Commissioner of Internal Revenue vs. Bank of the Philippine Islands

The CIR's petition for review was denied as moot after the RTC acquitted Poblador and Albert in Criminal Case No. 91-4007 and the CIR itself stated that BPI may recover the amount it paid once they were acquitted.

BPI is the liquidator of PAC, a financing corporation that had been dissolved. Executive Order No. 1026 requires a tax clearance before a corporation may be dissolved, and Section 204 of the Tax Code governs compromises after criminal cases are filed.

Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount Acceptance Corporation (PAC), a financing corporation that was dissolved on July 17, 1989 pursuant to a January 30, 1986 resolution of its Board of Directors and stockholders shortening its corporate life to March 31, 1987. After PAC's dissolution, BPI learned from newspapers that petitioner Commissioner of Internal Revenue (CIR) had filed criminal cases against Horacio V. Poblador and Ramon A. Albert, PAC's former president and treasurer, for willful failure to pay PAC's final deficiency tax assessments for 1981 and 1982. According to the CIR, PAC was liable for P411,382.11 in deficiency taxes: for 1981, P166,923.00 deficiency income tax, P3,727.01 deficiency expanded withholding tax, and P44,300.00 deficiency documentary stamp tax, totaling P214,950.01; for 1982, P150,707.20 deficiency income tax, P35,887.91 deficiency percentage tax, and P9,836.99 deficiency expanded withholding tax, totaling P196,432.10.

BPI wrote to the CIR, claiming that it was not aware of any assessment regarding any tax deficiency owed by PAC but that it was willing to compromise and pay the deficiency tax; BPI also asked for the withdrawal of the criminal cases against Poblador and Albert. The parties agreed to settle for not less than 30% of the basic income and documentary stamp taxes and 100% of the basic expanded withholding tax due. BPI paid the CIR P119,815.13: for 1981, P31,298.10 deficiency income tax, P1,625.01 deficiency expanded withholding tax, and P44,000.00 deficiency documentary stamp tax, totaling P76,923.11; for 1982, P28,257.60 deficiency income tax, P4,797.43 deficiency percentage tax, and P9,836.99 deficiency expanded withholding tax, totaling P42,892.02.

Despite the payment, the CIR continued to prosecute the criminal cases against Poblador and Albert: Criminal Cases Nos. 91-5800, 91-5801, and 91-5802, involving the 1981 assessments, before the RTC of Makati, Branch 150; and Criminal Case No. 91-4007, involving the 1982 percentage tax deficiency, before the RTC of Makati, Branch 143. In its August 18, 1992 letter, BPI pointed out that the assessments were not sent to the proper address and asked for the refund of the P119,815.13 it had paid under the compromise agreement because the criminal cases against Poblador and Albert were not dropped as agreed. The CIR did not answer the letter and continued to prosecute the cases.

At the trial of Criminal Case Nos. 91-5800, 91-5801, and 91-5802, the following facts were established: (a) PAC filed its Annual Income Tax Return for 1985 on April 2, 1986, disclosing in the return that its current address was 8th Floor, FCC Building, Paseo de Roxas, Makati, Metro Manila, while its previous address was Ground Floor, DCG Building corner De la Rosa and Legaspi Streets, Makati, Metro Manila; (b) PAC filed its Annual Income Tax Return for the three months of 1986 up to March 31, 1986 on April 30, 1986, indicating that its current address was BPI Building, Ayala Avenue, Makati, Metro Manila, while its previous address was 8th Floor, FCC Building, Paseo de Roxas, Makati, Metro Manila; (e) on July 17, 1987, the SEC issued to PAC a Certificate of Filing of Amended Articles of Incorporation shortening the term of its existence and thereby dissolving the corporation; (f) after issuing the certificate, the SEC sent a letter dated July 14, 1987 stating that, pursuant to Executive Order No. 1026, which requires a tax clearance before a corporation may be dissolved, the SEC had dissolved PAC as of March 31, 1986 in view of the tax clearance certificate issued on November 11, 1986, and that PAC's principal office was located at 8th Floor, BPI-FB Building, 8753 Paseo de Roxas, Makati, Metro Manila; and (g) contrary to the testimony of prosecution witness Rolando Bumbay of the CIR's Collection Enforcement Division that he could not locate PAC, he looked everywhere except the Makati BIR Office, where PAC had been filing its income tax returns, and the Litigation Division of the BIR, which would have informed him that PAC had even sued the CIR in the CTA for refund of excess creditable income taxes paid in 1986, docketed as CTA Case No. 4257.

In an order dated June 22, 1993, the trial court dismissed Criminal Case Nos. 91-5800 to 91-5802 on motion of the BIR Special Prosecutor, whose motion was anchored on the fact that the assessments made by the BIR on PAC's tax deficiencies for 1981 had already been paid and amicably settled, as evidenced by the letter of Deputy Commissioner Eufracio D. Santos to Atty. Sabino Padilla, Jr. dated June 6, 1991. The CIR did not move for the dismissal of Criminal Case No. 91-4007, which involved the 1982 corporate percentage tax deficiency. On November 15, 1993, the CIR finally replied to BPI's August 18, 1992 letter, refusing the refund and denying that a compromise settlement was reached; the CIR reasoned that it could not have entered into a compromise agreement with BPI since the criminal cases had already been filed in court, and that a compromise after the filing of the cases would have violated Section 204 of the Tax Code, so the payment of P119,815.13 could not have been accepted as a compromise settlement.

