People v. Docena

SPECIAL FIRST DIVISION [C.T.A. CRIM. CASE NO. O-087. June 30, 2014.] For: Violation of Sec. 255 in rel. to Sec. 253 (d) of the NIRC PEOPLE OF THE PHILIPPINES , plaintiff, vs . EFREN O. DOCENA and ROLANDO E. PALAD, SOUTH SEA SURETY & INSURANCE CO., INC. , accused. RESOLUTION UY , J p : For resolution is the prosecution's "Motion for Partial Reconsideration (Re: Amended Decision dated March 12, 2014) 1 filed on April 1, 2014, with the defense counsel's "OPPOSITION/COMMENT" 2 thereto, filed on April 10, 2014, seeking reconsideration of this Court's Amended Decision dated March 12, 2014 insofar as the civil liabilities of the accused are concerned. The dispositive portion of the Amended Decision reads: " WHEREFORE , all the foregoing considered the Motion to Dismiss and Motion for Reconsideration are hereby GRANTED . Accordingly, the dispositive portion of this Court's Decision promulgated on July 15, 2013 is hereby MODIFIED to read as follows: ' WHEREFORE , the case is DISMISSED insofar as accused EFREN O. DOCENA is concerned; while accused ROLANDO E. PALAD is hereby ACQUITTED for failure of the prosecution to prove his guilt beyond reasonable doubt. aIAEcD With regard to the civil liability, SOUTH SEA SURETY & INSURANCE CO., INC. is hereby ORDERED TO PAY the amount of FOUR MILLION SEVEN HUNDRED SEVENTY EIGHT THOUSAND SIX HUNDRED NINETY TWO PESOS AND SEVEN CENTAVOS (P4,778,692.07) , representing the assessed deficiency DST and compromise penalty, plus 20% delinquency interest thereof per annum , counted from June 10, 2005 until fully paid, pursuant to Section 249(C)(3) of the NIRC of 1997.' SO ORDERED." In said Motion, the prosecution raises the following arguments, to wit: 1. Section 253 of the Tax Code of 1997, as amended, provides that any person convicted of a crime penalized under the Tax Code shall, in addition to being liable for the payment of the tax, also be subject to the penalties imposed therein. 2. The criminal liability of the accused as the prime statutory responsible officers of South Sea Surety & Insurance Co., Inc., is direct, distinct and separate from the corporation, hence, the corporate act of non-payment of its 2003 deficiency DST liability despite repeated demands, made the accused liable under Sections 255 and 253 of the Tax Code of 1997, as amended. The accused cannot escape the legal consequence of being responsible officers of the corporation. 3. Pursuant to Section 7 (b) (1) of the Republic Act No. 9282, criminal action and corresponding civil action for recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action will be recognized. 4. Both accused were acquitted on the ground that the prosecution failed to prove the element of "willfulness" in the commission of the crime charged, but such acquittal does not constitute extinction of their civil liability. DTAHEC 5. The act of non-payment at the time required by law is an offense under Section 255 of the Tax Code, and considering that the corporation can act only through its officers and agents, the two accused should be made to pay the civil liability being collected by the BIR. 6. South Sea Surety & Insurance Co., Inc., no longer exists. Hence the government can no longer enforce the civil aspect of this case to a non-existing entity. In his Opposition, the defense counters that: 1. Sections 253 and 255 of the NIRC of 1997, as amended, do not apply in this case as both accused have been acquitted of the offense charged against them under the NIRC. Also, said provisions do not expressly mention that the officers of a corporation are personally responsible for the corporation's tax liabilities. 2. Obligations incurred by the corporation, acting through its directors, officers, and employees are its sole liabilities. A director or officer can only be held personally liable for corporate obligation if said director or officer assented to patently unlawful acts or that the officer was guilty of gross negligence or bad faith. CDAHIT 3. In this particular case, the prosecution failed to prove compliance with the aforementioned requirement to hold both accused personally liable for the tax liability of SSSICI. 4. SSSICI, after being placed under receivership, is now under liquidation by the Office of the Insurance Commissioner. As such, under Section 122 of the Corporation Code, the government can file its claim for tax liability of SSSICI at the Office of the Insurance Commission. THE COURT'S RULING After weighing the parties' arguments, this Court finds no compelling reason to reverse or modify the assailed Decision. Section 253 (a) and (d) of the National Internal Revenue Code of 1997, as amended, does not apply to the present case. The prosecution insists that accused Docena and Palad should be made jointly and severally liable to pay the corporate tax liability of South Sea Surety & Insurance Company (SSSICI). To support their contention, the prosecution cites Section 253 (a) and (d) of the National Internal Revenue Code of 1997 (NIRC), as amended, which allegedly makes the two accused, as responsible officers of SSSICI, civilly liable for the payment of the tax. The prosecution's reliance on Section 253 (a) and (d) of the NIRC of 1997, as amended, is manifestly misplaced. aDHScI Said provision reads: SEC. 253. General Provisions . (a) Any person convicted of a crime penalized by this Code, shall in addition to being liable for the payment of the tax, be subject to the penalties imposed herein : Provided, That payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles. xxx xxx xxx (d) In the case of associations, partnerships or corporations, the penalty shall be imposed on the partner, general manager, branch