Documente Academic
Documente Profesional
Documente Cultură
P93,723,372.40
23,430,843.10
Even assuming arguendo that claims for taxes have to be filed within
the time prescribed in Section 2, Rule 86 of the Rules of Court, the
claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion
of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. In the notice provided in the preceding section, the
court shall state the time for the filing of claims
against the estate, which shall not be more than
twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However,
at any time before an order of distribution is
entered, on application of a creditor who has failed
to file his claim within the time previously limited
the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within
a time not exceeding one (1) month. (Emphasis
supplied)
In the instant case, petitioners filed an application (Motion for
Allowance of Claim and for an Order of Payment of Taxes) which,
though filed after the expiration of the time previously limited but
before an order of the distribution is entered, should have been
granted by the respondent court, in the absence of any valid ground,
as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the
estate, which in effect represents a claim of the people at large, the
only reason given for the denial that the claim was filed out of the
previously limited period, sustaining thereby private respondents'
contention, erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax
Commissioner's assessment in the total amount of P3,254.80 with 5
% surcharge and 1 % monthly interest as provided in the Tax Code is
a final one and the respondent estate's sole defense of prescription
has been herein overruled, the Motion for Allowance of Claim is herein
granted and respondent estate is ordered to pay and discharge the
same, subject only to the limitation of the interest collectible thereon
as provided by the Tax Code. No pronouncement as to costs.
SO ORDERED.
G.R. No. 134062
COMMISSIONER
OF
INTERNAL
REVENUE, Petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
Compromise penalty
15,000.00
P117,169,215.50
.5
DECISION
CORONA, J.:
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991
stating that:
P 7, 270,892.88
1,817,723.22
3,215,825.03
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE
1986 Deficiency Documentary Stamp Tax
15,000.00
P12,319,441.13
On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a
decision dated November 16, 1995, the CTA dismissed the case for
lack of jurisdiction since the subject assessments had become final
and unappealable. The CTA ruled that BPI failed to protest on time
under Section 270 of the National Internal Revenue Code (NIRC) of
1986 and Section 7 in relation to Section 11 of RA 1125. 12 It denied
reconsideration in a resolution dated May 27, 1996. 13
On appeal, the CA reversed the tax courts decision and resolution
and remanded the case to the CTA 14 for a decision on the merits.15 It
ruled that the October 28, 1988 notices were not valid assessments
because they did not inform the taxpayer of the legal and factual
bases therefor. It declared that the proper assessments were those
contained in the May 8, 1991 letter which provided the reasons for
the claimed deficiencies.16 Thus, it held that BPI filed the petition for
review in the CTA on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for
deficiency percentage and documentary stamp taxes for
1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the
NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] or his duly
authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the [CIR] shall issue an
assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28,
1988 notices19 were valid assessments. If they were not, as held by
the CA, then the correct assessments were in the May 8, 1991 letter,
received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter,
seasonably asked for a reconsideration of the findings which the CIR
denied in his December 12, 1991 letter, received by BPI on January
21, 1992. Consequently, the petition for review filed by BPI in the CTA
on February 18, 1992 would be well within the 30-day period provided
by law.20
The CIR argues that the CA erred in holding that the October 28, 1988
notices were invalid assessments. He asserts that he used BIR Form
No. 17.08 (as revised in November 1964) which was designed for the
precise purpose of notifying taxpayers of the assessed amounts due
and demanding payment thereof.21 He contends that there was no law
or jurisprudence then that required notices to state the reasons for
assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law
upon which the assessments were based be provided to the taxpayer.
It insists that the NIRC, as worded now (referring to Section 228),
specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be
void."
According to BPI, this is declaratory of what sound tax procedure is
and a confirmation of what due process requires even under the
former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC
provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly
authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not
be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts
on which the assessments of the deficiency taxes were made. He
merely notified BPI of his findings, consisting only of the computation
of the tax liabilities and a demand for payment thereof within 30 days
after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions
of the former Section 270 prior to its amendment by RA 8424 (also
known as the Tax Reform Act of 1997). 23 In CIR v. Reyes,24 we held
that:
In the present case, Reyes was not informed in writing of the law and
the facts on which the assessment of estate taxes had been made.
