Court of Tax Appeals
0| y _ Sepublic of the Philippines Court of Tax Appbals Queeon Gity J. Le Manning, et al. vs. <« Commissioner of Internal Revenue, et al.
| Y)
_ SEPUBLIC OF THE PHILIPPINES
COURT OF TAX APPBALS
QUEEON GiTY
J. le MANNING, W. D. MEDONALD, - Versus <« CTA CASE NO, 1626
COMMISSIONER OF INTERNAL
REVENUE, ¢¥ Respondent. yl*
RECOMFUTATION
be
PRODOUNCEHENT OF JULGMENT
Remanding this case to this Court for further proceedings, after setting aside ite judgment ab~ solving the petitioners herein John L. Manning, W. D. MacDonald and E. E. Simmons from eny det iciency income tax liability, the Supreme Court in the dis-~ positive part of its decision in Commissioner of Internal Revenue vs. John L. Manning, Ww. 0. McDonald, &. &. Simmons and The Court of Tax Appeals, L-28398, August 6, 1975, stated: “More specifically, the Court of Tax Appesls shall recompute the income tax ljabilities of the respondents (petitioners herein) in accordance with this decision and with the Tex Code, and thereafter pronounce and enter judgment accordingly.“ Appropriate to state here is the factual back-~ ground of the present proceedings, 465
RECOMPUTATION &
PRORCUNCEMENT OF JUDGH nT CoteAn CASE MO. 1626 a 2 = MARTPADCO (Manila Trading and supply Ce.) hed dn 1952 an authorized capitel steck of #2,500,000,00 Givided ints 25,000 common sheres, Julius S. tense owned 24,700 ef these shares, and the rest, at 100 sharee each, were owned by the three petitioners, After Julius Reese Gied om October 19, 1954, MANTAASCO made « partial payment of Reese*s shares and the cere tificete for the 24,700 sharee in his newe was can- celled end @ new certificate was issued in the neme of MARTRASCO. It was only on Kovember 25, 1963 when the entire purchere price of Reese*s interest in MAMTAASOO was finally paid in full to his estate out ef the earnings of the Company by the latter, In the meentime, at 2 speciel meeting of the MANTRASCO stockholders on December 22, 1958, a board resoluticn was possed ¢istributing properticnately | among the petitioners the said 24,700 shares which had & total scquisition coset or beok value of P7,973,860.00, As this amount (er proportionate share thereof) was not declared by the petitioners a@ pert of their taxable income in 1956, the respon- Gent Commissioner of Internal Revenve issued on April 14, 1965 notices of assessment for deficiency tax to the petitioners for the year 1956, as follows:
Ee &. Simmons oe 466
RECOMPUTATION &
PRONCURCEMENT OF JUDGMENT
CobTehe CASE NO. 1626 -~ 3 inclusive of the ‘% monthly interest and 50% surcharge es fraud penalty. The petitioners failed to secure a favorable reconsideration of the assessments from the respondent, On May 5, 1965, the petitioners filed their petition for review with this Court. After the case was trieé on the merits, this Court rendered a de~ Cision dated October 30, 1967 in faver of the peti- tioners, On appeal, however, the Supreme Court in a decision dated August 6, 1975 set aside the judg- ment of this Court, and ruled thet:
“x » =x the Commissioner erred in assessing the respondents (petitioners herein) the total accuisition cost (F7,973,660) of the alleged treasury stock dividends in one lump sum The record shows thet the earnings of MANTRASCO over a period of yoars were used to gradually wipe ovt the holdings therein ef Reese. Con- sequently, those earnings, which we hoid, under the facts disclosed in the case at ber, as in effect having been distributed to the respon- Gents, should be taxed for each of the corres- , ponding yeers when payments were made to Reese's estate on account of his 24,700 shares, x x x.“ As eteted earlier, this case is now before this Court for the recomputation of the income tax lia- bilities of the petitioners so that their texable income should be spread over the yeers during which MABNTRASCO made payments for the decedent's shareholdings.
