Philippine Bulk Corporation vs. Commissioner of Internal Revenue

DECISION

Is respor11jent required to condone the 25 ~~ surtax on accutnulated surpl u:::

profits upon paqrnent of the 30% cornpt-orni:::e settlernent of petitioner's deficiency incorne tfli< in 1979 pur :::uflnt to the pro· ... ·i si on::: of Executive Order No. 44? If in the negati\1e.: i s petitioner li atde to pe~d tr1e alleged deficiency surt a~~ f or 1979 in the arnount of P 1,573 ,561.23? These are the que:::t.iorr3 r l3i serj in thi s petition, for revie\·V. The undisputed fects are sirnple.

Petitioner is 13 ,jultd oq_J?:mize,j domestic corporfltion with principfll offfce locat.e:j in F'ulupanrjan. Negros Occidentol. It is en~}:: ,~ e ,j in the business of trul k !itmdling and \·varet!ousing in Pulupe:n,j ;:m, Negro::: Occidental. It also operBtes ~:~nd rneintain 78 5 ..

- ...

DECISION

C_T_A_ Case Ho_ 4301

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On Fet,ruary 13, 1985_. petitioner- r-eceived a letter, dated . .January 24, 1985 ( E :~~tl. A), frorn BIR Deputy Commi ssioner Romulo Villa, informing petitioner U1at the follo\'ving amounts are due frorn it: P52,528.69as Deficiencq Income Tax for 1979, inclusive of interest; and P 1,573,561 .23 as

Deficiency Surtax (on

accurnulated earnings) for the yeer 1979, inclusive of interest, pursuant to Section _25(a) of the Nation a 1 Internal Revenue Code (NlRC).

In a Jetter, addressed t o responrjent, dated October 22, 1 986 (E>dl. K), pet it i oner e:,;pressed its desire to effect a cornprornise by paying 30% of the basic deficiency income ta>~ involved (P33,197.56) pursuant to tt1e provision of Section 1 of E:-;ecut i ve Order No. 44 (E.O. 44 for short). On October 23, 1986, petitioner paid the Bureau of Internal

Revenue

U1e arnount of P9,959.27, representing 30% of P33,197.56.

The pa~~rnent i s evidence,j by BIR Confirmation Recei pt No. B 7374346 (Extl. L) and Pa~~ment Onjer No. 8 9 128723 (E~dl . L -1 ).

.

I

In a letter dated February 8, 1988 (Exh. M}, l'lr. Eduardo P. Parnitten, BIR Chief of U1e Receivable Accounts Division, acting for U1e Cornrnissioner, informed petitioner that its offer to cornprornise its 1979 deficiency income ta;'{ and surtax liabilities involving the total amount of P1,626,089.92 has been denied t~~~ hit~her authorities. This con<:::tituted respondent's final request for petitioner to settle its account. Other··..vi se, v·tarran~s of distraint and levy s~1BJ1 be issued tD enfQrce collection thereof.

786 - -'

DECISION

C. T. A. Ca3e Ko. 1301 -

Paqe 3 -

On February

16, 1988 (Exh. N), pet it i oner protested respondent's denial of its offer to compromise.

Petitioner

contended that it 'Nas ent it 1 ed as a matter of right to cornpromise its tax liability upon payment of 30% of the basic tax a ~; sesse d after having availed of the priv11ege under E.O. 44. Respondent is, tt-reref ore, 1 ega 11 y mandated to condone the correspornjing interest and penalties on such basic ta :~ pursuant to Sec. 1 of E.O. 44. Petitioner sought for the cancellation of the 1979 deficiency incorne and surta :~ assessments issued against in the sum of P 1 ,626 . 089.92.

.

.

On September 2, · j988, pet it i oner received respondent's deci sion (Exh. 0) statinq that its request for the cancellation of the assessment had been granted insofar as the amount of P52,528.69, representing the deficiency income tax is concerned. However, vvith respect to the request for cancellation of the amount of P 1 ,573,561 .23, as alleged deficiency surtax, the same vy·as denied on the ground that the "interest and penalties" condoned under Sec. 1 of E.O. 44 "refer only to the addltions to the ta:~ arising from failure to file a return and/or pay ~e tax on tirne," and "do not include the 25% surtax." Respondent stressed trret. tlie 25% surta:r: assessed on petHioner's accumulated profits, pursuant. t.o Sec. 25(a) NIRC, is not an administrative penalty which can be condoned by the availment of the benefits of Sec. 1 of E.O. 44.

nn September 23, 1988, peti tioner filed the instant petition 'Nith thi s Court.

