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COMMISSIONER OF INTERNAL REVENUE, Petitioner, |
G.R. No. 167765
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- versus - FMF DEVELOPMENT CORPORATION, |
Present: QUISUMBING,
J., Chairperson, CARPIO
MORALES, TINGA, VELASCO,
JR., and BRION, JJ. Promulgated: |
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Respondent. |
June 30, 2008 |
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QUISUMBING, J.:
For review on certiorari is the Decision[1] and Resolution[2] dated January
31, 2005 and April 14, 2005, respectively, of the Court of Appeals in CA- G.R.
SP No. 79675, which affirmed the Decision[3] dated March 20, 2003 of the Court of Tax Appeals (CTA) in C.T.A. Case
No. 6153. In effect, the Court of
Appeals cancelled the assessment notice issued by the Bureau of Internal
Revenue (BIR) for the deficiency income and withholding taxes for the taxable
year 1995 of respondent FMF Development Corporation (FMF), a domestic
corporation organized and existing under Philippine laws.
The facts
are as follows:
On P3,348,932.
On P2,826,541. The BIR then sent FMF pre-assessment notices,
all dated
On
On
On
Income
Tax Assessment P1,608,015.50
Compromise Penalty on Income
Tax Assessment 20,000.00
Increments on Withholding Tax on Compensation 184,132.26
Compromise Penalty on Increments
on Withholding
Tax on
Compensation 16,000.00
Increments on Withholding Tax on Management Fees
209,550.49
Compromise Penalty on Increments on Withholding Tax
on Management Fees 16,000.00
TOTAL P2,053,698.25[6]
On
On P1 million, and the period to
assess is not yet about to prescribe, the waiver should have been signed by the
Commissioner of Internal Revenue, and not a mere RDO.[9] The
Commissioner of Internal Revenue filed a motion for reconsideration, but it was
denied.
On appeal
to the Court of Appeals, the decision of the CTA was affirmed. Sustaining the findings of the CTA, the Court
of Appeals held that the waiver did not strictly comply with RMO No.
20-90. Thus, it nullified Assessment Notice No. 33-1-00487-95. The fallo of
the Court of Appeals’ decision reads:
WHEREFORE, finding the instant petition
not impressed with merit, the same is DENIED DUE COURSE and is hereby DISMISSED. No costs.
SO ORDERED.[10]
The
Commissioner of Internal Revenue sought reconsideration, but it was denied.
Hence the
instant petition, raising the following issues:
I.
WHETHER
OR NOT RESPONDENT’S WAIVER OF THE STATUTE OF LIMITATIONS WAS VALIDLY EXECUTED.
II.
WHETHER
O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.
III.
WHETHER
OR NOT THE COURT OF APPEALS CORRECTLY DISREGARDED PETITIONER’S SUBSTANTIVE
ARGUMENT.[11]
Essentially, the present controversy deals with
the validity of the waiver and whether it validly extended the original
three-year prescriptive period so as to make Assessment Notice No.
33-1-00487-95 valid. The basic questions
to be resolved therefore are: (1) Is the waiver valid? and (2) Did the
three-year period to assess internal revenue taxes already prescribe?
Petitioner contends that the waiver was validly executed
mainly because it complied with Section 222 (b)[12] of the National Internal Revenue Code (NIRC). Petitioner points out that the waiver was in
writing, signed by the taxpayer and the Commissioner, and executed within the
three-year prescriptive period.
Petitioner also argues that the requirements in RMO No. 20-90 are merely
directory; thus, the indication of the dates of execution and acceptance of the
waiver, by the taxpayer and the BIR, respectively, are not required by
law. Petitioner adds that there is no
provision in RMO No. 20-90 stating that a waiver may be invalidated upon
failure of the BIR to furnish the taxpayer a copy of the waiver. Further, it contends that respondent’s execution
of the waiver was a renunciation of its right to invoke prescription. Petitioner also argues that the government
cannot be estopped by the mistakes committed by its revenue officer in the
enforcement of RMO No. 20-90.
On the other hand, respondent counters that the waiver is
void because it did not comply with RMO No. 20-90. Respondent assails the waiver because (1) it
was not signed by the Commissioner despite the fact that the assessment
involves an amount of more than P1 million; (2) there is no stated date
of acceptance by the Commissioner or his duly authorized representative; and
(3) it was not furnished a copy of the BIR-accepted waiver. Respondent also cites Philippine
Journalists, Inc. v. Commissioner of Internal Revenue[13] and contends that the procedures in
RMO No. 20-90 are mandatory in character, precisely to give full effect to
Section 222 (b) of the NIRC. Moreover, a
waiver of the statute of limitations is not a waiver of the right to invoke the
defense of prescription.[14]
After
considering the issues and the submissions of the parties in the light of the
facts of this case, we are in agreement that the petition lacks merit.
Under Section 203[15] of the
NIRC, internal revenue taxes must be
assessed within three years counted from the period fixed by law for the filing
of the tax return or the actual date of filing, whichever is later. This mandate governs the question of
prescription of the government’s right to assess internal revenue taxes
primarily to safeguard the interests of taxpayers from unreasonable
investigation. Accordingly, the
government must assess internal revenue taxes on time so as not to extend
indefinitely the period of assessment and deprive the taxpayer of the assurance
that it will no longer be subjected to further investigation for taxes after
the expiration of reasonable period of time.[16]
An
exception to the three-year prescriptive period on the assessment of taxes is
Section 222 (b) of the NIRC, which provides:
x x x x
(b)
If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax may be assessed within the
period agreed upon. The period so agreed
upon may be extended by subsequent written agreement made before the expiration
of the period previously agreed upon.
x x x x
The above
provision authorizes the extension of the original three-year period by the
execution of a valid waiver, where the taxpayer and the BIR agreed in writing
that the period to issue an assessment and collect the taxes due is extended to
an agreed upon date. Under RMO No.
20-90, which implements Sections 203 and 222 (b), the following procedures
should be followed:
1. The waiver must be in the form identified as
Annex “A” hereof….
2. The waiver shall be signed by the taxpayer
himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its
responsible officials.
Soon after the waiver is
signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer
and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon
in case a subsequent agreement is executed.
3. The following
revenue officials are authorized to sign the waiver.
A. In the National Office
x x x x
3. Commissioner For tax
cases involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax
cases still pending investigation and the period to assess is about to
prescribe regardless of amount.
x
x x x
4. The waiver must
be executed in three (3) copies, the original copy to be attached to the docket of
the case, the second copy for the taxpayer and the third copy for the Office accepting the
waiver. The fact of receipt by the taxpayer of
his/her file copy shall be indicated in the original copy.
5. The
foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with. (Emphasis supplied.)
Applying RMO No. 20-90, the waiver
in question here was defective and did not validly extend the original
three-year prescriptive period. Firstly,
it was not proven that respondent was furnished a copy of the BIR-accepted
waiver. Secondly, the waiver was signed
only by a revenue district officer, when it should have been signed by the
Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the
case involves an amount of more than P1 million, and the period to
assess is not yet about to prescribe.
Lastly, it did not contain the date of acceptance by the Commissioner of
Internal Revenue, a requisite necessary to determine whether the waiver was
validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a
bilateral agreement, thus necessitating the very signatures of both the
Commissioner and the taxpayer to give birth to a valid agreement.[17]
Petitioner
contends that the procedures in RMO No. 20-90 are merely directory and that the
execution of a waiver was a renunciation of respondent’s right to invoke
prescription. We do not agree. RMO No. 20-90 must be strictly followed. In Philippine Journalists, Inc. v.
Commissioner of Internal Revenue,[18] we ruled that a waiver of the statute of
limitations under the NIRC, to a certain extent being a derogation of the
taxpayer’s right to security against prolonged and unscrupulous investigations,
must be carefully and strictly construed.
The waiver of the statute of limitations does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally, particularly where
the language of the document is equivocal.[19] Notably, in this case, the waiver
became unlimited in time because it did not specify a definite date, agreed
upon between the BIR and respondent, within which the former may assess and
collect taxes. It also had no binding
effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can be
presumed, nor can it be contended that the concurrence to such waiver is a mere
formality.[20]
Consequently,
petitioner cannot rely on its invocation of the rule that the government cannot
be estopped by the mistakes of its revenue officers in the enforcement of RMO
No. 20-90 because the law on prescription should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to
the taxpayer within the contemplation of the Commission which recommended the
approval of the law. To the Government,
its tax officers are obliged to act promptly in the making of assessment so
that taxpayers, after the lapse of the period of prescription, would have a
feeling of security against unscrupulous tax agents who will always try to find
an excuse to inspect the books of taxpayers, not to determine the latter’s real
liability, but to take advantage of a possible opportunity to harass even
law-abiding businessmen. Without such
legal defense, taxpayers would be open season to harassment by unscrupulous tax
agents.[21]
In fine,
Assessment Notice No. 33-1-00487-95 dated
WHEREFORE, the petition is DENIED
for lack of merit. The assailed Decision and Resolution dated
SO ORDERED.
