Wyeth Suaco Laboratories v. Commissioner of Internal Revenue

THIRTEENTH DIVISION [CA-G.R. SP No. 16111. May 23, 1991.] (C.T.A. Case No. 3981) WYETH SUACO LABORATORIES , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents . D E C I S I O N BUENA , J p : This is a petition for review of the decision dated July 29, 1988 of the Court of Tax Appeals (CTA, for brevity) in CTA Case No. 3981 entitled "Wyeth Suaco Laboratories, Inc., Petitioner, vs. Commissioner of Internal Revenue, Respondent". The facts of the case are as follows: Petitioner Wyeth Suaco Laboratories, Inc. which has its principal office at 2236 Pasong Tamo Extension, Makati, Metro Manila, is a corporation organized and existing under the laws of the Philippines, and engaged in the manufacture and sale of pharmaceuticals and nutritional products. In a demand letter dated November 28, 1980, respondent Commissioner assessed the petitioner for alleged deficiency income for the fiscal year 1975 in the total amount of P15,139.86 and also for alleged withholding tax at source for the fourth quarter of 1975 in the amount of P143,528.71. The issue on the deficiency income in the amount of P15,139.86 had been settled by the petitioner's payment of the same. On January 29, 1981 however, the petitioner administratively protested the Commissioner's assessment on the withholding tax at source for the fourth quarter of 1975 in the amount of P143,528.71 on the ground that it was not liable for the alleged deficiency since it paid the withholding taxes during the time the amount of the royalties were paid or remitted to the non-resident payee relying on the CTA ruling that the obligation or the time to withhold and pay the tax at source on royalties due to non-resident payees is upon actual payment of remittance, and not upon mere accrual of the royalties in the payor's books. Said protest was however denied by the respondent Commissioner in his decision dated July 11, 1985 stating that withholding tax is not dependent on remittance of the income payable to the non-resident foreign corporation but on accrual thereof. Henceforth, the petitioner appealed to the respondent court. On July 29, 1988, respondent Court rendered its decision affirming the Commissioner's decision and ordering petitioner "to pay to respondent Commissioner the amount of P143,528.71 as deficiency withholding tax-at-source for the fourth quarter of 1975, plus surcharges and interests incident to the delinquency . . ." Hence, this petition for review. This petition was originally filed with the Supreme Court. However, its Third Division referred the case to this Court in a resolution dated October 17, 1988 (Rollo, p. 49). The sole issue to be resolved in this petition is: When does the liability of the petitioner as withholding agent, to withhold and pay the withholding tax on royalties due to a non-resident payee arise, at the time of its accrual or at the time of actual remittance of the royalties to the non-resident payee? The petition is devoid of merit. The petitioner insists that the same arises at the time of "actual remittance" of the royalties to its payee, pointing to the use of the words "income payment," income recipient" or "recipient of the income" in paragraphs (b), (e) and (f) of the National Internal Revenue Code as a clear indication that there is an income payment to a non-resident payee only when a remittance of the income is made is the basis and justification of its contention. Upon the other hand. We agree with the Solicitor General that this contention is specious, a distortion by petitioner of the provisions of Section 54 of the Tax Code by injecting its own words "actual remittance" when the word "actual" is nowhere to be found in said section. Moreover, the last sentence of Section 54 (a) of the National Internal Revenue Code on quarterly return and payment of taxes withheld at source, among others, is applicable to the present case. It states, thus, "The return shall be filed and the payment made within 25 days from the close of each calendar quarter " (The National Internal Revenue Code of the Philippines, Annotated, 1976, 5th Edition by Jose N. Nolledo). Further, subsection (e) of the aforesaid Section, as quoted by herein petitioner itself states that "Income upon which any tax is required to be withheld at the source under Section 53 shall be included in the return of its recipient but any amount of tax so withheld shall be credited against the amount of income tax as computed in his return. . . .; if the income tax collected at source is less than the tax due on his return, the difference shall be paid in accordance with the provisions of Section 51 " (Ibid.). While the record shows that the petitioner herein paid taxes within the prescribed period or on the 25th day after the close of the first two calendar quarters in 1975, it failed to pay the total amount due thereon, causing the huge balance to be carried over to the next succeeding quarters at the interest rate of fourteen per centum per annum. This is pursuant to the specific provisions of Section 51 of then Tax code governing the payment of tax which states, thus: "(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. Such