Consolidated Orient Leasing and Finance Corporation vs. ~ the Commissioner of Internal Revenue

DECISION

Penalties for late payment of GRT for the quarter ended September 30, 1981 (Assessment Notice No. FAS-4-81-86-006427 dated March 31, 1986) Tax due on 10/20/81 but paid on 11/20/81 P637,067.2° Surcharge 25% 159,269.95 Compromise penalty 300.090 Total amount due P159,569.05 Penalties for late payment of =gross receipt tax for the quarter ended September 30, 1982 (FAS-4-82-86-007152 dated May 23, 1986) Tax due on October 10, 1982 but paid on November 22,

1982 P430,280.46

25% surcharge 107,570.31 Compromise penalty 300,90 P107,870.21 Petitioner protested the above assessments through its External Auditor, SGV & CO., in its letter dated April 30, 1986 covering the 1981 642

- 3 - assessment and letter dated June 23, 1986 covering the 1982 assessment.

Both protests were denied by the Re spondent with finality in a letter dated July 9, 1990 receive d by Petitioner on October 10, 1990. However, Petitioner, through SGV & Co., in its letters dated August 20, 1990 and October 16, 1990 offered to settle by compromise the above assessment by paying fifty percent (50%) of the 1981 GRT tax assessment or 1?8,436 •. ?. ... ~ .. • Although the Chief of the Litigation Division accepted Petitioner's compromi se offer and allowed Petitioner to pay the said amount on March 20, 1991, the Respondent's Assistant Commissioner for Legal Services is of the opinion that "Petitioner's availment of Revenue Memorandum Order No. 29-90 and its payment of P8, 436 . . ?. ... ~ .. did not ipso facto cancel the incremental surcharge for late payment on the ground that said i nc remental assessment are separate and distinct from the basic gross receiptsr tax which was the one administratively settled. In other words, only the assessments for deficiency ..

bas ic gross receipts is settled pursuant to RMO 29-90 and those fo r the incremental assessments 643

- 4 - which no payment was made, subsist and remain enforceable.

Petitioner believes, otherwise, and invoked that in line with the spirit and intent of RMO No.

1-88, as amended by RMO 29-90 a taxpayer who has paid 50% of bas ic tax liabilities for 1985 and 100% of basic tax for 1986 and 1987 should no longer be assessed for penaltie s a nd increments thereon.

Petitioner believes that inasmuch as the basic taxes on t he incremental charges have already been paid voluntarily , it shoul d be treated in the same way s a taxpaye who has directly avai led of the compromise settlement. Otherwise, this will give rise to a legal inequity wherein a taxpayer who has pai d the basic tax voluntarily, would be placed at a disadvantage against a taxpayer who has not paid the basic tax at all but is allowed to pay only the compromise amount consisting of the basic tax assessed with the i ncidental surcharge and compromise penalty waived. Therefore , the issue raised for the resolution of this court is whether or not the availment of ., the Petitioner of RMO 29-90 by paying 50% of the basic tax assessed for 1981 and the voluntary -· 64·

- 5 - payment in November 1982 of the basic taxes due for the quarter ended September 30, 1981 and September 30, 1982 extinguishes the incremental surcharge and penalty assessed.

We find for the Re spondent . Revenue Memorandum Order No . 1-88 as amended by RHO 29 - 90 was issued pursuant to Section 204 of the Tax Code.

A reading of the said RMO' s will show that only the surcharge and penalty for the deficiency gross receipt tax as of September 30, 1981 in the total amount of P21 ,291. .~ ... :. may qualify under the said compromise settlement.

The assessment covering late payments will not be covered by the said memorandum order. Under paragraph ( 1) of RMO 1-88 the coverage of this order are taxpayers with del iquent accounts for all taxable years on assessments issued on or before December 31, 1986 which have become "final and executory" and under paragraph ( 3 ) these 1 taxpayers may settle their accounts through compromise by paying an amount equal to 50% of the :• basic tax assessed.

Unde r the amendatory order RMO 29-90 the above paragraph (3) was amended by 645

- 6 - limiting the 50% payment of basic tax assessed to deliquent account covering taxable year 1985 and prior years and for taxable years 1986 and 1987 by paying 100% of the basic tax assessed. The offer to compromise may be accepted by the Commissioner of Internal Revenue or his duly authorized representatives on the following grounds, (para graph 4 RMO 1-88) (a) A reasonable doubt as to validity of the claim against the taxpayer exists; (b) The financial position of the taxpayer demonstrates a clear inability to pay; (c) The tax or any portion thereof appears to be unjustly and excessively assessed. Clearly, under said memorandum order the following requisites must be present to obtain a valid administrative compromise settlement: (1) There must be a deliquent account covering assessment issued on or before 1 December 31, 1986;

(2) The assessment is final and executory as ' I of January 4, 1988, the date of the issuance of RMO 1-88;

DECISION CTA CASE NO. 4 508 - 7 - ( 3 ) Acceptance of t he of fe r of compromi se by the Commissione r or hi s duly authori zed represent ative based on the grounds enumerated on paragraph ( 4 ) of t he RMo , ( 4) Payment of 50% or 100% o f the basi c tax assessed.

If we will strictly apply t he aforemen t i oned requisites not one of t he three assessments issue d will qualify for a valid compromise settlement. The records will s how that Pet i tioner t hrough i t s external auditor SGV & Co. , app l i ed fo r a compromise settlement c overing t he fi r st delique nt account only.

Paid 50% of the bas i c tax of P16,873 . . ~ .. ~ or P8 , 436 . ?. ... ~ .. · The Chief of t he Litigation Division recommended i ts acceptance and the amount of P8,436 . ~~ was paid by the Petitione r . Consequently~ th~ corresponding surcharge i n the amount of P4, 218 . . ~ .. ~..

and compromise penalty of P300 . . ~ .. ~. were likewise considered settled a s part o ft the compromise settlement. The fact of acceptance by the Respond e nt is likewise a dmitted in paragraph ...

(7) of t he Answer. This settlement complied wi th all the above requisites excep t that Respondent i n 647

- 8 - accepting the offer failed to state the ground or basis.

However, in view of the minimal amount involved , a fourth ground enumerated on paragraph (2)(b) of Section 204 of the Tax Code should apply. That is "The administration and collection costs involved do not justify the collection of the amount due".

Although this ground is not stated in the Memorandum Order, nevertheless the same is a statutory provision which should be applied whenever applicable.

The two other incremental assessments could not qualify because there was no acceptance of the offer to compromise.

An essential element for a compromise settlement. It will not qualify under any of the grounds stated in the RMO nor in the law .)

itself before this court could state that the Commissioner abuses his discretion in not accepting the offer.

In f ct, the contrary appears from the record.

The taxpayer is clearly liable to the 1 incremental assessments. There is no showing of financial inability of the Petitioner to pay its ., tax obligations, nor does it appear that the tax assessment is unjustly and excessively assessed.

- 9 - Definitely the amount is not minimal so as not to jus tify t he collection cost which the Respondent may inc ur.

Fai ling to comply with the above statutory require ments is fatal to the claim of Petitioner.

WHEREFORE, in view of all the foregoing only t he deficiency gross receipt tax a s of Septemb~r 30, 1981 in the total amount of P 2 1,291.!~ is cancelled.

The penalty assessments f or late payment of GRT for the quarter ended September 30, 1981 and Sept ember 30, 1982 in the total amount of P159, 569. -~--~- and p 107 . 870 . -~---~ .. , respectively, upheld.

Without pronouncement as to cost.