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LEONARDO A. QUISUMBING Associate Justice |
WE CONCUR:
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CONCHITA CARPIO MORALES Associate Justice |
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DANTE O. TINGA Associate Justice |
PRESBITERO J. VELASCO,
JR. Associate Justice |
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ARTURO D. BRION Associate Justice |
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A T T E S T A T I O N
I attest that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
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LEONARDO A. QUISUMBING Associate Justice Chairperson |
C E R T I F I C A T I O N
Pursuant to Section
13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
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REYNATO S. PUNO Chief Justice |
[1] Rollo, pp. 58-71. Penned by Associate Justice Mariano C. Del
Castillo, with Associate Justices Romeo A. Brawner and Magdangal M. De
[2]
[3]
[4]
DEFICIENCY INCOME TAX
Net Income per
investigation (P2,826,541.00)
Add: Unallowable Deductions/Additional Income
Total Expenses P10,912,669.00
Disallowed Portion x 81%
Total Adjustments 8,839,261.89
Net Income per investigation P6,012,720.89
Less: Personal and Additional Exemptions _____ - 0 -
P6,012,720.89
Income Tax Due (35%) P2,104,452.00
Less: Amount already assessed 154,995.30
TOTAL TAX DUE (excl. increments)
P2,461,820.87
A. INCREMENTS ON LATE PAYMENT OF WITHHOLDING TAX ON COMPENSATION (dividend
bonus payable)
Basic Tax
P304,891.10
25% surcharge (Sec. 248) 87,016.20
Interest (
Compromise Penalty (Sec. 254) 16,000.00
TOTAL P163,359.22
B. INCREMENTS ON LATE PAYMENT OF EXPANDED WITHHOLDING TAX ON MANAGEMENT
FEE
Management fee per financial statement P4,104,800.00
Less: Management fee subj. to EWT (1995) 260,640.00
Mgmt. Fee not subject to EWT until P3,844,160.00
Basic Tax (10%) P 384,416.00
25% surcharge (Sec. 248) 96,104.00
Interest (
Compromise Penalty (Sec. 254) 16,000.00
Total P 182,046.35
INCREMENTS DUE (A + B) P 345,405.57
[5]
Net Income per Investigation (P2,826,541.00)
Add: Adjustments/Disallowances
Management Fees-Not necessary (Sec. 29) 4,104,800.00
Employee Benefits-unsupported (Sec. 29) 58,611.55
Salaries and Wages-No EWT (Sec. 29) 1,059,118.50
Withholding Tax-unaccounted (Sec. 28) 348,813.13
Cash Overdraft-unaccounted (Sec. 28) 254,853.96
Transportation Exp.-unaccounted (Sec. 28) 22,390.16
Representation Exp.-unaccounted (Sec. 29) 14,772.59
Miscellaneous Exp.-unsupported (Sec. 29) 69,404.65
5,932,764.44
Net Taxable Income
P3,106,223.44
Income Tax Due Thereon P1,087,178.20
Less Tax Credit/Paid 154,995.30
Income Tax Due Thereon (excluding
increments) P 932,182.90
A. Increments on Late Payment of Withholding Tax on Compensation
(dividend bonus payable)
Basic P 304,891.10
25% surcharge (Sec. 248) 87,016.20
Interest (
Compromise Penalty (Sec. 254) 16,000.00
Total P
163,359.22
B.
Increments on Late Payment of
Expanded Withholding Tax on Management Fee
Management Fee per financial Statement P4,104,800.00
Less: Management Fee subj. to EWT (1995) 260,640.00
Difference (Mgmt. fee subj. to EWT until
P3,844,160.00
Basic Tax (P3,844,160.00 x 10%) P384,416.00
25% Surcharge (Sec. 248) 96,104.00
Interest (
Compromise Penalty (Sec. 254) 16,000.00
Total P182,046.35
TOTAL INCREMENTS ON LATE
PAYMENTS (A+B) P345,405.57
[6]
[7]
Nullity of the Assessment Notice for want of legal or factual basis:
a) That the taxpayer was not informed in writing of the law and facts on which the assessment was based;
b) The [BIR] erred in disallowing business expenses as deductions
(management fees, cash overdraft, salaries, etc.)
c) That withholding tax should only be upon actual payment of compensation
and not upon its accrual; and
d) That the withholding tax on management fees paid to another corporation
(i.e., IPCP) should be only 5% and not 10%.
[8] Subject:
Proper Execution of the Waiver of the Statute of Limitations Under the National
Internal Revenue Code, dated
[9] Rollo, pp. 191-195.
[10]
[11]
[12] Section 222.
Exceptions as to Period of Limitation of Assessment and Collection
of Taxes. –
x x x x
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.
x x x x
[13] G.R. No. 162852,
[14]
[15] Section 203. Period of Limitation Upon Assessment and Collection. –
Except as provided in Section 222, internal revenue taxes shall be
assessed within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed…. (Emphasis supplied.)
[16] See Philippine Journalists, Inc. v. Commissioner of Internal Revenue, supra note 13, at 225.
[17]
[18] Supra note 13.
[19]
[20]
[21]
[22] See B. Aban, Law of Basic Taxation in the