BIR Ruling No. 126-84

July 27, 1984 BIR RULING NO. 126-84 332-00-011-72-126-84 Gentlemen : This refers to your letter dated April 26, 1984 requesting that the Revenue District Officer of Revenue District No. 88, Tagum, Davao del Norte be allowed to present the Merchandise Inventory ending December 31, 1981 of C. T. Trading located at Panabo, Davao del Norte as part of the evidence in the Anti-Graft case against Pacifico T. Duran et al. presently pending in the Sandiganbayan. It is represented that in December, 1981, L.S. Parts Hardware and Machine Shop, a borrower of the Philippine Bank of Communications, declared insolvency and defaulted on its loan payment to the bank; that on January 11, 1982, the bank filed a petition for the foreclosure of Chattel Mortgage against said borrower with the Davao City's Sheriff's Office but the foreclosed merchandise/properties were insufficient to cover the obligations of said borrower; that in March, 1982, acting on an information that sometime between November and December, 1981, L. S. Parts Hardware and Machine Shop was able to transfer some of its merchandise/properties to various places and that one of which was in the C. T. Trading, also a client of the bank, Davao City's Sheriff , Mr. Pacifico T. Duran, Mr. Wilbert T. Lim, Asst. Vice-President of the bank and the bank's legal counsel went to C. T. Trading to ascertain the veracity of the information; that it was confirmed by the owner, Mr. Claudio Tan, and so some of the properties which were still in his warehouse were surrendered to the bank; that in April, 1982, Mr. Claudio Tan filed a case of robbery against the Sheriff, Mr. Pacifico T. Duran, Mr. Lim and the bank's legal counsel, claiming among other things, that the properties foreclosed from his warehouse belong to him; that in June, 1982, Mr. Tan submitted to the fiscal several invoices to prove his ownership of said foreclosed properties, most of which invoices were allegedly issued by L. S. Parts Hardware and Machine Shop for purchases made in 1980 and 1981 that the said case was subsequently filed with the Tanodbayan, later amended and filed with the Sandiganbayan as anti-graft and corruption case; that a review of the photocopy of the Merchandise Inventory of C. T. Trading ending December 31, 1981 which was submitted to the bank disclosed that the foreclosed properties and those appearing in the invoices were not found in the said Merchandise Inventory ending 1981; and that if the goods were purchased in 1980 and 1981 and were still in the possession of C. T. Trading owned by Me. Claudio Tan as of March 24, 1982 then they should have appeared in its Merchandise Inventory ending December 31, 1981. In reply, please be informed that documents or records filed by a taxpayer with the BIR may be produced in court as evidence in a criminal case against said taxpayer without violating Section 332 of the Tax Code because when the Government institutes criminal proceedings in which evidence, otherwise privilege under a statute or regulations, becomes relevant, it abandons the privilege. (Secretary of Justice' Opinion No. 86, series of 1957) An anti-graft case is a criminal case. (B.I.R. Ruling No. 72-024 dated October 10, 1972) It is to be noted that the prohibitions in Sections 332 and 334 of the National Internal Revenue Code of 1977 are not absolute. In his Opinion No. 10, series of 1980, the Minister of Justice pointed out that the purpose of said prohibition is to protect the taxpayer from unfair competition which would otherwise result if he were required to divulge his trade secrets and other confidential information in the conduct of his business under improper or unwarranted circumstances. They were certainly not designed to immunize him from making the disclosure in order to cover up crimes or other illegal activities (Ops., Sec. of Justice, No. 45, s. 1962 and No. 116, s. 1941). Indeed it would be inconceivable for the sovereign authority, which has enacted laws for the maintenance of public order, to obstruct, by its very own laws, its capacity to enforce the same. Surely the lawmaking power did not intend these legal prohibitions to be used as a cloak to hide those who are guilty of criminal wrong-doing . Thus, it has been stated in a case involving a similar statutory prohibition that " the statutes imposing secrecy upon the Commissioner are not intended to impede the wheels of justice ". (Emphasis Supplied, Blair vs. Cesterlein Machine Company, 17, F 2d 663(1927) cited in Op., Minister of Justice, No. 10, s. 1980) By and large, if disclosure and use of documents or information officially filed with the BIR could be had in the foregoing case, we do not, therefore, see any reason to deny the production disclosure and use of such documents and information whereupon the determination of the guilt of the accused persons in this case primarily hinges. Actually, the aforementioned 1981 Merchandise Inventory belongs to C. T. Trading owned by Mr. Claudio Tan, the complainant in this case. It is, therefore, indubitable that the presentation of the C. T. Trading's Merchandise Inventory ending December 31, 1981 will greatly help in the determination of the guilt of the accused persons in the said anti-graft case, one of whom is a government official, Davao City's Sheriff, Mr. Pacifico T. Duran, since it will prove not only the true ownership of the foreclosed properties but more importantly, as to whether they erred in foreclosing the properties in question . In view thereof, this Office is of the opinion as it hereby holds that the production and/or presentation of the C. T. Trading's Merchandise Inventory ending December 31, 1981 by the Revenue District Officer of Tagum, Davao del Norte, in compliance with a subpoena duces tecum issued by the Sandiganbayan can be allowed, without violating Section 332 of the Tax Code. cdta Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner