BIR Ruling

February 17, 1997 Food Terminal, Inc. FTI Complex, Taguig, Metro Manila Attention: Romeo G . David President S i r : This refers to your protest against the assessment of this Office involving the amount of P139,447,411.35 representing deficiency withholding taxes for the years 1982 to 1989, covered by Assessment Nos. FAS 1-82-91-002233 to 002240 dated August 14, 1996. cdti Records show that FTI is a government owned and controlled corporation, registered with the SEC and with the BIR as withholding agent with ID No. WT-32-4B-0454. It is engaged in trading and/or marketing operations and was sourcing its commodities for the KADIWA program from various manufacturers and distributors. In accordance with revenue regulations, percentage taxes on sales of commodities were correspondingly withheld from its various suppliers. On November 6, 1989, Letter of Authority No. 0017462 NA was issued to authorize the Revenue Officers concerned to examine the books of accounts of FTI and other accounting records for withholding tax, for fiscal year ending 1989 and unverified prior years. However the examination and verification of the books of accounts was limited only to the general ledger because Ms. Malou Diaz, Chief, General Accounts Division, refused to present other pertinent records and documents despite several request by the Revenue Officers (p. 67). Based on the report of the investigation and the recommendation made thereto, pre-assessment notice was issued against FTI on October 22, 1990. FTI did not contest said assessment, instead its President/General Manager Jaime de la Rosa made a letter requesting for a waiver of penalties because of the unfavorable financial condition the company is facing. This was not granted. Our Office made a categorical reason that the laws imposing penalties for delinquencies are clearly intended to hasten tax payments or to punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state in time. The imperatives of public welfare will not approve of this result (Jamora vs. Meer, G. R. No. 48129). cdtech On July 1, 1989, Final Assessment Notices were issued against FTI, to wit: Assessment No. Year Kind of Tax Amount FAS-1-82-91-002233 1982 Def. W/holding Tax P6,832,743.00 Late Remittance FAS-1-82-91-002234 1982-1989 Penalty for 200,000.00 failure to file W-3 Compromise FAS-1-82-91-002235 1982-1989 Penalty for 200,000.00 failure to file 1743-B Expanded FAS-1-82-91-002236 1984-1989 Unremitted 11,145,058.94 w/holding Tax Compromise FAS-1-82-91-002237 1986-1989 Unremitted 2,269,456.24 w/holding tax Expanded FAS-1-82-91-002238 1982-1989 Unremitted 122,610,093.27 w/holding tax Gov't. Money Payments FAS-1-82-91-002239 1985 Withholding Tax-Late 145,124.51 Remittance FAS-1-82-91-002240 1984 Withholding Tax-Late 663,537.96 Remittance P144,066,013.92 Assessment No. FAS-1-82-91-002233 was later adjusted to P2,214,140.43 as there was an erroneous typing in the Transcript of Assessment and Examiner's Report (p. 91) In response to the Final Assessment Notices, FTI's General Manager reiterated its request on August 13, 1991, making an appeal to our Office that the interest and other penalties be waived. For the same reason, this was denied. cdta Consequently, on April 18, 1996, FTI paid the amount of P2,214,140.43 covered under Assessment No. FAS-1-82-91-002233 as evidenced by ATAP No. 2908036. Years after the delay, and without paying the rests of the deficiency taxes, you now question the legality of the assessment, alleging among others that it was made beyond the prescriptive period and that FTI was unjustly and excessively assessed in its tax liability. After a careful study of the facts of the case as well as the law and jurisprudence applicable thereto, this Office finds your appeal to be without merit in fact and in law. The result of the investigation by the Revenue Officers were based on the best evidence obtainable since Ms. Malou Diaz Chief, General Accounts Division, refused or failed to present pertinent accounting records which are necessary in the investigation as requested by our examiners. The manner of assessment is sanctioned under paragraph (b) Section 16 in relation to Section 7 of the National Internal Revenue Code. In addition, such deficiency assessments were made known to FTI for comment as to whether or not the assessments were substantiated. Said assessments were not questioned by your Office, rather, a waiver of penalties and surcharges was requested. This act constitute an acceptance on your part that the assessments were just and proper. The law on estoppel applies now against FTI. An assessment if not contested within 30 days from the receipt thereof by the taxpayer, becomes final and executory. Your protest was made beyond the period within which to question the legality of the assessment. Section 229 of the National Internal Revenue Code lays down the basic rules on protesting an assessment, pertinent provisions of which state that: "Sec. 229. When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within the period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings. cdti Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable." Records disclosed that FTI received the assessment notices on July 31, 1991. Following the strict provision of the Tax Code, FTI had until August 30, 1991 within which to file a protest and yet no protest was ever received by our Office during the period. However, there was a letter dated August 13, 1991, but, this Office does not consider it a protest as it does not question the legality of the assessment. The Supreme Court in the case of Dayrit vs. Cruz (Sept. 26, 1988) made a pronouncement as to the issue regarding protest that the contest should be substantiated and a mere letter of a taxpayer asking for a reconsideration of an assessment, devoid of any substantiation with facts or law cannot be considered. Be that as it may, the assessment has to stand with finality and should not be disturbed. The assessed deficiency taxes reached the total amount of P139,447,411.35 considering the surcharges and penalties imposed. Such inclusion in itself would not make the assessment unjust and arbitrary. We wish to reiterate our stand that the laws imposing penalties for delinquencies are clearly intended to hasten tax payments or to punish evasions or neglect of duty in respect thereof. The pertinent provisions of the Tax Code that will support the imposition of charges are as follows: "Sec. 251. Failure of a withholding agent to collect and remit tax . Any person required to collect, account for, and remit any tax imposed by this Code who willfully fails to collect such tax, or account for and remit such tax, or willfully assists in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this chapter, be liable to a penalty equal to the total amount of the tax not collected, or not accounted for and remitted." cdt "Sec. 254. Failure to file return, supply information, pay tax, withhold and remit tax . Any person . . . who willfully fails . . ., or withhold or remit taxes withheld . . . shall . . ., upon conviction thereof, be fined not less than five thousand pesos nor more than fifty thousand pesos or imprisoned of not less than six months and one day but not more than five years or both. It is important to note that the amount of any tax withheld/collected by the collecting agent is a special fund in trust for the government of the Philippines. Considering that it is held in trust, the collecting agent thereby holds the money with the obligation to remit the same to the government within the period prescribed by law. Non-remittance of the same is even a more serious offense because there is a violation of trust. Premises considered, your protest and request for cancellation of the above-mentioned assessments are hereby DENIED. Consequently, you are requested to pay the deficiency assessment covered under Assessment Nos. FAS 1-82-91 002234 to 002240 or a total amount of P137,233,270.92 to the Revenue District Office No. 44, Taguig-Pateros, Metro Manila within thirty (30) days from receipt hereof; otherwise collection will be enforced by means of the summary remedies prescribed by law. This constitutes the FINAL decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue