People v. Castillo

SECOND DIVISION [C.T.A. CRIM. CASE NO. O-219. December 18, 2013.] PEOPLE OF THE PHILIPPINES , plaintiff , vs . DR. VICENTE GANA CASTILLO AND DR. MA. TERESA CHAN CASTILLO , accused . RESOLUTION CASTAEDA, JR. , J p : For resolution is the prosecution's Motion for Partial Reconsideration (of the Civil Aspect of the case) filed on October 22, 2013 of the Decision promulgated on October 7, 2013, with accused spouses' Comment to Prosecution's Partial Motion for Reconsideration filed on November 15, 2013. The dispositive portion of the assailed Decision reads: " WHEREFORE , premises considered, accused spouses Dr. Vicente Gana Castillo and Dr. Ma. Teresa Chan Castillo are hereby ACQUITTED of the crime charged. SO ORDERED. " The prosecution raises the following arguments in its Motion for Partial Reconsideration : 1. This Court erred in finding no civil liability on the part of accused spouses based on a finding that the prosecution's assessment of tax liability was arrived at arbitrarily and capriciously; 2. This Court erred in finding no civil liability on the part of accused spouses based on a factual finding of "possible" deductions in their income tax return based on allowed input VAT; and 3. This Court erred in citing Section 205 of the National Internal Revenue Code (NIRC) of 1997, as amended, when it is not applicable to the facts of the case at bar; ISDCaT The prosecution assails this Court's finding that the assessment was arrived at arbitrarily and capriciously in view of a factual finding of "possible" deductions in the income tax. It cites several Supreme Court rulings where it was held that claims for tax deductions are to be statutorily construed similar to claims for tax exemptions and cannot be created by implication. Thus, any claim for tax deduction should be strictly construed against accused spouses. It further avers that accused spouses never presented any evidence, much less convincing evidence, that they are entitled by the clearest grant of statutory law to the deductions claimed. No documentary evidence or factual basis was presented to identify, detail, justify and substantiate their deductions claimed. Instead, they merely relied on the argument that by implication, Input VAT credited in their VAT Returns could also be credited and deducted in their 2009 Income Tax Returns. With respect to the argument that Section 205 of the NIRC of 1997, as amended, is not applicable to the facts of the case at bar, the prosecution contends that Section 205 pertains to the collection of delinquent taxes. However, no delinquent taxes are being collected in this case but merely deficiency taxes. It defines delinquency as the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand. On the other hand, deficiency is defined as the amount still due and collectible from a taxpayer upon audit or investigation. According to the prosecution, the audit of accused spouses has already been concluded and only the decision of the protest is still pending resolution by the Commissioner of Internal Revenue. As such, there is allegedly still no immediate due date for the accused spouses to pay tax. As the amount still due and collectible is pursuant to an assessment and subsequent protest, what are involved here are deficiency taxes and not delinquent taxes. Lastly, anent the findings of this Court that the Formal Letter of Demand is not yet final, considering that the taxpayer's protest is still pending decision with the Commissioner of Internal Revenue; the prosecution alleges that a protest may be filed before the Commissioner of Internal Revenue on a Formal Letter of Demand (Final Assessment Notice). When an assessment is protested, even while it is pending before the Commissioner of Internal Revenue, it is nonetheless final in nature. In fact, Section 228 of the NIRC of 1997 provides that if the Commissioner fails to act on the protest, the taxpayer may file a Petition for Review on the same final assessment to this Court. On the other hand, accused spouses aver that the administrative protests are still pending with the Commissioner of Internal Revenue. Thus, there is no final decision yet upon which the prosecution can seek collection of taxes as part of the civil aspect of the subject criminal case pursuant to Section 205 of the NIRC of 1997, as amended. SACTIH This Court finds the instant Motion unmeritorious. It must be reiterated that the computations made by the prosecution were arrived at in the exercise of the Commissioner of Internal Revenue's (Commissioner) power to assess the proper tax on the best evidence obtainable as provided under Section 6 (B) of the NIRC of 1997, as amended. 1 However, it can be deduced from the witnesses' testimonies for both parties that there are other evidence, such as those which the Commissioner might have used when she considered the input tax of the accused spouses to be deducted from their output tax, which may likewise be considered in determining their income tax liability. In fact, Ms. Tan testified that she allowed the output taxes (input taxes) that accused Vicente Gana Castillo declared in his VAT returns 2 without taking into consideration the said input taxes in determining the deductible expense of the latter. Moreover, Ms. See testified that the VAT returns of accused Vicente Gana Castillo were not reviewed despite being given copies of his VAT returns. 3 The outright refusal on the part of the Commissioner in taking into consideration the said input taxes would show that the computation of the accused spouses' income tax liability was not based on the best evidence obtainable and was arbitrarily made. As to the application of Section 205 of the NIRC of 1997 to the facts of this case, the prosecution's witnesses admitted that there were Formal Letters of Demand issued against accused spouses for their tax liability for the taxable year 2009. Thus, if this Court will adhere to the prosecution's argument that the civil action for the collection of civil liability under Section 205 pertains to delinquent taxes; which in turn, was defined as the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand , it is clear that Section 205 is applicable in this case since Formal Letters of Demand were already issued against accused spouses. Furthermore, a determination of the tax liability of accused spouses is impossible since there was yet no final decision on their protest. On this matter, the prosecution alleges that the Formal Letter of Demand is final in nature. It cited Section 228 of the NIRC of 1997 which provides that if the Commissioner fails to act on the protest, the taxpayer may file a Petition for Review on the same final assessment to this Court. In this regard, it is noteworthy that in the very same provision cited by the prosecution, it was mentioned that the final assessment may be appealed to this Court if the protest is denied in whole or in part or if the Commissioner fails to act on the protest within the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. In other words, the assessment shall only become final, executory and demandable if the taxpayer fails to appeal the denial or inaction of the Commissioner to this Court. Nevertheless, even if this Court would agree with the arguments raised by the prosecution, records would show that the assessment or Formal Letter of Demand was not presented before this Court, from which the collection of tax liability may be based. Thus, it will still be impossible for this Court to determine the civil liability of accused spouses. Finding no reversible error committed in the disposition of the instant case, the instant Motion for Partial Reconsideration must be denied. DAHSaT Meanwhile, this Court notes accused spouses' manifestation in its Comment to Prosecution's Partial Motion for Reconsideration that they decided to make a voluntary payment in the amount of P2,700,000.00 for the income tax deficiency on both accused as well as on the VAT deficiency of accused Ma. Teresa Chan Castillo with the corresponding 25% surcharge and 20% interest computed as of October 30, 2013. WHEREFORE , the prosecution's Motion for Partial Reconsideration (of the Civil Aspect of the Case) filed on October 22, 2013 is DENIED for lack of merit. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Caesar A. Casanova and Amelia R. Cotangco-Manalastas, JJ., concur. Footnotes 1. Section 6 (B) of the Tax Code provides: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement . xxx xxx xxx (B) Failure to Submit Required Returns, Statements, Reports and other Documents. When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. xxx xxx xxx" 2. TSN dated March 14, 2012, p. 81. 3. TSN taken on March 21, 2012, pp. 28-31.