Accordingly, the respendent im consonance with the foregoing Gecision submitted to this Court his 467
RECOMPUTATION &
PRONOUNCEMENT OF JUDGMENT
CeTeAe CASE NC. 1626 a 4 =«/ recomputations of the deficiency income tax lLiabi- lities ef the herein petitioners for 1956 to 1962, as follows:
JOMN L. MANNING K. &. SIMMONS W.U. MACDONALD 1956 Pp 677,766.40 © 862,729.12 ¥® 873,040.56 1959 123, 306.96 123, 306.96 123, 306.96 1960 112,603.68 112,603.68 | $112,603.68 1962 2,933.28 2,933.28 2,933.28 1962) 10220,783.78 = e820, 789276 =n. 220. 783576 TOTAL P 2, 337,394.08 B22 342. 336.80 2-332, 668.24 inclusive of the xX monthly interest and 50% surcharge as fraud penalty, (Exhibits “I-Recomputation” te *12-Recomputation.")
In theis “Compliance” dated August 12, 1977, showing the recomputetions of their respective income tax liabilities in this case in accordance with the @ecision of the Supreme Court, the petitioners’ rese- pective income tax deficiencies, according to them, are limited te, and can be enforced only for. the year 1956, which as computed by them, are as follows: : e « « © 877,766 WwW. D. McDonald ees 873,040 see 2,832,528 It is thus clear that the parties are in agree- ment on the recomputations, and the correctness of the amounts, of the reapective income tax liabilities payable by the petitioners fer the year 1958. And 468 i
RECOMPUTATION &
PRONOUNCEMENT OF JUUGMENT
C.T.A. CASE NO. 1626 even with respect. to taxable years 1959, 1966, 1961 and 1962, the petitioners do not assail the compu- tations, or recomputations, of the res, cndent of their respective income tax liabilities for these years. Seo far ag the computations or recomputations, and of course, the correctness of the amounts, of the peti- tioners* respective income tax deficiencies payable by them for the yeara 1959, 1960, 1961 and 1962 are concerned, it mey therefore be considered beyond dis- pute that the parties are alse in agreement thereon, The collision occurs at the enforceability, or none- enforcesebility, of the tax obligations of the peti- tioners for the seid texable years 1959, 1960, 1961 ané 1962, Reasons:
l. Petitioners’ position that prescription has already barred the Government's right to either assess them or enforce collection of any deficiency income tax Gue from them for the years 1959, 1960, 1961 and 1962, 2, Petitioners* availment of the tax amnesty under Presidential Decree No, 370.
Under Section 331 (now Section 318) of the National Internal Revenue Cede, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shal] be 469 ~~
RECOMPUTATION &
PROEGUNCEMENT OF JUDGMENT
CeoTeAe CASE MO. 1626 begun efter expiration of such period. and under Section 332(a) {Mow Section 319(a)7 of the same Code, in the case of @ false or ireudulent return with ia- tent to evede tax or of a failure to file a retercn, the tax may be assesced, or a proceeding in court for the collection of such tax say be begun without aseess- ment, et any time within ten yeers after the discovery of the felsity, fraud, or omission. Since no deliciency Ssesesoments vere txoued mor proceedings tor the collec- tion eof taxes for the yeare 1559, 1960, 1961 and 1962 were began within ten years irew the discovery of the freud, sseuying that frau wen Ciagovered by the Bureau of Interne! Revenue on April 14, 1965, the date of the essousments tavolved ingthis case, the peliticners now Claia in these proceedings tor recomputaticng of their G@eficiency income tax iiebilities for the seid years thet the Government is siremdy barred irom either assessing or enforcing cvelicction of theirs deliciency imnecme tax obligations.
The situsetion here presented would not create prescription, When the petitioners J, lL. Neuning, W. DO. Moeneléd and E. E, Simmons appesled te this Court from the decisians of the respoadeat Commissioner of Interne] Revenue, ali dated April 14, 1965, assessing and demanding from them the rceepective swount of P2,430,067,92, ©2,423,767,92 and ¥2,436,729.,12 as 470°
RECOMPUTATIOCN &
PRONCUBCERERT OF JULGMINT
= Ja
deficiency income tax, inclusive of interest and $0xK surcherge, on their receipt of tressury stock divi-e dends from MANTHASCO in 1958 valued at ©7,973,660,00, the judicial action for the collection of their Geficioncy income tsx liabilities arising from this transaction was began by the respendent with the filing of bis answer to the petiticners* petition for review wherein payment of the tax is prayed for, This iz but legieal for where the taxpayer avails cf the right tc appeal the tax eseesement to the Court of Tax Appeals, the said Court, and the supreme Court if the decision of the former is appeelied thareto, are Vested with the authority to pronounce Judgacnt as to the taxpayer’s Liebility. Sither the proceedings in the Court of Tax Appeals parteke cf the nature of a “judiciel action,” within the purview of Section 316 (mow Section 302) of the National Interne) Revenun Code or the lewcereating the Court of tax Appeels (Republic Act Mo. 1125) has, in etrect, emonded the aforementioned Code, in the cenne, at least thet, in all cases which are within the jurisdiction of said court (and the Supreme Court in case of appeal), it shail heave the right to do whatever is necessary to decide the issues properly brought before it, inciuding the power to sentence the taxpayer te pay whet is due from him unger the lew. (Albambre Cigar 4 Cigarette 471
RBCOMPUTATION &
PRONOUNCEMENT OF JUDGMENT
C.T.A. CASE NL. 1626 Manufacturing Co, vs. Collector of Internel Revenue, 2105 Phil. 13377 Collector of Internal Revenue vs, @ohol Land Trens, Co., 107 Phil, 965,972; Palance vs, Commissioner of Internal Revenue, i~-16661, January 31, 1962, 4 SCRA 263,266; Fernandez Nermanoa, Iaec. vs, Commissioner of Internal Revenue, L-21551, L-21557, L-24972, L-24978, September 30, 1969, 29 SCRA $52.)
In the present case, regardless of whether the tetal acquisition cost of the undeclared ‘treasury stock dividends received by the petitioners in 1958 from MANTRASCO is texable in 1958 in one lump sum, as ruled by the respondent Commissicner of Internal Revenue, but upon appeal to the Supreme Court after this Court had ebsolved them, the High Court held that the petitioners should be taxed for each of the corresponding years when payments were made to Reese's eatate on account of his 24,700 shares, the Government's fight te collect the taxes due has clearly not pres- eribed, As plainly shown by the records, the peti-e tioners* appeal or petition for review was tiled with this Court on May §, 1965, with the respondent Com- missioner of Internal Revenue filing on August 20, 1965 his answer, which is still more then nine and one half (9%) years before the expiration of the ten- year period from April 14, 1965, the dete of the 472
RECUMPUTATICN &
PROMCURCEMENT OF JUDGHLET
CoBehe CASE WO. 1626 Gemand-letters appealed irom, to affect collection by judiciel action, when the Supreme Court there- fere decided thet the treasury stock dividends dis- tributed by MANTRASCO te the petitioners should be taxed for each of the corresponding yesrs when pay-~ mente were made to Reese’s eatate on account of his 24,700 sharea, with instructions to this Court te re- Compute their inceme tax liabilities in scoordance with its judgment, our plein duty is to apply the de- cision as it is written, for the right end authority of the Supreme Court te decide the taxability of the treasury stock dividends suskuted the power 02 een tence the petitioners to pay whatever taxes due from them under the law, The fallecy of the petitioners’ argument is tts assumption thet the present case (CTA Case No. 1626, which is G.8. So, 4-26398 in the Supreme Court) “is Limitéé to and covers only the assesament end collec- tien of tex for 1958" (p. 256, CTA records), As ex- plicitly described by this Court in the opening statement of its decision in CTA Case Bo. 16261 “This is am appeal from the decisions of respondent Commis- siener ef Internal Revenue, 611 deted April 14, 1965, esesessing end demanding from J. L.. Manning, W. D. MeDonsld and &, E, Simmons, the respective suns of ©2, 430,067.92, P2,423,767.92 and £2,436,729.12, or @
RECOMPUTATION &
PRONOUNCEMENT OF JUDGMENT
CoteA. CASE MO. 1626 - 10 + total of #7, 290,564.96, as deficiency income tax, inclusive of interest, and 50% surcharge, on their geceipt of stock dividends from the Manila Trading G Supply Co., in 1956" (p. 157, CTA records, under- scoring supplied.) Amd as paraphrased by the Supreme Court in the first peragraph of its decision in G.A. No, L-283981 “This is a petition fer review of the decision of the Court of Tax Appeels, in CTA case 1626, which set aside the income tax aseese- ments iseued by the Commissioner of Internel Revenue agsinst John L, Manning, #. DU. MoVonaid and &. EB, Simmons (hereinafter referred to as the respondents), for alleged undeclared stock dividends received in 1956 from the Manile Trading and supply Co., (here~ imafter referred to as MANTRASCO) valued at »7,973,660." (pe 1, Decision of the Supreme Court; emphasis supplied.)
It is thus plain and clear that CTA Case No, 1626 {(G.R. No. L-28398) does not refer oniy to the assessment ana collection of the income tex defi- ciencies of the petitioners for the year 1958, but more apecifically to the assessment and collection of their income tax liabilities arising from their ceceipt of treasury stock divicends from MAN rhASCO in 1958, Stated otherwise, CTA Case No, 1626 (GR, No. 126398) involves the determination, end col- 474 —_ ee
RECOMPUTATICN &
PRCMOVRCEMARS GP JUPGrRENT
G.PaAs GAetn Rica i646 lection, of clie amuvat of taxes due from the peti- ticoners of the umieclared stick Cividends recotved by thew in 195@ from MANVuNSCO. If the reseoodlent Comuicsionac of internal evenue asseseed the peti-~- tioners the Lotul acquisition ecst (»7,573,660,00) @f the treazury ttock cividends in ene lump sum in Sanebie your J95U only, insteas of spreading the taxable incowe of the petiticonera over the yours GQuring «hich AANTRAYVCo Sade payments for tie Secee Gent's share noltings as ruled by %ne Supreme Court, thet «es error on hie pert a8 yointed out by the High Court in page i6 of its decision, At all events, the Governeent is not bound by the errots or mistakes of its agents, (fan Cvan vs, Court of Tax Appeels, Le23676, April 27, 1967, 19 SCRA 963, citing PRilip~ pine American Brug Ce. ve. Collector of Intersal Re- vetme, L~-1352?2, August 21, 1959, 106 Phil, 161, Luzon Stevedoring Corporation ve, Court of Tar Appesole, L-21005, October 72, 1866, 16 SCPA 436, cf- ting Koppe) {hi),7 Inc. vs. Collector, L-10S%0, Sep- ¢mmber 16, 1963, LL Phil. 17s Cantre) Agucarera de Tarlac vs. Collectrr, et al., L=-11092, September 30, 1958, 104 Phal. 652.) The net reanlte is that CTA Case Ne. 1626 (G.8, Mo. 1~2839R) in net only a proe~ ceeding for the collection of the deficiency incre tax due from the petitioners for the year 1956 but
RECOMIUTATION &
PRONOUNCEMENT OF JUOGME NY
= £2 « also a judicial action for the coliection of whatever deficiency income tax liabilities that may be due from them on their receipt of treasury stock dividends from MAWIPASCO im 1956 valued at °7,973,660.,00, which sheuld be taxed to them, as ruled by the Supreme Court, “for each of the corresponding years when pay- ments were made to Reese's estate on account of his 24,700 shores," and the corresponding years during which MANTRASCO made payments to the decedent's shareholdings were taxeble years 1958, 1959, 1960, 1961 and 1962, Since, as stated above, this Court, and the Supreme Court in case of appeal, have the right to de whatever is necessary to decide the issues properly brought before them, including the power to eentence the petitioners to pay whatever taxes are due from them under the law, prescription hae not barred the Government from collecting the income tax defi- ciencies of J, lL. Manning, 4. DU. McDoneld and E, E. Simons for taxable years 1959, 1960, 1961 and 1962, on the undeclered treasury stock dividends received by them in 1958 from MANTRANCO, The petitioners would, however, also seek refuge im che immunities granted under Presidential Decree No. 370 to any person, whether natural or juridical, from any criminal, civil or administrative liability who may have taken advantage of the benefits thereoi,
RECOMPUTATION &
PRIGOUNCEMERT OF JUDGHANT
The Controlling prevision is Section 1 of Presidential Decree No, 270, which, insofar as pertinent hereto, textually reads:
“23. <A tax amnesty is hereby granted to any persen, nmeturel or juridical, who for eny reason whateoever Eailed to avail of Presidential Decree Mo, 23 ant Presi- Gential Decree Mo. 157; ox in co availing of the seid vresidential Decrees failed to include all that were og poe to be declered thereis if he now ve £ celot or any other ebyeiastt tons from any acerce whatsoever which ace of Were previcusiy taxeble unoer the National Internal Revenue Code, realized here or 4broed by condoning all internel revenue teres including the increments of penalties oh account of nen-peyment as weil as ail eivil, criminal, or adminsietrative liebili-e ties, under the Setionai Internal Reverve Code, the Revised Penal Code, the Anti- Greft end Corrupt Precticws Act, the Revised AGministretive Code, the Civil Service Laws end Regulations, lawe and réeguiations on Imfigration en¢ Deportation, or any other appli deahie aoe or , gents ry as it ae here Adverting to the tarmes of the decree, it is quite clear thet the tex amnesty granted to any person whe sveiied of the benefite thereef is plented upon the conditions that he voluntarily disclosed eil his previcusiy untaxed income oné/or wealth and an ame- nesty tax of 15% be paid thereon, Looking in ret- respect, the petitioners relates =x =x x that when the petitioners prepared and filed their tax anmeety returns in June, 477
RECOMPUTATION &
PRONOUNCEMENT OF JUOGMENT
CeTer. SE NO. 1626 1974, there were no unreported or untaxed income to speak of for the years 1959, 1960, 1961 end 1962 which they could heve volun- tarily disclosed in their amnesty roturns, The reasen is simple, The decision of this
Honorable Court of Tax Appeals in CTA Case
No. 1626, dated October 30, 1967 was in fa~- vor of the petiticners, It reversed the respondent*s decision and cancelled the de- ficiency assessments, While it is true that seid decision was appealed, the Supreme Court rendered its decision only on August 6, 1975, At the time, therefore, that petitioners pre- pared and filed their tax amnesty returns in were no untexed cr unreported or the years 1958, 1959, 1960, 1961 and 1962 since the prevailing decision et that time was that of this Honorable Court of Tax Appeals, which cancelled the deficiency assess~- ment, Ali that they were recuired to volun tarily disclese, thorefore, were income which they honestly believed were untaxed or unre~- ported, It would have been the height of ab- surdity, may, stupidity, had petitioners in- cluded in their tax amnesty returns the ques- tioned value of the MANTSASCO shares which they acquired, nctwithstanding the then pre- vaiiing decision thet it did not constitute taxable income. (pp. 289-290, CTA records.)
The provision of the decree is clear, specific and mandatory, As fat as voluntary disclosure of the untaxed income is concerned, nothing is said of ex- ceptions, supervening events or conditions existing at the time of filing the ammesty returns, There is no room for interpretation, Our task therefore is to apply the decree as it is written, So epplying, we rule that since the petitioners could not heve volun- tarily disclosed, as in fact they have not disclosed, in their emmesty roturns their pauviousiy untaxed trea- sury stock dividends received in 1958 from MANTRASCO
RECOMPUTATION &
PRONOUNCEMENT OF JUDGMINT
valued at P7,973,660,00, the internal revenue tax liabilities of the petitioners for 1959, 1960, 1961 and 1962 arising from this transaction were not ex- tinguished by their availment of the tax amnesty under Presidential Decree No, 370. For, how cen their availment of the tax amnesty had the effect of condo~ ning whatever income tax liabilities they incurred upon their receipt of the treasury stock dividends when the same were not disclosed so that the 15% am- nesty tax due thereon should heave been paid by the petitioners, An absurdity would result and misehie- vous consequences would follow to the prejudice of the Government for by the simple expedient of evail- ‘ment of the tex amnesty, internal revenue texes on untaxed income and wealth would be condoned even if such untexed income and wealth were not disclosed and no emmesty tax had been paid thereon, ;
Even more, on the assumption that the petitioners had availed of the tax amnesty under Presidential Decree No, 370 and thet their income tax liabilities for the undeclared treasury stock dividends received from MANTRASCO in 1958 were condoned, their feilure or neglect to interpose their immunities from texes in the Supreme Court while this case (G.R. No. L~26398) was pending therein, or in their motion for
ATS
RECOMPUTATION &
PRONOUNCEMENT OY JUDGMONT
C.T.A. CASE NO. 1626 = 16 « reoces ideration efter they encountered an adverse oy judgment, is, to our mind, a weiver of their defense of non-iisbility from taxes on account of their availnent of the tax amnesty, They are thereby es- topped or berred from raising this Gefense for the first tinwe in thie preceeding which is merely for the recomputetions of their income tex liebilities in accordance with the decision of the Supreme Court finding them liable thereto, end which decision has leng become final and executory.