She was merely notified of the findings by the CIR, who had simply
relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of
1997.
First, RA 8424 has already amended the provision of Section 229 on
protesting
an
assessment. The
old
requirement
of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice
was issued against the estate. On April 22, 1998, the final estate tax
assessment notice, as well as demand letter, was also issued. During
those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new
law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the
former Section 270, the only requirement was for the CIR to "notify"
or inform the taxpayer of his "findings." Nothing in the old law
required a written statement to the taxpayer of the law and facts on
which the assessments were based. The Court cannot read into the
law what obviously was not intended by Congress. That would be
judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the amount the
taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28,
1988 notices sufficiently met the requirements of a valid assessment
under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be
void
was not in the old Section 270 but was only later on inserted in the
renumbered Section 228 in 1997. Evidently, the legislature saw the
need to modify the former Section 270 by inserting the aforequoted
sentence.27 The fact that the amendment was necessary showed that,
prior to the introduction of the amendment, the statute had an
entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the
renumbered Section 228 was not an affirmation of what the law
required under the former Section 270. The amendment introduced
by RA 8424 was an innovation and could not be reasonably inferred
from the old law.29 Clearly, the legislature intended to insert a new
provision regarding the form and substance of assessments issued by
the CIR.30
In ruling that the October 28, 1988 notices were not valid
assessments, the CA explained:
xxx. Elementary concerns of due process of law should have
prompted the [CIR] to inform [BPI] of the legal and factual basis of the
formers decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due
process when the CIR failed to inform it in writing of the factual and
legal bases of the assessments even if these were not called for
under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional
requirement that "no person shall be deprived of his property without
due process of law."32 We note, however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only
was [BPI] given the opportunity to discuss with the [CIR] when the
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
Office
of
the
Solicitor
General
for
Manuel B. Pineda for and in his own behalf as respondent.
petitioner.
Pineda is liable for the assessment as an heir and as a holdertransferee of property belonging to the estate/taxpayer. As an heir he
is individually answerable for the part of the tax proportionate to the
share he received from the inheritance.3 His liability, however, cannot
exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he
tax up to the amount of the property in his possession. The reason is
that the Government has a lien on the P2,500.00 received by him
from the estate as his share in the inheritance, for unpaid income
taxes4a for which said estate is liable, pursuant to the last paragraph
of Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta
en participacion), association, or insurance company liable to
pay the income tax, neglects or refuses to pay the same
after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the
assessment was made by the Commissioner of Internal
Revenue until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights
to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the
property in Pineda's possession, i.e., the P2,500.00, to satisfy the
income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs, 5 to achieve
an adjustment of the proper share of each heir in the distributable
estate.
All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the inheritance
received. This remedy was adopted in Government of the Philippine
Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action
rests on the concept that hereditary property consists only of that
part which remains after the settlement of all lawful claims against
the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the tax
due from the estate is levied proportionately against them is to
achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate
as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the
Tax Code upon all property and rights to property belonging to the
taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of
the tax due, the estate. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar,
the necessary discretion to avail itself of the most expeditious way to
collect the tax as may be envisioned in the particular provision of the
Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an imperious
need.7 And as afore-stated in this case the suit seeks to achieve only
one objective: payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened by the tax,
is left to await the suit for contribution by the heir from whom the
Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B.
Pineda is hereby ordered to pay to the Commissioner of Internal
Revenue the sum of P760.28 as deficiency income tax for 1945 and
1946, and real estate dealer's fixed tax for the fourth quarter of 1946
and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered.
G.R. No. L-28896 February 17, 1988
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
We hold that the Government can require Manuel B. Pineda to pay the
full amount of the taxes assessed.
The main issue in this case is whether or not the Collector of Internal
Revenue correctly disallowed the P75,000.00 deduction claimed by
Contesting the denial of its protest, the YMCA filed a petition for
review at the Court of Tax Appeals (CTA) on March 14, 1989. In due
course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities
to small shop owners, to restaurant and canteen
operators and the operation of the parking lot are
reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the
[private respondents]. It appears from the
testimonies of the witnesses for the [private
respondent] particularly Mr. James C. Delote, former
accountant of YMCA, that these facilities were
leased to members and that they have to service
the needs of its members and their guests. The
rentals were minimal as for example, the
barbershop was only charged P300 per month. He
also testified that there was actually no lot devoted
for parking space but the parking was done at the
sides of the building. The parking was primarily for
members with stickers on the windshields of their
cars and they charged P.50 for non-members. The
rentals and parking fees were just enough to cover
the costs of operation and maintenance only. The
earning[s] from these rentals and parking charges
including those from lodging and other charges for
the use of the recreational facilities constitute [the]
bulk of its income which [is] channeled to support
its many activities and attainment of its objectives.
As pointed out earlier, the membership dues are
very insufficient to support its program. We find it
reasonably necessary therefore for [private
respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been
different if under the circumstances, [private
respondent] will purchase a lot and convert it to a
parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it
out to the highest bidder or at the market rate for
commercial purposes, or should it invest its funds in
the buy and sell of properties, real or personal.
Under these circumstances, we could conclude that
the activities are already profit oriented, not
incidental and reasonably necessary to the pursuit
of the objectives of the association and therefore,
will fall under the last paragraph of Section 27 of
the Tax Code and any income derived therefrom
shall be taxable.
Considering our findings that [private respondent]
was not engaged in the business of operating or
contracting [a] parking lot, we find no legal basis
also for the imposition of [a] deficiency fixed tax
and [a] contractor's tax in the amount[s] of P353.15
and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the
following assessments are hereby dismissed for lack
of merit:
The Case
1980 Deficiency Fixed Tax P353,15;
This is the main question raised before us in this petition for review
on certiorari challenging two Resolutions issued by the Court of
Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR
SP No. 32007. Both Resolutions affirmed the Decision of the Court of
Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the
latter's income from the lease of its real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock,
non-profit institution, which conducts various programs and activities
that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of
P676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2, 1984, the
commissioner of internal revenue (CIR) issued an assessment to
private respondent, in the total amount of P415,615.01 including
surcharge and interest, for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Private respondent formally
protested the assessment and, as a supplement to its basic protest,
filed a letter dated October 8, 1985. In reply, the CIR denied the
claims of YMCA.
Issue:
Issue:
We now come to the crucial issue: Is the rental income of the YMCA
from its real estate subject to tax? At the outset, we set forth the
relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations.
The following organizations shall not be taxed under
this Title in respect to income received by them as
such
xxx xxx xxx
(g) Civic league or organization not organized for
profit but operated exclusively for the promotion of
social welfare;
(h) Club organized and operated exclusively for
pleasure, recreation, and other non-profitable
purposes, no part of the net income of which inures
to the benefit of any private stockholder or
member;
xxx xxx xxx
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of
overpaid income tax for 1985 in the amount of
P5,299,749.95 is hereby denied for having been filed beyond
the reglementary period. The 1986 claim for refund
amounting to P234,077.69 is likewise denied since petitioner
has opted and in all likelihood automatically credited the
same to the succeeding year. The petition for review is
dismissed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to
this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial
banking corporation duly organized under Philippine laws, filed its
quarterly income tax returns for the first and second quarters of
1985, reported profits, and paid the total income tax of
P5,016,954.00. The taxes due were settled by applying PBCom's tax
credit memos and accordingly, the Bureau of Internal Revenue (BIR)
issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00
and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed
its Annual Income Tax Returns for the year-ended December 31, 1986,
the petitioner likewise reported a net loss of P14,129,602.00, and
thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal
Revenue, among others, for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second
quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of
creditable taxes withheld by their lessees from property rentals in
1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal
Revenue, petitioner instituted a Petition for Review on November 18,
1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's
claims for refund and tax credit for 1985 and 1986, filed before the
Court of Tax Appeals, are as follows:
1985 1986
SO ORDERED.
