Dy Peh vs. Collector of Internal Revenue

A taxpayer who employs an agent to remit tax payments is bound by the agent's acts in relation to such payments, including the misapplication or diversion of funds, and is estopped from questioning the misapplication if he accepted cancelled checks reflecting the diversion without protest. Findings of fact by the Court of Tax Appeals are conclusive upon the Supreme Court, which reviews only errors of law in such petitions.

Dy Peh operated a rubber shoe manufacturing and selling business in Cebu City under the registered firm name Victory Rubber Manufacturing, remitting percentage taxes to the City Treasurer of Cebu. In 1955, the Bureau of Internal Revenue uncovered anomalies in the office of the City Treasurer involving the manipulation of official receipts for tax payments by several taxpayers, including Dy Peh. The investigation revealed systematic discrepancies between the amounts recorded on original official receipts retained by taxpayers and the amounts on the duplicate, triplicate, and quadruplicate copies kept in the City Treasurer's office, indicating that portions of payments were being diverted to cover other taxpayers' obligations through the intermediary of a common business agent.

Dy Peh was engaged in the business of manufacturing and selling rubber shoes and allied products in Cebu City, operating under the registered firm name Victory Rubber Manufacturing. During the periods material to this case, he remitted percentage taxes to the City Treasurer of Cebu through a series of quarterly payments covering the years 1952 to 1955.

Sometime in 1955, the Bureau of Internal Revenue uncovered anomalies in the office of the City Treasurer of Cebu concerning the payment of taxes by certain taxpayers, among them Dy Peh. The investigation revealed that the amounts of taxes allegedly paid by petitioner, as reflected in the original copies of official receipts in his possession, were substantially larger than the amounts appearing in the corresponding duplicate, triplicate, and quadruplicate copies retained in the City Treasurer's office. The discrepancies were systematic and significant, ranging from ₱1,700 to ₱4,000 per receipt across thirteen transactions spanning three causes of action. For example, Official Receipt No. 699004 dated April 20, 1954 showed ₱3,227.47 in the original but only ₱227.47 in the duplicate, a difference of ₱3,000. Similar discrepancies appeared in every receipt examined.

Based on these findings, the respondent Collector of Internal Revenue assessed against petitioner deficiency percentage taxes totaling ₱51,939.27, including penalties, covering short payments across the assessed periods. Three separate assessments were issued: ₱4,725 (including ₱100 penalty) on January 27, 1956, and ₱29,980 (including ₱50 penalty) and ₱17,425 (including ₱50 penalty), both dated November 12, 1955.

Petitioner contended that he had paid his taxes in full, pointing to the original official receipts in his possession which showed full payment and to the checks he issued, which he claimed covered the full amount due for each quarter. He maintained that any diversion of his payments to satisfy the tax obligations of other taxpayers should not be held against him. Respondent countered that the actual amounts paid were those reflected in the duplicate, triplicate, and quadruplicate copies, and that the originals had been falsified or altered to show full payment.

The Court of Tax Appeals found, based on the preponderance of evidence, that petitioner had employed one Tan Chuan Liong as his business agent for the payment of taxes, and that it was Tan Chuan Liong who prepared the official receipts and diverted portions of the amounts entrusted to him by petitioner to pay the tax obligations of other taxpayers who were also his clients. The CTA further found that petitioner's payments were made by checks, and that the numbers of the official receipts covering the payments — including those for other taxpayers whose taxes were partially paid from petitioner's checks — were indicated on the back of each check. After the checks were deposited and the amounts credited to the Government, the cancelled checks were returned to petitioner, who accepted them without protest, thereby acquiescing in the manner of application. The CTA concluded that the official receipts in petitioner's possession did not reflect the truth, a finding corroborated by the testimonies of employees of the City Treasurer's Office and the report of NBI handwriting expert Felipe Logan.

• Full Payment via Original Receipts: Petitioner argued that since the checks he issued covered in full the amount of taxes due for each quarter, and since the originals of the official receipts issued by the City Treasurer showed that the full amount had been paid, he must be deemed to have paid his taxes in full. Any anomaly in the application of the amounts paid — consisting in the diversion of part thereof to pay the taxes of other taxpayers — should not be held against him, whether attributable to employees of the City Treasurer or to other parties.
• Personal Payment: Petitioner sought to prove that he never employed Tan Chuan Liong as a business agent and that he personally made the tax payments in question.
• Estoppel: Petitioner contended that the Court of Tax Appeals erred in holding that he was estopped from questioning the misapplication of his payments.

