Couht Ill' 1 R, et al. vs. Commissioner of Internal Revenue, et al.

decision

of res po ndent denying with f i na lity pet.itionet-' s pt .. n test of the July 16~ 1986 de·f i C: i enc y in CC:Hll!? ~ S <"l 1 e r;

r:md expanded Wi thho 1 ding t ax assessments t otalling to P1~665~934.97 covering the periods of 1981 and 1982 . The r e levant material facts are not disputed. Petitioner was a corporation duly organized under Philippine l aws wit h principal office at Cabuy ao~ Laguna.

Its

corporate existence was shortened to October 31 ~ 1985 by v irtue of an amendment of its Articles of Incorporation duly approved by the Securiti es and Exchange Commission on November 5, 1985.

(Se e

Anne:-:

"A"~ p. 9 ~

CTA

rec. )

That

even thoug h already dissolved 304 petitioner still filed ‘he instant petition for Pavia pursuant to Section L22 of the Corporation Code which provides that the life of the corporation is extended for three years after the time when it would have been so dissolved for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs. (In re Voluntary Dissolution of Union Guaranty Co., C.A., 37 O.G. S45, March 2, 1929.)

On July 24, 1986, patitioner received a demand letter and assessment notices both dated July 16, 1986 issued by respondent allegediy for deficiency incame, percentage (sales tax) and withholding taxes for 1981 and 1982 in the total amount of P1,665,934.97, summariced belows

AVE

Deficiency Incame Tax ...+ee00.F 467,991.52

Deficiency Expanded With-

hoelagang Teast 2s sess qwiede whe 2,817.99 Deficiency Sales Tax w.sancecaen 307,224.74 1982 Deficiency Income Tax oe 319,897.76 Deficiency Sales Ta» ee a 368,082.96 Total seer ee cece wee PL 65,954.97 On August 1, 1986, petitioner protested the assessment and sought for its reconsideration. In

301A

two instances, petitioner sent two supplemental letters of protest, one dated August 6, 1986 and another October 14. J986 to respondent in support of the original protest.

On May 14, %<AVGB7, mebritioner received from respondent a letter dated April &, 1987 reiterating his demand for the payment of the alleged deficiency sales Lanes in the amounts of P3207 ,224.74 for 19681 and F3268,082.96 for 1982. However, with respect to the income and withholding tax aspect of the assessment petitioner was requested to submit to the Bureau of Internal Revenue additional cma mnt tansy evidence inorder to fully evaluate the issues involved in this case.

On May 26, 1987, petitioner filed with the National Audit Review Division of the BIR a letter dated May 20, 1987 informing the Bureau of its availment of the tax amnesty under Executive Order No. 41, as amended by Executive Order Nos. 34 and 64 covering its income and business taxes for the years 1981 to 1985 (See Certificate of Availment, Annex "K", p. 29, CTA rec.) and the cancellation of the assessments issued on July 16, 1986 was requested. This was denied in the letter of Assistant Commissioner Imelda Low Reyes dated 308

. ,IJ.

Octobe r 9 ~ 1987 stat :i nq t h a t sinc e t he assessment was issued on July 16. 1 98h or prior to August 21, .1 986 the avai lment of t he tax amnesty does not c ancel the asses'!">ment ir:-su e d prior to August 2 1, .1 9 86.

On November 2 5 ~

1987 • ~ati tioner again wrote t h e Bun:~"' t t h r u Ass i ttil\nt Commissioner Imelda L.

Reyes quPstioning the i nterpretation placed upon

ExecLttive

Or der No.

41~ a110 a.mended. alleging thcat t he E>:ec:utive Ord er me--rle no reference to the exc l u s ion of t ~~ ass essmFntR issued prior to August 21' 19 8 6.

No me n t i o n was mad e in the exception as provided und er Sec· ion 4 elf said E::ecut i ve Order. Since it has complied wit h the legal requisi tes of the amnesty gr·ant ~ the July 16, 1986 assessme nts s hould be cancelled .

Finally on Ma r c l1 7~ .1.?88 ~ petitioner received r·e spon den t ' s ·f i n a 1 d r.rt· ; r~ i ''11 1 '" ted FabrLliary 10, 1988 r·e i t erc\t.i.ng hir.; demand ·fc>r t h e p ayment of the t o tal amount of P1 ~ 66 5~ 9 3 4. 97 P ~ ~~F i ci ency income, sales and expanded withholding taxes for 1981 and 1982 .

Petitioner

now appeals to this Court.

On the ba is of he pleadings, petitioner s ubmits this c ase for decision. The o nly issues pre e n ted to Us for resolution a re as follows :

1 .

vlh ~J ·I hPr n r nc•t the immunities rP.si\J t i ng from "V <' i lment of the t.:n:

amnesty unde r E.O.

No.

41, as amended, applies only to t axP.s · assessed afte r Augus t 2 1 ~ 1986; an d ~-~ .

