a net income of
P30,877,387.00 and the tax due of P10,807,086.00. After
deducting tax credits for the year, petitioner paid the
amount of P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33
of the Bureau of Internal Revenue (BIR) issued Letter of
Authority No. 87120[4] for Revenue Officer Federico de
Vera, Jr. and Group Supervisor Vivencio Gapasin to
examine petitioners books of account and other
accounting records for internal revenue taxes for the
period January 1, 1994 to December 31, 1994.
From the examination, the petitioner was told that
there were deficiency taxes, inclusive of surcharges,
interest and compromise penalty in the following
amounts:
Value Added Tax
229,527.90
Income Tax
125,002,892.95
Withholding Tax
2,748,012.35
_______________
Total
127,980,433.20
In a letter dated August 29, 1997, Revenue District
Officer Jaime Concepcion invited petitioner to send a
representative to an informal conference on September
15, 1997 for an opportunity to object and present
documentary evidence relative to the proposed
assessment. On September 22, 1997, petitioners
Comptroller, Lorenza Tolentino, executed a Waiver of the
Statute of Limitation Under the National Internal
Revenue Code (NIRC).[5] The document waive[d] the
running of the prescriptive period provided by Sections
223 and 224 and other relevant provisions of the NIRC
and consent[ed] to the assessment and collection of taxes
which may be found due after the examination at any
time after the lapse of the period of limitations fixed by
said Sections 223 and 224 and other relevant provisions
of the NIRC, until the completion of the investigation.[6]
On July 2, 1998, Revenue Officer De Vera submitted
his audit report recommending the issuance of an
assessment and finding that petitioner had deficiency
taxes in the total amount of P136,952,408.97. On
October 5, 1998, the Assessment Division of the BIR
issued Pre-Assessment Notices which informed
petitioner of the results of the investigation. Thus, BIR
Revenue Region No. 6, Assessment Division/Billing
Section, issued Assessment/Demand No. 33-1-000757-
94[7] on December 9, 1998 stating the following
deficiency taxes, inclusive of interest and compromise
penalty:
Income Tax
P108,743,694.88
Value Added Tax
184,299.20
Expanded Withholding Tax
2,363,220.38
______________
Total
P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter
as sent by Deputy Commissioner Romeo S. Panganiban to
the petitioner to pay the assessment within ten (10) days
from receipt of the letter. On November 10, 1999, a Final
Notice Before Seizure[8] was issued by the same deputy
commissioner giving the petitioner ten (10) days from
P receipt to pay. Petitioner received a copy of the final
notice on November 24, 1999. By letters dated
November 26, 1999, petitioner asked to be clarified how
the tax liability of P111,291,214.46 was reached and
requested an extension of thirty (30) days from receipt of
the clarification within which to reply. [9]
The BIR received a follow-up letter from the
petitioner asserting that its (PJI) records do not show
receipt of Tax Assessment/Demand No. 33-1-000757-94.
[10]
Petitioner also contested that the assessment had no
P
factual and legal basis. On March 28, 2000, a Warrant of
Distraint and/or Levy No. 33-06-046[11] signed by Deputy
Commissioner Romeo Panganiban for the BIR was
received by the petitioner.
Petitioner filed a Petition for Review[12] with the
Court of Tax Appeals (CTA) which was amended on May
12, 2000. Petitioner complains: (a) that no assessment
or demand was received from the BIR; (b) that the
warrant of distraint and/or levy was without factual and
legal bases as its issuance was premature; (c) that the
assessment, having been made beyond the 3-year
prescriptive period, is null and void; (d) that the issuance
of the warrant without being given the opportunity to
dispute the same violates its right to due process; and (e)
that the grave prejudice that will be sustained if the
warrant is enforced is enough basis for the issuance of
the writ of preliminary injunction.
On May 14, 2002, the CTA rendered its decision,
[13]
to wit:
As to whether or not the
assessment notices were received by the
petitioner, this Court rules in the
affirmative.
To disprove petitioners
allegation of non-receipt of the aforesaid
assessment notices, respondent
presented a certification issued by the
Post Master of the Central Post Office,
Manila to the effect that Registered
Letter No. 76134 sent by the BIR, Region
No. 6, Manila on December 15, 1998
addressed to Phil. Journalists, Inc. at
Journal Bldg., Railroad St., Manila was
duly delivered to and received by a
certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999.
Respondent also showed proof that in
claiming Registered Letter No. 76134,
Mr. Sanchez presented three
identification cards, one of which is his
company ID with herein petitioner.
However, as to whether or not
the Waiver of the Statute of Limitations
is valid and binding on the petitioner is
another question. Since the subject
assessments were issued beyond the
three-year prescriptive period, it
becomes imperative on our part to rule
first on the validity of the waiver
allegedly executed on September 22,
1997, for if this court finds the same to
be ineffective, then the assessments
must necessarily fail.
After carefully examining the
questioned Waiver of the Statute of
Limitations, this Court considers the
same to be without any binding effect on
the petitioner for the following reasons:
The waiver is an unlimited
waiver. It does not contain a definite
expiration date. Under RMO No. 20-90,
the phrase indicating the expiry date of
the period agreed upon to assess/collect
the tax after the regular three-year
period of prescription should be filled
up
Secondly, the waiver failed to
state the date of acceptance by the
Bureau which under the aforequoted
RMO should likewise be indicated
Finally, petitioner was not
furnished a copy of the waiver. It is to be
noted that under RMO No. 20-90, the
waiver must be executed in three (3)
copies, the second copy of which is for
the taxpayer. It is likewise required that
the fact of receipt by the taxpayer of
his/her file copy be indicated in the
original copy. Again, respondent failed
to comply.
It bears stressing that RMO No.
20-90 is directed to all concerned
internal revenue officers. The said RMO
even provides that the procedures found
therein should be strictly followed,
under pain of being administratively
dealt with should non-compliance result
to prescription of the right to
assess/collect
Thus, finding the waiver
executed by the petitioner on September
22, 1997 to be suffering from legal
infirmities, rendering the same invalid
and ineffective, the Court finds
Assessment/Demand No. 33-1-000757-
94 issued on December 5, 1998 to be
time-barred. Consequently, the Warrant
of Distraint and/or Levy issued
pursuant thereto is considered null and
void.
WHEREFORE, in view of all the
foregoing, the instant Petition for
Review is hereby GRANTED.
Accordingly, the deficiency income,
value-added and expanded withholding
tax assessments issued by the
respondent against the petitioner on
December 9, 1998, in the total amount
of P111,291,214.46 for the year 1994
are hereby declared CANCELLED,
WITHDRAWN and WITH NO FORCE
AND EFFECT. Likewise, Warrant of
Distraint and/or Levy No. 33-06-046 is
hereby declared NULL and VOID.
