People v. Marcos, Jr.

SPECIAL THIRD DIVISION [CA-G.R. CR No. 18569. October 31, 1997.] THE PEOPLE OF THE PHILIPPINES , plaintiff-appellee , vs. FERDINAND R. MARCOS, JR . , accused-appellant . DECISION PARAS , J p : In the instant appeal, the accused Ferdinand R. Marcos, Jr. questions the Decision dated July 27, 1995 of the Regional Trial Court (RTC), Branch 105 of Quezon City in Criminal Case Nos. Q-91-24390, Q-91-24591, Q-92-29212 to Q-92-29217 finding him guilty beyond reasonable doubt of violations of Sections 45 and 50 of the National Internal Revenue Code (NIRC) of 1977, as amended. Ferdinand R. Marcos, Jr. (Marcos, Jr. for short) served as Provincial Governor of Ilocos Norte beginning November 3, 1982 until 1986 when he, together with the other members of the Marcos family, was forced into exile in February, 1986. It was only on October 31, 1991 that the accused was allowed to set foot once more on Philippine soil, but with several warrants for his arrest awaiting him. Pursuant to the recommendation of then Commissioner of Internal Revenue Jose U. Ong (Commissioner) to the Secretary of Justice in a letter dated July 25, 1991, Marcos, Jr. was charged criminally with four (4) counts each of violation of Sections 45 and 50 of the NIRC, as amended, for having failed, respectively, to file his income tax returns, as Governor of Ilocos Norte, for the taxable years 1982 to 1985 and to pay the corresponding deficiency taxes due thereon; i.e. , P107.80 for 1982, P3,911.00 for 1983, P1,828.48 for 1984 and P2,656.95 for 1985, exclusive of surcharges and interests. Upon arraignment on December 9, 1991, the accused with the assistance of counsel, pleaded not guilty to the aforesaid charges. The accused having waived the conduct of a pre-trial, joint trial of the aforesaid cases ensued. Borne by evidence is that the Special Tax Audit Team (STAT) created on June 27, 1990 by the Commissioner, particularly tasked with the determination of the internal revenue tax liabilities of the estate of the former President Ferdinand E. Marcos, his immediate family, cronies and associates, conducted the necessary investigation for such purpose. The trial court found: "The team ascertained that accused, former Vice-Governor and later Governor of Ilocos Norte from November 3, 1982 up to March 31, 1986, received salary income per Certification issued by Paula Pastor, in the amount of P243,650.80 (Exh. A), Certification issued by Gloria G. Agodon of the taxes withheld (Exh. B) and Memorandum dated July 22, 1991 issued by Norma Herrera (Exhibit C). His annual gross salaries were as follows: P10,759.17 (1982), P78,215.83 (1983), P64,555.00 (1984), P78,780.00 (1985). Per investigation of the team, he had an income tax deficiency, including increments, of P258.70 for 1982 (Exh. D). Based on the Provincial Payrolls of Ilocos Norte (Exhs. Z to Z94) which were signed by Paula Pastor, then Ilocos Norte Assistant Provincial Treasurer and Officer-in-Charge in 1982 to 1985 and submitted to the team by Alvaro Jasa, Provincial Auditor of Ilocos Norte, who has custody of payrolls for ten years for safekeeping, the accused received his salaries from November, 1982 to February, 1986. According to Paula Pastor, based on the payroll the accused received his salary for the period starting November 16, 1982 to November 30, 1982. Thereafter, the accused instructed her to deposit all of his succeeding salaries, bonuses, allowances, pay incentives, differentials and other benefits with the bank under his name. Starting December 16, 1982, it was Avelina Morales, Cash Disbursement Officer of the Provincial Treasurer's Office, who actually deposited the money in a savings account (SA-79599) under the name of the accused with the Philippine National Bank, Laoag City Branch, Ilocos Norte, as evidenced by PNB savings deposit slips and the passbook was sometimes given to the accused. Per bank ledger of account No. SA-79599 of the accused (Exh. BB), the first deposit was made on December 15, 1982 and the last deposit was on February 13, 1986. The total deposit from December 1982 up to February, 1986 was P351,347.76. There was only one withdrawal on March 3, 1986 in the amount of P350,000.00, leaving a balance of P6,531.40. According to Judy Francisco, former PNB Assistant Cashier of the Laoag City Branch, the account was not closed. A summary was submitted (Exh. Z-89). Based on the testimonies of Susana Dagdagan (Chief, Administrative Branch, Revenue Region I, BIR, Baguio City), Gloria Agodon, Revenue Collection Officer of Laoag City, Perseveranda Pimentel, Feliciano Siva (Senior Record Officer of Revenue Information Service, Inc.) and Lydia Aguinaldo (Records Unit, Administrative Branch, Region 4 B-1, Delta Bldg., Quezon City), there is no record whatsoever that the accused filed in the Philippines or abroad his income tax returns for the taxable years from 1982 to 1985 (See Exh. L, M, N and O-Certifications). For 1982, his income tax due was P258.70. Since he did not file an income tax return, the team prepared an income tax form for said tax liability (Exh. E), but no payment was made by the accused pursuant to Section 16 (a) of the 1977 Tax Code. For 1983, his income tax, including increments, was computed at P9,386.40 (Exh. F). No income tax return having been filed by the accused, the team prepared the necessary income tax return for 1983 (Exh. G). In 1984, the accused earned P64,555.00 and after deducting the withholding tax, the tax deficiency or income tax due, including increments, was P4,388.00 (Exh. H). No income tax return having been filed, one was prepared by the team (Exh. I). The accused earned P78,780.00 in 1985 and after deducting the withholding tax, the income tax due amounted to P6,376.50, including increments (Exh. J). Again, no income tax return was filed by the accused so that one was made by the team (Exh. K). For tax year 1982, the last day for filing an income tax return was March 15, 1983; for 1983, it was March 15, 1984; for 1984, it was March 15, 1985; and for 1985, it was March 15, 1986. The taxes due should have been paid by the accused upon the filing of his income tax returns. Since the accused failed or omitted to do so, the sending of an assessment notice may be dispensed with as provided under Section 319 of the Tax Code. Nevertheless, Mamerto C. Ribo prepared a Notice to Taxpayer dated July 26, 1991 (Exh. P), together with Assessment Notices (for 1982 to 1985) Nos. FAC-1-82-91-002460 (Exh. Q), FAC-1-83-91-002461 (Exh. R), FAC-84-91-002462 (Exh. S), and FAC-1-85-91-002463 (Exh. T). Per Memorandum Report dated August 26, 1991 of Cynthia Catolico, Records Enforcement Officer of the BIR Collection Enforcement Division, the assessment notices were constructively served at the given address of the accused at Don Mariano Marcos corner P. Guevarra Streets, San Juan, Metro Manila (Exh. V). She served Notice to Taxpayer to the accused (Exh. P) on August 23, 1991. Since the accused was not there at the time and place of service, the notice was handed to the caretaker by the name of Arturo Martinez. She served four assessment notices for 1982 to 1985 (Exh. Q), including the tentative computations (Exhs. P-2 to P-5) and the enforcement Officer's Audit Reports (Exhs. Q, R, S and T). xxx xxx xxx Defense evidence consists of the testimonies of the accused and Paula Pastor, and the stipulated testimony of Arnel Bernardo, including Exhibits 1-Z to 1-Z-89, 1-Z-5-A, 1-Z-7-A, 1-Z-9-A, 1-Z-11-A, 1-Z-13-A, 1-Z-15-A, 1-Z-17-A, 1-Z-21-A, 1-Z-23-A, 1-Z-26-A to 1-Z-29-A, 1-Z-28-A-1, 1-Z-29-A-1, 1-Z-5-B, 1-Z-7-B, 1-Z-9-B, 1-Z-11-B, 1-Z-13-B, 1-Z-15-B, 1-Z-17-B, 1-Z-19-B, 1-Z-21-B to 1-Z-23-B, 1-Z-26-B, 1-Z-27-B, 1-Z-30-B, together with other similar sub-markings, 2, 3, 4 and 5 which were admitted in evidence by the Court. The accused testified that from November, 1982 to February, 1986, his residence as Provincial Governor was in Batac, Ilocos Norte. After receiving his first salary, he told Paula Pastor, OIC Provincial Treasurer, to put all his salaries in a bank in the form of a scholarship foundation for the poor. According to Paula Pastor, the salaries of the accused were thereafter deposited with the PNB, Laoag City Branch, thru Adelina Morales. She kept the passbook every now and then and when there was a deposit to be made, she gave the passbook to Adelina Morales. After the deposit was made, the passbook was returned to her; thereafter, she checked whether the deposit was posted. Based on the payrolls, there was no tax withheld for the income earned by the accused from November to December of 1982. In the payrolls for 1982, however, the total gross income was P10,284 but in the Informations in Criminal Case Nos. Q-2913 and 2916 the amount stated was P10,759.70. Further, in the 1983 payrolls, the total gross income of the accused was P64,298.00 but in the Informations in Criminal Case Nos. Q-29212 and 29215, the stated amount was P78,215.83. Furthermore, in the payrolls for 1984, the total gross income of the accused was P62,405.00 but in the Informations in Criminal Case Nos. Q-29217 and 29214, the amount stated was P64,655.00. In addition, the withholding tax for 1983 was P4,864.00 (which is different from the BIR's computation of P5,055.00 (See Exhibits 1-Z to 1-Z-30-B, subject of stipulation). When the accused returned to the Philippines in late October of 1991, he learned of these cases. He was surprised because he always thought that his staff took care of the filing of his income tax returns. He does not recall if he filed his returns from 1982 to 1985, and he has no proof that his staff filed his returns. He was not reminded by his staff about the filing of income tax returns. He did not receive any demand letter, notice to taxpayer or notice of assessment from the BIR regarding his income tax liability before or after February, 1986 up to the filing of these cases. Further, he was not also aware of the investigation conducted by the Special Tax Audit Team. Upon his return, he discovered that there was a withdrawal from his PNB bank account in Laoag City in March, 1986 when he was still in Hawaii. He does not know who made the withdrawal and he did not authorize anyone to withdraw from the bank." On July 27, 1995, the trial court rendered Decision, the dispositive portion thereof stating: "WHEREFORE, the Court finds accused Ferdinand Romualdez Marcos II guilty beyond reasonable doubt of the National Internal Revenue Code of 1977, as amended, and sentences him as follows: 1. To serve imprisonment of six (6) months and pay a fine of P2,000.00 for each charge in Criminal Case Nos. Q-92-29213, Q-92-29212 and Q-92-29217 for failure to file income tax returns for the years 1982, 1983 and 1984; 2. To serve imprisonment of six (6) months and pay a fine of P2,000.00 for each charge in Criminal Case Nos. Q-92-29216, Q-92-29215, and Q-92-29214 for failure to pay income taxes for the years 1982, 1983 and 1984; 3. To serve imprisonment of three (3) years and pay a fine of P30,000.00 in Criminal Case No. Q-91-24391 for failure to file income tax return for the year 1985; 4. To serve imprisonment of three (3) years and pay a fine of P30,000.00 in Criminal Case No. Q-91-24390 for failure to pay income tax for the year 1985; and, 5. To pay the Bureau of Internal Revenue the taxes due, including such either penalties, interests and surcharges." Before this Court, the accused, now the appellant Marcos, Jr. chiefly assails the finding of the trial court that the failure of the BIR to comply with existing laws, i.e. , Section 51 (b) of the Tax Code, Memorandum Circular No. 12-85, Revenue Memorandum Order Nos. 28-83, 38-88 and 10-89, requiring prior notice to him was not in derogation of the due process and equal protection clauses of the Constitution. Tax collection remedies of the government include, inter alia , distraint and levy, civil and criminal actions (Section 302, NIRC, 1977). Particularly in the instant case, the BIR sought to collect the deficiency income taxes due from the herein appellant by pursuing his criminal prosecution by reason of his failure to file the requisite income tax returns for the taxable years 1982 to 1985. Section 319 of Presidential Decree No. 1158, otherwise known as the National Internal Revenue Code (Tax Code) of 1977, provides: "Section 319. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in a civil or criminal action for the collection thereof." Technically, therefore, when the BIR Commissioner chose to file criminal actions against the appellant, there was no necessity, for the purpose of commencing the same, for a previous assessment of his deficiency income tax liabilities. Thus, in view of the above considerations, the second paragraph of Section 51 (b) of the Tax Code which states that: "(b) Assessment and payment of deficiency tax. x x x In case a person fails to make and file a return or list at the time prescribed by law, or makes, willfully or otherwise, a false or fraudulent return or list, the Commissioner of Internal Revenue shall make the return from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case, the Commissioner of Internal Revenue may make a return or amend any return and any return so made or amended shall be prima facie good and sufficient for all legal purposes, unless the taxpayer can prove the contrary under proper proceedings to be determined by the Commissioner of Internal Revenue." could not have intended the phrase "under proper proceedings to be determined by the Commissioner of Internal Revenue" to refer to the Revenue Memorandum Orders adverted to by the appellant, which, especially Revenue Regulations No. 12-85, provide merely for the procedural steps that should be followed in administrative protests. These guidelines would have applied if the Commissioner, who has discretion to determine the appropriate collection remedy, instead opted to collect the appellant's tax liabilities through civil remedies and not the institution of criminal actions, as in the case at bench. Generally, the exercise of such discretion cannot be interfered with by the courts. However, where there are circumstances showing grave abuse or arbitrariness in the exercise thereof, the rule on non-interference would not apply ( Banco Filipino Savings and Mortgage Bank vs. Monetary Board, Central Bank of the Philippines , 204 SCRA 766). Briefly, the following are the circumstances by which the appellant claims to have been deprived of his constitutional right to due process of law: When the investigations for the determination of tax liabilities of the appellant, as well as the other members of the Marcos family, were conducted in 1990, he was out of the country, not of his own choice but was forced by the circumstances. The STAT report, the notice to the taxpayer and notices of assessment which were prepared by the team, were submitted to the Commissioner on July 26, 1991 (Exhibit 4). The income tax returns