Philippine Journalists, Inc. vs. Commissioner of Internal Revenue

A waiver of the statute of limitations under the NIRC is a bilateral agreement that must strictly comply with RMO No. 20-90; it must specify a definite expiration date, be signed by the Commissioner for tax cases exceeding P1M, indicate the date of BIR acceptance, and furnish the taxpayer a copy; noncompliance renders the waiver invalid and does not toll the three-year prescriptive period. The CTA has jurisdiction under Section 7(1) of Republic Act No. 1125 to rule on the validity of a warrant of distraint and levy and of such a waiver as “other matters arising under the NIRC.”

Philippine Journalists, Incorporated (PJI) is a taxpayer that filed its annual income tax return for calendar year 1994, while the Commissioner of Internal Revenue is the respondent charged with administering and enforcing internal revenue taxes. The dispute implicates the NIRC’s three-year prescriptive period for assessment and collection under Sections 203 and 222, the BIR’s implementing Revenue Memorandum Order No. 20-90 on waivers of the statute of limitations, and the Court of Tax Appeals’ appellate jurisdiction under Section 7(1) of Republic Act No. 1125.

Philippine Journalists, Incorporated filed its Annual Income Tax Return for the calendar year ended December 31, 1994, presenting a net income of P30,877,387.00 and a tax due of P10,807,086.00. After deducting tax credits for the year, PJI paid P10,247,384.00. On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue issued Letter of Authority No. 87120 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine PJI’s books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. From the examination, PJI was told that there were deficiency taxes, inclusive of surcharges, interest, and compromise penalty, in the amounts of P229,527.90 for value-added tax, P125,002,892.95 for income tax, and P2,748,012.35 for withholding tax, or a total of P127,980,433.20.

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited PJI to send a representative to an informal conference on September 15, 1997 for an opportunity to object and present documentary evidence relative to the proposed assessment. On September 22, 1997, PJI’s Comptroller, Lorenza Tolentino, executed a “Waiver of the Statute of Limitation Under the National Internal Revenue Code,” which waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consented to the assessment and collection of taxes that may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation.

On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that PJI had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices informing PJI of the results of the investigation. On December 9, 1998, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-94 stating deficiency income tax of P108,743,694.88, value-added tax of P184,299.20, and expanded withholding tax of P2,363,220.38, or a total of P111,291,214.46.

On March 16, 1999, Deputy Commissioner Romeo S. Panganiban sent PJI a Preliminary Collection Letter to pay the assessment within ten days from receipt. On November 10, 1999, a Final Notice Before Seizure was issued by the same deputy commissioner giving PJI ten days from receipt to pay; PJI received a copy on November 24, 1999. By letters dated November 26, 1999, PJI asked to be clarified how the tax liability of P111,291,214.46 was reached and requested an extension of thirty days from receipt of the clarification within which to reply. The BIR received a follow-up letter from PJI asserting that its records do not show receipt of Tax Assessment/Demand No. 33-1-000757-94, and PJI also contested that the assessment had no factual and legal basis. On March 28, 2000, Warrant of Distraint and/or Levy No. 33-06-046, signed by Deputy Commissioner Romeo Panganiban for the BIR, was received by PJI.

The CTA found that the assessment notices were received by PJI. To disprove PJI’s allegation of non-receipt, the respondent presented a certification issued by the Post Master of the Central Post Office, Manila, stating that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila on December 15, 1998, addressed to Philippine Journalists, Inc. at Journal Bldg., Railroad St., Manila, was duly delivered to and received by Alfonso Sanchez, Jr. (Authorized Representative) on January 8, 1999; in claiming the letter, Sanchez presented three identification cards, one of which was his company ID with PJI. The CTA also found that the waiver did not contain a definite expiration date, did not state the date of acceptance by the Bureau, and was not furnished to PJI.

