Backpay Certificates of Indebtedness Cannot be Applied in Payment of the Corporation's Tax Liability

June 30, 1959 BIR RULING NO. 319-59 2nd Indorsement Respectfully returned to the Regional Director, BIR Regional District No. 3, Manila, the within papers relative to the internal revenue case of the Mutual Security Insurance Corporation. Taxpayer-Corporation is liable to the 25% surcharge for late payment of taxes because there could not have been a valid tender of payment on July 3, 1958 inasmuch as the Backpay Certificates of Indebtedness which were offered in payment cannot be applied in payment of the corporation's tax liability, it not being the recipient of the backpay against which the certificates were issued. Under Section 2 of Republic Act No. 304, the backpay can be used in payment of the taxes due from the applicant or original backpay owner only. "The mere fact that these back pay obligations have become due and demandable is not valid and adequate reason for the outright acceptance of negotiable certificates of indebtedness in the payment of the taxes of their present holders, assignee or indorsee. Even under the negotiable instruments law a negotiable paper does not, upon maturity, become legal tender or acquire the attributes of money which is legally acceptable in the settlement of monetary obligations. When a negotiable instrument becomes due and demandable, it may be presented by the holder to the person primarily liable for payment; and if dishonored by non-payment, an immediate right of recourse against all parties secondarily liable merely accrues to the holder thereof. (Opinion No. 69, s. of 1959, of the Secretary of Justice.) (SGD.) JOSE ARAAS Commissioner of Internal Revenue