Yaman Lahi Foundation, et al. vs. Commissioner of Internal Revenue

DECISION

CASANOVA, J.:

This is an appeal, by way of Petition for Review1, filed by petitioner Yaman Lahi Foundation, Inc. - Emilio Aguinaldo College, with the CTA En Bane, pursuant to Rule 8 of the Revised Rules of Court of Tax Appeals, seeking the nullification and setting aside of the Resolutions dated September 30, 20082, February 25, 20093 and May 29, 20094 of the CTA Second Division, with respec~ 1 CT A En Bane Rollo, pp. 8-3 I 2 Division Docket, pp. 263-265 3 Ibid, pp. 294-297 .

4 Ibid, pp. 329-332 10 32 CTA EB Case No. 497(7655) to petitioner's alleged deficiency final tax on interest income; and, praying that a new resolution be entered ordering 5: "1.

The cancellation of Petitioner's alleged deficiency final tax on interest income; 2.

Upon

the cancellation thereof, the withdrawal of the petition for review; and

3. The holding in abeyance of the proceedings in the Second Division of the Court of Tax Appeals pending the resolution of this Petition for Review." The facts of the case, as jointly stipulated by the parties6, are as follows: 1.

Petitioner

is a non-stock, non-profit educational institution duly incorporated and existing under Philippine laws, with business address at 1113- 1117 San Marcelino corner Gonzales Street, Paco, Manila.

2.

Respondent

is the duly appointed Commissioner of Internal Revenue, with powers, among others, to decide disputed assessments of internal revenue taxes and penalties imposed in relation thereto, with office address at the Fifth Floor, BIR National Office Building, Agham Road, Quezon City, where he may be served with summons and other legal processes.

3.

On 14 September 2006, Final Assessment Notice No. 34-FYOS/31/2003 ("FAN'') for deficiency income tax, value-added tax, final tax on interest income and documentary stamp tax was issued by the Bureau of Internal Revenue ("BIR"), through its Revenue Region No. 6 Office for the taxable yea~ 5 Petition for Rev iew, En Bane Rollo, pp. 25-26 6 Joint Stipulation of Facts, Di vision Docket, pp. 96-100 103 3 CTA EB Case No. 497(7655) ending 31 May 2003, against Petitioner, in connection with the investigation conducted pursuant to Letter of Authority No. 00086788 dated 5 April 2005 and was revalidated on 14 October 2005.

The FAN was received by petitioner on 18 September 2006. 4.

Pursuant to the FAN, Petitioner was assessed deficiency taxes in the aggregate amount of P24,585,953.54 broken down as follows:

a. Income Tax

b. Value-Added Tax

c. Final Tax on Interest Income

d. Documentary Stamp Tax p 17,888,004.37 3,347,844.20 3,320,631.97 29,473.00

5. The respective assessments for these four

(4) types arose from the following adjustment items:

a. Income Tax

i. Other Income P 2,052,519.15 ii. Other Cash Collections 15,487,443.50 iii. Interest Income on Loans 17,348,717.75

b. Value-Added Tax

i. Other Income ii. Other Cash Collections

c. Final Tax on Interest Income . Interest Income from

Investments

d. Documentary Stamp Tax

Number of Graduating

Students

p 2,052,519.15 15,487,443.50 p 8,907,113.46 p 14,3lo.ooez 103 4 CTA EB Case No. 497(7655)

6. The FAN was issued before the lapse of the fifteen (15) day period for the Petitioner to file its Protest against the PAN.

7.

On 11 October 2006, Petitioner protested the FAN on legal and factual grounds.

8. The BIR failed to resolve the said protest within one hundred eighty (180) days from 13 December 2006.

9.

Petitioner is a non-stock, non-profit educational institution, which operates the Emilio Aguinaldo College.

10. Being a non-stock, non-profit educational institution, Petitioner is not subject to taxes and duties on all its revenues and assets which are used actually, directly and exclusively for educational purposes, as provided for by Article XIV, Section 4(3) of the 1987 Philippine Constitution. 11.

Further, Section 30 of the National

Internal Revenue Code of 1997 (the "Tax Code'')

provides that, subject to certain exceptions, a non- stock and non-profit educational institution, such as Petitioner, shall not be taxed with respect to the income received by them as such, to wit: Section 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income received by them as such:

(A)

XXX

XXX

(H) A non-stock and non-profit educational institution;~ 1035 CTA EB Case No. 497(7655)

XXX

Notwithstanding

the prov1s1ons in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. 12.

No. 10 of Petitioner's Notes to Financial Statements for Fiscal Year ending 31 May 2003 reflected: i) loans payable balance of P19,700.000.00 to Social Security System until 29 October 2011; and ii) loans payable balance of P75,000,000.00 to Equitable PCIBank payable for 15 years or until 12 March 2018."