SO ORDERED.[14]
After the motion for reconsideration of the
Commissioner of Internal Revenue was denied by the
CTA in a Resolution dated August 2, 2002, an appeal was
filed with the Court of Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of
Appeals disagreed with the ruling of the CTA, to wit:
The petition for review filed on 26 April
2000 with CTA was neither timely filed
nor the proper remedy. Only decisions
of the BIR, denying the request for
reconsideration or reinvestigation may
be appealed to the CTA. Mere
assessment notices which have become
final after the lapse of the thirty (30)-
day reglementary period are not
appealable. Thus, the CTA should not
have entertained the petition at all.
[T]he CTA found the waiver executed by
Phil. Journalists to be invalid for the
following reasons: (1) it does not
indicate a definite expiration date; (2) it
does not state the date of acceptance by
the BIR; and (3) Phil. Journalist, the
taxpayer, was not furnished a copy of the
waiver. These grounds are merely
formal in nature. The date of acceptance
by the BIR does not categorically appear
in the document but it states at the
bottom page that the BIR accepted and
agreed to:, followed by the signature of
the BIRs authorized representative.
Although the date of acceptance was not
stated, the document was dated 22
September 1997. This date could
reasonably be understood as the same
date of acceptance by the BIR since a
different date was not otherwise
indicated. As to the allegation that Phil.
Journalists was not furnished a copy of
the waiver, this requirement appears
ridiculous. Phil. Journalists, through its
comptroller, Lorenza Tolentino, signed
the waiver. Why would it need a copy of
the document it knowingly executed
when the reason why copies are
furnished to a party is to notify it of the
existence of a document, event or
proceeding?
As regards the need for a
definite expiration date, this is the
biggest flaw of the decision. The period
of prescription for the assessment of
taxes may be extended provided that the
extension be made in writing and that it
be made prior to the expiration of the
period of prescription. These are the
requirements for a valid extension of the
prescriptive period. To these
requirements provided by law, the
memorandum order adds that the
length of the extension be specified by
indicating its expiration date. This
requirement could be reasonably
construed from the rule on extension of
the prescriptive period. But this
requirement does not apply in the
instant case because what we have here
is not an extension of the prescriptive
period but a waiver thereof. These are
two (2) very different things. What Phil.
Journalists executed was a renunciation
of its right to invoke the defense of
prescription. This is a valid waiver.
When one waives the prescriptive
period, it is no longer necessary to
indicate the length of the extension of
the prescriptive period since the person
waiving may no longer use this defense.
WHEREFORE, the 02 August
2002 resolution and 14 May 2002
decision of the CTA are hereby SET
ASIDE. Respondent Phil. Journalists is
ordered [to] pay its assessed tax liability
of P111,291,214.46.
SO ORDERED.[15]
Petitioners Motion for Reconsideration was
denied in a Resolution dated March 31, 2004. Hence, this
appeal on the following assignment of errors:
I.
The Honorable Court of Appeals
committed grave error in ruling that it is
outside the jurisdiction of the Court of
Tax Appeals to entertain the Petition for
Review filed by the herein Petitioner at
the CTA despite the fact that such case
inevitably rests upon the validity of the
issuance by the BIR of warrants of
distraint and levy contrary to the
provisions of Section 7(1) of Republic
Act No. 1125.
II.
The Honorable Court of Appeals gravely
erred when it ruled that failure to
comply with the provisions of Revenue
Memorandum Order (RMO) No. 20-90 is
merely a formal defect that does not
invalidate the waiver of the statute of
limitations without stating the legal
justification for such conclusion. Such
ruling totally disregarded the
mandatory requirements of Section
222(b) of the Tax Code and its
implementing regulation, RMO No. 20-
90 which are substantive in nature. The
RMO provides that violation thereof
subjects the erring officer to
administrative sanction. This directive
shows that the RMO is not merely cover
forms.
III.
The Honorable Court of Appeals gravely
erred when it ruled that the assessment
notices became final and unappealable.
The assessment issued is void and
legally non-existent because the BIR has
 no power to issue an assessment beyond
the three-year prescriptive period
where there is no valid and binding
waiver of the statute of limitation.
IV.
The Honorable Court of Appeals gravely
erred when it held that the assessment
in question has became final and
executory due to the failure of the
Petitioner to protest the same.
Respondent had no power to issue an
assessment beyond the three year
period under the mandatory provisions
of Section 203 of the NIRC. Such
assessment should be held void and
non-existent, otherwise, Section 203, an
expression of a public policy, would be
rendered useless and nugatory. Besides,
such right to assess cannot be validly
granted after three years since it would
arise from a violation of the mandatory
provisions of Section 203 and would go
against the vested right of the Petitioner
to claim prescription of assessment.
V.
The Honorable Court of Appeals
committed grave error when it HELD
valid a defective waiver by considering
the latter a waiver of the right to invoke
the defense of prescription rather than
an extension of the three year period of
prescription (to make an assessment) as
provided under Section 222 in relation
to Section 203 of the Tax Code, an
interpretation that is contrary to law,
existing jurisprudence and outside of
the purpose and intent for which they
were enacted.[16]
We find merit in the appeal.
The first assigned error relates to the jurisdiction of
the CTA over the issues in this case. The Court of Appeals
ruled that only decisions of the BIR denying a request for
reconsideration or reinvestigation may be appealed to
the CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30)
days, the assessment notices became final and
unappealable. The petitioner now argue that the case
was brought to the CTA because the warrant of distraint
or levy was illegally issued and that no assessment was
issued because it was based on an invalid waiver of the
statutes of limitations.
We agree with petitioner. Section 7(1) of Republic
Act No. 1125, the Act Creating the Court of Tax Appeals,
provides for the jurisdiction of that special court:
SEC. 7. Jurisdiction. The Court
of Tax Appeals shall exercise 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 imposed in relation
thereto, or other matters arising
under the National Internal Revenue
Code or other laws or part of law
administered by the Bureau of
Internal Revenue; (Emphasis
supplied).
The appellate jurisdiction of the CTA is not limited
to cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or
refunds. The second part of the provision covers other
cases that arise out of the NIRC or related laws
administered by the Bureau of Internal Revenue. The
wording of the provision is clear and simple. It gives the
CTA the jurisdiction to determine if the warrant of
distraint and levy issued by the BIR is valid and to rule if
the Waiver of Statute of Limitations was validly effected.
