—— HEALTH SERVICE CORPORATION, et al. vs. <- ZReevesvwseseaeuweeeoeeene X

DECISION

This is an appeal from respondent's decision assess- ing ageinst and demanding from petitioner the sun of #3,424.45, a6 surcharge and compromise penalty, fer the iatter’s failure to deduct and withhold the taxes due upon the salaries peid to ite two officers during the years 1953 and 1954, ;

Petitioner, « corporation duly organized and existing under the laws of the Philippines, is engayed in nedical and medicinal business. During the yeers 1953 and 1954, it hed in its employ Dr. Dwight Dill, ite president and medical directer of the American Hospital, ane of its de~ partments, and Mra. Lois M, Dill, its treasurer and general manager of the said hospital. These officers actually re- ceived salaries from petitioner in the amounts and on the cates indicated below:

ee a a Dr, Dill © 94000.00 © 5,000.00 #14,000,.00 7«=29-54 9,000.00 iseoucoo ScoooeD Lis ab Mes. Dili 9,000.00 3,000.00 19,000.00 9-M0-54

— 2D 21 I~ 9-54

EElg000.00 9964000400 268,000.00 an 100

~ Ge

They filed income tax returne for the years 1953 and 1954, reporting the salaries they received fron petitioner during the said years. Gn the basis of ssid receipts, they paid income taxes on March 31, 1984, Cetober 12, 19%4, January 49, 195% and Ostober 3, 1955 (see Exhibits L, L-l, M, Mel, PPe 131-134, CTA rec.).

Petitioner did ret withhold and pey to the goverment the incouwe taxes due on the salaries received by Dr, and itce. Dill during the years ef 1953 and 1954. Consequently, reepondent, on July 2), 1956, asseseed against and deaaended from petitioner tie sum of * 3,424.93 as eurcharge and com- promise penalty, which is computed as follows:

Anount of tax that sheuld have bdeen witihelée for A953 Gnd 1958 cecccccverncesescessece °12,499.H

Penalties:

gurcharge 00 212,499.% ateeservreenese #3,124 245 COMPPOMLSE seevcccesrecene nw ED OO TOTAL seensccensvevoes 2Rsa 2b. go (see Exhibit 1, p. 19, BIK ree.)

in imposing the “x surcharge, respondent presuued Lack of malice and intent on the part of petitioner, which allegedly finds corroberetion in the deelaration that curing the years 1953 and 1954 the latter was at the organizational stage, decking in system and protedure (Exhibit 3, p. 25, USK rec. ).

On Hovemper 26, L956, petitioner requested ter the re- Consideration of this sesessment (eee Exhibit By pp. 46-87, CTA recs, & ixhibit 13, p. 2, SIA rec.), which request wes denied by respondent in his letter of June 2, 13957 (see Sx- hibit 3, p. %, GIA rec.). On July 15, 1957, petitioner once mare sought the reconsideration of the assesgaent, and at the » 1014

DECISION ~ :

GCeTeAe CASE WO. 442 a save time cequested that it be granted "the requested extension of thirty (30) days from this datu for recon- sideration of the new facts prior to a feraul appeal to the Hourd of Tax Appeals.“ (See Gxhivit Db, p. 90, CTA £06., & Exhioit 2, p. DH, sid vec.}. On August 15, 1957, petitioner wrote the vonference ataff of the dureau of Iaternal Revenue, manifesting its desire to appeal tne assessuent in question (Exhibit 4, p. 40, Sim cee.}. After the hearing, respondent, on Septeaber 97, 19857, inforned petitioner that the Bbureau’s decision remained unaltered, and reiterated the origiaal demand for the payment of the gun of *3,421.45 (Exhivit 5, p. 46, Of rec.). This letter- decision of respondent wab recoived wy petitioner on Geto= — ber 19, 1957, aid on November 14, 1957, the petition ior review was filed vefore this Court, On Deceuber 13, 1957, respondent meved to dismies the inetant petition for review on the ground that it was filed peyond the statutery period of thirty (30) deys. Petitioner filed its oppesition thereto, and in epen court, asxed leave to amend its petition for review. The Court yrented the deave. On march %, 1959, tinis Court denied the wetion to dismiss the petitioa for review, .

There i¢ no controversy that petitioner failed te de- duct and pey to the government the income taxes due on the salaries received by its two officers, Or. and wre. Dill, Guring the years 1953 and 1954. It is contended oy respon- dent that, for such failure, petitioner is liable for 7% 102 bECISION «© GeTeAs CASE WW. 442 ao 4 « surcharge on the taxes not withheld end paid, in pursuance of Section 72 of the Tax Code in relation to Articles 7 and 8(a) of the Withholding Tax Law (Hepublic Act No. $90). Upen the other hand, it is maintained on vehali of peti- tioner thet, by sutherity of section 53 (¢) of the Tax LEGA» it is not liable tor any penalty.

The pertinent provisions of law upon which the con- flicting claims of the parties are vased are as follows:

o_ oy ia Slaekae ae atlas lakaeesl-nivae atti not due te ful neg th ollector ‘of Internal Kevene shall add to the tax twenty~ tive per SELES of its amount, except thet, when a return voluntar{Liv and witheut notice from the Collector or other officer filed after euch time, and it is shown thet the failure to ifle it was due to a ressonable cause, no such addition shall be made to the tax. x x x* (Sec, 72, National Internal Aevenue Codey Italics supplied. )

jes pre a in ny Say ell two of this Title in cases of failure to ren- der returns and for filing falee or fraudulent returns In case the taxes and Takneae by the employer are net paid within peescrived, there shall be addec « surcharge of five per on the amount of tax unpeid and interest at the sate of eS a re aenth upon the amount required ¢ frou the time the same became due until paid." (Art- icle 7, Repulbic Act No. 5H; Italic supplied.)

“ART. 8. Penalties ~ (a) Pena person ly se or froudulent re~ senders J ne a £

DECISION ~-

GeTo&e CASE NO, 442 a.

turn or statement required under the provi- sions of articles pens | five and six or under regulations pemieet oy the secretary of Finance, or who willfully y eeiis te render or furnish a statement e¢ required in this sup- plement, shell upen convietion, fer each such act or omission, be fined not lees than one thousand peses ner eu than two thousand pesos and impr for not nore than one year.” (Art. 8 (a), Republic Act No, 590.)

The contention thet, for feilure te deduct and pay te the government the income texes due on the saleries of ites two officers, petitioner is subject te 2% surcharge, in actordance with Articles 7 and 8 (a) ef Republic Act Ne. 590 and Section 72 ef the Tax Code, is untenable, it is te be observed that the first paragraph of Article 7 ef Republic set No. 590 provides that the surcharge of “x prescribed in Section 72 of the Tax Code shall appiy the returns required under articles four and five. other words, the 7% surcharge provided in Section 72 of the Tax Code shall be impesed only in cases ef failure, net due to willful neglect, te make and file a withhelding tax return within the time prescribed by lew (see Art. 4, Aep. Aet Ne. 590). The secend paragraph of said Article 7 authorises the addition of s surcharge of % and interest et the rate of one per centuz a menth on the amount of taxes deducted and withheld by the employer, but not paid within the time prescribed, And Article 8 {a) ef Kepublic Act No, 590 pro- vices for penalties, in the form of fine or Loprisenzent, for coma file, and for filing freudslent returns or Nowhere in Articles 7 and 8(a) of Hepublic Act No. 590 and in Section 72 of the Tax Cede can we single out & provision justifying the impositien of [A surcharge or statenents.

104

DECISION -

C.T.Ae CAE NO. 442 eof« penalty for failure ef an employer te deduct and pay te the governseat the income taxes due on the salaries of ites employees./ But, while petitioner cannot be penalized with a 2 surcharye fox its failure to deauct and pay to the government the iicome taxes due on the salaries received by its two eaployees, be. and ar. Dili, the evidence shows that it failed tu file the withholding tex returns re- quired by Republic Act toe 990. It is true that peti- tioner’s faiiure to iile the returns was net due to will- ful neglect, out it is net essential that there ve willful neglect te file @ return in order tor the penalty to accrue under Section 72 of the lax Code. Having failed te file a ~ return as required oy Nepublic Act Noe 59G_ we velieve ane so hold that, under Article 7 of the said Act, petitioner {fe liable for the Zhe surcharye previded in sectien 72 of the Tax Code.

The fact thet De. and “rs. Vill eventually paid the income taxes cue o. theix saleries did not selease peti> — tioner from its liability for the 2h8 penalty secause this penalty is inposed as a consequence vf ae eee to file the necessary returns as reqaired by law. ‘ Section 53 (¢@) of the Tax Code has no spplication to the withhelding tax on wages provided in supplement A, Title II of said Cede On the question segarding tne coapromise penalty of W000, we rellerate thet a taxpayer cannet ve coupelled to pay @ compromise penalty in the abeence of a witual agree- ment petween the perties thereto. (University of Sante Tomas

DECTSION =

GelsA. CASE MU, 442 “2 vs. Collector, G. Kh. ito. Lell 20, Novemer 2%, 1953). In the case at bar, we find that there is no such agreement between the parties. Consequently, the Lapesition of come promise penslty in the sanount of *3OO.00 is unautherized and illegal.

WHEABFCaE, the decision appealed from is hereby nodi- tied in the sense that petitioner Health Service Corporation is ordered to pay respondent or his authorized agent fhe sun of 3,194.45, as 2 surcharge. With costs against peti- tioner,.

S% ORDERED, Manila, March 26, 1960, x

Presiding Judge

| I GONGUA:

RONAN M4. UMALT

Agsoctate Judge

Agseciete Judge AUGUSTO M, LUCIANL is on leave.

» 106