United International Pictures AB v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5884. June 5, 2002.] UNITED INTERNATIONAL PICTURES AB , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves a disputed assessment issued against petitioner for deficiency internal revenue taxes in the aggregate amount of P13,137,261.29, inclusive of interests and surcharges, covering the taxable year ended December 31, 1994. Petitioner is the Philippine Branch of United International Pictures AB, a corporation organized and existing under the laws of Sweden and duly licensed to engage in business in the Philippines, with office address at the 4th Floor, Ramon Magsaysay Center, 1680 Roxas Boulevard, Malate, Manila (par. 1, Joint Stipulation of Facts). On April 17, 1995, petitioner filed its corporate income tax return for the calendar year ended December 31, 1994 (par. 3, Joint Stipulation of Facts). On August 9, 1995, Letter of Authority No. 89422 was issued by the Revenue District Officer of Revenue District No. 34, authorizing the examination of the 1994 books of accounts and other accounting records of petitioner for all internal revenue taxes for the period January 1, 1994 to December 31, 1994 (Exhibit I). Together with the Checklist of Requirements (Exhibit 3) and Preliminary Requirements (Exhibit 4), said letter of authority was received by the petitioner on August 21, 1995. On September 11, 1995, a Second Request for Presentation of Records (Exhibit 5) was issued to petitioner. Petitioner partially complied with respondent's request by submitting the following documents on September 26, 1995: 1. quarterly income tax returns 2. annual return of income tax withheld on compensation 3. alpha list of employees 4. returns/receipts of taxes withheld (expanded) 5. summary of final tax withheld on remittances with returns and receipts. On February 6, 1996, a re-validated letter of authority (No. 89781) was issued by the Revenue District Officer of RDO No. 34 authorizing the examination of petitioner's 1994 books of accounts and other accounting records for all internal revenue taxes for the year 1994 (Exhibit 2). The same was received by the petitioner on February 18, 1996. On July 10, 1996, petitioner filed an amended corporate income tax return (Exhibits G and 12). On October 10, 1997, respondent issued a Summons and/or Subpoena Duces Tecum requiring petitioner to submit on October 21, 1997 the documents required therein (Exhibit 6). The subpoena was received by the petitioner on October 20, 1997. For failure on the part of the petitioner to comply with the said subpoena, a criminal complaint was filed on November 7, 1997 against Tristan Leveriza, petitioner's General Manager pursuant to Sections 7, 17 and 265 in relation to Sections 252 and 255 of the Tax Code, as amended (Exhibit 7). On November 14, 1997, a memorandum report was made by the revenue officer in-charge recommending the issuance of the final assessment notice and the collection of petitioner's deficiency internal revenue taxes based on the best evidence obtainable (Exhibit 9). On December 10, 1997, petitioner submitted a Waiver of Statute of Limitation to RDO No. 34 extending the right of the government to assess up to June 30, 1998 (Par. 4, Joint Stipulation of Facts and Restatement of Issues). On January 12, 1998, the Assessment Division of Revenue Region No. 6 issued Pre-Assessment Notices against petitioner for 1994 deficiency income tax in the amount of P5,281,876.03, exclusive of interest (Exhibit 16), for deficiency value-added tax amounting to P2,616,362.15, excluding interest (Exhibit 20), for deficiency expanded withholding tax in the sum of P21,851.96, excluding interest (Exhibit 23) and for deficiency withholding tax (increments only) of P728,210.87 (Exhibit 24). Subsequently, the Assessment Division issued final Assessment Notice No. 034-34-000034-94 and demand letters all dated January 19, 1998, for deficiency income tax of P8,186,907.85, value-added tax of P4,186,179.44, expanded withholding tax of P34,963.14 and withholding tax (increments only) of P728,210.87 (Exhibits 26, 28, 30 and 32, respectively). On April 22, 1998, a 1st Indorsement was issued by the chief of the Assessment Division to the chief of the Collection Division to effect collection of the abovementioned tax liabilities (page 163, BIR records). On August 19, 1998, petitioner received from the respondent a Preliminary Collection Letter (PCL) dated August 14, 1998 (Exhibits A and 34) for the former's internal revenue liabilities for 1994, detailed as follows: Tax Due Surcharge Interest Compromise Total Amount Due P4,225,500.82 P1,056,375.21 P2,905,031.85 P P8,186,907.85 income 17,481.57 4,370.39 13,111.18 34,963.14 cwt 2,093,089.72 523,272.43 1,568,817.29 4,186,179.44 vat 732,221.52 4,989.55 728,210.87 w/h On August 24, 1998, petitioner filed with RDO No. 34 its protest to the preliminary collection letter (PCL) so issued (Exhibits B and 35) on the following grounds: a) Petitioner did not receive Assessment Notice No. 034-34-000034-94 as alleged in the PCL, hence, the issuance of the PCL without prior assessment notice has no legal basis; b) The assessment notice is invalid for its failure to comply with Section 228 of the Tax Code, i.e., the assessment notice does not state the facts and the law upon which the assessment was made; and c) Since petitioner did not receive Assessment Notice No. 034-34-000034-94, the PCL should be considered as the assessment notice for petitioner's alleged deficiency taxes for 