This is not the first case where the CTA validly ruled
on issues that did not relate directly to a disputed
assessment or a claim for refund. In Pantoja v. David,
[17]
we upheld the jurisdiction of the CTA to act on a
petition to invalidate and annul the distraint orders of the
Commissioner of Internal Revenue. Also,
in Commissioner of Internal Revenue v. Court of Appeals,
[18]
the decision of the CTA declaring several waivers
executed by the taxpayer as null and void, thus
invalidating the assessments issued by the BIR, was
upheld by this Court.
The second and fifth assigned errors both focus on
Revenue Memorandum Circular No. 20-90 (RMO No. 20-
90) on the requisites of a valid waiver of the statute of
limitations. The Court of Appeals held that the
requirements and procedures laid down in the RMO are
only formal in nature and did not invalidate the waiver
that was signed even if the requirements were not strictly
observed.
The NIRC, under Sections 203 and 222,
provides for a statute of limitations on the assessment
[19]
and collection of internal revenue taxes in order to
safeguard the interest of the taxpayer against
unreasonable investigation.[20] Unreasonable
investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the
taxpayer of the assurance that it will no longer be
subjected to further investigation for taxes after the
expiration of a reasonable period of time. As was held
in Republic of the Phils. v. Ablaza:[21]
 The law prescribing a limitation
of actions for the collection of the
income tax is beneficial both to the
Government and to its citizens; to the
Government because tax officers would
be obliged to act promptly in the making
of assessment, and to citizens because
after the lapse of the period of
prescription citizens would have a
feeling of security against unscrupulous
tax agents who will always find an
excuse to inspect the books of taxpayers,
not to determine the latters real liability,
but to take advantage of every
opportunity to molest peaceful, law-
abiding citizens. Without such a legal
defense taxpayers would furthermore
be under obligation to always keep their
books and keep them open for
inspection subject to harassment by
unscrupulous tax agents. The law on
prescription being a remedial
measure should be interpreted in a
way conducive to bringing about the
beneficent purpose of affording
protection to the taxpayer within the
contemplation of the Commission
which recommend the approval of
the law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the
NIRC relating to the period of prescription for the
assessment and collection of taxes. A cursory reading of
the Order supports petitioners argument that the RMO
must be strictly followed, thus:
In the execution of said waiver, the
following procedures should be
followed:
1. The waiver must be in the form identified
hereof. This form may be reproduced by the
Office concerned but there should be no
deviation from such form. The phrase but not
after __________ 19___ should be filled up
2. Soon after the waiver is signed by the
taxpayer, the Commissioner of Internal
Revenue or the revenue official authorized by
him, as hereinafter provided, shall sign the
waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of
such acceptance by the Bureau should be
indicated
3. The following revenue officials
authorized to sign the waiver.
A. In the National Office
3. Commissioner For tax cases
involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with
respect to tax cases still
pending investigation and the
period to assess is about to
prescribe regardless of amount.
5. The foregoing
procedures shall be
strictly followed.
Any revenue official
found not to have
complied with this
Order resulting in
prescription of the
right to
assess/collect shall
be administratively
dealt with. (Emphasis
supplied)[22]
A waiver of the statute of limitations under the
NIRC, to a certain extent, is a derogation of the taxpayers
right to security against prolonged and unscrupulous
investigations and must therefore be carefully and
strictly construed.[23] The waiver of the statute of
limitations is not a waiver of the right to invoke the
defense of prescription as erroneously held by the Court
of Appeals. It is an agreement between the taxpayer and
the BIR that the period to issue an assessment and collect
the taxes due is extended to a date certain. The waiver
does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the
language of the document is equivocal. For the purpose
of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law
provides a statute of limitations in the collection of taxes.
Thus, the law on prescription, being a remedial measure,
should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on
prescription should perforce be strictly construed. [24]
RMO No. 20-90 explains the rationale of a waiver:
The phrase but not after _________ 19___ should be
filled up. This indicates the expiry date of the
period agreed upon to assess/collect the tax after
the regular three-year period of prescription. The
period agreed upon shall constitute the time
within which to effect the
assessment/collection of the tax in addition to
the ordinary prescriptive period. (Emphasis
supplied)
As found by the CTA, the Waiver of Statute of
Limitations, signed by petitioners comptroller on
September 22, 1997 is not valid and binding because it
are
does not conform with the provisions of RMO No. 20-90.
It did not specify a definite agreed date between the BIR
and petitioner, within which the former may assess and
collect revenue taxes. Thus, petitioners waiver became
unlimited in time, violating Section 222(b) of the NIRC.
 The waiver is also defective from the government
side because it was signed only by a revenue district
officer, not the Commissioner, as mandated by the NIRC
and RMO No. 20-90. The waiver is not a unilateral act by
the taxpayer or the BIR, but is a bilateral agreement
between two parties to extend the period to a date
certain. The conformity of the BIR must be made by
either the Commissioner or the Revenue District Officer.
This case involves taxes amounting to more than One
Million Pesos (P1,000,000.00) and executed almost seven
months before the expiration of the three-year
prescription period. For this, RMO No. 20-90 requires the
Commissioner of Internal Revenue to sign for the BIR.
The case of Commissioner of Internal Revenue v.
Court of Appeals,[25] dealt with waivers that were not
signed by the Commissioner but were argued to have
been given implied consent by the BIR. We invalidated
the subject waivers and ruled:
Petitioners submission is inaccurate
The Court of Appeals itself also passed upon
the validity of the waivers executed by Carnation,
observing thus:
We cannot go along with the petitioners theory.
Section 319 of the Tax Code earlier quoted is clear and
explicit that the waiver of the five-year [26] prescriptive
period must be in writing and signed by both the BIR
Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not
bear the written consent of the BIR Commissioner as
required by law.
We agree with the CTA in holding these waivers to
be invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent
by the respondent (Commissioner of Internal
Revenue).
For sure, no such written agreement concerning
the said three waivers exists between the petitioner
and private respondent Carnation.
What is more, the waivers in question reveal that
they are in no wise unequivocal, and therefore
necessitates for its binding effect the concurrence of
the Commissioner of Internal Revenue. On this basis
neither implied consent can be presumed nor can
it be contended that the waiver required under
Sec. 319 of the Tax Code is one which is unilateral
nor can it be said that concurrence to such an
agreement is a mere formality because it is the
very signatures of both the Commissioner of
Internal Revenue and the taxpayer which give birth
to such a valid agreement.[27] (Emphasis supplied)
The other defect noted in this case is the date of
acceptance which makes it difficult to fix with certainty if
the waiver was actually agreed before the expiration of
the three-year prescriptive period. The Court of Appeals
held that the date of the execution of the waiver on
September 22, 1997 could reasonably be understood as
the same date of acceptance by the BIR. Petitioner points
out however that Revenue District Officer Sarmiento
could not have accepted the waiver yet because she was
not the Revenue District Officer of RDO No. 33 on such
date. Ms. Sarmientos transfer and assignment to RDO No.
33 was only signed by the BIR Commissioner on January
16, 1998 as shown by the Revenue Travel Assignment
Order No. 14-98.[28] The Court of Tax Appeals noted in its
decision that it is unlikely as well that Ms. Sarmiento
made the acceptance on January 16, 1998 because
Revenue Officials normally have to conduct first an
inventory of their pending papers and property
responsibilities.[29]
Finally, the records show that petitioner was not
furnished a copy of the waiver. Under RMO No. 20-90,
the waiver must be executed in three copies with the
second copy for the taxpayer. The Court of Appeals did
not think this was important because the petitioner need
not have a copy of the document it knowingly executed.
It stated that the reason copies are furnished is for a
party to be notified of the existence of a document, event
or proceeding.
The flaw in the appellate courts reasoning stems from its
assumption that the waiver is a unilateral act of the
taxpayer when it is in fact and in law an agreement
between the taxpayer and the BIR. When the petitioners
comptroller signed the waiver on September 22, 1997, it
was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO
No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish
the taxpayer with a copy of the waiver is not only to give
notice of the existence of the document but of the
acceptance by the BIR and the perfection of the
agreement.
The waiver document is incomplete and defective and
thus the three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998.
Consequently, the Assessment/Demand No. 33-1-
000757-94 issued on December 9, 1998 was invalid
because it was issued beyond the three (3) year period.
In the same manner, Warrant of Distraint and/or Levy
No. 33-06-046 which petitioner received on March 28,
2000 is also null and void for having been issued
pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition
for review is GRANTED. The Decision of the Court of
Appeals dated August 5, 2003 and its Resolution dated
March 31, 2004 are REVERSED and SET ASIDE. The
Decision of the Court of Tax Appeals in CTA Case No.
6108 dated May 14, 2002, declaring Warrant of Distraint
and/or Levy No. 33-06-046 null and void,
is REINSTATED.
SO ORDERED.
Reyes vs CIR
Under the present provisions of the Tax Code and
pursuant to elementary due process, taxpayers must be
informed in writing of the law and the facts upon which a
tax assessment is based; otherwise, the assessment is
void. Being invalid, the assessment cannot in turn be used
as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated 1 Petitions for
Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of
Appeals (CA) in CA-GR SP No. 71392. The dispositive
portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed
decision of the Court of Tax Appeals is ANNULLED and
SET ASIDE without prejudice to the action of the National
Evaluation Board on the proposed compromise
settlement of the Maria C. Tancinco estate’s tax liability." 4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died,
leaving a 1,292 square-meter residential lot and an old
house thereon (or ‘subject property’) located at 4931
Pasay Road, Dasmarinñ as Village, Makati City.
"On the basis of a sworn information-for-reward filed on
February 17, 1997 by a certain Raymond Abad (or
‘Abad’), Revenue District Office No. 50 (South Makati)
conducted an investigation on the decedent’s estate (or
‘estate’). Subsequently, it issued a Return Verification
Order. But without the required preliminary findings
being submitted, it issued Letter of Authority No. 132963
for the regular investigation of the estate tax case.
Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s
heirs, received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division,
Bureau of Internal Revenue (or ‘BIR’), issued a
preliminary assessment notice against the estate in the
amount of P14,580,618.67. On May 10, 1998, the heirs of
the decedent (or ‘heirs’) received a final estate tax
assessment notice and a demand letter, both dated April
22, 1998, for the amount of P14,912,205.47, inclusive of
surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or
‘Sumbillo’) protested the assessment [o]n behalf of the
heirs on the ground that the subject property had already
been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal
Revenue (or ‘[CIR]’) issued a preliminary collection letter
to [Reyes], followed by a Final Notice Before Seizure
dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy
was served upon the estate, followed on February 11,
1999 by Notices of Levy on Real Property and Tax Lien
against it.
"On March 2, 1999, [Reyes] protested the notice of levy.
However, on March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes]
proposed to pay 50% of the basic tax due, citing the heirs’
inability to pay the tax assessment. On March 20, 2000,
[the CIR] rejected [Reyes’s] offer, pointing out that since
the estate tax is a charge on the estate and not on the
heirs, the latter’s financial incapacity is immaterial as, in
fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax
liability. Thus, [the CIR] demanded payment of the
amount of P18,034,382.13 on or before April 15, 2000[;]
otherwise, the notice of sale of the subject property
would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this
time proposing to pay 100% of the basic tax due in the
amount of P5,313,891.00. She reiterated the proposal in a
letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April
15, 2000 deadline, the Chief, Collection Enforcement
Division, BIR, notified [Reyes] on June 6, 2000 that the
subject property would be sold at public auction on
August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR
Appellate Division. Assailing the scheduled auction sale,
she asserted that x x x the assessment, letter of demand[,]
and the whole tax proceedings against the estate are void
ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without
surcharge [or] interest.
"Without acting on [Reyes’s] protest and offer, [the CIR]
instructed the Collection Enforcement Division to
proceed with the August 8, 2000 auction sale.
Consequently, on June 28, 2000, [Reyes] filed a [P]etition
for [R]eview with the Court of Tax Appeals (or ‘CTA’),
docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance
of a Writ of Preliminary Injunction or Status Quo Order,
which was granted by the CTA on July 26, 2000. Upon
[Reyes’s] filing of a surety bond in the amount
of P27,000,000.00, the CTA issued a [R]esolution dated
August 16, 2000 ordering [the CIR] to desist and refrain
from proceeding with the auction sale of the subject
property or from issuing a [W]arrant of [D]istraint or
[G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order
is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on
the grounds (i) that the CTA no longer has jurisdiction
over the case[,] because the assessment against the estate
is already final and executory; and (ii) that the petition
was filed out of time. In a [R]esolution dated November
23, 2000, the CTA denied [the CIR’s] motion.
"During the pendency of the [P]etition for [R]eview with
the CTA, however, the BIR issued Revenue Regulation (or
‘RR’) No. 6-2000 and Revenue Memorandum Order (or
‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an
opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with
the BIR for the compromise settlement (or ‘compromise’)
of the assessment against the estate pursuant to Sec.