PHILIPPINE
BANK
OF
COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX
APPEALS and COURT OF APPEALS,respondent.
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69
QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals
dated
September
22,
1993 affirming the
Decision 2 and
a
Resolution 3 of the Court Of Tax Appeals which denied the claims of
the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for
review, is DENIED due course. The Decision of the Court of
Tax Appeals dated May 20, 1993 and its resolution dated July
20, 1993, are hereby AFFIRMED in toto.
Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as
P5,299,749.95. A forty five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the
outset, denied the request of petitioner for a tax refund or credit in
the sum amount of P5,299,749.95, on the ground that it was filed
beyond the two-year reglementary period provided for by law. The
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now
Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a
court proceeding for the recovery of tax erroneously or illegally
collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceedings shall begun after
the expiration of two years from the date of payment of the
tax or penalty regardless of any supervening cause that may
arise
after
payment;Provided
however,
That
the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears
clearly to have been erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of
filing the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life
Insurance Co., 15 this Court explained the application of Sec. 230 of
1977 NIRC, as follows:
Clearly, the prescriptive period of two years should
commence to run only from the time that the refund is
ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this
date is April 16, 1984, and two years from this date would be
April 16, 1986. . . . As we have earlier said in the TMX Sales
case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate
Income Tax Payment and Section 321 should be considered
in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims
of excess quarterly income tax payments, such circular created a
clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so
doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more specific and
less general interpretations of tax laws) which are issued from time to
time by the Commissioner of Internal Revenue. It is widely accepted
that the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be
ignored if judicially found to be erroneous. 20 Thus, courts will not
countenance administrative issuances that override, instead of
remaining consistent and in harmony with the law they seek to apply
and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations
issued by administrative officials to implement a law cannot go
beyond the terms and provisions of the latter.
P780.880.68
P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
P184,411.00
100.00
SO ORDERED.
G.R. No. L-22074
THE
PHILIPPINE
GUARANTY
CO.,
INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for
respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company,
entered into reinsurance contracts, on various dates, with foreign
insurance companies not doing business in the Philippines namely:
Imperio Compaia de Seguros, La Union y El Fenix Espaol, Overseas
Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza,
Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd.,
Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine
Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a
portion of the premiums on insurance it has originally underwritten in
the Philippines, in consideration for the assumption by the latter of
liability on an equivalent portion of the risks insured. Said
reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in
Manila and by the foreign reinsurers outside the Philippines, except
the contract with Swiss Reinsurance Company, which was signed by
both parties in Switzerland.
The reinsurance contracts made the commencement of the
reinsurers' liability simultaneous with that of Philippine Guaranty Co.,
Inc. under the original insurance. Philippine Guaranty Co., Inc. was
required to keep a register in Manila where the risks ceded to the
foreign reinsurers where entered, and entry therein was binding upon
the reinsurers. A proportionate amount of taxes on insurance
premiums not recovered from the original assured were to be paid for
by the foreign reinsurers. The foreign reinsurers further agreed, in
consideration for managing or administering their affairs in the
Philippines, to compensate the Philippine Guaranty Co., Inc., in an
amount equal to 5% of the reinsurance premiums. Conflicts and/or
differences between the parties under the reinsurance contracts were
to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss
Reinsurance Company stipulated that their contract shall be
construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty
Co., Inc. ceded to the foreign reinsurers the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . .
P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . .
721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its
gross income when it file its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them. Consequently,
per letter dated April 13, 1959, the Commissioner of Internal Revenue
assessed against Philippine Guaranty Co., Inc. withholding tax on the
ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . .
P768,580.00
P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
46,114.00
100.00
1954
P230,673.00
=========
=
P234,364.00
=========
=
not the place of business but the place ofactivity that created an
income.
