Philippine Investment Management Consultants, Inc. vs. A

DECISION

In this suit, petitioner disputes the assessment for deficiency value-added tax (VAT) for 1988 issued by respondent ordering it to pay the sum of P1,165,700.42, inclusive of increments.

Petitioner is a domestic corporation duly organized and existing under the laws of ie! Philippines with principal office at PHINMA Bldg., 166 Salcedo St.,. Legaspi Village, Makati, Metro Manila.

In the course of its business operation during the ime material to this action, petitioner entered into management contract with United Pulp and Paper Co., Inc., C(UPPC) and Rizal Cement Company (RCC) to manage the business as well as. render technical services and ther related matters to said entities.

083

Under the said agreement, petitioner is supposed to be paid annual incentive bonus equivalent to a certain percentage of income based on UPPC and RCC's audited financial statements for 1987.

The contracts were completed by petitioner before. December 31, 1987 but payments were made thereafter. Petitioner billed UPPC and RCC for management bonus including 4% contractors tax on March 1988 based on the 1987 audited statements of said entities.

On July 20, 1988, petitioner paid contractor's tax on the basis of said billings to UPPC and RCC.

In a letter of respondent, dated June 19, 1991, which was received by petitioner on June 26, 1991, the former assessed and demanded from the latter the amount of P1,165,700.42 as deficiency VAT for the first semester of 1988, computed as follows:

Total taxable sales/receipts per filed audit P10,588,853.00 10% Tax due thereon 1,955,855.30 Less: Tax Already Paid 474,144.73 Deficiency Tax Due 681,740.60 25% Surcharge due thereon 145,435.15 Interest 428,524.67 Compromise penalty and late payment 10,000.00 FOTAL AMOUNT DU » COLEPCTIBLE Pde t 65 .700.42 084

' ‘ The aforesaid assessment was protested by petitioner in its letter, dated July 25, 1991, for lack of legal and factual basis.

On March 21, 1992, respondent rendered a final decision on the assessment which was received by petitioner on April 28, 1992 denying the protest on the ground, that the option to pay the 4% contractor's tax instead of the 10% VAT on amounts received after January 1, 1988 for billings of supposedly finished contract as of December 31, 1987 is a preferential eremtnent. As petitioner did not observe the conditions set forth under Section 6(q) of Rev enii Regulation No. 5-87, respondent reiterated the demand for payment’ of the sum of P1,165,700.42.

Hence, petitioner interposed the instant appeal to this Court on May 27, 1992.

After due hearing, the case was submitted for decision on the basis of the pleadings and the records thereof, where petitioner filed its memorandum while respondent did not file any memorandum.

By anid large, petitioner assails the decision of tespondent holding it liable for deficiency VAT on the ground that the assessment is erroneous. Firstly, petitioner contends that strict compliance with the 080.

DECISION —-:

administrative requirements is not only impossible but also unreasonable in view of the stipulations in its contracts with UPPC and RCC which were completed on or before December 31, 1987 and payment. of which are receivable ot or after January 1, 1988, since the fees payable to petitioner cannot be determined prior to March 1988. Secondly, it substantially complied with Section 6(g) of Revenue Regulation No... 5-87 when it paid 4% contractors tax, on its billings to UPPC and RCC on July “*, 1988. Thirdly, any deficiency Pax, if any, should be -based on its gross receipts of P8,346,070.96 and not on P8,693,853.92.

On the other hand, respondent in answer to the petition for review and as special and affirmative defenses, alleged, among. others, «that: petitioner's collection in the sum of. P8,693,853.92 for the first semester of 1988 was not included in the gross receipt subjected to VAT; inasmuch as petitioner failed to comply with the conditions set forth in Sec. 6(q) of Revenue. Regulations No. 5-87, it is therefore liable for deficiency VAT representing the difference between the 10% VAT and the 4% contractors tax which it fadi8d to pay for receipts after January 1, 1988; the assessment for VAT in the amount of P1,165,700.42 for the year in i 086 question is presumed correct and the burden of proof rests upon petitioner to show otherwise; and, the assailed decision is valid being in accordance with law and evidence on record.