were likewise prepared by authority of the Commissioner on July 26, 1991 (Exhibits E, G, I and K). In the letter of the Commissioner to the Department of Justice dated July 25, 1991, the prosecution of the appellant has already been recommended (Exhibit BB). The Notice to Taxpayer was served at the address of the appellant at Don Mariano Marcos Ave. corner P. Guevarra, San Juan, Metro Manila on August 23, 1991 (Exhibit P). The notices of assessment were likewise served at the said address on September 12, 1991 (Exhibits U and V). The informations were filed in court between the period of September 20 and October 10, 1991. From the above circumstances, which are not disputed by the appellee, the appellant was not apprised of whatever action was taken by the government through the BIR from the time that the investigations commenced up to and until the Notice to the Taxpayer and the notice of assessment were sent to him on August 23, 1991 and September 12, 1991, respectively. While it is true that the revenue memorandum orders cited by the appellant cannot be made to apply to the case at bench as they govern the procedure for administrative protests, the principles of fair play dictate that the right of the appellant to be informed of the investigation and his tax liabilities before the institution of the criminal proceedings cannot altogether be denied. For the years 1982 to 1985, for which the n had been charged, he had been earning compensation/income from the government as Provincial Governor of Ilocos Norte. Thus, for those years, the appellant was duty-bound to pay his taxes through the withholding tax system (Section 91 (a), NIRC of 1977/Section 82 (g) of the NIRC, as amended by PD No. 1994). Except for the year 1982, the evidence discloses that corresponding withholding taxes were deducted from the appellant's gross income for the years 1983 to 1985 in the amounts of P5,348.42, P4,542.00 and P6,416.27, respectively, as embodied in Paragraph 2 of the Request for Stipulation dated April 4, 1994, which was admitted by the trial court after noting the comments and qualifications made by the prosecution in their Comment dated April 14, 1994. No deficiency assessment for the taxable years 1982 to 1985 was made on the part of the government against the appellant. It bears emphasis that the duty to withhold taxes from government employees, including elected officials like the provincial governor, has been reposed by law in the Government (Sections 90 (c); 94, NIRC of 1977). Consequently, any deficiency in the taxes so withheld is likewise attributable to and/or determinable by the government and not by the employee concerned (Section 91 (f), 1977 NIRC). The appellant had a right to rely on the computation and assessment by the BIR for whatever deficiency income taxes that may be due from him, as after all, it is the government itself which deducts from his gross income the taxes which he should pay, over which he has no control. Considering that the income of the appellant for the years herein involved had already been subjected to the withholding tax system, Section 51 (a) of the Tax Code, which provides that: "(a) Payment of Tax. 1. In general The total amount of tax imposed by this Title shall be paid at the time the return is filed." finds no application to the case at bench, contrary to the contention of the appellee that the tax liability of the appellant should have been paid by him at the time of filing his returns. Deficiency assessment is an exception to that general rule embodied in the aforequoted Section 51 (a) of the Tax Code (p. 134, NIRC, Annotated, Hector S. de Leon, 1979 Ed.) The appellee loses sight of the distinction between the so-called "pay-as-you-file system," which is contemplated by the aforequoted Section 51 (a), and the "withholding tax system" where, particularly in this case, the BIR merely seeks to impose deficiency income taxes upon the taxes already paid and withheld from the appellant. In the former, the total amount of income tax due shall be paid at the time the return is filed. The "date prescribed for the payment of the tax" is the date prescribed for the filing of the return. In the latter, the taxpayer does not merely deposit the amount withheld from him with the Commissioner but performs and extinguishes his tax obligations for the year concerned by contributing to the said withholding tax system ( Gibbs vs. Commissioner of Internal Revenue , 15 SCRA 318). Thus, as in the latter case, the appellant had in fact paid his tax liabilities for the taxable years concerned. The case of Ungab vs. Cusi (97 SCRA 877), principally relied upon by the trial court and the appellee, cannot apply to the case at bench. In that case, the deficiency tax was brought about by the taxpayer himself by intentionally misrepresenting his income earned for the year 1973. It was clearly stated therein that: "An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax . A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax . (at p. 884) (Underscoring Supplied). The circumstances in the Ungab case do not obtain in the case at bench. The deficiency in the tax of the appellant was not his own doing and its determination was not his obligation. Furthermore, there could be no attempt on his part, for his failure to file the necessary income tax returns, to evade and defeat the tax as he has in fact paid his tax obligations for the taxable years here-involved under the withholding tax system. In one case recently decided by the Supreme Court ( Commissioner of Internal Revenue, et al. vs. Court of Appeals , G.R. No. 119322, June 4, 1996) cited by the appellant, though the facts of the same do not square with the facts of the instant case, the High Court, seeing the necessity of a previous assessment before any criminal action may be commenced, did not strictly apply the provisions of the Tax Code. In the same manner, this Court deems it necessary that an assessment be initially made before the criminal actions should have been filed, considering that the appellant would not have known any deficiency income tax liability on his part without any computation or assessment from the BIR and he could not have intended to evade his tax liability as, it has been said, the taxes due had been withheld from him for the years concerned. Thus, insofar as the charges for non-payment of deficiency income tax liabilities are concerned, the appellant was entitled to notice of whatever tax liability which the BIR found after the tax returns had been prepared for him by the Commissioner. The question, therefore, of the sufficiency of the notice to the taxpayer and the notices of assessment sent by the BIR to the residence at San Juan, Metro Manila on August 23, 1991 and September 12, 1991, respectively, is brought to fore. The notices were sent to the appellant, received by a caretaker, only on August 23, 1991 and September 12, 1991 and the informations were filed in court between the period of September 20, 1991 and October 10, 1991. The Notice to Taxpayer (Exhibit P) gives the appellant 15 days from receipt of the same to explain his side of the case. With at least a month for the caretaker at the given address to relay the Notices to Taxpayer and only eight days with respect to the notices of assessment to the appellant, the latter had no ample opportunity to be apprised of and to pay his deficiency taxes before he was held to answer criminally for such deficiency taxes, the determination of which lies with the BIR. In view of the above circumstances, and considering that the appellant was then out of the country, a fact known to the appellee, and could not, therefore sufficiently react to the notices then sent to him, it was as if no opportunity had been given him to present his side of the case and to pay the tax liabilities before he was prosecuted. Considering the insufficiency of such notices, the appellant should not have been held to answer for the criminal charges filed against him for non-payment of deficiency income tax liabilities. However, due to the stipulation entered into between the appellant and the appellee with regard to the amount of deficiency income taxes of the former, the same should still be satisfied by him as the acquittal of the appellant does not carry with it the extinction of the civil liability ( Republic vs. Patanao , 20 SCRA 712). Surcharges, however, should not be imposed as Section 51 (e) (3) presupposes the compliance with the requirement of notice and demand for the payment of the deficiency taxes, which is lacking in the cases at bench. With regard to the charges for non-filing of the requisite income tax returns, the appellant was not able to prove otherwise. WHEREFORE, the Decision of the trial court is hereby MODIFIED as follows: 1. ACQUITTING the accused-appellant of the charges of violation of Section 50 of the NIRC for non-payment of deficiency taxes for the taxable years 1982 to 1985 in Criminal Case Nos. Q-92-29216, Q-92-29215, Q-92-29214 and Q-91-24390; and FINDING him guilty beyond reasonable doubt of violation of Section 45 of the NIRC for failure to file income tax returns for the taxable years 1982 to 1985 in Criminal Case Nos. Q-91-24391, Q-92-29212, Q-92-29213 and Q-92-29217; 2. Ordering the appellant to pay to the BIR the deficiency income taxes due with interest at the legal rate until fully paid; 3. Ordering the appellant to pay a fine of P2,000.00 for each charge in Criminal Case Nos. Q-92-29213, Q-92-29212 and Q-92-29217 for failure to file income tax returns for the years 1982, 1983 and 1984; and the fine of P30,000.00 in Criminal Case No. Q-91-24391 for failure to file income tax return for 1985, with surcharges. SO ORDERED. (SGD.) GLORIA C. PARAS Associate Justice Lourdes K. Tayao-Jaguros and Oswaldo D. Agcaoili, * JJ. , concur. Footnotes * Vice Justice Salvador J. Valdez, Jr. who is on leave. n Note from the Publisher: Copied verbatim from the official document.