The issues raised are:

787 )

DECISI ON

C. T.A. Case Ho . 4301

- Paqe 4 -

( 1) whether or not respondent erred in not condoning petitioner 's alleged 1979 Deficiency Surtax l iability (in the emo11nt of P 1 ,573,56 1.23) upon payment of 30% of the basi c inc-ome tax 1 i ebi 1 ity for the year 1979 pursuant to Sec. 1 of E.O. 44; end

(2) whether or not petitioner had improperly accumulated profits betdond the r:easonable needs of its busi ness making i t li able t o pay the alleged Deficiency Surtax for 1979. The case was submitted to Us for deci sion by respondent on a purel y legal Question based on the pleadings and the CTA records of the case.

Petitioner presented documentary and testimonial evidence to prove es a matter of fact thet it did not improperly eccumulate profits for it to be subjected to the surta:-<.

Executive Order No. 44 (effective Sept. 4, 1986) with its pertinent provisions read as fol lows: [82 O.G. Supp. No. 39, 4635 (Sept., 1986))

I

EXECUT I \IE ORDER NO. 44

AUTHORIZING

THE

BUREAU

OF

INTERNAL

REVENUE

TO

ACCEPT

COMPROMISE

PAYMENTS ON DELINQUENT ACCOUNTS AND

DISPUTED ASSESSMENTS PENDING AS OF

DECEMBER 3 11 1985

X X X

X X X

X X X.

SECTION 1.

The Comrni ssioner of Internal Revenue or h1 s duly authorized representatives may compmrni se any disputed assessment or- delinquent A de coun t pending as or December 3 1, 1985, upon the/ _ ... ..,

7R

)

DECISION

C. T. A. Case Bo . 4301

- Paqe 5 -

payment of an amount equal to thirty percent (30%) of the basic tm-: assessed.

In such cases, the

Commissioner· of Internal

Revenue or his duly euthori zed representatives shal l condone the correspondi ng i nterests and penal t i es.

(Emphasis supp 1 i ed.)

X X X

X X X

X X X.

SEC. 4. Sec tion 246 of the National Internal Revenue Code,- as amended, is hereb\.1 suspended w1 th .

~ r espect to the di sputed assessments end delinquent eccounts referred to herein for the duration of the ef f ectl vi ty 11ereof.

.

' X;~ X .. X X X X X X."

The pertinent provi sion of the National Internal Revenue Code ( 1977) provides:

"SEC.

25.

Additional

tax on corporot i ons i mproperly occumulot i ng profits or surpl us. -

(a) Imposition of tox-

If

eny corporation, except banks, insurance companies, or personal holding companies, whether domestic or foreign, is formed or· availed of for the purpose of prevent.i ng the i rnposit ion of the tax upon A ts shareholders or members of the shareholders or members of anott-1er corporation, through the rne1jiurn of permitting its gai ns and profits to accurnul ate instead of being di vided or distributed, tt1ere i s 1 evied and assessed agai nst such corporation, for esch ta )<Bble yet:tr, a tBx equal to

t. '·Nenty-fi ve per centt;mof the und·i stri buted portion of its accumulated profits or surplus whi ch shall be 1n oddHi on t o t he tax i mposed by Section 24 , ond sho11 be computed, coll ected and poi d in the some manner and subject to the some pr ovisions of low , i ncl udi ng penalties, a s~ thottox.

~ ., 789 )

DlCISIOH

C.T.A. Case Ho _ 4301 -

Page 6 -

(b) Prirfia·lecie evidence.- The fact that any corporation is a mere ho 1 ding company sha 11 be pntno fooe evidence of a purpose to av01d the tax upon its shareholders or members.

Similar

presumption ''IVill li e in the case of an investment cornpany vvhere at any ti rne during the taxable year more than fifty per cenl11m in value of its outstanding stock is owned, directly or indirectly, bl..l one person.

