PROTECTOR’S SERVICES, INC., V CA ET. AL. G.R.

No 118176, April 12, 2000

Facts: Petition Protector’s Services, Inc., (PSI) is a contractor engaged in recruiting

security guards for clients. After an audit investigation, the BIR assessed PSI
deficiency percentage taxes including surcharges, penalties and interests of
P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively.
On December 7, 1987, respondent CIR sent demand letters for payment of said
assessments for 1983 and 1984 on December 10, 1987, but denied receiving the
notice of deficiency tax for 1985.

Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and
1984 assessments, claiming that gross receipts subject to percentage tax should
exclude salaries of the security guards, employer’s share of SSS, SIF and Medicare
contributions. Without formally acting thereon, the BIR sent a follow-up letter dated
July 12, 1988 for the settlement of the taxes based on its computation, plus
additional documentary stamp taxes of P2,025 on PSI’s capitalization for 1983 and
1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the
total unsettled tax to P2,851,805.16.

On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41
deficiency expanded withholding tax. The following day, PSI filed its second protest
for the 1983 and 1984 assessments and included for the first time its protest against
the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that
salaries of security guards are part of taxable gross receipts for determination of
contractor’s tax.

PSI filed a petition for review on December 5, 1990 with the CTA averring that
assessments for documentary stamp and expanded withholding taxes and without
basis having been paid on July 22, 1988; the period for collection of the 1985
assessment letter therefore, the period to collect the percentage taxes for the first,
second and third quarter of 1984 has lapsed, the assessment letter therefore having
been sent on December 10, 1987, or beyond 3 years from filing of the quarterly
returns, and that the base amount was erroneous since salaries of security guards,
employer’s share of SSS, SIF and medicare contributions should not form part of
taxable gross receipts.

The CTA dismissed the petition stating that: (1) the assessments were made within
the 3-year prescriptive period which should be reckoned from January 20, 1985, the
date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as
all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the
protest letter having filed only on January 12, 1988, or 33 days from December 10,
1987, the request for reinvestigation was filed out of time. On review by the CA, the
CTA’s decision was affirmed.

Issues:
• Whether or not the CTA has jurisdiction to act on the petition for review filed
before it.
• Whether or not the assessments against PSI for deficiency percentage tax for 1983
and 1984 were made within the prescriptive period.
• Whether or not the period for collection of taxes for taxable years 1983, 1984 and
1985 has already prescribed.
• Whether or not the assessments are correct.

Held: An assessment maybe administratively protested within 30 days from receipt

thereof; otherwise, the assessment shall become final and unappealable. In this
case, PSI received the assessments on December 10, 1987 and protested the 1983
and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the
protests were filed out of time and PSI can no longer dispute the correctness of
assessment. The CTA correctly dismissed the appeal for lack of jurisdiction.

Petitioner’s contention that the Government’s right to assess and collect the 1983,
1984 and 1985 assessments had already prescribed in view of BP700, which reduced
the prescriptive period for assessment and collection of internal revenue taxes to 3
yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period
for assessment and collection of revenue taxes applied to taxes paid beginning 1984.
Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still
covered by the 5-year statutory prescriptive period.

The 3-year prescriptive period for assessment of contractor’s tax should be

computed at the time of filing of the final annual percentage tax return, when it can
be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative
quarterly payments.

As to the contention that for failure of the BIR to commence collection of the 1983,
1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the
government’s right to collect the tax has prescribed, the court ruled that “the
suspension of the running of the statute of limitations for tax collection for the
period during which the commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and 60 days thereafter.” In the
instant case, PSI filed a petition before the CTA to prevent the collection of the
assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the
case to the SC, hoping for a review in the favor. The actions taken by petitioner
before the CTA and the SC suspended the running of the statute of limitation.

As to the correctness of the assessment, it was held that contractor’s tax on gross
receipts imposed on business agents including private detective watchman agencies,
was a tax on the sale of services or labor, imposed on the exercise of a privilege. The
term “gross receipts” means all amounts received by the prime or principal
contractor as the total price, undiminished by the amount paid to the subcontractor
under the subcontract arrangement. Hence, gross receipts could not be diminished
by employer’s SSS, SIF and medicare contributions. Furthermore, it has been
consistently ruled by the BIR that the salaries paid to security guards should form
part of the gross receipts subject to tax.