204(A) of the Tax Code, as implemented by RR No. 6-
2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion
for Postponement of the hearing before the CTA
scheduled on January 9, 2001, citing her pending
application for compromise with the BIR. The motion
was granted and the hearing was reset to February 6,
2001.
"On January 29, 2001, [Reyes] moved for postponement
of the hearing set on February 6, 2001, this time on the
ground that she had already paid the compromise
amount of P1,062,778.20 but was still awaiting approval
of the National Evaluation Board (or ‘NEB’). The CTA
granted the motion and reset the hearing to February 27,
2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare
Application for the Settlement of Disputed Assessment as
a Perfected Compromise. In said motion, she alleged that
[the CIR] had not yet signed the compromise[,] because
of procedural red tape requiring the initials of four
Deputy Commissioners on relevant documents before the
compromise is signed by the [CIR]. [Reyes] posited that
the absence of the requisite initials and signature[s] on
said documents does not vitiate the perfected
compromise.
"Commenting on the motion, [the CIR] countered that[,]
without the approval of the NEB, [Reyes’s] application for
compromise with the BIR cannot be considered a
perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion,
prompting her to file a Motion for Reconsideration Ad
Cautelam. In a [R]esolution dated April 10, 2001, the CTA
denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case
and to prevent piecemeal resolutions of different issues,
[Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there
was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition
for Review with the CTA, followed on June 4, 2001 by its
Amplificatory Arguments (for the Supplemental Petition
for Review), raising the following issues:
‘1. Whether or not an offer to compromise by the [CIR],
with the acquiescence by the Secretary of Finance, of a
tax liability pending in court, that was accepted and paid
by the taxpayer, is a perfected and consummated
compromise.
‘2. Whether this compromise is covered by the provisions
of Section 204 of the Tax Code (CTRP) that requires
approval by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred
that an application for compromise of a tax liability
under RR No. 6-2000 and RMO No. 42-2000 requires the
evaluation and approval of either the NEB or the Regional
Evaluation Board (or ‘REB’), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on
the Pleadings; the motion was granted on July 11, 2001.
After submission of memoranda, the case was submitted
for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the
decretal portion of which pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant
[P]etition for [R]eview is hereby DENIED. Accordingly,
[Reyes] is hereby ORDERED to PAY deficiency estate tax
in the amount of Nineteen Million Five Hundred Twenty
Four Thousand Nine Hundred Nine and 78/100
(P19,524,909.78), computed as follows:
xxxxxxxxx
‘[Reyes] is likewise ORDERED to PAY 20% delinquency
interest on deficiency estate tax due of P17,934,382.13
from January 11, 2001 until full payment thereof
pursuant to Section 249(c) of the Tax Code, as amended.’
"In arriving at its decision, the CTA ratiocinated that there
can only be a perfected and consummated compromise of
the estate’s tax liability[,] if the NEB has approved
[Reyes’s] application for compromise in accordance with
RR No. 6-2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of
demand against the estate, the CTA stated that ‘at the
time the questioned assessment notice and letter of
demand were issued, the heirs knew very well the law
and the facts on which the same were based.’ It also
observed that the petition was not filed within the 30-day
reglementary period provided under Sec. 11 of Rep. Act
No. 1125 and Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section
228 of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice
and the demand letter should have stated the facts and
the law on which they were based; otherwise, they were
deemed void.6 The appellate court held that while
administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law
and equity to observe substantive due process. The
reason behind this requirement, said the CA, was to
ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments
against them.7Since the assessment and the demand were
void, the proceedings emanating from them were
likewise void, and any order emanating from them could
never attain finality.
The appellate court added, however, that it was
premature to declare as perfected and consummated the
compromise of the estate’s tax liability. It explained that,
where the basic tax assessed exceeded P1 million, or
where the settlement offer was less than the prescribed
minimum rates, the National Evaluation Board’s (NEB)
prior evaluation and approval were the conditio sine qua
non to the perfection and consummation of any
compromise.8Besides, the CA pointed out, Section 204(A)
of the Tax Code applied to all compromises, whether
government-initiated or not.9 Where the law did not
distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues
for the Court’s consideration:
"I.
Whether petitioner’s assessment against the estate is
valid.
"II.
Whether respondent can validly argue that she, as well as
the other heirs, was not aware of the facts and the law on
which the assessment in question is based, after she had
opted to propose several compromises on the estate tax
due, and even prematurely acting on such proposal by
paying 20% of the basic estate tax due."11
The foregoing issues can be simplified as follows: first,
whether the assessment against the estate is valid; and,
second, whether the compromise entered into is also
valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code 12 is
clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --
xxxxxxxxx
"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."
In the present case, Reyes was not informed in writing of
the law and the facts on which the assessment of estate
taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the
provisions of former Section 229 13 prior to its
amendment by Republic Act (RA) No. 8424, otherwise
known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of
Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR’s
findings was changed in 1998 to informing the taxpayer
of not only the law, but also of the facts on which an
assessment would be made; otherwise, the assessment
itself would be invalid.
It was on February 12, 1998, that a preliminary
assessment notice was issued against the estate. On April
22, 1998, the final estate tax assessment notice, as well as
demand letter, was also issued. During those dates, RA
8424 was already in effect. The notice required under
the old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation
being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean
that Reyes already knew the law and the facts on which
the assessment was based. It does not at all conform to
the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent
on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under
the law.
The procedure for protesting an assessment under the
Tax Code is found in Chapter III of Title VIII, which deals
with remedies. Being procedural in nature, can its
provision then be applied retroactively? The answer is
yes.
The general rule is that statutes are prospective.
However, statutes that are remedial, or that do not create
new or take away vested rights, do not fall under the
general rule against the retroactive operation of
statutes.14 Clearly, Section 228 provides for the procedure
in case an assessment is protested. The provision does
not create new or take away vested rights. In both
instances, it can surely be applied retroactively. Moreover,
RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
Second, the non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering
that it merely implements the law.
A tax regulation is promulgated by the finance secretary
to implement the provisions of the Tax Code. 15 While it is
desirable for the government authority or administrative
agency to have one immediately issued after a law is
passed, the absence of the regulation does not
automatically mean that the law itself would become
inoperative.
At the time the pre-assessment notice was issued to
Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the
assessment was based. Thus, the CIR should have
required the assessment officers of the Bureau of Internal
Revenue (BIR) to follow the clear mandate of the new
law. The old regulation governing the issuance of estate
tax assessment notices ran afoul of the rule that tax of basis for -- not to mention the insufficiency of -- the
regulations -- old as they were -- should be in harmony gross figures and details of the itemized deductions
with, and not supplant or modify, the law. 16 indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that
It may be argued that the Tax Code provisions are not
appear to have been arbitrarily or capriciously arrived at.
self-executory. It would be too wide a stretch of the
Although taxes are the lifeblood of the government, their
imagination, though, to still issue a regulation that would
assessment and collection "should be made in
simply require tax officials to inform the taxpayer, in any
accordance with law as any arbitrariness will negate the
manner, of the law and the facts on which an assessment
very reason for government itself."21
was based. That requirement is neither difficult to make
nor its desired results hard to achieve. Fifth, the rule against estoppel does not apply. Although
the government cannot be estopped by the negligence or
Moreover, an administrative rule interpretive of a statute,
omission of its agents, the obligatory provision on
and not declarative of certain rights and corresponding
protesting a tax assessment cannot be rendered nugatory
obligations, is given retroactive effect as of the date of the
by a mere act of the CIR .
effectivity of the statute.17 RR 12-99 is one such rule.
Being interpretive of the provisions of the Tax Code, even Tax laws are civil in nature. 22 Under our Civil Code, acts
if it was issued only on September 6, 1999, this executed against the mandatory provisions of law are
regulation was to retroact to January 1, 1998 -- a date void, except when the law itself authorizes the validity of
prior to the issuance of the preliminary assessment those acts.23 Failure to comply with Section 228 does not
notice and demand letter. only render the assessment void, but also finds no
validation in any provision in the Tax Code. We cannot
Third, neither Section 229 nor RR 12-85 can prevail over
condone errant or enterprising tax officials, as they are
Section 228 of the Tax Code.
expected to be vigilant and law-abiding.
No doubt, Section 228 has replaced Section 229. The
Second Issue:
provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between Validity of Compromise
the law as amended and its implementing but old
It would be premature for this Court to declare that the
regulation, the former necessarily prevails. 18 Thus,
compromise on the estate tax liability has been perfected
between Section 228 of the Tax Code and the pertinent
and consummated, considering the earlier determination
provisions of RR 12-85, the latter cannot stand because it
that the assessment against the estate was void. Nothing
cannot go beyond the provision of the law. The law must
has been settled or finalized. Under Section 204(A) of the
still be followed, even though the existing tax regulation
Tax Code, where the basic tax involved exceeds one
at that time provided for a different procedure. The
million pesos or the settlement offered is less than the
regulation then simply provided that notice be sent to the
prescribed minimum rates, the compromise shall be
respondent in the form prescribed, and that no
subject to the approval of the NEB composed of the
consequence would ensue for failure to comply with that
petitioner and four deputy commissioners.
form.
Finally, as correctly held by the appellate court, this
Fourth, petitioner violated the cardinal rule in
provision applies to all compromises, whether
administrative law that the taxpayer be accorded due
government-initiated or not. Ubi lex non distinguit, nec
process. Not only was the law here disregarded, but no
nos distinguere debemos. Where the law does not
valid notice was sent, either. A void assessment bears no
distinguish, we should not distinguish.
valid fruit.
WHEREFORE, the Petition is hereby DENIED and the
The law imposes a substantive, not merely a formal,
assailed Decision AFFIRMED. No pronouncement as to
requirement. To proceed heedlessly with tax collection
costs.
without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative SO ORDERED.
investigations: that taxpayers should be able to present
their case and adduce supporting evidence.19 In the
instant case, respondent has not been informed of the
basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer
of the government’s claim, there can be no deprivation of
property, because no effective protest can be made. 20 The
haphazard shot at slapping an assessment, supposedly
based on estate taxation’s general provisions that are
expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment
notice, as well as the demand letter sent, reveals the lack
COMMISSIONER OF INTERNAL G.R. No. 162155
-versus
PRIMETOWN PROPERTY
GROUP, INC., August 28, 2007
x-----------------------------------------x
This petition for review on certiorari [1] seeks to set aside
the August 1, 2003 decision[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 64782 and its February 9, 2004
resolution denying reconsideration.[3]
On March 11, 1999, Gilbert Yap, vice chair of respondent
Primetown Property Group, Inc., applied for the refund or
credit of income tax respondent paid in 1997. In Yap's
letter to petitioner revenue district officer Arturo V.
Parcero of Revenue District No. 049 (Makati) of the
Bureau of Internal Revenue (BIR), [4] he explained that the
increase in the cost of labor and materials and difficulty
in obtaining financing for projects and collecting
receivables caused the real estate industry to slowdown.
[5]
As a consequence, while business was good during the
first quarter of 1997, respondent suffered losses
amounting to P71,879,228 that year.[6]
According to Yap, because respondent suffered losses, it
was not liable for income taxes. [7] Nevertheless,
respondent paid its quarterly corporate income tax and
remitted creditable withholding tax from real estate sales
to the BIR in the total amount of P26,318,398.32.
[8]
Therefore, respondent was entitled to tax refund or tax
credit.[9]
On May 13, 1999, revenue officer Elizabeth Y. Santos
required respondent to submit additional documents to
support its claim.[10] Respondent complied but its claim
was not acted upon. Thus, on April 14, 2000, it filed a
petition for review[11] in the Court of Tax Appeals (CTA).
On December 15, 2000, the CTA dismissed the petition as
it was filed beyond the two-year prescriptive period for
filing a judicial claim for tax refund or tax credit. [12] It
invoked Section 229 of the National Internal Revenue
Code (NIRC):
Sec. 229. Recovery of Taxes Erroneously
or Illegally Collected. -- No suit or
proceeding shall be maintained in any
court for the recovery of any national
internal revenue tax hereafter alleged
to have been erroneously or illegally
assessed or collected, or of any penalty
claimed to have been collected without
authority, or of any sum alleged to
have been excessively or in any
manner wrongfully collected, until a
claim for refund or credit has been
duly filed with the Commissioner; but
such suit or proceeding may be
maintained, whether or not such tax,
penalty, or sum has been paid under
protest or duress.
In any case, no such suit or
proceeding shall be filed after the
expiration of two (2) years from the
date of payment of the tax or
penalty regardless of any
supervening cause that may arise
after payment: Provided,
however, That the Commissioner may,
even without a 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.
(emphasis supplied)
The CTA found that respondent filed its final adjusted
return on April 14, 1998. Thus, its right to claim a refund
or credit commenced on that date.[13]
The tax court applied Article 13 of the Civil Code which
states:
Art. 13. When the law speaks of years,
months, days or nights, it shall be
understood that years are of three
hundred sixty-five days each; months,
of thirty days; days, of twenty-four
hours, and nights from sunset to sunrise.