V.Jhethetr· asse~sme nts have bc;~ s

i. s. n r· not f :v- t ua 1 the deficiency a n d/or legal ln t he decie.i o n un d <? t · n?.vi-:w ~ r-·e s pondent. is of t he impression as statRd in

Revenu~ Memorandum

Order-

No .

4-87 that p e i-:i t.ioner · s avai lment of the tax amnesty under

Executive

Order

No.

41, as amended, did not result in t he cancellation of the assessments issued on J uly 16 , 1986 since only those assessments iss u Pd a f t er~ August 21, 1986 can be cancelled.

To ho 1 d otherwise, would resu 1 t in t he retroactive, .i.n st~;'ld of prog; pf:?c t .i ve, a ppl ication of the l .:n-J

(Anne:<

"J", p.

28,

CTA

rec. ) • Petitioner c oun"t pr·<:;;

tha t respondant 's ruling and interpretation of E >~r-> cu ti ve Order No. 41, as a mende d ~ i s e r roneou s .

n y t: he very na tur~ of the t ax amnest y a nd by t h e ti tle of Exec utive Or der No. 4 1, as amended by E x e cuti ve Orde r No. 64, to witt "DECLARING

A

ONE- TIME

TAX

AMNESTY

COVERING INCOME TAXES, ESTATE AND DONOR ' S

TAXES

UNDER

TITLE

I I I,

AND

THE

TAX

ON

BUSINESS UNDER

CHAPTER

1 I, TITLE V,

OF

THE

NATIONAL

INTERNAL

REVENUE

CODE ,

A$

AMENDED, FOR THE YEARS 1981-1985"

30R

it only shows that the tax amnesty grant should be given retroactive applicetion as the tax amnesty covers unpaid income and business taxes for the years 1981-1985. Also, nothing was mentioned in the excepting provision . under Section 4 of Executive Order No. 41, as amended , that assessments issued prior to August 21, 1986 shall be excepted from the coverage of the tax amnesty decree. Following the rile "expressio unius est exclusio alterius", en express exception, exemption, or saving clause excluden athers, assessment notices issued prior to August 21, 1986 being not one of those included in the exception under Section 4 of Executive Order No. 41, as amended, the reasonable conclusion reached is that this is not an exception to the coverage of the tax amnesty privilege.

This if not a case af first impression. In the recent case oft R.0.4. AUTO PRODUCTS PHILIPPINES, INC. v. THE COMMISSIONER OF INTERNAL REVENUE, C.T.A. Case No. 4318, August 20, 1990, this Court has occasion to decide and rule that the provision under paragraph 1.02 and 1.02.3 of Revenue Memorandum Order 4-87, which states that a certificate of availment of the tax amnesty is a 309

DECISION ~

CTA CASE NO. 4244 sufficient basis for the cancellation of assessment notices and letters of demand issued after August 21, 1986 for the collection of income, business, estate or donor's taves due during the same taxable years, is beyond the scone of the statute.granting the tax amnesty, pertinent portions of which reads as follows: —— "The intent of the given legislation, as always, is telling. A reading of this executive order giving amnesty shows the period covered i January 1, 1961 to December 71, 1965 (Section 1, Section 6, Executive Order No. 41, as amended). An amnesty affords total pardon or forgiveness (3 Words and Fhrases 490, citing cases), as here promised by the arder for all unpaid income, estate, donor’ staves oo and b ness..taxes, and all civil, criminals administrative liabjlity that have arisen from non-payment of taxes in the above given period. (Underscoring supplied) On the other hand, arn assessment is a notice of tax due with ai demand = for payment (Alhambra Cigar & Cigarette Mfg. Co. v. Commissioner, L108 Phil. 147337 unreported). An asseasment can be abated or compromised on the administrative level (Section 2945, National Internal Revenue Code, now Section 204)! while an amnesty is an act of sovereign grace which obliterates en offense (Words and Fhrases, supra) or as seen here, an act which relegates into oblivion all unpaid income, estate, donor’s taxes and business taxes incurred during a given period. The impression created thus is that considering the nature of a tax assessment, its significance could not be more than that of an amnesty properly avalled of. An assessment, even a deficiency assessment as in the instant case, cannot defeat the intended effects 3109

DECISION ~

of the amnesty because precisely, it is the purpose of the latter to forgive the non-payment of the taxpayer of his tax liabilities. The respondent who seeks to recover taves due ctounmkt demand something which, although previously due, is now non-existent or has been obliterated as a consequence of soversigqn grace.

wMY a. Be MMe Respondent failed to present = any case or law which proves that an assesament cam withstand or negate the force and effects of a tax amnesty. This burden of proof on the petitioner was created by the clear and express terms of the executive order’ s intention 7 qualified availers of the amnesty may pay an amnesty tax in lieu of said unpaid taxes which are forgiven (Section 2, Section §, Executive Order No. 41, as amended). More specifically, the plain provisions in the statute granting tax amnesty for unpaid tavern for the period January 4, 2981 te December Fi, 19985 shifted the burden of proof on respondent to show haw the issuance of an assesament before the _date. of. the _promulaation. = periods of _the. amnesty, 80.

answerable.

liability. e _threugh... :

should. have. .been, erased. with _ a... proper avail mer t of. the amnesty Liga ae ens —_—— Ours). (Ro. H bub Pnghnck Ph. ple Coys yey, ca a T, A. Cans > 43/2, Additionally, “he exceptions enumerated in Section 4 of Executive 3o, “490) Order No. 41, as amended, do not indicate any reference to an assessment or pending investigation aside from one arising from information furnished by an informer.

"Section 4. Exceptions.- The following taxpayers may not avail themselves of the amnesty herein granted:

a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14} 311 b) Those with income tax cases already filed in Court as of the effectivity hereofys ) Those with criminal cases involving violations of the income tax law already filad in court as of the effectivity hereof:

el) Those that have withholding tay liabilities under the National Internal Revenie Croce. Ag amended , insofar as the said liabilities are concerneds e) Those with tax cases pending investigation by the

Bureau of Internal Revenue as of

the effectivity hereof aS oa result of information furnished under Section 316 of the National Internal Revenue Code, az amended:

f) Those with pending cases invelvinga unexplained or unlawfully ecaudired wealth before the Sanciqinbayans a) Phage liable under Title Seven, Chapter Three (Frauds, fllegal Exactions and

Transactions) and Chapter Four

(Malversation of Public Funds and Froperty) of the Revised

Fenal Code, as amended.

Thus, we deem that fas rule in Revenue Memorandum Order No. 4-87 promulgating that only assessments issued after August 21, 1986 shall be abated by the amnesty is beyond the contemplation of Executive Order No. 41, as amended. To paraphrase the cited previous declarations of the Supreme Court which were likewise recalled in the Tayug Rural Bank Case supra, administrative rules and regulations promulgated to implement 31?

- 10 - given legislation should not be contraditory with the statute but conform to the standards which it prescribes (Director of Forestry v. Munoz, L-247°6, June 28, 1968, 23 SCRA 1183). A rule would be binding on the courts if the “scope is within the statute even if the courts are not in agreement with the policy therein or its innate wisdom (Victorias Milling €o0., Ine. v. Social Security Commission, L-16704, March 17, 1962, 4 SCRA 627).

Tt appearing that the case at bar is likened under similar facts and circumstances obtaining to the case of R.O.H. Auto Froducts Philippines, Inc., with the same principal qpestion ta contend with, We therefore adopt the aforesaid ruling.

In recognizing the validity of the tax amnesty privilege applicable to petitioner in this case, the second issue becomes moot insofar as the 1981 and 1982 deficiency income and sales tax assessments are concerned. Undeniably, the relative assessment motices issued to petitioner has no more leg to setand an after full compliance with the conditions set forth in Executive Order No. 41.

The Certificate of Availment dated November 27, 1987 (p. 29, CTA record) issued to petitioner showed full payment of the amnesty tax evidenced byt RTR/FO No. 9581587 and CR No. 10692780 dated 312

- 41 - December 15, 1986. With this on hand petitioner is already relieved from any income and business tax liability on any untaxed income from January 1, 1981 to December i, $1985, including increments thereto and penalties on account of the non~payment of the said tax.

The tax amnesty peid by petitioner does not however cover its 1981 deficiency expanded withholding tax assessment amounting to F2,817.99. The expanded withholding tax is one of those excepted from the coverajye of the tax amnesty decree pursuant to Section 4(d) of Executive Order No. 41, as amended.

Although petitioner alleged payment on March 22, 1982 of its withhelding tax on its rental income nowhere in the recards show proof of payment. Failure on itm part to present or attach the confirmation receipt ia fatal to its claim that such was paid. Tt ais firecumbent tupen petitioner to show proof of payment,

WHEREFORE, in view of the feregoing, the decision of respondent Commissioner of Internal Revenue dated February 10, 1988 is hereby MODIFIED.

Respondent is eninined from enforcing the collection of P1,663,114.98 as deficiency income 314 >

> and business taxes for the years 1991 and 1982 by virtue of petitioner’s - ailment of the tax amnesty under Executive Order No. 41, as amended.

“Petitioner Bay Fond Specialties, Inc. is ordered to pay respondent the sum of P2,817.99 as 1981 deficiency expanded withholding tax, inclusive of surcharge and interest, plus 20% annual interest Pursuant to Section 40 of Presidential Decree No. 1994 which amended Section 283 (c) [Enow Section 249(c)J] af the National ‘outernal Revenue Code.

Cost against petiticner.

Ansocieke Judqe

WE CONCUR: 4

vA “ALEX Z. REYES py

Fresiding Judge

ERNESTQ D. ACOSTA

Associate Judge

DECISION -—

CcCERTIF fC ATI GON I hereby certify that this decision was reached after due cans iltstion among the members of the Court of Tax Gppreals in accordance with Section 12%, Article VITI othe Constitution,

Fresiding Fidge

Court of Tax Appeals