Note that the appeal eof the respondent (G.R. Bo, L=-28398) from the decision of this Court absolving the petitioners from deficiency income tax liabilities wes file@ in the Supreme Court sometime in November 1967. The judgment of the Supreme Court in G.R, No, L-28398, setting eside the decision of this Court and rermending this case for recomputations of the income tax deficiencies of the petitioners was ren- dered on August 6, 1975. A motion fer reconsideration ef the decisicn was filed by the petitioners on Sep- tember 26, 1975 and the same was denied on January 30, 1976, Note also that the petitioners prepared and filed their tax amnesty returns in June 1974 while this case wes still pending in the Supreme Court, and long before the High Court finally denied the petitioners’ motion for reconsideration, I£€ the 480
RECOMPUTATION &
PRONOUNCEMENT OF JUDGMENT
GaTeAe CASE WO, 1626 ao iF a petitioners really and honestly believed that their aveilment of the tex amnesty under Presidential Dec- ree No. 370 had the effect of condening whatever income tax liabilities arose from their receipt of the treasury stock dividends from MANTRASCO, which is the subject matter of GR. Mo, 1-26398, their failure or neglect to reise this defense before the Supreme Court finally decided the case avainst them estops or bars them from raising this issue for the first time in these proceedings for the reeomputations of theis income tax liabilities in accordence with the final and executory decision of the High Court, We, accordingly, find no merit in the petitioners’ thesis that the right of the Government to collect their deficiency income tax liabilities for 1959, 1960, 1961 and 1962 on their undeclared stock dividends re- ceived in i958 from MANTSASCO has prescribed or that the petitioners can not be held liable for these tax deficiencies for the said years by reason of their availment of the tax ammesty under Presidential Secree No. 370, The deficiency income tax liabilities of the petitioners fer the yeers 1958, 1959, 1960, 1961 and 1962, in accordance with the decision of the Supreme Court in G.8. No, L-28398 and with the Tex Code, should therefore be recomputed, as correctly pointed out by the respondent Commissioner of Internal 481
RECOMPUTATION &
PRONOUNCEFRNT OF JUOCGMENT
C.T.A. CASH BO. 1626 Revenue, as follows:
John, Manning f.E. Simons i,9. 4 1958 © 877,766.40 ° 882,729.12 © 873,040.36 1959 223, 306.96 123, 306.96 123, 305.96 3960 112, 603.68 112,603.68 112,603.68 1962 2,933.28 2,933.28 2,933.58 1962 1,220, 763,76 1,220, 763.76 1¢ 220, 753.76 Total B 29.337, 394,08 £293529.3565,5° eedete SSE 524 inclusive of the 4s monthly interest and 50% surcherge fravd penalty. (For éetails, please see Exhibits 1, Zp Be BeAy Baldy BnC, 3-D, 3-B, JF, Ba, BH, B-1y 4, 4-h, 4B, €-C, €-D, 4-E, 4-F,. 4-G, 4-H, 4-1, 5, Sm the S-B, 5<C, S-D, S-E, 5-F, 5-G, SN, 5-1, Ge 7, 9%, 10, ll & 12, Recomputation.)
WHEREFORE, the petitioners J. L. Manning, Ws D, MeDoneld and E, &, Siumons are hereby ordered to pay the respondent Commissioner of Internal Revenue the resoective anount of P2,337, 394,08, Pa, 332,666.24 and 02, 342, 356,80, as deficiency income tax, inclu- sive of interest and 50% surcharge, for the taxsbie years 195¢, 1959, 1960, i961 and 1962, within thirty
(30) days after this recumputation and pronouncement of judgment becomes final and executery.
RECOMPUTATION &
/PROMOUNCEM. NT OF JUDGMENT Cul ehs CASE RO. 1626 - ly « 30 ORDERED, Quezon City, September 28, 1978, a }