(c) Evidence determ/1781 iva of ptlrpose. - The fact that the earnings or profits of a corporation are permif.te,j t o eccurnulete be'JOnd tile reasonable needs of the business slla ll be determi nl'lti ve of the purpose to avoid the tax upon its shareholders or member unless ._ the corporation, by clear preponderance of - evidence, shal l prove the contrary."

On the n rst issue, petitioner contends that the payment of at lea::: t 30% of the basic deficiency income tax for 1979 extingui sr1es its liability to pay the tax on accumulated profit (surtax) under Sec. 25(a) of the NIRC. According to petitioner, the surtax 1s 1n the nature of a penalty imposed upon the ta x pa1~er for t1av1ng unreasonablld accumulated surplus. Being a

I

penalty, it is deemed corujoned upon payment of the 30% basic income tax liabilit'd as prescribed in Sec. 1 of E.O. 44. F-~es pondent stressed that the law states "the Cornrni ssi oner of I nternel Revenue or his duly authorized representati ves shall condone the corresponding interest and penalties" This refers to the a1jditions to the tax arising from fflil ure to file fl return aruj/or pay the tax on time or to the part1 cular ts :o< being a:;sessed . ..

790 )

DECISION

C. T. A. Ca3e Ho . 4301

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Please

note U;at in this par-u clar the deficiency assessments for- 1979 constitutes hvo counts:

One, the defi ciency incorne tax in the total amount (including surcharge and interest) of P52,528.69 and Two the surtax f or unjust accumulation of surplus in the total amount of P 1,573,56 1.23 (including surcharge and interest).

The flrst assessment i s under Section 24 whi l e tlie latter is under Section 25 of the old

T8X

Code.

Petitioner · applied only for 30% compromise settlemen t to basic tax on the first assessment in the amount of P33, 197.56. It does not in any case include the 25% surtax or tax on accumulated profits.

·~urthermore, the 25% surtax is imposed "in addition to the tax imposed under Sec. 24 of the NIRC". The surt8>: "shall be computed. collected and paid in the same manner and subj ect to the same provisions of Jaw. including penal ties. as Ui8l tax."

Contrary to the opinion of petitioner, the 25% surtax, othen·vise knov·m as the accumul ated earnings tax, is not the penalty envisioned in Sec. 1 of E.O. 44, rather "the accumulated earnings ta:~ under Section 25 of the Tax Code is -a tax on obno:~ i ous hoarding as distinguished from harmless accumulation." [The Manila Wine Merchants, Inc_ Y. The Commissioner of Internal Revenue, CTA Case No_ 1415, February 28, 1966.) "As a practical matter, liabll ity for the t a:-:: under Section 25 of tlie Tax Code hinges on ·vvhether the corporation t;as accurnulated tile earnings in excess of the reasonattle needs of the business." (supra.) ·-' 791

DECISION

C. T. A. Case No . 1301

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The Supreme Court in the case of The Mani Ia Wine Merchrmts, Inc.

v.

The

Commissioner

of

Internal

Revenue, G.R. No. l-26145, February 20. 1984, (127 SCRA 483), affirmed in toto this Court's decision in CTA Case No. 14 15, involving the same parties, where ~t was held: "A prerequisite to the imposition of the tox has beerr that._ t.he corporation be formed or avai 1 ed of for- t he purpose of avoi ding the inc orne ta ~~ (or surtax) on its shareholders, or on t he shareho 1 ders of ~ n y other corporation by permitti ng U1e earnings and profits of the corporation to eccumulat.e insteod of dividing them among or distributing thern - to the shareholders.

If the

earnings and profits were distributed, the sharehoJ •jers woul•j be required to pay an income t ax u·,ereon whereas, H the distribution were not mode to them. they would incur no tax in respect to H1e undistributed earni ngs fiQd profits of the corporation_ The touchstone of l iabi 1 ity i s the purpose behind the accun1ul flti on of the income find not the consequences of the accumul fit ion. x x x ... !Emphasis Ours.)

