Commissioner of Internal Revenue versus

La Flor Isabela Cultural Corporation

G.R. No. 211289, January 14, 2019
Second Division, Reyes, J. JR., J.

Facts: La Flor Isabela (La Flor) is a registered corporation who filed its monthly
returns for the Expanded Withholding Tax (EWT) and Withholding Tax on
Compensation (WTC) for calendar year 2005. On yr 2008, Fa Flor executed a
waiver of the Statute of Limitations later another, with its internal revenue
liabilities for yr 2005. The following year, La flor received a Formal Letter of
Demand and Final Assessment Notices (FANs) covering deficiency taxes for
year 2005. La Flor filed its Letter of Protest contesting the assessment notices,
the Commissioner of Internal Revenue (CIR) issued a Final Decision on Disputed
Assessment (FDDA) involving the alleged deficiency withholding taxes in
aggregate amount of around 7MPhp. La Flor filed a petition for review before
the CTA Division, which granted the same and cancelled the subject
assessments; posited that the assessment was barred by prescription, and the
waivers did not extend the period of assessment, for lack of evidence, and the
latter waiver of the two failed to comply with the Revenue Memorandum
Order (RMO) No.20-90 for not stating the nature and amount of the tax to be
assessed. The CTA En banc affirmed the division, the motion for reconsideration
filed, denied. Now, CIR files for certiorari under rule 45 to the Supreme Court.

Issue(s): (1) Whether the prescriptive period under Section 203 of the NIRC
applies to EWT and WTC Assessments; and (2) Whether La Flor’s EWT and WTC
assessments for 2005 were barred by prescription.

Decision: Yes. Petition Denied, CTA En Banc decision Affirmed. La Flor argues
that the CIR’s failure to include the date of issue of MCLE compliance number
of its counsel in a pleading is a ground for dismissal, No: People v. Arrojado held
that it doesn’t, yet subjects the lawyer to the prescribed fine and/or disciplinary
action. Withholding taxes are internal revenue taxes covered by Section 203
of the NIRC. Said Code only provides for the ordinary 3-year and extraordinary
10-year prescriptive period for assessment, the former for NIRC taxes, latter for
fraudulent, false returns and failure to file return. the Court does not agree with
the CIR that withholding tax assessments are merely an imposition of a penalty
on the withholding agent, and thus, outside the coverage of Section 203 of the
NIRC: should the withholding agent fail to deduct the required amount from its
payment to the payee, it is liable for deficiency taxes and applicable
penalties. The terms “liable for tax” and “subject to tax” both connote legal
obligation or duty to pay a tax. Thus, EWTs and WTCs contemplate deficiency
internal revenue taxes. Their aim is to collect unpaid income taxes and not
merely to impose a penalty on the withholding agent for its failure to comply
with its statutory duty. RMO 20-90 are mandatory requirements which must be
strictly followed. Here, the waivers presented failed to indicate the specific tax
involved and the amount of tax to be assessed; absent such details, there is no
agreement to speak of. With no valid waiver, the assessments had prescribed.

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