Meralco Securities Corporation vs. Savellano

A writ of mandamus will not lie to compel the Commissioner of Internal Revenue to issue a deficiency tax assessment because the matter is an exercise of executive discretion reviewable exclusively by the Court of Tax Appeals through a timely appeal. The determination of whether to assess or not assess taxes is not a ministerial duty; it involves the exercise of official judgment and discretion, and mandamus cannot be used to dictate the outcome of that discretion or to supplant the Commissioner’s administrative function.

Juan G. Maniago submitted a confidential denunciation to the Commissioner of Internal Revenue on May 22, 1967, asserting that Meralco Securities Corporation had underpaid its corporate income tax from 1962 to 1966 by including in its taxable income only 25% of the dividends received from Manila Electric Co., thereby evading tax on the remaining 75%. The Commissioner investigated the charge and concluded that, under § 24(a) of the National Internal Revenue Code as then in force, a domestic or foreign resident corporation was required to return only 25% of dividends received for income tax purposes. Having found no deficiency, the Commissioner, in a letter dated April 5, 1968, denied Maniago’s claim for an informer’s reward. This ruling was sustained by the Secretary of Finance on May 11, 1971.

• Nature: Consolidated original actions for certiorari under Rule 65 to nullify a writ of mandamus issued by a Court of First Instance in Civil Case No. 80830. The writ directed petitioner Commissioner of Internal Revenue to assess deficiency corporate income tax against petitioner Meralco Securities Corporation and to pay private respondents (the heirs of Juan G. Maniago) a 25% informer’s reward.

• The Denunciation: On May 22, 1967, Juan G. Maniago filed a confidential denunciation with the Commissioner of Internal Revenue, alleging that Meralco Securities Corporation had evaded corporate income tax by returning only 25% of the dividends it received from Manila Electric Co. for the years 1962-1966. Maniago contended that Manila Electric Co. was not a domestic corporation liable to tax, thus the 25% limitation did not apply.

• Commissioner’s Ruling: The Commissioner investigated the denunciation and determined that no deficiency corporate income tax was due. Under § 24(a) of the National Internal Revenue Code as then applicable, dividends received by a domestic or foreign resident corporation were returnable for income tax purposes at only 25% of their amount. The Commissioner rejected Maniago’s interpretation and, in a letter dated April 5, 1968, denied the claim for an informer’s reward on a non-existent deficiency. The Secretary of Finance affirmed this ruling on May 11, 1971.

• Mandamus Petition: Maniago commenced Civil Case No. 80830 on August 28, 1970, and later amended his petition, seeking to compel the Commissioner to impose the alleged deficiency assessment and to award him the informer’s reward under Republic Act No. 2338.

• Trial Court’s Decision: Despite the Commissioner’s motion to dismiss and Meralco Securities Corporation’s answer raising jurisdictional and substantive defenses, respondent judge granted the writ of mandamus on January 10, 1973. The decision ordered the assessment and collection of ₱51,840,612.00 as deficiency corporate income tax for 1962-1969 plus interests and surcharges, and directed payment of 25% of the total amount collected to the informer’s heirs.

Commissioner of Internal Revenue (G.R. No. L-36748):

• Lack of Jurisdiction: The Court of First Instance had no jurisdiction over the subject matter, as disputes involving tax assessments are exclusively within the appellate jurisdiction of the Court of Tax Appeals under Republic Act No. 1125.

• Discretionary Nature of Assessment: The issuance or non-issuance of a tax deficiency assessment is a prerogative vested by law in the Commissioner of Internal Revenue, involving the exercise of executive discretion. That discretion cannot be reviewed or controlled through a writ of mandamus, which lies only to enforce a ministerial duty.

• Usurpation of Executive Power: Compelling the Commissioner to issue an assessment that he found unwarranted would amount to judicial usurpation of an executive function specifically delegated to the Bureau of Internal Revenue.

Meralco Securities Corporation (G.R. No. L-36181):

• Exclusive Jurisdiction of the Court of Tax Appeals: The subject matter—the correctness of a tax assessment or the decision not to assess—falls under the exclusive appellate jurisdiction of the Court of Tax Appeals, not the Court of First Instance.