The issue posed for resolution of this Court boils down to:

1) Whether or not petitioner is liable for deficiency VAT in the amount of P1,165,700.42 for the first semester of 1988; and 2) as a corollary, assuming arguendo that ~ petitioner is liable for any deficiency VAT, whether the same should. be based on its gross receipts of P8,346,070.96 and not on P8,693,853.92 The governing provisions of the Tax Code, in part pertinent to this controversy, provides:

"SEC. 102. Value-added tax on sale of services. ~-. (a) Rate and base of tax. - There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services. The phrase ‘sale of services! means the performance of all kinds of services for others for a fee, remuneration or consideration, ™“ x x regardless of whether or net the performance thereof calls for the exercise or use of the physical or mental faculties: x x x .3" (Underscoring Ours)

XxX XXX XXX

and Section 6(g) of the Revenue Regulations No. 6-87, reads:

"SEC. 6. Computation. of output tax on sale of domestic goods and services. - 587 XXX xxx xX X

(g) On sale of services: '

xxx xxx xxx

Amounts due on contracts completed on or before December 31, 1987, payments of which are receivable on or after January 1, 1988, shall be considered as accrued as of December 31, 1987 for the purpose of the payment of the contractor's tax subject to the following condition:

(i) an information return shall be filed showing the name(s) of the contractee(s) and the amount(s) of the contract price outstanding as of December 31, 1987, and containing a declaration of the obligation to pay the contractor's tax due;

(ii) the contract billed the unpaid amount not later than December 31, 1987, and a copy of such billing is attached to the information return required in (i) hereof;

(iii) the contractor has recorded. in his books of accounts -for the year 1987 the amount receivable; and (iv) the contractor files not later than January 20, 1988, and on or before the 20°" day after each calendar quarter, the regular contractor's tax return for the payments received in 1988.

Failure to comply with the above stated condition shall automatically subject the gross receipts to the value-added tax of 10%.

xx X xX "Kx a There i ho Guestien hat petitioner being engaged in the sale of service is covered by the foregoing provision 0 f Section 102 of the Tax Code, Likewise, 088

DECISION -—

there is no quibble between the parties that under Section 6(g) of Revenue Regulations No. 5-87 aforequoted, amounts due on contract completed on or before becember 31, 1987, payments of which are receivable on or after January 1, 1988, shall be considered as accrued as of December 31, 1987 for the purpose of the payment of the contractor's tax subject to the above-stated conditions, otherwise, the gross receipts shall automatically be subject to the VAT of 10%. ‘ .

The burden lies on the petitioner to show that all the prescribed requisites have been complied with in order to exercise its option of paying only the 4% contractor's tax. While petitioner claims that it has substantially complied with Section 6(g), Revenue Regulation No.. 5-87, when it paid thé céntractor's tax on its billing to UPPC and RCC, we noted, and it was admitted by secitt ener in its memorandum, that only the . first condition in Section 6(g) had been complied with. In other words, it failed to prove its allegation. It is.

a basic procedural law that “each party must prove his affirmative allegation". The maxim is efi incumbit probatio gui dicii, non gui negat - which means, he who aeserts, not be wio denies, must prove (Pls. see Vol. 6, Moran, Comments on the Rules of Court, pp. 1-2).

089

- 8 - The best that petitioner c ould have done was to show by evidence that all its col lections for the first semester of 1988 were included in the gross receipts subjected to VAT.

However, it failed to do so .

At this juncture, it ma y be stated that petitioner has not also proven by any positive evidence that the assessment of resp o nde nt wa s e rro neo us.

Thus, the presumption, of correctness of the assessme nt shou ld prevai 1. It is an established ru l e in this jurisdiction t hat t he determination of t h e Commissioner of Internal Revenue is presumed correct .

