FSM Cinemas, Inc. v. Commissioner of Internal Revenue

EN BANC [C.T.A. EB CASE NO. 1441. August 7, 2018.] (C.T.A. Case No. 8551) FSM CINEMAS, INC. , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . [C.T.A. EB CASE NO. 1445. August 7, 2018.] (C.T.A. Case No. 8551) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. FSM CINEMAS, INC. , respondent . AMENDED DECISION FABON-VICTORINO , J p : On November 16, 2017, a Decision was promulgated, the dispositive portion of which states as follows: WHEREFORE ,the Petitions for Review filed on April 6, 2016 by FSM Cinemas, Inc.,and by the Commissioner of Internal Revenue on March 15, 2016, are hereby DENIED ,for lack of merit. SO ORDERED. 1 The assailed Decision affirmed the finding of the Court in Division, partially cancelling FSM Cinemas, Inc. (FSM),deficiency income tax (IT),value-added tax (VAT),expanded withholding tax (EWT) and withholding tax on compensation (WTC) for TY 2008. Both unconvinced, the Commissioner of Internal Revenue (CIR) and FSM filed their respective Motions for Reconsideration dated December 19 and 21, 2017. In his Motion for Reconsideration, the CIR claims that FSM failed to present concrete and relevant proof justifying a partial cancellation of the assessment issued against it. In particular, no pertinent reconciliation statements, breakdown of items and supporting documents were submitted during reinvestigation to establish that: 1) account groupings utilized in its Audited Financial Statements (AFS) and Alphalist; 2) income payments that were subjected to expanded withholding tax (EWT),as well as those exempt from its imposition; 3) personnel expense account as reported in its AFS; 4) penalties incurred with respect to its taxes and licenses; and 5) the proper withholding and remittance of taxes arising from compensation income. On account thereof, FSM must be held entirely answerable on the deficiency IT, VAT, EWT and WTC with increments as stated in his Final Decision on Disputed Assessment (FDDA). 2 HSAcaE In rejecting the CIR's stand, FSM, quoting portions of the assailed Decision, argues that all the points and issues put forward by the former were addressed and squarely discussed by the Court En Banc in the assailed Decision of November 16, 2017. For his failure to advance any formidable argument to warrant a departure, much less a modification of the assailed Decision, the CIR's Motion for Reconsideration must be denied outright. FSM, on the other hand, complains that the Court's imposition of surcharge on the subject deficiency IT, VAT, EWT and WTC saying that it has no basis in the law and jurisprudence, as liability from the foregoing increment will only accrue if the CIR himself explicitly declared the same in the FDDA, which is wanting in the present case. There being no finding of surcharge in the CIR's FDDA, such addition to the tax may not be enforced upon the taxpayer and must consequently be set aside. Invoking Section 2.57.2 (M) of RR No. 2-98, FSM posits that it must be notified in writing by the CIR of its status as a top 10,000/20,000 corporation, otherwise, no obligation to withhold 1% EWT on its income payments on purchases of goods/services would arise. Absent such notice, no legal duty to withhold taxes from its income payments on purchases exists. Not being a withholding agent contemplated by the regulations, the cancellation of the EWT assessment is in order. In conclusion, FSM states that the Court committed an egregious error when it imposed deficiency interest on deficiency VAT, EWT and WTC. Allegedly, no interest is due on its deficiency VAT, EWT and WTC since the imposition is only limited in scope, i.e. , deficiency taxes as defined in the Tax Code, which in turn covers deficiency IT and Transfer Taxes only, citing Section 249 (B) of the Tax Code as authority. Despite directive, the CIR failed to register any comment/objection on the bid for reconsideration by FSM. 3 THE RULING OF THE COURT The CIR's and FSM's Motions for Reconsideration are devoid of merit. A thorough review of the assailed Decision of November 16, 2017 reveals that the CIR merely retold his previous arguments in his Motion for Reconsideration. All the basic issues raised in the Motion have been determined and passed upon, first by the Court in Division, and subsequently on appeal by the Court En Banc . There are no substantial issues or points raised to warrant a departure, let alone a reversal from the Court's ruling in the assailed Decision of November 16, 2017. To repeat, the evidence on record demonstrate that FSM should only be held accountable, albeit partially on the following items of basic deficiency taxes, exclusive of increments for TY 2008: HESIcT Tax Type Amount IT P4,622,212.41 VAT P56,913.32 EWT P592,630.87 WTC P24,814.45 On FSM's Motion for Reconsideration , relative to the imposition of surcharge, Section 248 (A) (3) of the NIRC, as amended, decrees, inter alia ,that a surcharge in the amount of twenty five percent (25%) of the amount due shall be imposed when the taxpayer failed to pay the deficiency tax within the time prescribed for its payment as indicated in the notice of assessment. The discussion on the matter found in pages 12 to 13 of the assailed Decision shows that the CIR's FDDA obligated FSM to settle its tax liabilities on or before September 28, 2012. There being no payment made by FSM on the stated due date, twenty five percent (25%) surcharge must be imposed as a matter of course in consonance with Section 248 (A) (3) of the NIRC, as amended. The law requiring the payment of 25% surcharge in cases when the tax is not seasonably paid is mandatory. It provides a plan which works out automatically. The Commissioner of Internal Revenue is not vested with any authority to waive or dispense with the collection thereof. 4 This is to discourage delay in the payment of taxes due and to recompense the State for the taxpayer's utilization of funds beyond the date when it is supposed to have paid them to the government. 5 Equally unmeritorious is FSM's contention that it cannot be considered as a top 10,000/20,000 corporation without notice from the CIR to that effect. As the Court En Banc ruled in page 14 of the assailed Decision, the fact that FSM indicated in its Monthly Remittance Return of EWT, as well as Monthly Alphalist of Payees the alphanumeric tax codes (ATC) of WC158 and WC160, which in turn specifically pertains to income payments by a Top 10,000/20,000 corporation is FSM's admission that it deemed itself as belonging to such group, precisely its income payments on purchase of goods and services should be subjected to withholding tax pursuant to Section 2.57.2 (M) of RR No. 2-98. On whether interest may be imposed upon deficiency VAT, EWT and WTC, the answer is in the affirmative. It is axiomatic that a statute must not be read in truncated parts; its provisions must be read in relation to the whole law. 6 Thus, Section 249 (b) 7 of NIRC, as amended should be read in conjunction with Section 247 (a) of the same Code. The latter provision reads: caITAC SEC. 247. General Provisions . (a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes, fees and charges imposed in this Code. The amount so added to the tax shall be collected at the same time, in the same manner and as part of the tax. AcICHD xxx xxx xxx In Paper Industries Corporation of the Philippines (PICOP) vs. Commissioner of Internal Revenue , 8 the Supreme Court declared that the imposition of interest and surcharge under Section 247 (a) of the NIRC of 1977, 9 as amended, covers the failure to pay all taxes, fees and charges imposed under the Tax Code and not just to a particular type of tax, viz. : x x x The corresponding provision in the current Tax Code very clearly embraces failure to pay all taxes imposed in the Tax Code , without any regard to the Title of the Code where provisions imposing particular taxes are textually located. Applying the above principles, since FSM was explicitly adjudged to pay, inter alia , its deficiency VAT, EWT and WTC for TY 2008, it logically follows that it is also chargeable for deficiency interest due thereon notwithstanding the absence of definition of the foregoing taxes in the NIRC, as amended. Be that as it may, FSM's liability for deficiency and delinquency interest must be modified in light of the recent enactment of Republic Act (R.A.) No. 10963, or otherwise known as Tax Reform for Acceleration and Inclusion (TRAIN). Section 75 thereof reads as follows: Section 75. Section 249 of the NIRC, as amended, is hereby further amended to read as follows: 'SEC. 249. Interest . '(A) In General . There shall be assessed and collected on any unpaid amount of tax, interest at the rate of double the legal interest rate for loans or forbearance of any money in the absence of an express stipulation set by the Bangko Sentral ng Pilipinas from the date prescribed for payment until the amount is fully paid: Provided, That in no case shall be deficiency and the delinquency interest prescribed under Subsections (B) and (C) hereof, be imposed simultaneously. '(B) Deficiency Interest . Any deficiency in the tax due, as the term is defined in his Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof, or upon issuance of a notice and demand by the Commissioner of Internal Revenue, whichever comes earlier. '(C) Delinquency Interest . x x x (emphasis supplied)" Evident from the foregoing provisions that the TRAIN Law: 1) proscribes the simultaneous imposition of both deficiency and delinquency interest; and 2) the rate of interest was reduced from 20% to 12%, per annum, or double the legal interest rate 10 for loans or forbearance of any money in the absence of an express stipulation set by the Bangko Sentral ng Pilipinas (BSP). Thus, upon the effectivity of TRAIN on January 1, 2018, the following rules must be observed in prescribing the deficiency and delinquency interests in addition to the basic tax liability and surcharge, thus: 1) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency tax computed from the date prescribed from payment until December 31, 2017 per Section 248(B); ICHDca 2) Delinquency interest at the rate of twenty percent (20%) per