It is thus clear from t he very wordings of Sec. 2_? of the NIRC that U1e 25% surtax i s an odditionol tax on corporations improperly accumulating profit s or surplus. The legislative purpose or the surtax was t o integrat e properly the tax upon corpor ations improperly accumul ating surplus. [7 Law of Federal Income Taxation Sec. 40.02, 334] This will compel corporations

I

to di stribute as di vidends the corporate earnings not necessary in tile t•usiness, so that the dividends rnay be properl y taxed in the t·,;:md ::; of the stockholders. !1 ARANAS, ANNOTATI ONS AND ~ 9 2

DECISION

C_T_A_ Case Ho_ 4301

-

Page 9 -

.JUPISPPUDENCE ON THE NATIONAL INTERNAL REVENUE CODE OF 1977, 92 (4th ed., 1978) I.

In 1 i ne vvi u-, respondent's reasoning, the 25% surtax is a tax b~d itself imposerj in addition to the corporate income tax (under Sec. 24). It shall be computed, collected and paid in the sarne rnanner and subject to tt1e same provisions of law, including penalties, as that tax. (Sec. 25(a), NIRC.] Section 1 of E.D. 44 would not tlave include1j the 25% surt8x in the term "corresponding interests and penalties". By itself the surtax is an addiUonal tax other .ti'H:ln the income tax. It is subject to the pen a 1t i es similar to that .of the income tax. Petitioner further adds that the 25% surtax under Sec. 25 has been repealed by Sec. 6 of E.O. 37 (July 31, 1986). \ovith the subsequent repeal of the accumulated profits tax all rights to levy said ta:~ are put to an end even if already. begun. Therefore, petitioner should no longer be held liable to pay the surtax. Vo/e disagree with petitioner. It is an elementary rule in st atutory construction that "in the absence of such words indi cative of the extent of U1e statute's operation, t he; general rule i s that a statute will be construed prospectively unless the legi slat.ive intent that it be given a retrospecUve operation clearly appears by necessary or unavoidable implication." [t1ARTIN, STATUTORY' CONSTRUCTION 56 (rev. ed., 1972); citing, In re Davis Estate, 330 t1ich., p. 647.1 A statute should be prospectively enforced, V·lhether it enacts, amends, or repeal a lav·t, unless the language of that statute states in very clear language U1at it shall have retroactive effect.. [lorenzo v_

DECISION

C.T.A. Case Ho_ 4301

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Posodos, 64 PhiL 366-36 7 _) The repeal of Sec. 25 by Sec. 6 of E.O. 37 ( 1986) had no retroactive application there being no mention to that effect.

In fact, the prospective .application of repealing statute was upheld in the case of Co v. Co1L of lnternoJ Revenue, 100 PhiL 464 (Nov. 29, 1956), cited by petitioner, where it ·vvas there ruled:

"Regarding the effects of repealing statutes, tt·Jt?

ergument hes been edvanced, that taxes essessed (but not collected) under the low before its repeal , rriay not be collected ofter suer, repeal - e;"<cep t , al··Nays, pro·!i sions to the contrary. But the courts permit such collection.

"The rule favoring a prospective con3truction of statutes is applicable to statutes vihich repeal tax la\o/3. Accordingly it is held that ··.·there such st~Jtute is not m~Jde retroactive a tax assessed before the repeal is coll~cti ble aftervards; and ·.,,here taxes are levied under a lavt 'vthich is repealed by a subsequent act, unless it appear3 cle8rl y that the legislature intended the repeal to \•lOrk retro3pee:tively, 1t \·Jill be assumed that it intended the taxes to be collected according to the Ia\•/ in force \:/hen they 'h'ere levied." (Coole'J, Taxation Section 538 Vol. 2.) ,• So, if taxes assessed rnsy st i 1 I be demanded efter tt·1e repeal Of u-,e l cl'·N, it follOWS that taxes el re13d'd coll ecte,j mey /Je ar11j should L~e retained after the repeal.

Un 1 ess of course the repea l1 ng statute pro vi des otherwi se ...