It b e hooves the taxpayer to rebut such presumption (Tan Guan vs. Court of Tax Appeals and the Commissioner of Internal Revenue, 19 SCRA 903; Collector of Interna 1 Revenue vs.

Boho 1

Land Transportation Co . , 107 Phil. 965).

Likewise, all presumption are -in favor of the correctness of the assessment made by the Commissioner of Internal Revenue, t h e taxpayer must prove t he contrary

(Commissioner

of

Internal

Revenue

vs.

Antonio Tua son , Inc . , 173 SCRA 397) Parenthetically, petitioner insists, assuming

I

ar gu e nd o th n t it is li a b t e fo r any deficiency VAT, the same : ;houl d b e base d o n the gross rece ip ts of P8 , Jl,6,0 70.9 alld no l 011

P

, 69 3,853.92 .

This Court is \luwever. ui Ut e pt~l"Sllasion lhct t the latt e r amount should 58 0

DECISION -

C.T.A. Case No. 481 2 - 9 - be the proper basi s for the fallacy of petitioner ' s assertion is ev id e nt.

A

caref ul scrutiny of the records shows that petitioner merely co nc entrate d on the bonuses without mentioning the fixed , payment stipul ated in the co n tracts (S ee exhi bit s

B-3

a nd C-3, pp.

84 and 90, CTA records ).

On this point, we ar e ec hoi ng what the Supreme Court has said in th e case of Bonifacia Sy Po vs.

Court of Tax

Appeals and Commissioner of Interna l Revenue, 16 4

SC RA

524. wit:

"Where the taxpayer is appealing to the ta x , co ur t on the ground that the Colle c tor's as sess ment is err oneous, it is incu mbe n t upon him to prove there what i s the c orrect and just liabili ty by a full disclosure of a ll pertinent dat a iri hi s possess ion.

Otherwise, if the taxpayer con£ ines h imse 1 f to proving that the ta x assessment is wrong, the tax court proceedings would settle nothing, and the way would be l e ft o pen for subsequent assessments and appeals in interminable succession. "

( Unders cori ng Ours).

This Court

is unable to find that petitioner has borne or di sch a.rged its burden of proof, and therefore finds r es p ond e n ts d ec i s ion we ll founded except for the i mpo s itio n o f c c ntJ rom ' se JJ e rta lty, whi c h presupposes a g r e e 111 e n t be t 11 e C-' !I t 1 e p a ,. r i e s .

This Cou r t is powerless tn impose tltP compromise pen::1lt y in t h e a bsen c e of a ny show~ng t.hat p et riot'e1 rn-''>--.. <t d t h e r e to ( P ls.

see.

Pl .. 1 .

Int'l.

Fa·-

'S.

Col1ec 1_· r .

4

SC

~~ 774;

Eas t e r n 591 '-'" Extension Australia and China Telegraph Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 1817, May 27, 197).

WHEREFORE, the petition for review is hereby dismissed with costs against petitioner. Petitioner Philippines International Management Sansui tants, Inc. is ordered to pay respondent Commissioner of Internal Revenue the amount of P1,155,700.42, representing its 1988 deficiency value-added tax tnelusive of 20% annual interest from July 19, 1991 until fully paid pursuant to Sec. 249(¢)(3) of the Tax Code.

Aan

RAMON O. DE VEYBA

Associate Jud

WE CONCUR:

Er re @. Gre ERNESTO D. ACOS

Presiding Ju

MANUEL K. GRUBA fissociAtte Judge og2

- 11 - C E R T I F I C A T I 0 N I h ereby certify that the decision was reached after du e . consu 1 La t ion a mong the me mbers of the Court of Tax Appeals in accordance \vith Section 13, Article VIII of the Constitution.

593 ~~IQ,~~ ERNESIO D. ACOSTA

Presiding Judge

Court of Tax Appeals

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