• CTA Jurisdiction: Petitioner argued that the Court of Appeals erred in ruling that it was outside the jurisdiction of the Court of Tax Appeals to entertain the Petition for Review, because the case inevitably rested upon the validity of the BIR’s issuance of warrants of distraint and levy contrary to Section 7(1) of Republic Act No. 1125.
• RMO No. 20-90 Compliance: Petitioner maintained that failure to comply with Revenue Memorandum Order No. 20-90 is not merely a formal defect that does not invalidate the waiver; the ruling disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation, which are substantive in nature, and the RMO provides that violation subjects the erring officer to administrative sanction.
• Finality and Validity of Assessment: Petitioner argued that the assessment notices did not become final and unappealable because the assessment issued was void and legally non-existent, the BIR having no power to issue an assessment beyond the three-year prescriptive period where there is no valid and binding waiver of the statute of limitations.
• Prescription as Public Policy: Petitioner contended that the respondent had no power to issue an assessment beyond the three-year period under Section 203 of the NIRC; such assessment should be held void and non-existent, otherwise Section 203, an expression of public policy, would be rendered useless and nugatory, and the right to assess cannot be validly granted after three years because it would violate PJI’s vested right to claim prescription.
• Nature of Waiver: Petitioner argued that the Court of Appeals erred in holding valid a defective waiver by considering it a waiver of the right to invoke the defense of prescription rather than an extension of the three-year period of prescription under Section 222 in relation to Section 203 of the Tax Code, an interpretation contrary to law, existing jurisprudence, and the purpose and intent for which those provisions were enacted.

• CTA Jurisdiction: Whether the Court of Tax Appeals had jurisdiction to entertain PJI’s Petition for Review challenging the validity of the warrant of distraint and levy and the waiver of the statute of limitations.
• Validity of Waiver / RMO No. 20-90: Whether failure to comply with Revenue Memorandum Order No. 20-90 renders the waiver of the statute of limitations invalid and ineffective.
• Finality and Appealability of Assessment: Whether the assessment notices became final and unappealable due to PJI’s failure to protest within the reglementary period.
• Effect of Invalid Waiver on Prescription: Whether the assessment and warrant issued beyond the three-year prescriptive period are void where the waiver is invalid.
• Nature of Waiver: Whether the waiver is a waiver of the right to invoke prescription or an extension of the prescriptive period to a date certain.

• CTA Jurisdiction: Yes. Section 7(1) of Republic Act No. 1125 grants the CTA exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue involving disputed assessments and other matters arising under the NIRC, including the validity of a warrant of distraint and levy and of a waiver of the statute of limitations.
• Validity of Waiver / RMO No. 20-90: No. The waiver was invalid because RMO No. 20-90’s requirements are mandatory; the waiver lacked a definite expiration date, was not signed by the Commissioner despite the tax exceeding P1M, did not indicate the date of acceptance by the BIR, and was not furnished to PJI.
• Finality and Appealability of Assessment: No. The assessment was void because it was issued beyond the three-year prescriptive period; an invalid assessment cannot become final and unappealable.
• Effect of Invalid Waiver on Prescription: The assessment and warrant are void. The invalid waiver did not toll or extend the three-year period, which continued to run until April 17, 1998; Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was time-barred, and Warrant of Distraint and/or Levy No. 33-06-046 was null and void.
• Nature of Waiver: The waiver is not a unilateral renunciation of the right to invoke prescription but a bilateral agreement extending the period to a date certain; it must be strictly construed.

• CTA Jurisdiction: Section 7(1) of Republic Act No. 1125 provides that the CTA shall exercise exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue. The appellate jurisdiction of the CTA is not limited to cases involving decisions of the Commissioner on matters relating to assessments or refunds; the second part of the provision covers other cases arising out of the NIRC or related laws administered by the BIR. Thus, the CTA had jurisdiction to determine if the warrant of distraint and levy issued by the BIR was valid and to rule if the Waiver of Statute of Limitations was validly effected. In Pantoja vs. David, the Court upheld the jurisdiction of the CTA to act on a petition to invalidate and annul distraint orders of the Commissioner of Internal Revenue. In Commissioner of Internal Revenue vs. Court of Appeals, the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld.