• Actual Amounts Paid: Respondent argued that the amounts actually paid by petitioner were those appearing in the duplicate, triplicate, and quadruplicate copies of the official receipts, and that the originals had been falsified or altered to show payment in full.
• Payment Through Agent: Respondent claimed that the payments were made not by petitioner personally but by Tan Chuan Liong, his authorized agent in the matter of tax payments, and that Bartolome Baguio, Chief of the Internal Revenue Division of the City Treasurer's Office of Cebu, had allowed Tan Chuan Liong to prepare the official receipts in connection with tax payments made on behalf of his merchant clients. It was Tan Chuan Liong who applied portions of the amounts given to him by petitioner to pay the tax obligations of other taxpayers, also his clients, and therefore petitioner's recourse was against Tan Chuan Liong.

• Agency: Whether petitioner personally paid his taxes or did so through his authorized agent, Tan Chuan Liong.
• Falsification of Receipts: Whether the official receipts in petitioner's possession were falsified, and if so, by whom.
• Estoppel: Whether petitioner is estopped from questioning the misapplication of his tax payments.
• Scope of Review: Whether the findings of fact of the Court of Tax Appeals are reviewable by the Supreme Court.

• Agency: Yes, petitioner employed Tan Chuan Liong as his business agent for tax payments. The CTA's factual finding on this point was sustained, the preponderance of evidence showing that Tan Chuan Liong prepared the official receipts for payments of taxpayers who employed him as agent.
• Falsification of Receipts: Yes, the official receipts in petitioner's possession did not reflect the true amounts paid. The duplicate, triplicate, and quadruplicate copies appeared genuine and showed lesser amounts, and the originals were found to have been falsified.
• Estoppel: Yes, petitioner is estopped from questioning the misapplication. Having accepted cancelled checks bearing receipt numbers covering other taxpayers' payments without protest, petitioner acquiesced in the manner of application.
• Scope of Review: No, findings of fact by the Court of Tax Appeals are not reviewable by the Supreme Court; only errors of law may be reviewed in petitions of this nature.

• Agency: The Court of Tax Appeals resolved this factual question against petitioner, finding that the preponderance of evidence showed Tan Chuan Liong was petitioner's business agent. The CTA reasoned that if petitioner had personally paid the taxes, the official receipts would have been prepared by Bartolome Baguio or an authorized employee of the City Treasurer, not by Tan Chuan Liong. It was established that Tan Chuan Liong prepared official receipts only for payments of taxpayers who employed him as business agent. The testimonies of Bartolome Baguio, Isidro Badana, and Lauro Abalos corroborated this finding, and the report of NBI handwriting expert Felipe Logan further supported it. The Supreme Court found no reason to disturb these findings, as only errors of law are reviewable in CTA appeals.

• Falsification of Receipts: The Court agreed with the CTA that the official receipts in petitioner's possession did not reflect the truth. The duplicate, triplicate, and quadruplicate copies appeared genuine upon their face and showed amounts substantially less than those in the originals. The Court noted that the same pattern had been found in analogous cases — Tiu Bon Sin vs. Collector, C.T.A. No. 286, and Yap Pe Giok vs. Arañas, C.T.A. No. 533 — where the same business agent, Tan Chuan Liong, misappropriated portions of amounts entrusted to him and paid less than what was due from his principals. The CTA's factual determination on this point was conclusive upon the Supreme Court.

• Estoppel: The CTA found that petitioner's payments were made by checks, and that the numbers of the official receipts covering the payments — including receipts for other taxpayers whose taxes were partially satisfied from petitioner's checks — were indicated on the back of each check. After deposit and crediting, the cancelled checks were returned to petitioner, who accepted them without protest. This constituted evidence of acquiescence in the manner of application. The Supreme Court endorsed this reasoning and held that as a corollary to the finding of agency, the agent's acts bound the principal, without prejudice to the latter seeking recourse against the agent in an appropriate civil or criminal action.