1994. However the same is already barred by prescription. On October 9, 1998, the case was endorsed to the Legal Division Revenue Region No. 6-Manila (page 171, BIR records) for the resolution of the following issues: (1) That the assessment notice is not valid for its failure to conform with Section 228 of the Tax Code. The taxpayer alleged that they did not received (sic) any Assessment Notice or any other communication pertaining thereto: (2) That the Preliminary Collection Letter is already barred by prescription. On October 23, 1998, petitioner filed its supplemental protest memorandum (Exhibit C). To date, the protest letter together with the supplemental protest memorandum remains unresolved. Petitioner filed the instant petition on May 21, 1999. The parties elevated the following issues to be resolved by this Court, to wit: (1) Whether or not Assessment Notice No. 034-34-000034-94 was validly issued against petitioner; (2) Whether or not respondent can validly issue the PCL considering that there was no valid service of Assessment Notice No. 034-34-000034-94; (3) Whether or not respondent's right to assess has been barred by prescription; (4) Whether or not the assessment issued against petitioner is valid; (5) Whether or not the protest was filed on time; and (6) Whether or not the petition for review was prematurely filed. With reference to the first issue, We rule in the negative. Petitioner firmly maintains that it did not receive Assessment Notice No. 034-34-000034-94 while respondent avers otherwise. Respondent, however, insists that although he cannot prove actual receipt by the petitioner of the registered mail containing the assessment notice and demand letters, there was, nonetheless, constructive receipt thereof since the mail was returned to sender unclaimed. Respondent alleges that with the receipt of the notices by the petitioner on four different dates (Exhibit 37) constructive receipt of the assessment notices and demand letters was completed. Respondent cited the case of Collector vs. Bautista (L-12250 and L-12259, May 27, 1959) where the Supreme Court ruled that an assessment is deemed made when the notice is released, mailed or sent to the taxpayer for the purpose of giving effect to said assessment. Thus, considering that petitioner failed to file a protest on the assessment within thirty days from receipt thereof, respondent maintains that the assessment has become final, unappealable and demandable. However, the petitioner counters that if the taxpayer denies ever having received an assessment from the Bureau of Internal Revenue (BIR), it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee. The presumption that a mailed letter is deemed received by the addressee in the ordinary course of mail is merely a disputable presumption, subject to controversion. Thus, the moment the petitioner denied having received the assessment notice, the burden is now shifted to the respondent to prove receipt thereof by the former. Under Section 3(v) of Rule 131 of the Revised Rules on Evidence there is a disputable presumption that a letter duly directed and mailed was received in the regular course of mail. Corollary thereto, Section 10 of Rule 13 of the Revised Rules of Court provides that "service by registered mail is complete upon actual receipt by the addressee, or after five (5) days from the date he received the first notice of the postmaster, whichever date is earlier". In the case of F. David Enterprises versus Insular Bank of Asia and America (191 SCRA 516), the Supreme Court held that if the addressee fails to claim his mail from the post office within five days from the date of the first notice of the postmaster, service shall take effect at the expiration of such time. Applying the above rules in the instant case, if Assessment Notice No. 034-34-000034-94 was mailed on January 19, 1998 and the first notice was served upon the petitioner on January 21, 1998, service of notice was deemed completed upon the expiration of five days therefrom or on January 26, 1998. Petitioner then had thirty days from January 26, 1998 within which to file its protest on the assessment notices. To support his allegation that the assessment notices were received by the petitioner, respondent submitted in evidence a certification from the Central Post Office (Exhibit 37) supposedly to "prove that the Central Post Office issued the certificate of mailing certifying the delivery to the petitioner of the assessment notices, demand letters and registry notices". But a close scrutiny of the said certificate and relative documents will reveal that the certificate merely proved that (1) Registered Letter No. 43235 was sent by the BIR to the petitioner on January 19, 1998; (2) four registry notices were sent to the petitioner and (3) the same letter was returned to sender as unclaimed mail on March 3, 1998. The certificate did not prove that the assessment notices and demand letters were actually received by the petitioner. Moreover, it did not prove that Registered Letter No. 43235 contained the assessment notices in question together with the demand letters. In other words, what was certified to was the fact of mailing of Registered Letter No. 43235 and the return thereof to the respondent as unclaimed letter but not as to the actual contents of the same. Hence, even assuming that constructive receipt is applicable in the case at bar, respondent fell short in proving that the letter mailed on January 19, 1998 contained the disputed final assessment