annum on the unpaid amount, 11 computed from the notice and demand of the Commissioner until December 31, 2017 per Section 249(C);and 3) Delinquency interest at the rate of twelve percent (12%) per annum on the unpaid amount, 12 computed from January 1, 2018 until such amount is fully paid per pertinent provisions of TRAIN Law. WHEREFORE ,the Commissioner of Internal Revenue's and FSM Cinemas, Inc.'s Motions for Reconsideration dated December 19 and 21, 2017, respectively are DENIED ,for lack of merit. The assailed Decision dated November 16, 2017 is AFFIRMED with MODIFICATION .Accordingly, FSM Cinemas, Inc. is DIRECTED to pay the amount of P6,620,713.81, comprising of deficiency income tax, value-added tax, expanded withholding tax and withholding tax on compensation for TY 2008, inclusive of the 25% surcharge imposed under Section 248 (A) (3) of the NIRC, as amended, pursuant to the Decision of the Court in Division in CTA Case No. 8551, docketed as " FSM Cinemas, Inc. vs. Commissioner of Internal Revenue ." However, the computation of FSM Cinemas, Inc.'s liability for deficiency and delinquency interest is MODIFIED as follows: a) Deficiency interest at the rate of 20% per annum on the basic deficiency Income Tax, VAT, EWT and WTC computed from the dates indicated below until December 31, 2017, pursuant to Section 249 (B) of the NIRC, as amended: Tax Type Basic Tax Deficiency interest computed from Deficiency Income Tax P4,622,212.41 15-Apr-09 Deficiency VAT 56,913.32 25-Jan-09 Deficiency EWT 592,630.87 11-Jan-09 Deficiency WTC 24,814.45 11-Jan-09 b) Delinquency interest at the rate of 20% per annum on the total amount of P6,620,713.81 and on the 20% deficiency interest which have accrued as aforestated in (a) computed from September 28, 2012 until December 31, 2017, pursuant to Section 249 (C) of the NIRC, as amended; and cDHAES c) Delinquency interest at the rate of 12% per annum on the unpaid amount of P6,620,713.81 and the deficiency and delinquency interest computed in (a) and (b) above, from January 1, 2018 until such amount is fully paid, pursuant to the pertinent provisions of R.A. No. 10963, otherwise known as Tax Reform for Acceleration and Inclusion (TRAIN). SO ORDERED. (SGD.) ESPERANZA R. FABON-VICTORINO Associate Justice Juanito C. Castaeda, Jr.,Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova and Cielito N. Mindaro-Grulla, JJ. ,concur. Roman G. del Rosario, P.J. ,with Concurring and Dissenting Opinion. Ma. Belen M. Ringpis-Liban, J. ,with due respect, I join the CDO of J. CTM. Catherine T. Manahan, J. ,with due respect, I maintain my CDO. Separate Opinions DEL ROSARIO , P.J.,concurring and dissenting opinion : I concur with the findings and conclusions of the ponencia except for its pronouncement on the motu proprio imposition of the twenty-five percent (25%) surcharge by the Court in Division. I maintain my position that the imposition of surcharge is void as it deprives petitioner of its right to due process of law, which I expounded in my Concurring and Dissenting Opinion dated November 16, 2017. Anent the ponencia's ruling in the imposition of interest, I must register my dissent. In view of the effectivity of Republic Act No. 10963 (TRAIN Law) on January 1, 2018, I submit that the imposable delinquency interest and deficiency interest on petitioner's deficiency income tax liability should be 12%, pursuant to Section 249 of the National Internal Revenue Code (NIRC) of 1997, as amended by the TRAIN Law. It must be emphasized that deficiency interest and delinquency interest on tax are based on law. When the law is amended during the pendency of a case, and there being a specific provision as to when the amendment becomes effective, there is no reason for the Court not to apply the law as amended. Parenthetically, the TRAIN Law made a substantial modification on the rate of deficiency interest and delinquency interest, and the mode by which such interests may be computed. A comparison of the provisions of Section 249 on interest under the NIRC and its amendment under the TRAIN Law would readily highlight the radical incongruity, viz .: Section 249, NIRC of 1997, as amended Section 249, NIRC, as amended by the TRAIN Law Deficiency Interest 20% per annum ,from the date prescribed for its payment until the full payment thereof Deficiency Interest 12% per annum ,from the date prescribed for its payment until: (i) the full payment thereof; or (ii) upon issuance of a notice and demand by the Commissioner of Internal Revenue, whichever comes earlier Provided that in no case shall the deficiency and delinquency interest be imposed simultaneously Delinquency Interest 20% per annum ,until fully paid Delinquency Interest 12% per annum ,until fully paid The comparative provision of Section 249, before and after its amendment by the TRAIN Law vis--vis the imposition of interest in the ponencia ,is graphically shown hereunder: From the foregoing, it is readily apparent that Section 249 of the NIRC of 1997, as amended by the TRAIN Law, incorporates three (3) provisos that cannot be applied without setting aside