In his Answer7, filed on August 23, 2007, respondent interposed the following special and affirmative defenses8, to wit: "6.

The assessment is valid and correct and the petitioner has the burden of proof to impugn its validity (Behn Meyer & Co. vs. Collector of Internal Revenue, 27 Phil. . 647).

Thus, similarly held, tax assessments by examiners are presumed correct and made in good faith and the taxpayer has the duty to prove otherwise (Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc., 145 SCRA 671); and assessments duly made by a BIR examiner and approved by her superior officers will not be disturbed (Gutierrez vs. Villegas, 8 SCRA 547). 7.

The burden of proof is on the taxpayer contesting the . validity . or correctness of an~ 7 Division Docket, pp. 57-59 8 Answer, Division Docket, pp. 58-59

103G

CTA EB Case No. 497(7655) assessment to prove not only that the Commissioner of Internal Revenue is wrong but also that the taxpayer is right (Tan Guan vs. Court of Tax Appeals, et al., 19 SCRA 903 [1967]; Collector of Internal Revenue vs. Bohol Land Transportation Co., 107 Phil. 967 [1960].

8. The BIR has issued Pre-Assessment Notice dated August 25, 2006 to Yaman Lahi Foundation, Inc. of 1113-1117 San Marcelino cor. Gonzales Streets, Paco, Manila and the same was duly received by the Petitioner.

Other communications relative to the findings of the tax investigation, including Post Reporting Notices were also sent to Petitioner, thus, giving Petitioner an opportunity to respond/refute the same.

In fact, Petitioner was able to file an administrative protest and eventually, a Petition for Review with the Court of Tax Appeals, concerning the disputed assessment."

On October 19, 2007, the parties submitted their Joint Stipulation of Facts9 which was subsequently approved by the Court per Resolution 10 dated November 13, 2007.

The parties stipulated on the following issues for resolution of this Court:

(1) Whether or not the SIR's issuance of the FAN is null and void for failure to comply with the due process requirements, it having been issued prematurely since the BIR issued the same without awaiting for the lapse of the reglementary period for the Petitioner to file a protest against the PAN;

(2) Whether or not the FAN is bereft of legal and factual bases.~ 9 Division Docket, pp. 96- 10 l 10 lbid, p. I 04 103 7 CTA EB Case No. 497(7655)

2.1 Whether or not the alleged deficiency income tax has factual and legal bases. 2.2 Whether or not it is proper for the BIR to impute interest income of P17,348,717.75. 2.3 Whether or not the alleged deficiency VAT has factual and legal bases.

2.4 Whether or not the alleged deficiency final income tax on interest income has factual and legal bases.

2.5 Whether or not the VAT and final income tax on interest income assessments have prescribed." After presentation of its testimonial as well as documentary evidence, petitioner filed its Formal Offer of Evidence11 on April 3, 2008. On April 29, 2008, respondent filed his Comment/Opposition to Petitioner's Formal Offer of Evidence12. In a Resolution 13 promulgated on May 21, 2008, the Court admitted petitioner's exhibits except Exhibits "A-2", "C-2", "D-2", "E-2", "F-2", "J-1" and "0-1" for failure of petitioner's counsel to have the same identified during trial; and, provisionally marked Exhibits "G-4", "J" and "J-1" for failure of petitioner's counsel to present the original for comparison. On June 13, 2008, petitioner filed a Motion for Reconsideration14 seeking reconsideration of the Resolution dated May 21, 2008.~ 11 Division Docket, pp. 147- 181 12 Division Docket, pp. 182- 185 13 Division Docket, pp. 188- 189 14 Division Docket, pp. 194-20 I 103 8 ITA EB Case No. 497(7655) On June 30, 2008, respondent filed his Comment/Opposition (To Petitioner's Motion for Reconsideration dated June 12, 2008) 15. On July 15, 2008, petitioner filed a Motion for Leave to File Reply (to Respondent's Comment/Oppositioni6 which was granted by the Court in a Resolution 17 promulgated on July 25, 2008. The same Resolution, likewise, granted petitioner's Motion for Reconsideration filed on June 13, 2008. On July 29, 2008, petitioner filed an Omnibus Motion for Confirmation of Petitioner's Rights and Immunities Under the Tax Amnesty Act of 2007; Cancellation of Assessments; and Withdrawal of Petition for Review18 stating, among others, that it has availed of the tax amnesty under RA No. 9480 (Tax Amnesty Act of 2007) and praying that an Order be issued for: "i.) confirmation of Petitioner's rights and immunities under RA No. 9480 by confirming that all the issues are covered by RA No. 9480; ii.) cancellation of assessments; iii.) withdrawal of Petition for Review; and iv.) temporarily suspending the hearing of the case until this Omnibus Motion is resolved"19. On August 13, 2008, respondent filed his Comment20 (To Omnibus Motion for Confirmation of Petitioner's Rights and Immunities Under the Tax Amnesty ~ 15 Ibid, pp. 2 I4-2 I5 16 Ibid, pp. 2 1 8-2 19 17 Ibid, pp. 227-228 18 Ibid, pp. 229-234 19 Omnibus Motion for Confi rmati on of Peti tioner's Rights and Immuniti es Under the Tax Amnesty Act of 2007; Cancellation of Assessments; and Withdrawal of Petiti on for Review, Prayer, Di vision Docket, p. 233 20 Di vision Docket, pp. 250-25 1 103 9 CTA EB Case No. 497(7655) Act of 2007; Cancellation of Assessments; and Withdrawal of Petition for Review) in compliance with the Order21 of the Court dated July 30, 2008. On September 2, 2008, petitioner filed a Motion for Leave to File Repll2 (to Respondent's Comment) with attached Reply23 (to Respondent's Comment). On September 30, 2008, the Court promulgated a Resolution24 the dispositive portion of which reads as follows: "WHEREFORE, the present Petition for Review is hereby considered WITHDRAWN, insofar as petitioner's deficiency taxes on income tax, value-added tax and documentary stamp tax are concerned, subject to the provisions of RA 9480. As regards the remaining issues on deficiency final withholding tax on interest income, let the initial presentation of the evidence for the respondent be set on October 15, 2008 at 9:00a.m.

Partial Reconsideration25 (Re:

Resolution dated 30 September 2008). On November 4, 2008, respondent filed his Comment26 (To Motion for Clarification ~ 21 Ibid, p. 244 22 Ibid, pp. 254-255 23 Ibid, pp. 257-260 24 Ibid, pp. 263-265 25 Ibid, pp. 266-275 26 Ibid, pp. 28 I-283 104 0 CfA EB Case No. 497(7655) and/or Partial Reconsideration).

Petitioner filed its Repll7 (to Respondent's Comment) on November 26, 2008.

In a Resolution28 promulgated on February 25, 2009, the Court denied petitioner's Motion for Clarification and/or Partial Reconsideration for lack of merit and set the initial presentation of the evidence for the respondent on March 9, 2009 at 9:00 a.m.

On March 26, 2009, petitioner filed an Omnibus Motion29 (Re: Resolution dated 25 February 2009). Respondent filed his Comment30 thereto on April 17, 2009. On April 28, 2009, petitioner filed a Motion to Admit Attached Reply31 (To Respondent's Comment dated 15 April 2009) together with attached Reply32 (To Respondent's Comment dated 15 April 2009). In a Resolution33 promulgated on May 29, 2009, the Court ruled as follows:

"WHEREFORE, premises considered, petitioner's "Omnibus Motion" is hereby PARTLY GRANTED.

Accordingly, petitioner's deficiency assessments on its income tax, value-added tax, and documentary stamp tax are hereby SET ASIDE solely in view of petitioner's availment of the Tax Amnesty under RA 9480. As regards . the remaining deficiency amount on final withholding tax on interest income, let this case be set fo~ 27 Ibid, pp. 284-29 1 28 Ibid., pp. 294-297 29 Ibid., pp. 299-3 10 30 Ibid., pp. 3 13-3 14 31 lbid., pp. 3 16-3 17 32 Ibid., pp. 3 19-326 33 Ibid., pp. 329-332 104 1 CTA EB Case No. 497(7655) commissioner's hearing before Atty. Jesus P. Inocando, Jr. on June 3, 2009 at 1:30 p.m. for the marking of respondent's documentary evidence. The initial presentation of evidence for the respondent is set on June 15, 2009 at 9:00 a.m."

On June 8, 2009, petitioner filed a Manifestation and Motion34 stating therein that "it will elevate the denial of its Omnibus Motion (Re:

Resolution

dated 29 May 2009, to the Court of Tax Appeals en bane'. Petitioner further prays that the proceedings in the instant case be held in abeyance until the Petition for Review to be filed by Petitioner is acted upon and resolved by the Court of Tax Appeals En Bane. Respondent filed his Comment/Opposition35 (To Manifestation and Motion) on June 22, 2009. On June 15, 2009, petitioner filed a Motion for Extension of Time To File Petition for Review36 requesting for a fifteen (15) day extension or from June 16, 2009 to July 1, 2009, which Motion was granted by the Court En Bane in a Resolution37 dated June 16, 2009.