• Scope of Review: The Court reaffirmed the established doctrine that in reviews of Court of Tax Appeals decisions, only errors of law are reviewable by the Supreme Court, citing a consistent line of rulings including Castro vs. Collector, Gutierrez vs. Court of Tax Appeals, Sanchez vs. Commissioner of Customs, Perez vs. Court of Tax Appeals, Sy Chiuco vs. Collector, and Collector vs. Fisher. The CTA's factual findings on agency, falsification, and estoppel were therefore conclusive.

• Conclusiveness of CTA Findings of Fact — In petitions for review of Court of Tax Appeals decisions before the Supreme Court, only errors of law are reviewable; findings of fact by the CTA are conclusive and binding. The Court applied this doctrine to sustain the CTA's findings that petitioner employed Tan Chuan Liong as his agent, that the official receipts in petitioner's possession were falsified, and that petitioner was estopped from questioning the misapplication of his payments.

• Agency — Acts of Agent Bind the Principal — The acts of an authorized agent in connection with the business entrusted to him bind the principal. Where a taxpayer employs an agent to remit tax payments and the agent diverts portions of those payments to satisfy the obligations of other clients, the taxpayer-principal is bound by the agent's acts, without prejudice to seeking recourse against the agent in a separate civil or criminal action.

• Estoppel by Acquiescence — A taxpayer who accepts cancelled checks reflecting the application of his payments to other taxpayers' tax obligations, without protest, is deemed to have acquiesced in the manner of application and is estopped from later questioning the misapplication.

• "After the checks had been deposited and the amounts credited in favor of the Government, the cancelled checks were returned to petitioner. Petitioner is, therefore, charged with knowledge of the fact that the amount covered by each check was applied in payment not only of his tax but also of taxes of other taxpayers, the numbers of the official receipts covering which are indicated on the back of the check. The fact that he accepted the cancelled checks without protest is evidence of his acquiescence to the manner in which the amount covered by each check was applied by the collecting officer. He cannot now be heard to complain." — This passage from the Court of Tax Appeals, expressly adopted by the Supreme Court, articulates the estoppel rationale: acceptance of cancelled checks bearing other taxpayers' receipt numbers without protest constitutes acquiescence barring later objection.

• "Inasmuch as We have held in resolving the latter that, in point of fact, Tan Chuan Liong was petitioner's agent, the conclusion must necessarily be that the agent's acts bind his principal; without prejudice, of course, to the latter seeking recourse against him in an appropriate civil or criminal action." — This states the ratio decidendi on the agency issue: once the agency relationship is established as a matter of fact, the principal is bound by the agent's acts, with recourse available only against the agent separately.

• Tiu Bon Sin vs. Collector, C.T.A. No. 286 — Cited as an analogous case where the same business agent, Tan Chuan Liong, misappropriated portions of tax payments entrusted to him and paid less than what was due from his principals. Followed as persuasive authority supporting the finding that the official receipts in petitioner's possession did not reflect the true amounts paid.

• Yap Pe Giok vs. Arañas, C.T.A. No. 533 — Similarly cited as an analogous CTA case involving the same agent and the same pattern of misappropriation. Followed for the same purpose.

• Maria B. Castro vs. Collector, G.R. L-12174, April 26, 1962 — Cited as authority for the doctrine that only errors of law are reviewable by the Supreme Court in petitions for review of CTA decisions. Followed.

• Blas Gutierrez, et al. vs. Court of Tax Appeals, G.R. L-9738 — Cited for the same doctrine on the limited scope of review of CTA decisions. Followed.

• Benito Sanchez vs. Commissioner of Customs, G.R. L-8556, September 30, 1957 — Cited for the same doctrine on reviewability limited to errors of law. Followed.

• Eugenie Perez vs. Court of Tax Appeals, G.R. L-10507, May 30, 1958 — Cited for the same doctrine. Followed.

• Sy Chiuco vs. Collector, G.R. No. L-13387, March 23, 1960 — Cited for the same doctrine. Followed.

• Collector vs. Fisher and Fisher vs. Collector, G.R. Nos. L-11622 and L-1168, January 28, 1961 — Cited for the same doctrine. Followed.

Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Fernando, and Capistrano, JJ., concurred.