notices. Indeed, the respondent presented Transmittal Record No. 00782 (Exhibit 36) "to prove that the original copies of Assessment Notices No. 034-34-000034-94 and demand letters dated January 19, 1998 were actually mailed at the Central Post Office on January 19, 1998". Nevertheless, after a meticulous examination of the transmittal letter and related documents, we find that said transmittal letter does not clearly indicate that what was actually mailed were the formal or final assessment notices with appurtenant demand letters. As a matter of fact, we note that except for VAT deficiency assessment, the amounts listed in the transmittal record are quite different from the amounts indicated in the formal assessment notices. For in reality, the amounts pertain to the amounts mentioned in the pre-assessment notices as petitioner's tax liabilities excluding interest charges (Exhibits 16, 20, 23, and 24). In addition, Transmittal Record No. 00782 was prepared by the Assessment Division and Billing Section of Revenue Region No. 6 on January 16, 1998 (as evidenced by the rubber stamp mark on the left portion) and received by the Administrative Section on January 17, 1998 (as evidenced by the rubber stamp mark on the middle portion). It would be definitely impossible for the final assessment notices dated January 19, 1998 to be received by the Assessment Division on January 16, 1998 and by the Administrative Division on January 17, 1998. Common practice and logic dictate that the date(s) the assessment notices and demand letters were issued are necessarily anterior to the date(s) of actual release or mailing thereof. Therefore, there can only be one rational conclusion to these glaring contradictions: what was mailed on January 19, 1998 were the pre-assessment notices which were dated January 12, 1998 and approved for final assessment on January 15, 1998. It appearing that no final assessment notice was sent or that petitioner did not receive any final assessment notice, it follows that the same could not become final and demandable. The second, third, fifth and sixth issues are interrelated so We will resolve them jointly. An assessment is the official action of an administrative officer in determining the amount of tax due from the taxpayer, or it may be a notice to the effect that the amount therein stated is due from the taxpayer as a tax with a demand for payment of the tax or deficiency stated therein. (Aban, Law of Basic Taxation in the Philippines, p. 175, citing Matic, Taxation in the Philippines, Vol. 1). A preliminary collection letter presupposes the existence of a valid assessment notice. Inasmuch as We already ruled that respondent failed to prove that the assessment was validly issued against the petitioner, the latter may consider the preliminary collection letter as the assessment notice in itself for its internal revenue taxes liabilities for 1994 in line with the Supreme Court decision in Republic versus Court of Appeals (149 SCRA 351) and cited in Commissioner of Internal Revenue versus Paseo Insurance Agency, Inc. and the Court of Tax Appeals (CA-GR SP No. 33526, February 24, 1995). Culled from the records of this case, no follow-up letter was ever sent to the petitioner nor was there a preliminary conference between the parties. So, the PCL would be the initial notice received by the petitioner regarding its internal revenue taxes liabilities for the year 1994. In the case of Commissioner versus Pascor Realty and Development Corp., et al. (G.R. 128315, June 29, 1999), the Supreme Court clarified that "an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of twenty (20%) percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment." To enable the taxpayer to determine the remedies thereon, due process requires that it must be served and received by the taxpayer. The PCL was received by the petitioner on August 19, 1998 and on August 24, 1998, petitioner filed its protest thereto. Indubitably, the thirty-day period provided for by Section 228 of the Tax Code, as amended, in protesting an assessment was complied with. The instant petition for review was also properly and timely filed on May 21, 1999. Section 203 of the Tax Code, as amended, provides that "internal revenue taxes shall be assessed within three 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 may be begun after the expiration of such period". Petitioner extended the prescriptive period to assess for taxable year 1994 until June 30, 1998 (Par. 4, Joint Stipulation of Facts). The preliminary collection letter was issued only on August 19, 1998. Consequently, respondent's right to assess petitioner for the year 1994 had already prescribed. "An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. As assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. Assessments made beyond the prescribed period would not be binding on the taxpayer." ( Tupaz, vs. Ulep, et al., G.R. No. 127777, October 1, 1999 ). In view of the above findings, We deem it no longer necessary to discuss the remaining issue of whether or not the assessment issued against petitioner is valid. WHEREFORE, in the light of all the foregoing, the assessments issued against the petitioner for deficiency internal revenue taxes in the total amount of P13,137,261.29 for the taxable year 1994 as well as the preliminary collection letter dated August 14, 1998 are hereby CANCELLED and SET ASIDE. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge I CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge