ABS-CBN v.

CTA
G.R. No. L-52306 (Oct. 12, 1981)
1st Div (J. Melencio-Herrera)

Facts

Since the taxable year 1965, ABS-CBN (petitioner) was already remitting 30% withholding tax
on foreign film rental payments pursuant to Section 24(b) of the Tax Code and implemented by
BIR General Circular No. V-334. On June 27, 1968, the withholding tax rate was increased from
30% to 35% by virtue of R.A. 5431. Because of this amendment, the BIR issued Revenue
Memorandum Circular (RMC) No. 4-71 dated February 8, 1971 informing all internal revenue
officials that General Circular No. V-334 is revoked in order to effect the increase in tax rate. As
a result, BIR assessed ABS-CBN of deficiency withholding taxes for the taxable years 1965
through 1968. The case went through the Court of Tax Appeals (CTA) which ruled in favor of
the BIR. ABS-CBN then appealed before the Supreme Court.

Issue

Under the Tax Code, whether or not the BIR can retroactively apply RMC No. 4-71 as basis to
assess ABS-CBN of deficiency withholding taxes?

Holding and Reasoning

NO, the BIR cannot retroactively apply RMC No. 4-71 as basis to assess ABS-CBN of
deficiency withholding taxes because Section 338-A of the Tax Code expressly provides that any
revocation of the circulars promulgated by the [BIR] shall NOT be given retroactive application
if the [revocation] will be prejudicial to the taxpayers, except: (a) where the taxpayer deliberately
misstates or omits material facts from his return or any document required of him by the BIR; (b)
where the facts subsequently gathered by the BIR are materially different from the facts on
which the ruling is based; or (c) where the taxpayer acted in bad faith. The Court found ABS-
CBN to be in good faith complying even to a mere Circular meant only for internal revenue
officials. Judgment of the CTA reversed.