If the months are designated by their
name, they shall be computed by the
number of days which they respectively
have.
In computing a period, the first day shall
be excluded, and the last included.
(emphasis supplied)
Thus, according to the CTA, the two-year prescriptive
period under Section 229 of the NIRC for the filing of
judicial claims was equivalent to 730 days. Because the
year 2000 was a leap year, respondent's petition, which
was filed 731 days [14] after respondent filed its final
adjusted return, was filed beyond the reglementary
period.[15]
Respondent moved for reconsideration but it was denied.
[16]
Hence, it filed an appeal in the CA.[17]
On August 1, 2003, the CA reversed and set aside the
decision of the CTA. [18] It ruled that Article 13 of the Civil
Code did not distinguish between a regular year and a
leap year. According to the CA:
The rule that a year has 365 days
applies, notwithstanding the fact that a
particular year is a leap year.[19]
In other words, even if the year 2000 was a leap year, the
periods covered by April 15, 1998 to April 14, 1999 and
April 15, 1999 to April 14, 2000 should still be counted as
365 days each or a total of 730 days. A statute which is
clear and explicit shall be neither interpreted nor
construed.[20]
Petitioners moved for reconsideration but it was denied.
[21]
Thus, this appeal.
Petitioners contend that tax refunds, being in the nature
of an exemption, should be strictly construed against
claimants.[22] Section 229 of the NIRC should be strictly
appliedagainst respondent inasmuch as it has been
consistently held that the prescriptive period (for the
filing of tax refunds and tax credits) begins to run on the
day claimants file their final adjusted returns. [23] Hence,
the claim should have been filed on or before April 13,
2000 or within 730 days, reckoned from the time
respondent filed its final adjusted return.
The conclusion of the CA that respondent filed its petition
for review in the CTA within the two-year prescriptive
period provided in Section 229 of the NIRC is correct. Its
basis, however, is not.
The rule is that the two-year prescriptive period is
reckoned from the filing of the final adjusted return.
[24]
But how should the two-year prescriptive period be
computed?
As already quoted, Article 13 of the Civil Code provides
that when the law speaks of a year, it is understood to be
equivalent to 365 days. In National Marketing
Corporation v. Tecson,[25] we ruled that a year is equivalent
to 365 days regardless of whether it is a regular year or a
leap year.[26]
However, in 1987, EO[27] 292 or the Administrative Code
of 1987 was enacted. Section 31, Chapter VIII, Book I
thereof provides:
Sec. 31. Legal Periods. Year shall be
understood to be twelve calendar
months; month of thirty days, unless it
refers to a specific calendar month in
which case it shall be computed
according to the number of days the
specific month contains; day, to a day of
twenty-four hours and; night from
sunrise to sunset. (emphasis supplied)
A calendar month is a month designated in the calendar
without regard to the number of days it may contain. [28] It
is the period of time running from the beginning of a
certain numbered day up to, but not including, the
corresponding numbered day of the next month, and if
there is not a sufficient number of days in the next
month, then up to and including the last day of that
month.[29] To illustrate, one calendar month from
December 31, 2007 will be from January 1, 2008 to
January 31, 2008; one calendar month from January 31,
2008 will be from February 1, 2008 until February 29,
2008.[30]
A law may be repealed expressly (by a categorical
declaration that the law is revoked and abrogated by
another) or impliedly (when the provisions of a more
recent law cannot be reasonably reconciled with the
previous one).[31] Section 27, Book VII (Final Provisions)
of the Administrative Code of 1987 states:
Sec. 27. Repealing clause. All laws,
decrees, orders, rules and regulation, or
portions thereof, inconsistent with this
Code are hereby repealed or modified
accordingly.
A repealing clause like Sec. 27 above is not an express
repealing clause because it fails to identify or designate
the laws to be abolished. [32] Thus, the provision above
only impliedly repealed all laws inconsistent with the
Administrative Code of 1987.
Implied repeals, however, are not favored. An implied
repeal must have been clearly and unmistakably intended
by the legislature. The test is whether the subsequent law
encompasses entirely the subject matter of the former
law and they cannot be logically or reasonably reconciled.
[33]
Both Article 13 of the Civil Code and Section 31, Chapter
VIII, Book I of the Administrative Code of 1987 deal with
the same subject matter the computation of legal periods.
Under the Civil Code, a year is equivalent to 365 days
whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state,
under the Administrative Code of 1987, the number of
days is irrelevant.
There obviously exists a manifest incompatibility in the
manner of computing legal periods under the Civil Code
and the Administrative Code of 1987. For this reason, we
hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law,
governs the computation of legal periods. Lex posteriori
derogat priori.
Applying Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 to this case, the two-year
prescriptive period (reckoned from the time respondent
filed its final adjusted return [34] on April 14, 1998)
consisted of 24 calendar months, computed as follows:
XXXXXX
(table)
We therefore hold that respondent's petition (filed on
April 14, 2000) was filed on the last day of the
24th calendar month from the day respondent filed its
final adjusted return. Hence, it was filed within the
reglementary period.
Accordingly, the petition is hereby DENIED. The case
is REMANDED to the Court of Tax Appeals which is
ordered to expeditiously proceed to hear C.T.A. Case No.
6113 entitled Primetown Property Group, Inc. v.
Commissioner of Internal Revenue and Arturo V. Parcero.
No costs.
SO ORDERED.
G.R. No. L-41919-24 May 30, 1980
UNGAB vs. THE COMMISSIONER OF INTERNAL REVENUE,
Petition for certiorari and prohibition with preliminary
injunction and restraining order to annul and set aside the
informations filed in Criminal Case Nos. 1960, 1961, 1962,
1963, 1964, and 1965 of the Court of First Instance of Davao,
all entitled: "People of the Philippines, plaintiff, versus Quirico
Ungab, accused;" and to restrain the respondent Judge from
further proceeding with the hearing and trial of the said
cases.