On June 30, 2009, petitioner filed its Petition for Review38 and on July 9, 2009, the Court En Bane promulgated a Resolution requiring the respondent to file his Comment on the Petition for Review. The Court En Bane, in a Resolution39 dated August 3, 2009, deemed the case "submitted for decision as of the date of promulgation of this resolutionet 34 Ibid., pp. 335-339 35 Ibid., pp. 343-344 36 Ibid, pp. 384-396 37 Ibid, p. 389 38 Ibid, pp. 8-26 1042 CTA EB Case No. 497(7655) considering that, per verification with the Records Division dated July 29, 2009, no comment was filed by respondent within the given period". On July 27, 2009, respondent filed, through regi'stered mail, his Comment/Opposition40 (To Petition for Review). Petitioner filed its Motion to Admit Attached Reply41 (to Respondent's Comment/Opposition dated 24 July 2009) and Reply42 (to Respondent's Comment/Opposition dated 24 July 2009) on August 10, 2009.

On August 12, 2009, the Court En Bane promulgated a Resolution43 setting aside the Resolution dated August 3, 2009; giving due course to the Petition for Review; and, requiring both parties to submit their respective memorandum within a non-extendible period of thirty (30) days from receipt of the Resolution, and, after which period, the instant Petition for Review shall be considered submitted for decision with or without such memoranda. Both parties filed their respective memorandum on September 22, 2009. Hence, this Decision.

The issues can be simplified as follows: "WHETHER OR NOT THE SECOND DIVISION

OF THE COURT OF TAX APPEALS COMMITIED

ERRORS OF LAW AND FACT WHEN IT RULED THAT

THE

ALLEGED

FINAL

TAX

ON

PETITIONER'S .a 39 Ibid, p. 308 40 Ibid, pp. 309-3 10 41 Id., pp. 3 13-3 14 42 Id., pp. 3 16-320 43 ld., p. 323 104 3 CfA EB Case No. 497(7655)

INTEREST INCOME (WHICH IS THE PAYOR'S/BANK'S

WITHHOLDING RESPONSIBILITY) IS NOT COVERED

BY RA NO. 9480."

Petitioner contends that the alleged deficiency final tax on interest income is covered by RA No. 9480 (The Tax Amnesty Law) considering that petitioner is not the withholding agent thereof.

In support of its contention, petitioner cites the provisions of Section 8 of RA No. 9480 in relation to Section 27(D)(1) of the 1997 Tax Code and Section 2.57 of Revenue Regulations No. 2-98. Respondent, on the other hand, argues that "withholding tax liabilities are excepted from the coverage of the Tax Amnesty as provided in Section 8(1) of RA No. 9480, implementing regulations and revenue issuances. Hence, the said deficiency final tax, being in the nature of a withholding tax, is not covered by the petitioner's tax amnesty availment. After a careful and thorough evaluation and consideration of the records of the case, the CTA En Bane finds no merit in the Petition. The arguments raised by the petitioner in the instant Petition for Review are mere reiterations of its arguments in its Omnibus Motion (Re:

Resolution

dated 25 February 2009). ~ 1044 •, CTA EB Case No. 497(7655)

In the Assailed Resolution44 dated February 25, 2009, the CTA Second Division stated that:

"This Court must also stress that petitioner's deficiency final withholding tax on interest income is exempt from the application of RA 9480. Hence, trial on the merits is necessary for the determination of the issues involved." (Underscoring supplied) Also, in the Assailed Resolution45 dated May 29, 2009, the Second Division ruled as follows:

"x x x.

Section 7 of Rule 15 of the Revised

Rules of the Court of Tax Appeals provides that 'no party shall be allowed to file a second motion for reconsideration or for new trial of a decision, final resolution or order'. The Resolution dated February 23, 2009 ·(sic) is merely interlocutory in nature, and not a final resolution or decision disposing of the case; hence, the prohibition on the filing of a second motion for reconsideration does not apply."

(Underscoring supplied) Considering that the CTA Second Division has not yet disposed of the issue on petitioner's deficiency final withholding tax on interest income with finality since the hearing of the case, for reception of respondent's evidence, is still on-going, the filing of the instant Petition for Review is still premature~ 44 Division Docket, pp. 294-296 45 Ibid, pp. 329-332 104 5 CTA EB Case No. 497(7655)

WHEREFORE, premises considered and finding no reversible error in the assailed Resolutions dated September 30, 2008, February 25, 2009 and May 29, 2009, of the CTA Second Division, the instant Petition for Review is hereby DISMISSED for lack of merit.

WE CONCUR:

@__ CAESAR A. CASANOVA

Associate Justice

l~- lP.· Q~ EP..NESTO D. ACOSTA

Presiding Justice

Q~~;c . ~ Q, CfUANITO C. CASTANEDA, Jflf'

Associate Justice

y

Assr

o~~~R~

Associate Justice

~ N t\11"'"~- 0~ CIELITO N .. MINDARO GRULLA

Associate Justice

p/~_//- AMELIA C. COTANGCO-MANALASTAS

Associate Justice

104 G

CTA EB Case No. 497(7655)

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court en bane before the case was assigned to the writer of the opinion of the Court. Q~ J, . '~ ERNESTO D. ACOSTA

Presiding Justice

1047