Petitioner further contends that the reinsurance premiums are not
income from sources within the Philippines because they are not
specifically mentioned in Section 37 of the Tax Code. Section 37 is not
an all-inclusive enumeration, for it merely directs that the kinds of
income mentioned therein should be treated as income from sources
within the Philippines but it does not require that other kinds of
income should not be considered likewise.1wph1.t
The power to tax is an attribute of sovereignty. It is a power
emanating from necessity. It is a necessary burden to preserve the
State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's
territory, and facilities and protection which a government is
supposed to provide. Considering that the reinsurance premiums in
question were afforded protection by the government and the
recipient foreign reinsurers exercised rights and privileges guaranteed
by our laws, such reinsurance premiums and reinsurers should share
the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the
rulings of the Commissioner of Internal Revenue requiring no
withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax
thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate if from liability to
pay such withholding tax The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.3
In respect to the question of whether or not reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are
subject to withholding tax under Section 53 and 54 of the Tax Code,
suffice it to state that this question has already been answered in the
affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal
Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be
computed from the amount actually remitted to the foreign reinsurers
instead of from the total amount ceded. And since it did not remit any
amount to its foreign insurers in 1953 and 1954, no withholding tax
was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In
the case of foreign corporations subject to taxation under
this Title not engaged in trade or business within the
Philippines and not having any office or place of business
therein, there shall be deducted and withheld at the source
in the same manner and upon the same items as is provided
in Section fifty-three a tax equal to twenty-four per
centum thereof, and such tax shall be returned and paid in
the same manner and subject to the same conditions as
provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and
general copartnerships (compaias colectivas), in what ever
capacity acting, including lessees or mortgagors of real or
personal property, trustees acting in any trust capacity,
executors,
administrators,
receivers,
conservators,
fiduciaries, employers, and all officers and employees of the
Government of the Philippines having the control, receipt,
custody, disposal, or payment of interest, dividends, rents,
salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable
annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or
business within the Philippines and not having any office or
place of business therein, shall (except in the case provided
for in subsection [a] of this section) deduct and withhold
from such annual or periodical gains, profits, and income a
tax equal to twelve per centum thereof: Provided That no
deductions or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such
corporation is engaged in trade or business within the
Philippines or has an office or place of business therein, and
(2) more than eighty-five per centum of the gross income of
such corporation for the three-year period ending with the
close of its taxable year preceding the declaration of such
dividends (or for such part of such period as the corporation
has been in existence)was derived from sources within the
Philippines as determined under the provisions of section
=========
=========
========= =========
In a letter dated August 20, 1992, 4 Philex protested the demand for
payment of the tax liabilities stating that it has pending claims for
VAT input credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P119,977,037.02 plus interest. Therefore these
claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling inCommissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no
merit in Philex's position. Since these pending claims have not yet
been established or determined with certainty, it follows that no legal
compensation can take place. Hence, the BIR reiterated its demand
that Philex settle the amount plus interest within 30 days from the
receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT
input credit/refund against its excise tax obligation, Philex raised the
issue to the Court of Tax Appeals on November 6, 1992. 7 In the
course of the proceedings, the BIR issued Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total
tax liabilities of Philex of P123,821,982.52; effectively lowered the
latter's tax obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex
to pay the remaining balance of P110,677,688.52 plus interest,
elucidating its reason, to wit:
Thus, for legal compensation to take place, both
obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact
amount has already been determined (PARAS, Civil
Code of the Philippines, Annotated, Vol. IV, Ninth
Edition, p. 259). In the instant case, the claims of
the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this
Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against
the unliquidated claim which Petitioner conceived to
exist in its favor (see Compaia General de Tabacos
vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be
subject to set-off on compensation since claim for taxes is not a debt
or contract." 9 The dispositive portion of the CTA decision 10 provides:
In all the foregoing, this Petition for Review is
hereby DENIED for lack of merit and Petitioner is
hereby ORDERED to PAY the Respondent the
amount of P110,677,668.52 representing excise tax
liability for the period from the 2nd quarter of 1991