It is not disputed that sometime in July, 1974, BIR Examiner
Ben Garcia examined the income tax returns filed by the
herein petitioner, Quirico P. Ungab, for the calendar year
ending December 31, 1973. In the course of his examination,
he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR
District Revenue Officer at Davao City sent a "Notice of
Taxpayer" to the petitioner informing him that there is due
from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the
year 1973 and inviting petitioner to an informal conference
where the petitioner, duly assisted by counsel, may present
his objections to the findings of the BIR Examiner. 1 Upon
receipt of the notice, the petitioner wrote the BIR District
Revenue Officer protesting the assessment, claiming that he
was only a dealer or agent on commission basis in the
banana sapling business and that his income, as reported in
his income tax returns for the said year, was accurately
stated. BIR Examiner Ben Garcia, however, was fully
convinced that the petitioner had filed a fraudulent income
tax return so that he submitted a "Fraud Referral Report," to
the Tax Fraud Unit of the Bureau of Internal Revenue. After
examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient
proof that the herein petitioner is guilty of tax evasion for
the taxable year 1973 and recommended his prosecution:
(1) For having filed a false or fraudulent income tax return
for 1973 with intent to evade his just taxes due the
government under Section 45 in relation to Section 72 of
the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in
1973 and 1974, or a total of unpaid fixed taxes of P100.00
plus penalties of 175.00 or a total of P175.00, in
accordance with Section 183 of the National Internal
Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer
of banana poles or saplings, on the total sales of
P129,580.35 to the Davao Fruit Corporation, depriving
thereby the government of its due revenue in the amount
of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution
Division, dated December 12, 1974, the Commissioner of
Internal Revenue approved the prosecution of the
petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been
designated to assist all Provincial and City Fiscals
throughout the Philippines in the investigation and
prosecution, if the evidence warrants, of all violations of the
National Internal Revenue Code, as amended, and other
related laws, in Administrative Order No. 116 dated
December 5, 1974, and to whom the case was assigned,
conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the
petitioner with the Court of First Instance of Davao City, to
wit:
(1) Criminal Case No. 1960 — Violation of Sec. 45, in
relation to Sec. 72 of the National Internal-Revenue
Code, for filing a fraudulent income tax return for the
calendar year ending December 31, 1973; 4
(2) Criminal Case No. 1961 — Violation of Sec. 182
(a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in
business as producer of saplings, from January, 1973
to December, 1973, without first paying the annual
fixed or privilege tax thereof; 5
(3) Criminal Case No. 1962 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of
banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6
(4) Criminal Case No. 1963 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales
receipts and earnings in his business as producer of
saplings, and to pay the percentage tax due thereon,
for the quarter ending on March 31, 1973; 7
(5) Criminal Case No. 1964 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of
banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8
(6) Criminal Case No. 1965 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings as producer of banana saplings,
for the quarter ending on September 30, 1973, and to
pay the percentage tax due thereon. 9
On September 16, 1975, the petitioner filed a motion to
quash the informations upon the grounds that: (1) the
informations are null and void for want of authority on the
part of the State Prosecutor to initiate and prosecute the
said cases; and (2) the trial court has no jurisdiction to take
cognizance of the above-entitled cases in view of his
pending protest against the assessment made by the BIR
Examiner. 10 However, the trial court denied the motion on
October 22, 1975. 11 Whereupon, the petitioner filed the
instant recourse. As prayed for, a temporary restraining
order was issued by the Court, ordering the respondent
Judge from further proceeding with the trial and hearing of
Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965
of the Court of First Instance of Davao, all entitled: "People of
the Philippines, plaintiff, versus Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed
against him on the ground that the respondent State
Prosecutor is allegedly without authority to do so. The
petitioner argues that while the respondent State
Prosecutor may initiate the investigation of and prosecute
crimes and violations of penal laws when duly authorized,
certain requisites, enumerated by this Court in its decision
in the case of Estrella vs. Orendain, 12 should be observed
before such authority may be exercised; otherwise, the
provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because
according to said charter he has charge of the prosecution of
all crimes committed within his jurisdiction; and since
"appropriate circumstances are not extant to warrant the
intervention of the State Prosecution to initiate the
investigation, sign the informations and prosecute these
cases, said informations are null and void." The ruling
adverted to by the petitioner reads, as follows: têñ.£îhqwâ£
In view of all the foregoing considerations, it is the ruling
of this Court that under Sections 1679 and 1686 of the
Revised Administrative Code, in any instance where a
provincial or city fiscal fails, refuses or is unable, for any
reason, to investigate or prosecute a case and, in the
opinion of the Secretary of Justice it is advisable in the
public interest to take a different course of action, the
Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or
prosecution exclusively and only of such case, any
practicing attorney or some competent officer of the
Department of Justice or office of any city or provincial
fiscal, with complete authority to act therein in all
respects as if he were the provincial or city fiscal himself,
or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the
discharge of his duties, with the same complete authority
to act independently of and for such city or provincial
fiscal provided that no such appointment may be made
without first hearing the fiscal concerned and never after
the corresponding information has already been filed
with the court by the corresponding city or provincial
fiscal without the conformity of the latter, except when it
can be patently shown to the court having cognizance of
the case that said fiscal is intent on prejudicing the
interests of justice. The same sphere of authority is true
with the prosecutor directed and authorized under
Section 3 of Republic Act 3783, as amended and/or
inserted by Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the nature of the
power of the Secretary of Justice over fiscals as being
purely over administrative matters only was not really
necessary, as indicated in the above relation of the facts
and discussion of the legal issues of said case, for the
resolution thereof. In any event, to any extent that the
opinion therein may be inconsistent herewith the same
is hereby modified.
The contention is without merit. Contrary to the petitioner's
claim, the rule therein established had not been violated.
The respondent State Prosecutor, although believing that he
can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the
City Fiscal, after being shown Administrative Order No. 116,
dated December 5, 1974, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout
the Philippines in the investigation and prosecution of all
violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the
respondent State Prosecutor to conduct the investigation of
said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations
was precipitate and premature since the Commissioner of
Internal Revenue has not yet resolved his protests against
the assessment of the Revenue District Officer; and that he
was denied recourse to the Court of Tax Appeals.
The contention is without merit. What is involved here is not
the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the
Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is
within the cognizance of courts of first instance. While there
can be no civil action to enforce collection before the
assessment procedures provided in the Code have been
followed, there is no requirement for the precise
computation and assessment of the tax before there can be a
criminal prosecution under the Code. têñ.£îhqwâ£
The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary
before the taxpayer can be prosecuted criminally for
the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully
filed fraudulent returns with intent to evade and defeat
a part or all of the tax. 14
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfuly filed a fraudulent
return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to
discover the error and promptly to assess has no
connections with the commission of the crime. 15
Besides, it has been ruled that a petition for reconsideration
of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the
prescriptive period of a criminal action for violation of
law. 16Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue
Code. Accordingly, the respondent Judge did not abuse his
discretion in denying the motion to quash filed by the
petitioner.
WHEREFORE, the petition should be, as it is hereby
dismissed. The temporary restraining order heretofore
issued is hereby set aside. With costs against the petitioner.
SO ORDERED.