the original version of Section 249 of the NIRC of 1997: First , the TRAIN Law prescribes 12% interest, which is double the legal interest rate for loans or forbearance of money, while the old provision prescribes the rate of 20% per annum; Second , under the TRAIN Law, the deficiency interest is computed from date prescribed for its payment: (i) until the full payment thereof; or (ii) until the issuance of a notice and demand by the CIR, whichever comes earlier. The old version confined its computation strictly from the date prescribed for its payment until the full payment thereof; and Third , the TRAIN Law proscribes the simultaneous imposition of deficiency interest and delinquency interest, which the old version allows. In other words, since the TRAIN Law clearly became effective on January 1, 2018 , there can be no logical and practical approach than to apply it in accordance with its clear language. Thus, the computation of deficiency interest should now be in accordance with the TRAIN Law, that is at 12% and only until demand; while delinquency interest at the rate also of 12% should be from the due date appearing in the notice of demand until full payment. In computing deficiency and delinquency interests, the provisions of the TRAIN Law are not being applied retroactively. At the time that petitioner is adjudged liable to pay the deficiency taxes with corresponding deficiency interest and delinquency interest, the prevailing provisions are that of the TRAIN Law which specifically state that there shall be no simultaneous imposition of deficiency and delinquency interests . Thus, the Court has no recourse but to apply the same. To be sure, there is nothing in the TRAIN Law which provides that the rate and manner of computing deficiency and delinquency interests shall be applied only to assessments issued after TRAIN Law's effectivity. It is clearly and plainly provided that upon TRAIN Law's effectivity, "in no case shall the deficiency and delinquency interests be imposed simultaneously." In view of the effectivity of the TRAIN Law on January 1, 2018, the amendatory provisions of the TRAIN Law on the imposition of deficiency and delinquency interests must be applied in determining the amount of petitioner's tax liability. All told, I VOTE to: (i) DENY the Motion for Reconsideration filed by the Commissioner of Internal Revenue for lack of merit; (ii) PARTIALLY GRANT the Motion for Reconsideration filed by FSM Cinemas, Inc.; (iii) MODIFY the October 2, 2015 Decision of the Court in Division relating to the twenty-five percent (25%) surcharge which should appropriately be CANCELLED and SET ASIDE ;and (iv) ORDER FSM Cinemas, Inc. to PAY the Bureau of Internal Revenue the amount of P5,296,571.05 and to PAY the Bureau of Internal Revenue the following: (a) Deficiency interest at the rate of 12% per annum on the basic deficiency income tax, value-added tax, expanded withholding tax, and withholding tax on compensation for taxable year 2008 computed from the date prescribed for payment as indicated below until June 27, 2011 , the date of FSM Cinema, Inc.'s receipt of the Formal Assessment Notice dated June 23, 2011, pursuant to Section 249(B) of the NIRC of 1997, as amended by the TRAIN Law. TAX TYPE BASIC TAX DEFICIENCY INTEREST COMPUTED FROM Income Tax P4,622,212.41 April 15, 2009 Value-added Tax 56,913.32 January 25, 2009 Expanded Withholding Tax 592,630.87 January 11, 2009 Withholding Tax on Compensation 24,814.45 January 11, 2009 (b) Delinquency interest at the rate of 12% per annum on the total amount of P5,296,571.05 and on the 12% deficiency interest which have accrued as aforestated in item (a) above, computed from July 25, 2011 1 until the amount is fully paid, pursuant to Section 249(C) of the NIRC of 1997, as amended. Footnotes 1. Rollo ,p. 127. 2. P13,438,183.55. 3. Records verification report dated April 27, 2018. 4. See Commissioner of Internal Revenue vs. Court of Appeals, et al. ,G.R. Nos. 104151 and 105563, March 10, 1995. 5. See Philippine Refining Company vs. Court of Appeals, et al. , G.R. No. 118794, May 8, 1996. 6. Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue ,G.R. No. 158885, October 2, 2009. 7. Section 249. Interest xxx (B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Section (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until full payment thereof. 8. G.R. Nos. 106949-50, December 1, 1995. 9. Now Section 247(a) of the NIRC, as amended. 10. Effective July 1, 2013, BSP Circular No. 799 ,series of 2013 prescribes a 6% per annum rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express stipulation in loan contracts. See University of Pangasinan, Inc. vs. Fernandez ,G.R. No. 211228, November 12, 2014. 11. Unpaid amount refers to the sum of: basic deficiency tax + 25% surcharge + 20% deficiency interest. 12. Unpaid amount refers to the sum of: basic deficiency tax + 25% surcharge + 20% deficiency interest + 20% delinquency interest in prescribed in (2). DEL ROSARIO, P.J.,concurring and dissenting opinion: 1. The due date appearing in the Assessment Notice dated June 23, 2011.