On December 12, 1993, BPI filed a case with the CTA for refund of the money it paid the CIR. The CTA dismissed the case on the ground of litis pendencia; BPI appealed to the CA, which ruled that litis pendencia was not present and ordered the CTA to commence trial on the refund case. The CIR then elevated the case to the SC via a petition for review. On January 28, 2000, the RTC of Makati City, Branch 143, rendered a decision in Criminal Case No. 91-4007 acquitting Poblador and Albert of willful failure to pay the corporate percentage tax deficiency for 1982; a copy of the decision was served on the CIR by registered mail before the CIR submitted its memorandum in this case. Despite being furnished a copy, the CIR merely adopted its comment as its memorandum and did not discuss the effect of the acquittal on the present petition; the CIR even stated that BPI may recover the amount it paid once Poblador and Albert were acquitted in the criminal case. In its decision in Criminal Case No. 91-4007, the RTC ruled that the prosecution failed to establish that PAC was in fact liable for deficiency taxes prior to its liquidation; assuming arguendo that there was a deficiency tax, the CIR failed to make a valid assessment because the notice of assessment was sent to PAC's old and therefore improper office address, even though PAC had already indicated its new address in its 1986 tax return filed with the BIR's Makati office, and the CIR sent the notice to the old address instead of the new address, which was also BPI's office address. Because there was a failure to effect a timely valid assessment, the period for filing a criminal case for PAC's tax liabilities had prescribed by the time the CIR instituted the criminal cases against its former officers, and Poblador and Albert were correctly acquitted.

• Compromise Settlement: Petitioner maintained that it could not have entered into a compromise agreement with respondent because the criminal cases had already been filed in court, and a compromise after the filing of the cases would have violated Section 204 of the Tax Code; thus the payment of P119,815.13 could not have been accepted as a compromise settlement.

• Compromise and Withdrawal of Criminal Cases: Respondent claimed that it was not aware of any assessment regarding any tax deficiency owed by PAC but was willing to compromise and pay the deficiency tax; it asked for the withdrawal of the criminal cases against Poblador and Albert.
• Improper Assessment and Refund: Respondent pointed out that the assessments were not sent to the proper address and asked for the refund of the P119,815.13 it paid under the compromise agreement because the criminal cases were not dropped as agreed.

• Mootness: Whether the CIR's petition for review should be denied as moot after the RTC acquitted Poblador and Albert in Criminal Case No. 91-4007 and the CIR stated that BPI may recover the amount it paid upon their acquittal.

• Mootness: Yes. The petition was denied for being moot. The RTC had acquitted Poblador and Albert in Criminal Case No. 91-4007, and the CIR itself stated that BPI may recover the amount it paid once they were acquitted.

• Mootness: The SC denied the petition for being moot after the RTC of Makati City, Branch 143, rendered its January 28, 2000 decision in Criminal Case No. 91-4007 acquitting Poblador and Albert of willful failure to pay the 1982 corporate percentage tax deficiency. A copy of that decision was served on the CIR by registered mail before the CIR submitted its memorandum, but the CIR merely adopted its comment as its memorandum and did not discuss the effect of the acquittal; it even stated that BPI may recover the amount it paid once Poblador and Albert were acquitted. The RTC found that the prosecution failed to establish PAC's liability and that no valid assessment was made because the notice was sent to PAC's old address despite its 1986 return indicating its new address, which was also BPI's office address; since no timely valid assessment was made, the period for filing the criminal case had prescribed. The SC therefore denied the petition as moot.

• Mootness — The SC denied the CIR's petition for review on this ground after the RTC acquitted Poblador and Albert in Criminal Case No. 91-4007 and the CIR itself stated that BPI may recover the amount it paid once they were acquitted; the SC did not reach the merits of the refund or compromise.

• "The petition is denied for being moot." — The SC's stated ground for denying the CIR's petition for review.
• "Petitioner even stated that respondent BPI may recover the amount it paid once Poblador and Albert were acquitted in the criminal case." — The SC noted the CIR's own position, which supported the mootness ruling.
• "Since there was a failure to effect a timely valid assessment, the period for filing a criminal case for PAC's tax liabilities had prescribed by the time petitioner instituted the criminal cases against its former officers." — The RTC's ruling in Criminal Case No. 91-4007, which the SC noted, explained the acquittal that rendered the petition moot.
• "WHEREFORE, the petition is hereby DENIED. SO ORDERED." — The final disposition.

• Section 204, Tax Code — The CIR invoked this provision to deny a compromise settlement after the criminal cases had been filed; the SC did not resolve the merits because it denied the petition as moot.
• Executive Order No. 1026 — The SEC letter stated that this order required a tax clearance before a corporation may be dissolved and that PAC had been dissolved as of March 31, 1986 in view of the tax clearance certificate issued on November 11, 1986.