to the 2nd quarter of 1992 plus 20% annual interest
from August 6, 1994 until fully paid pursuant to
Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the
Court of Appeals docketed as CA-GR. CV No. 36975. 11 Nonetheless,
on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax
Appeals observation. The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for
review is hereby DISMISSED and the decision dated
March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless,
denied in a Resolution dated July 11, 1996. 13
However, a few days after the denial of its motion for reconsideration,
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994, computed as
follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter)
P25,317,534.01
007730
11
July
1996
007731
11
July
1996
007755
23
July
1996
In view of the grant of its VAT input credit/refund, Philex now contends
that the same should, ipso jure, off-set its excise tax liabilities 15 since
both had already become "due and demandable, as well as fully
liquidated;" 16 hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made
the pronouncement that taxes cannot be subject to compensation for
the simple reason that the government and the taxpayer are not
creditors and debtors of each other. 17 There is a material distinction
between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its
sovereign capacity. 18 We find no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate
Court, 19 we categorically held that taxes cannot be subject to set-off
or compensation, thus:
We have consistently ruled that there can be no offsetting of taxes against the claims that the
taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to
or greater than the tax being collected. The
collection of a tax cannot await the results of a
lawsuit against the government.
The ruling in Francia has been applied to the subsequent case
of Caltex Philippines, Inc. v. Commission on Audit,20 which reiterated
that:
. . . a taxpayer may not offset taxes due from the
claims that he may have against the government.
Taxes cannot be the subject of compensation
because the government and taxpayer are not
mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending
refund may be set off against an existing tax liability even though the
refund has not yet been approved by the Commissioner, 21 is no
longer without any support in statutory law.
It is important to note, that the premise of our ruling in the
aforementioned case was anchored on Section 51 (d) of the National
Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement
was
based
was
omitted. 22 Accordingly,
the
doctrine
enunciated
in ItogonSuyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it
asserts that the imposition of surcharge and interest for the nonpayment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay
the excise tax liabilities within the prescribed period since, after all, it
still has pending claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright
disregard of the basic principle in tax law that taxes are the lifeblood
of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason
would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax
liabilities on the ground that it has a pending tax claim for refund or
credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. 25 Hence, a tax does not
depend upon the consent of the taxpayer. 26 If any taxpayer can defer
the payment of taxes by raising the defense that it still has a pending
claim for refund or credit, this would adversely affect the government
revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or
that the collection of the tax is contingent on the result of the lawsuit
it filed against the government. 27 Moreover, Philex's theory that
would automatically apply its VAT input credit/refund against its tax
liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit
and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and
the BIR is not vested with any authority to waive the collection
thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar
to the one advanced by Philex in justifying its non-payment of its tax
liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the
National Internal Revenue Code of 1977, which requires the refund of
input taxes within 60 days, 31 when it took five years for the latter to
grant its tax claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a
claimant has the burden of proof to establish the factual basis of his
or her claim for tax credit or refund, 33 however, once the claimant
has submitted all the required documents it is the function of the BIR
to assess these documents with purposeful dispatch. After all, since
taxpayers owe honestly to government it is but just that government
render fair service to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to
1991 but the refund of these erroneously paid taxes was only granted
in 1996. Obviously, had the BIR been more diligent and judicious with
their duty, it could have granted the refund earlier. We need not
remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes. 35 Fair dealing and nothing less, is expected by
the taxpayer from the BIR in the latter's discharge of its function. As
aptly held inRoxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the
power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the
"hen that lays the golden egg" And, in order to
maintain the general public's trust and confidence
in the Government this power must be used justly
and not treacherously.
Despite our concern with the lethargic manner by which the BIR
handled Philex's tax claim, it is a settled rule that in the performance
of governmental function, the State is not bound by the neglect of its
agents and officers. Nowhere is this more true than in the field of
taxation. 37 Again, while we understand Philex's predicament, it must
be stressed that the same is not a valid reason for the non-payment
of its tax liabilities.