• Validity of Waiver / RMO No. 20-90: Sections 203 and 222 of the NIRC provide for a statute of limitations on the assessment and collection of internal revenue taxes to safeguard the interest of the taxpayer against unreasonable investigation. RMO No. 20-90 implements these provisions and must be strictly followed. The RMO requires that the waiver be in the prescribed form with no deviation; that the phrase “but not after _ 19” be filled up to indicate the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period; that the Commissioner of Internal Revenue or the revenue official authorized by him sign the waiver indicating that the Bureau has accepted and agreed to it, with the date of such acceptance indicated; that for tax cases involving more than P1M, the Commissioner sign the waiver; and that the waiver be executed in three copies, with the second copy for the taxpayer and the fact of receipt by the taxpayer indicated in the original copy. The waiver in this case did not specify a definite agreed date between the BIR and PJI within which the former may assess and collect revenue taxes, thus becoming unlimited in time and violating Section 222(b) of the NIRC. It was also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90; the case involved taxes amounting to more than P1,000,000.00 and was executed almost seven months before the expiration of the three-year prescription period, so the Commissioner was required to sign for the BIR. The date of acceptance was not indicated, and the Court of Appeals’ assumption that September 22, 1997 was the acceptance date was unsupported because Revenue District Officer Sarmiento was not the Revenue District Officer of RDO No. 33 on that date; her transfer and assignment to RDO No. 33 was signed by the BIR Commissioner only on January 16, 1998, as shown by Revenue Travel Assignment Order No. 14-98, and the CTA noted it was unlikely she made the acceptance on January 16, 1998 because revenue officials normally conduct first an inventory of their pending papers and property responsibilities. PJI was also not furnished a copy of the waiver. The Court of Appeals’ reasoning assumed the waiver was a unilateral act of the taxpayer, but it is in fact and in law an agreement between the taxpayer and the BIR; when PJI’s comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented, and compliance with RMO No. 20-90 occurs only after the taxpayer receives a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy is not only to give notice of the document’s existence but of the BIR’s acceptance and the perfection of the agreement. The waiver is a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. In Commissioner of Internal Revenue vs. Court of Appeals, the Court invalidated waivers not signed by the Commissioner and ruled that neither implied consent can be presumed nor can it be contended that the waiver is unilateral or that concurrence to such an agreement is a mere formality.

• Finality and Appealability of Assessment: Because the waiver was incomplete and defective, the three-year prescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was issued beyond the three-year period. An invalid assessment cannot become final and unappealable; the failure to protest cannot cure an assessment that the BIR had no power to issue. Section 203 is an expression of public policy, and the assessment issued beyond the prescriptive period is void and legally non-existent. Warrant of Distraint and/or Levy No. 33-06-046, which PJI received on March 28, 2000, is also null and void for having been issued pursuant to an invalid assessment.

• Nature of Waiver: The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal. The law on prescription, being a remedial measure, should be liberally construed in order to afford protection to the taxpayer, and the exceptions to the law on prescription should perforce be strictly construed. RMO No. 20-90 explains that the phrase “but not after ___ 19___” indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, and the period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period.

• Strict construction of waivers of the statute of limitations — A waiver of the statute of limitations under the NIRC is, to a certain extent, a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The law on prescription is a remedial measure that should be liberally construed to afford protection to the taxpayer, while exceptions to prescription must be strictly construed. The Court applied this doctrine to invalidate PJI’s waiver for noncompliance with RMO No. 20-90.

• Waiver as a bilateral agreement — A waiver of the statute of limitations is not a unilateral act by the taxpayer or the BIR but a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer, depending on the amount and circumstances; for tax cases involving more than P1M and executed almost seven months before expiration, RMO No. 20-90 requires the Commissioner to sign for the BIR. No implied consent can be presumed. The taxpayer must be furnished a copy of the waiver accepted by the BIR because the copy evidences the BIR’s acceptance and the perfection of the agreement.

• Mandatory requirements of RMO No. 20-90 — RMO No. 20-90 implements Sections 203 and 222 of the NIRC and must be strictly followed. Its requirements include: (a) the waiver must be in the prescribed form with no deviation; (b) the phrase “but not after _ 19” must be filled up to indicate the expiry date; (c) the Commissioner or authorized revenue official must sign the waiver indicating BIR acceptance, with the date of acceptance indicated; (d) for tax cases involving more than P1M, the Commissioner must sign; (e) the waiver must be executed in three copies, with the second copy for the taxpayer and the fact of receipt indicated in the original; and (f) noncompliance resulting in prescription of the right to assess/collect subjects the erring revenue official to administrative sanction. The Court found PJI’s waiver noncompliant and therefore invalid.

• CTA jurisdiction over other matters arising under the NIRC — Section 7(1) of Republic Act No. 1125 grants the CTA exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds, fees or other charges, penalties, or other matters arising under the NIRC or other laws administered by the BIR. The jurisdiction is not limited to disputed assessments or refunds; it extends to other cases arising under the NIRC, including the validity of a warrant of distraint and levy and of a waiver of the statute of limitations.

• Prescriptive period for assessment and collection — Sections 203 and 222 of the NIRC provide that internal revenue taxes shall be assessed within three years after the last day prescribed by law for filing the return, except as provided in Section 222. Under Section 222(b), if before the expiration of the time prescribed in Section 203, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. Because the waiver was invalid, the three-year period was not tolled or extended and continued to run until April 17, 1998, making the December 9, 1998 assessment time-barred.

• Invalid assessment cannot become final and executory — An assessment issued beyond the three-year prescriptive period, absent a valid waiver, is void and legally non-existent. It cannot become final and unappealable, and the taxpayer’s failure to protest cannot cure the BIR’s lack of power to issue it. A warrant of distraint and levy issued pursuant to such invalid assessment is likewise null and void.

• "A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed." — This passage states the ratio for strictly construing waivers of the statute of limitations and supports the invalidation of PJI’s defective waiver.

• "The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain." — This passage defines the nature of a waiver under the NIRC and rejects the Court of Appeals’ contrary characterization.

• "The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain." — This passage establishes the bilateral character of the waiver and the requirement of proper BIR consent.

• "The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue." — This passage construes Section 7(1) of Republic Act No. 1125 and upholds the CTA’s jurisdiction over the validity of the warrant and waiver.

• Pantoja vs. David, 111 Phil. 197 (1961) — Cited as precedent upholding the jurisdiction of the CTA to act on a petition to invalidate and annul distraint orders of the Commissioner of Internal Revenue; supports the CTA’s jurisdiction over the validity of the warrant in this case.

• Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 115712, 25 February 1999, 303 SCRA 614 — Cited as controlling precedent upholding the CTA’s declaration that several waivers executed by the taxpayer were null and void, thereby invalidating the assessments issued by the BIR; also relied on for the rule that waivers not signed by the Commissioner are invalid and that no implied consent can be presumed.

• Republic of the Philippines vs. Ablaza, 108 Phil. 1105, 1108 (1960) — Quoted for the principle that the law prescribing a limitation of actions for the collection of income tax is beneficial both to the Government and to citizens, and that the law on prescription, being a remedial measure, should be interpreted to afford protection to the taxpayer.

• Ouano vs. Court of Appeals, G.R. No. 129279, 4 March 2003, 398 SCRA 525, citing People vs. Donato, G.R. No. 72969, 5 June 1991, 198 SCRA 130 — Cited for the strict construction of waivers of the statute of limitations as derogations of the taxpayer’s right to security against prolonged and unscrupulous investigations.

• Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc., G.R. No. 104171, 24 February 1999, 303 SCRA 546 — Cited for the rule that the law on prescription, being a remedial measure, should be liberally construed to afford protection to the taxpayer, and that exceptions to the law on prescription should be strictly construed.

• Section 7(1), Republic Act No. 1125 — Grants the Court of Tax Appeals exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue. The Court applied this provision to uphold the CTA’s jurisdiction over the validity of the warrant of distraint and levy and the waiver of the statute of limitations.

• Section 203, National Internal Revenue Code — Provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, except as provided in Section 222, and that no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. The Court applied this provision to hold that the December 9, 1998 assessment was issued beyond the three-year prescriptive period because the waiver did not validly extend it.

• Section 222(b), National Internal Revenue Code — Provides that if before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon, and the period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. The Court applied this provision to hold that the waiver was invalid for lack of a definite expiration date and proper BIR consent.

• Revenue Memorandum Order No. 20-90 — Implements Sections 203 and 222 of the NIRC on the period of prescription for assessment and collection of taxes and prescribes the mandatory requirements for a valid waiver. The Court applied the RMO to invalidate PJI’s waiver because it did not comply with the prescribed form, lacked a definite expiration date, was not signed by the Commissioner, did not indicate the date of BIR acceptance, and was not furnished to PJI.

Davide, Jr., C.J. (Chairman); Quisumbing; Carpio; and Azcuna, JJ.