Respondent was correc t in not condoning the 25% surtex since petitioner paid only 30% of the bBsic income tax liebility for 1979. Petitioner's failure to compromise and pey 30% of the 794

DECISION

C. T. A. Ca3e Ho . 1301 -

Page 11 -

for SIJrt a:-:. Thus, respondent cannot condone the surtax pl us the interest and penalti es correspondi ng ther eto. Anent. U1e second i ssue, petitioner maintains that it is not li abl e f or surt ax for the year 1979 because it did not impr operl y accumu lat e any surpl us beyond the reasonable needs of its business. To prove its point, petiti oner offered as evidence t he f oll ovrinq docurnent s:

a. Excerpt s of the ,t·1i nutes of t1eetlngs of the Board of Directors from 1975 ·t o 1985 [Exhs. B and C} showing that the surplus earnings of the .. corporati on were ret ained f or expansion purposes: such as, 'the construction of addition a 1 warehouses; purchase of additional handling equipment, payloader, dr edgi ng rnachine _; to defray expenses f or dredgi ng the loading area (the v·thsrf an,j berthing area) of t he Terminal ; and to r-epl ace the Fender Pile Clusters to ensure the safety of docking vessel s and l oadi ng install ation. Li kewi se, the corporati on through its BoBrd of Directors al so decl ared stock di vidends in 1977, 1978, 198 1 and 1984.

b. The Anal ysis of Fixed Assets for the years ) 975 to 1979 {Exh. D} and 1979 t o 1989 [Exh. D-21, showi ng t he pur chases of equipment, furniture's and fi xt ures, f ender clusters, cost of buil ding improvements and install ati on of loader gears etc. all added to the Fixed Asset s.

c. The Memorandum Register showing the purchase of a second h8nd pay loader i n 1980 costing P 150,000.00 {Exh. D-5].

d. Tile Journal Voucher entries r ecording as capital expenditure the repairs and i mprovement of - 795 buildin gs~

DECISION

C. T. A .. Case Ro. 1301 - Pag e 12 - structures [Exhs. E, J- 4, J-5 and J-6} and that of bul k htJndling installati on [Exhs. F, J-2 and .J-3}. e.

The Certificates of Sale showing petitioner as the hi ghest bidder and purchaser of railroad rail s [Exh. G), peyloader [Extl. H}, second hand bulldozer-caterpillar [Exh. 1], second hand mosl er vault [Exh. J}, end a second hand di ebold vault [Exh. J-1 }. r· .. teanwhile, the circumstances relied upon by the examiner as indicating petitioner's intent to improperly accumulate surplus profits are · manifested by the following acts, to wit: !f·lemorandum Report,, dated June 29, 1984, pp. 76-77, B I R record.]

"( 1) In the ·secretary's Certificate· (Signed t1y: Betty B. Pi zan a, Asst. Secretary) the Minutes of the Special Meeting of the Board of Directors held on April 20, 1976, wrich resolvetj that the surplus profits of the cornpen~d as of December:. 31, 1975 be appropriated for plant er.:pansion, however, in the serne year the corporation made cash advances in the amount of P520,000.00 to its officers - employees taken up under the Hem of 'Advances to Ernp 1 oyees - Cubao ,' 1t emi zed in the ''rlorki ng Sheet, ~;chedule H.' As of December 3 1, 1979 the above- s t t~ ted cash advence::: ewe still outstanding and hdve not earned interest incorne from 1975 to 1979. (2) Another importtmt point that should be considered 'Nhich was in contravention to Hs projected expansion were the advances to a ss oci~.:~ted corpon:~tions/companies owned and/or controlled by Don J. Amado Araneta and family, un,jer- the item of 'OTHER ASSETS', the b~:~lances of whicll sho'vved stead'J substantial increases from 1975 to 1979, es follolf•ls:

1975 - 79 1978 P16,312,884 1979 P17,274 , 1~

J

c:: ... ... -. -·-

DECISION

C_T_ A. Case No_ 4301 - Pa.qe 13 - I nclude,j in the 'OTHER ASSETS' for 1979 is the item of 'Advances to Subscribers· in the amount of P930,000.00, which ere deemed indirect loans to stockholders. According to t1r. Menuel A. Ferriols,

Supervising

Interne!

Auditor

of the subject corporation, when asked about the substantial edvsnces to associsted corporations/companies owned or controlled by Don J. Amado Araneta and family, he revealed that majority of these associated corporations/companies are losing and therefore need new funding in their operations. Si nr;e, such Y.tas the case, the st:~id cash advt.mces must be retained by them for an unreasonably length of time and possibly might not even be repaid at all, therefore it cannot be reasoned out that the same is for the reasonable needs of the business.

(3) The said advances 'OTHER ASSETS' are not

e. rning interest , while Philippine Bulk Corporation claimed an interest 8)<pense deduction for 1978 fmd 1979 in the amounts of P468, 118.00 and P558,6 i 6.00, respecti ve 1 y.

Without· these cash advances to associate,j corporations/companies the texpayer need not heve to resort to borrowing because there wi ll be sufficient funds for its operations and · therefore would not be paytng interest expenses from its loans, resulting in bigger profits.

/

(4) No reserve for plant expansion were teken up in the financial statements and notes to financial statements for 1978 and 1979.

(5) t1r. Araneta failed to comment to Number

(8) of my memorandum report deled Jenuery 25, 1984, neither did other representatives of the corporati on, to the effect that no expansion has been underteken up to December 3 1, 1979. He el so failed to comment and/or object to the disallowance of 'Administration expenses' (unsupported) disallowed. therefore, the same is r·1ereby re1 terated . ..., 797

DECISION

C_T_A_ Case Ho _ 4301

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(6) If the corporation was really in need for additional funds for plant expansion, etc. the declaration of stock dividends of P612,900.00 and P7, 966,206.00 out of the surplus profits in I 977 and 1978, respectively, and it seems that said dividends declaration are not necessary, but instead a 'Reserve for Plant Expansion· should have been made."

V.Jhil e it is~ true that respondent's assessment is presumptively correct, the Court also recognises that once the .

burden of proof has been overcome upon presentation of evidence to the contrary then the presumption of correctness disappears. ·- In this case, Y./e think the petitioner was able to sub!::tantiate the burden placed upon it by law. As validly supported t1y the evidence, sometime in 1975- 1976 the Board of Directors of petitioner decided to expand its business operation by ttle construction of additional warehouses (costing P4,000,000.00) a~1d the purchase of additional handling equiprnents which projects have an estimated cost of P 1:2.000,000.00. [Exh. B.) The corporati on decided to appropriate } P 12,000,000.00 from its surplus earnings as of December 31, 1975 for this purpose. [p. 70, BIR record.] The earned surplus of P9,75B,4 18.00 as of December 31, 1977 was considered insuffi cient to meet the need for additional funds to improve its operations: to build additional storage faci lities and to purchase additi onal handling equipments. Thus, from 1977 to 1978, petitioner declared stock dividends instead of cash dividends. [p. 71, BIR records.) ..

79

DECISION

C.T.A. Case Ho . 4301 - Pa.ye 15 - Then sometime in September, 1979, the Board of Directors appropriated the f o 11 owing amounts from surp 1 us profits:

a P30,000.00 to cover expenses for dredging (Exh. B];

b. P 115,924.80 as cost for replacements of Fender Pile Clusters IExh. B); and

c. P 150,000.QO as cost of a second hand payloader (Exhs. C and D- 51., For the period 1975 to 1979, petitioner also purchased fi xed assets· in the total amount of P728,677.00 [Exh. D-3]. Subsequent 1 y, other handling equi pments were purchased by petitioner in line vvith its plan of expansion as reflected in the Certificates of Sales [E>~hs . G to J-1, inclusive]. Thereafter, other equipments and improvements were capitalized as fixed assets from 1980 to 1989 in the sum of P3, 178,741.00. [Exh. D- 1.]

It was the accurnulated surplus as found by the examiner for 1979 in the amount of P3,977,893.83, that have been treated .

/ as hav1ng been accumulated beyond the reasonable ne~d of the business of petitioner. However, petitioner has proven that in its desire t o improve its facilities an expansion program, \North alrnost P 16,000,000.00, Y-tas necessary. The retained earnings as of December 31 , 1979 amounting on 1 y to P3, 934,752.00 [p. 31, BIR recor-d) was not even enough to shoulder the P 12,000,000.00 e;-:pansi on program of the corporation in 1975. The plan was, hov·tever, partially implemented in 1979 and extended up to 1989 . .., 799

DECISION

C_T _A_ Case Bo . 4301

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In the direct exemination of petitioner's witness, his testirnony will show that the expansion project was extended from 1979 om·vards, thus: [T.s.n., Merch 8, 1990, pp. 20-211 "f).

Oks~d - Now r1r. dels Cruz, why were they spread in succeeding years and not in 1979 alone when you commenced the . program of expansion by buying the payloader initially? A. The operation of Pulupandan is dependent more on sugar productions and starting way back in 1977 there was an economic and financial difficulties on suger industry and besides we have also not secured the necessary loans to finance the project considering the effects or considering tt1e business situatl on on the area ·vvhi ch is the sugar productions.

Q.

Novv', what are the other factors that you can attribute in spreeding the implernentetion of the program ori gi nall y set in 197 4 to 1 975 and 1979?

A. The main factor that contributed to this is the 1 ow production of sugor.

Q. And that is the reason why there was no ass'et acquisition for the years 1982, 1983, 1984 up to 1985, is that correct?

A. Ves, sir.

Q. Now, are there any other reasons why they were only irnplemented after 1979, the progrems of expansion?

A.

'v'·/ell, for some otlier reasons was, for the implementation even though in the years 1982-83, 1 983-84, 6nd 1984-85 w~ ., 80 0

DECISION

C.T. A. Case Ho . 4301

- Paqe 17 -

minimal but in 19f17-198S we are hopinq that sugar industry wi ll improve that's wl"ly we have spent a little amount, more amount in I 987-1988 end 1988- 1989."

Pet it ioner have successfully disput ed t he defici ency surtax assessment for 1979 by preponderance of evidence, showi ng the purpose for vvhich the surplus accumulated during u-,e year are to be used for expansion of its business. The only objections raised by respondent to petitioner's evidence was that the evidence marked as Exhs. B to J-6, incl usive, L and L -1 are ~;el f- serving .

It must be observed that the Certifi cates of :=;e I es are pub 1 i c document s i ssued by the Sheriff of the Department of Labor and Employment. Therefore, not hearsay evidence. The t··hnutes of l'leetings of the Board of Di rectors of petitioner corporation as well as the Journal Vouchers and the Analysis of Fixed Assets Statements were prepared in the ordinary course of business.

\1"11en i t was respondent's turn to present hi s evidence, he waived his right to present any evidence. He al so/ failed to subrni t a rnernonmdurn f or the guidence of t he Court even when he was required to do so.

He merely submitted the case f or decision on a purely legal question based on the pleadings and the CT A records. Unfortunately, thi s case involves both l egal and factual i ssues.

Settled is the rule that one who prays f or judgment on the pleadings without offering proof as to the truth of his own all eqations must be understood to admit the truth of all the material and relevant allegations of the opposing party, an~- _., 801 ,

DECISION

C.T.A. Case Ho_ 4301

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rest his motion for judgment on those allegations taken together with such as his ov·m as are admitted in the pleadings_ f (Bouermonn v_ Cosas. et. aL. 10 Phils. 386; Evangelista v _ De Ja Rosa, 76 PhiL 115.1 Respondent may be considered to have not questioned seriously the evidence presented by petitioner proving that the purpose and reason for the accumulation of surplus profits for 1979 was within the · reasonable needs of the business of petitioner. Moreso, the evidence of petitioner clearly establishes that there was no accumulation of profits beyond the needs of its business.

WHEREFORE, the decision of respondent ordering petitioner to pay the sum of P 1 ,573,561.23, representing 25% surtax on improper accumulation of surplus profits for the year 1979, is hereby reversed. The deficiency surtax assessment for 1979 is cance 11 ed. No costs.

DECISION

C. T . A. Case Ho . 4301

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WE CONCUR:

~Q.~ ERNESTO 0 . ACOSTA

Presiding Judge

hvv

1 PL--L I

A ON 0. OE VEYRjA

Associate Judge

I

CERTIFICATION

I 11ereb1..1 certifl..l that the above decision was reached after ~ ...

due consultetlon among the members of the Court of Tax Appeals in accordance with Section 13 Arti cle VIII of the Constitution. ., 80 ~ ~-~Q.~ ERNESTO 0 . ACOSTA

Presiding Judge

Court of Tax Appeals