manager, treasurer, officer-in-charge, and employees responsible for the violation. (Emphasis supplied) Clearly, while Section 253 paragraph (a) states that the penalty imposable under the Code includes payment of the tax due, thus making those enumerated under paragraph (d) of the same section both criminally and civilly liable for any offense committed by a corporation, said provision only applies to any person convicted of a crime penalized by this Code. cDHAES It is well to remind the prosecution that accused Docena and Palad were acquitted for the crime charged in the instant case. Hence, Section 253 (a) and (d) of the NIRC of 1997, as amended, finds no application in the instant case. To be sure, there is nothing in the aforequoted provisions which makes herein accused-individuals, notwithstanding acquittal, personally liable for the tax obligations of the corporation. The civil liability to pay the assessed deficiency DST and compromise penalty can only be imposed upon South Sea Surety & Insurance Co., Inc., as the corporate taxpayer. Additionally, the prosecution alleges that in cases involving violations of the provisions of the NIRC of 1997, as amended, the filing of the criminal action necessarily carries with it the filing of the civil action. Thus, the acquittal of the two (2) accused does not result in the extinction of the civil liability to pay the tax. We do not dispute the foregoing principle. However, the prosecution fails to recognize that the civil liability sought to be collected in the instant case is the corporate tax liability of SSSICI, as the taxpayer-corporation, and not personal tax obligations of herein accused-individuals. acHCSD In insisting on the personal liability of accused Docena and Palad to pay the tax, the prosecution deliberately ignores the records of this case, including their own evidence, which are replete with evidence showing that SSSICI, and not the two (2) accused, is the one legally required to pay the assessed deficiency DST and compromise penalty. On this note, We hereby reiterate our ruling in the Amended Decision dated March 12, 2014, to wit: In Proton Pilipinas Corporation vs. Republic of the Philippines , involving a corporate-taxpayer, the Supreme Court ruled: ". . . . It should be borne in mind that the tax and the obligation to pay the same are all created by statute; so are its collection and payment governed by statute. The payment of taxes is a duty which the law requires to be paid. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. Hence, the payment and collection of customs duties and taxes in itself creates civil liability on the part of the taxpayer . Such civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. xxx xxx xxx . . . . Taxes being personal to the taxpayer, it can only be enforced against herein petitioner because the payment of unpaid customs duties and taxes are the personal obligation of the petitioner as a corporate taxpayer, thus, it cannot be imposed on its corporate officers , much so on its individual stockholders, for this will violate the principle that a corporation has personality separate and distinct from the persons constituting it . . . ." (Emphasis and underscoring supplied) In the instant case, it is undisputed that South Sea Surety & Insurance Co., Inc. is the corporate taxpayer, which the Bureau of Internal Revenue (BIR) found to have been assessed for DST and compromise penalty covering taxable year 2003. In this connection, it has been held that " (a)n assessment fixes and determines the tax liability of a taxpayer . As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded." Thus, considering that the subject assessments have been made against South Sea Surety & Insurance Co., Inc., the obligation to pay the said DST and compromise penalty rests upon said corporation, and not upon the two (2) accused. HAEIac Moreover, the Amended Information dated May 17, 2010 itself states that the deficiency documentary stamp tax and compromise penalty is due and collectible from South Sea Surety & Insurance Co., Inc. and not from accused Docena and Palad, as corporate officers of said company. The Amended Information reads: "That on or about May 9, 2005, in the City of Manila, Philippines, the said accused, conspiring and confederating together and mutually helping each other and being then the President and EVP/COO, respectively , of SOUTH SEA SURETY & INSURANCE CO., INC., with business address at Suite 501 5/F East Tower, Philippine Stock Exchange Center, Exchange Road, Ortigas Complex, Pasig City, having filed their internal revenue tax for the year 2003, and after an examination and audit of the same, it has been found out that there is due and collectible from said SOUTH SEA SURETY & INSURANCE CO., INC., under Assessment Notice No. LN No. 025-34-2004 dated May 9, 2005, the amounts of Php5,773,176.07 and Php25,000.00 or all valued at Php5,758,176.07 representing DEFICIENCY DOCUMENTARY STAMP TAX AND COMPROMISED PENALTY for the said year, did then and there willfully and unlawfully fail, refuse and neglect to pay said taxes and without formally protesting against or appealing the same despite due notice and demand to do so, to the damage and prejudice of the Republic of the Philippines, in the aforesaid amount of Php5,758,176.07, Philippine Currency. Contrary to law." (Italics supplied) Clearly, the amount of deficiency DST sought to be collected is the corporate obligation of South Sea Surety & Insurance Co., Inc., as the taxpayer-corporation, and not personal tax obligations of the accused-individuals. Such being the case, South Sea Surety & Insurance Co., Inc., as the delinquent taxpayer, must itself bear the burden of paying for the said tax liabilities. Accused Docena and Palad, as officers of South Sea Surety & Insurance Co. Inc., cannot be held jointly and severally liable for the deficiency DST and compromise penalty. The prosecution submits that since a corporation can only act through its officers and agents, accused Docena and Palad, as responsible officers of South Sea Surety & Insurance Co. Inc., should be made liable to pay the civil liability being collected by the BIR. TICAcD The prosecution's reasoning is specious. While it is true that a corporation, being a juridical entity, may act only through its directors, officers, and employees, obligations incurred by them, while acting as corporate agents, are not their personal liability, but the direct responsibility of the corporation they represent. 3 It bears to emphasize that a corporation has a separate and distinct personality apart from its directors, officers, or owners. As a rule, a director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. 4 In exceptional cases, however, this legal fiction may be disregarded and corporate officers may be held solidarily liable for the obligations of the corporation. Section 31 of the Corporation Code provides for such exception, viz. : " Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. TaDSHC xxx xxx xxx As can be gleaned from the provision aforequoted, a director or officer may only be held jointly and severally liable for corporate obligations if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation or he is guilty of gross negligence or bad faith in directing the affairs of the corporation . 5 As already pointed out in the assailed Decision, the Court finds no indicia of willfulness or bad faith on the part of both accused in neglecting to pay the Corporation's deficiency tax liabilities. The prosecution failed to prove that the two accused willfully refused to pay the said tax or knowingly sanctioned such patently unlawful act of the corporation. On the contrary, records of this case indubitably show that both accused made serious efforts to pay the Corporation's tax liability amidst financial distress. More importantly, SSSICI's failure to totally settle its tax obligations with the BIR cannot be attributed to the two (2) accused because the same was brought about by circumstances beyond their control. Thus, to the mind of this Court there is no reason to pierce the veil of corporate fiction and hold both accused solidarily liable, with South Sea Surety & Insurance Co. Inc., to pay the assessed deficiency DST and compromise penalty, including the interest and surcharges thereto. TIADCc Corporate existence of South Sea Surety & Insurance Co., Inc. Finally, the prosecution avers that the government cannot enforce the civil aspect of the instant case against SSSICI because said corporation no longer exists. We are not persuaded. In the parties' Stipulations of Facts, the following facts, inter alia , have been stipulated: "(11) The Office of the Insurance Commission as per its Order dated September 13, 2006, issued a Cease and Desist Order against South Sea Surety to refrain from transacting business effective September 28, 2006. (12) South Sea Surety was placed under Conservatorship by the Office of the Insurance Commission as per its Order dated October 2, 2006, pursuant to Section 248 of the Insurance Code. Simultaneously, therewith, Mr. Fredesvido B. Bongat was appointed as Conservator. (13) On March 1, 2007, South Sea Surety was placed under Receivership by the Office of the Insurance Commission pursuant to Section 249 of the Insurance Code. Atty. Rosario Setias Reyes was appointed as Receiver. (14) On October 8, 2007, Mr. Ignacio Ong replaced Atty. Rosario Setias, who resigned on September 6, 2007. HCEaDI (15) Atty. John Apatan was appointed Receiver as replacement of Mr. Ignacio Ong." 6 The fact that SSSICI has ceased to do business after being placed under receivership with the Insurance Commission does not ipso facto result in the termination of its corporate existence. To be sure, the Insurance Commission has yet to determine whether the SSSICI "may be organized . . . so that it may be permitted to resume business with safety to its policyholders and creditors" or should be liquidated as it "cannot resume business with safety to its policyholders and creditors." 7 Also, even if SSSICI is already under liquidation, enforcement of the civil liability against the Corporation will not be rendered futile because the designated liquidator is empowered and authorized to "convert the assets of the insurance company to cash, or sell, assign or otherwise dispose of the same to the policyholders, creditors and other parties for the purpose of settling the liabilities or paying the debts of such company." 8 WHEREFORE , premises considered, the instant Motion for Partial Reconsideration (Re: Amended Decision dated March 12, 2014) is hereby DENIED for lack of merit. IEHaSc SO ORDERED . (SGD.) ERLINDA P. UY Associate Justice Ma. Belen M. Ringpis-Liban, J., concurs. Esperanza Fabon-Victorino, J., is on official business. Footnotes 1. Docket, pp. 643 to 650. 2. Docket, pp. 655 to 661. 3. Polymer Rubber Corporation and Joseph Ang vs. Bayolo Salamuding , G.R. No. 185160, July 24, 2013; Park Hotel, et al. vs. Manolo Soriano, et al. , G.R. No. 171118, September 10, 2012. 4. See Heirs of Fe Tan Uy vs. International Exchange Bank , G.R. Nos. 166282 and 166283, February 13, 2013. 5. Carag vs. NLRC , G.R. No. 147590, April 2, 2007. 6. Pre-Trial Order dated October 7, 2010, Docket, pp. 246 to 247. 7. Section 249, Presidential Decree No. 612 or The Insurance Code of the Philippines , December 18, 1974. 8. Ibid.