• Failure to State a Cause of Action and Prematurity: No assessment had been issued by the Commissioner, and no taxes had been collected; thus the informer had no present right to any reward, and the action was premature.

• Mandamus Does Not Lie: Mandamus cannot compel the Commissioner to exercise his assessment power in a particular manner, as that power is discretionary.

• No Right to Reward Without Collection: The informer’s reward is contingent upon actual assessment and collection of unpaid taxes. Since neither event occurred, the trial court erred in ordering payment of a reward.

• Prescription: The action had prescribed.

Private respondents (heirs of Maniago) contended that the Commissioner of Internal Revenue had erroneously interpreted § 24(a) of the National Internal Revenue Code and that Manila Electric Co. was not a domestic corporation liable to tax, making the entire dividend amount taxable. They maintained that the Commissioner therefore had a clear legal duty to assess the deficiency and collect the tax, and that this duty could be enforced by mandamus. They further argued that, as a matter of right, they were entitled to the informer’s reward under Republic Act No. 2338 once the deficiency was established.

• Jurisdiction over the Subject Matter: Whether the Court of First Instance had jurisdiction over a mandamus petition seeking to compel the Commissioner of Internal Revenue to issue a deficiency tax assessment and to pay an informer’s reward, or whether the case fell within the exclusive appellate jurisdiction of the Court of Tax Appeals.

• Propriety of Mandamus: Whether mandamus could properly issue to compel the Commissioner to assess and collect alleged deficiency income taxes, given the Commissioner’s prior determination that no deficiency was due.

• Entitlement to Informer’s Reward: Whether private respondents were entitled to an informer’s reward absent any actual assessment and collection of unpaid taxes.

• Jurisdiction over the Subject Matter: The Court of First Instance had no jurisdiction because the matter—whether to impose a deficiency tax assessment—plainly involved a “disputed assessment” or “other matter arising under the National Internal Revenue Code,” which by § 7 of Republic Act No. 1125 falls exclusively within the appellate jurisdiction of the Court of Tax Appeals. Even assuming that an informer or stranger to the tax could avail of the right to appeal under § 7, the proper remedy would have been an appeal to the Court of Tax Appeals within thirty days from receipt of the Commissioner’s ruling pursuant to § 11 of the same statute. Maniago failed to appeal; the Commissioner’s ruling therefore became final and could no longer be reviewed by any court.

• Propriety of Mandamus: Mandamus will not lie to control the performance of a discretionary power. The decision whether to assess a deficiency tax is a purely administrative and discretionary function vested in the Commissioner of Internal Revenue. Discretion means the power or right conferred by law to act officially according to the officer’s own judgment and conscience, uncontrolled by the judgment of others. Mandamus may not be used to interfere with the manner in which that discretion is exercised or to coerce a particular determination. After the Commissioner, sustained by the Secretary of Finance, made a thorough study and determined that no tax was due, that ruling constituted a valid exercise of discretion. To permit any informer to compel a contrary assessment would usurp executive functions and create disorder in the administration of tax laws.

• Entitlement to Informer’s Reward: An informer’s reward is contingent upon the actual assessment and collection of unpaid or deficiency taxes. Because no assessment was lawfully made and no collection occurred, there was no basis—factual or legal—for the award of any reward. The trial court’s order for payment of 25% of the imagined recovery was gross error.

• Exclusive Appellate Jurisdiction of the Court of Tax Appeals under Republic Act No. 1125, § 7 — The Court of Tax Appeals has exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees, penalties, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. The determination of the correctness of a tax assessment, including the decision not to assess, falls within this exclusive grant. A taxpayer (and, arguendo, any person aggrieved) must appeal to the Court of Tax Appeals within thirty days from receipt of the Commissioner’s ruling; failure to do so renders the ruling final and beyond judicial review.

• Mandamus Confined to Ministerial Duties — Mandamus is available only to compel the performance of a ministerial act—one that an officer or tribunal performs in a prescribed manner, in obedience to a legal mandate, without regard to the exercise of discretion or judgment. It does not lie to compel the performance of a discretionary function, nor to influence or coerce the manner in which discretion is exercised.

• Discretionary Power of the Commissioner in Tax Assessment — The power to determine whether a deficiency tax assessment should be issued is discretionary, not ministerial. The Commissioner is charged by law with enforcing and implementing tax statutes and evaluating the facts; when, after mature study, the Commissioner decides that no tax is due, and that determination is affirmed by the Secretary of Finance, the decision is a valid exercise of executive discretion immune from reversal by the ordinary courts through mandamus. The same principle applies to other executive officials exercising discretionary functions, such as the Commissioner of Customs in forfeiture matters and immigration authorities in visa extensions.

• Contingent Nature of Informer’s Reward — Under Republic Act No. 2338, an informer’s right to a reward is conditional upon the actual assessment and collection of unpaid or deficiency taxes. Without assessment and collection, no right to a reward accrues.

• “The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words ‘disputed assessments’ or of ‘other matters arising under the National Internal Revenue Code’ …”

• “Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the performance of a discretionary power. Purely administrative and discretionary functions may not be interfered with by the courts.”

• “Discretion, as thus intended, means the power or right conferred upon the office by law of acting officially under certain circumstances according to the dictates of his own judgment and conscience and not controlled by the judgment or conscience of others.”

• “Thus, after the Commissioner who is specifically charged by law with the task of enforcing and implementing the tax laws … rendered his decision or ruling that no tax is due or collectible, and his decision is sustained by the Secretary … such decision or ruling is a valid exercise of discretion in the performance of official duty and cannot be controlled much less reversed by mandamus.”

• “Informer’s reward is contingent upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually assessed and collected.”

• Blaquera vs. Rodriguez, et al., 103 Phil. 511 — Followed. Established that the determination of the correctness or incorrectness of a tax assessment falls within the exclusive appellate jurisdiction of the Court of Tax Appeals under § 7 of Republic Act No. 1125, not the ordinary courts.

• Ledesma vs. Court of Tax Appeals, 102 Phil. 931 — Cited. Held that jurisdiction over cases involving disputed assessments was transferred to the Court of Tax Appeals, even for cases then pending in courts of first instance.

• Diokno vs. Rehabilitation Finance Corporation, 91 Phil. 608 — Applied. Mandamus does not compel the RFC to accept backpay certificates as loan payment because the acceptance is discretionary, not ministerial.

• Commissioner of Immigration vs. Arca, 22 SCRA 805 — Applied. Discretionary powers vested in executive officials, absent arbitrariness or grave abuse, are not subject to judicial control; mandamus cannot compel the Commissioner of Immigration to extend an alien’s stay.

• Samson vs. Barrios, 63 Phil. 198 — Referenced. Defined ministerial versus discretionary duties: if the law imposes a duty and gives the officer the right to decide how or when to perform it, the duty is discretionary.

• Republic Act No. 1125, § 7 — Grants the Court of Tax Appeals exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue involving disputed assessments, refunds, penalties, and other matters arising under the National Internal Revenue Code or related laws. Applied to hold that the CFI could not entertain the mandamus petition because the underlying dispute was a tax assessment matter within the CTA’s exclusive province.

• Republic Act No. 1125, § 11 — Establishes that any person, association, or corporation adversely affected by a ruling of the Commissioner of Internal Revenue may file an appeal in the Court of Tax Appeals within thirty days of receipt of such decision or ruling. Applied to show that the informer’s remedy, if any existed, had been lost by failure to appeal.

• National Internal Revenue Code, § 24(a) (then prevailing) — Provided that, in the case of dividends received by a domestic or foreign resident corporation liable to tax, only 25% of the dividends shall be returnable for income tax purposes. This provision formed the substantive basis for the Commissioner’s ruling that no deficiency tax was due from Meralco Securities Corporation.

• Republic Act No. 2338 — Governed the grant of informer’s rewards; implicitly required actual assessment and collection of taxes as a condition precedent to the reward. The Court held that without collection, no reward was payable.

Melencio-Herrera, Plana, Vasquez, and Relova, JJ., concurred. Gutierrez, Jr., J., took no part.