tax shall be paid by the person subject thereto. "If the return is filed after the time prescribed by law, (including cares in which an extension of time for filing the return has been granted under Section 47 of this Code) there shall be paid at the time of such filing, the tax or installment which would have been payable on or before such time if the return had been filed within the time prescribed by law, and the remaining installment shall be paid at the time at which, and in the amount in which, it would have been payable if the return had been so filed, subject to the payment of interest at fourteen per centum per annum from the original due date ." (As amended by P.D. No. 778). xxx xxx xxx "(b) Assessment and payment of deficiency tax. After the return is filed, the Commissioner of Internal Revenue shall examine it and assess the correct amount of the tax. the tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal Revenue. xxx xxx xxx "(c) Definition of deficiency. As used in this Chapter in respect of a tax imposed by this title, the term "deficiency" means: (1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amount previously abated, credited, returned, or otherwise in respect of such tax ; xxx xxx xxx "(d) Interest on deficiency. Interest upon the amount determined as deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax, at the rate of fourteen per centum from the date prescribed for the payment of the tax (or, if the tax is paid in installments from the date prescribed for the payment of the first installment) to the date the deficiency is assessed. (emphasis Ours) "(e) Additions to the tax in case of non-payment. (1) Tax shown on the return. Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment is not paid on or before the date prescribed for its payment, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of fourteen per centum per annum from the date prescribed for its payment until it is paid: . . ." (As amended by PD No. 69). "(2) Deficiency . Where a deficiency, or any interest assessed in connection therewith under paragraph (d) of this section, or any addition to the taxes provided for in Section seventy-two of this Code is not paid in full within thirty days from the date of notice and demand from the Commissioner of Internal Revenue, there shall be collected upon the unpaid amount, as part of the tax, interest at the rate of fourteen per centum per annum from the date of such notice and demand until it is paid: . . . "(3) Surcharge . If any amount of tax included in the notice and demand from the Commissioner of Internal Revenue is not paid in full within thirty days after such notice and demand, there shall be collected in addition to the interest prescribed herein and in paragraph (d) above and as part of the tax a surcharge of five per centum of the amount of tax unpaid. Section 51, paragraph (e) of the Tax Code makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rates upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of section 51 of the Act for the payment of the amounts due. The provision therefore is mandatory in case of deficiency. It is obvious that the interest and surcharge are invariably considered as part of the tax, so that the rule governing payment of taxes on the dates fixed by law would apply, and would leave no room for discretion on the part of the revenue officials, or the Court of Tax Appeals for the matter (Commissioner of Internal revenue s. Limpan Investment Corporation, 34 SCRA 148). Therefore, the assessment of additional amount by way of deficiency interest is proper (Commissioner of Internal Revenue vs. American Airlines, Inc. 180 SCRA 274). Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it (Commissioner of Internal Revenue vs. Algue, Inc. 158 SCRA 9). This is the same rationale from which the Court of Tax appeals derived the ratiocination in its decision in Construction Resources of Asia, Inc. vs. The Commissioner of Internal Revenue which was sustained by the Supreme Court in its resolution dated December 10, 1984, in G. R No. 68413 when it denied the Petition for Certiorari filed by Construction Resources seeking to reverse said decision of the Tax Court, which held that: "The liability of petitioner to withhold and pay the income tax withheld-at-source from interests due to a non-resident foregoing corporation attaches at the time of the accrual of said interest and not at the time of actual payment or remittance thereof. "Payment of the withholding tax-at-source due from a foreign lender attaches upon accrual of the interest to the remitted abroad. The interest accrues at the time it is earned. At such time, the tax on the interest attached and the contractor is obligated to remit the tax to the government since it already and properly belongs to the government. Indeed, there is no reason why the overseas contractor, petitioner in this case, who is based in the Philippines should wait until it remits the interest due the foreign lender before paying the withholding tax-at-source. Otherwise, the government will be at the mercy of the taxpayer who may take time in remitting the interest to the foreign lender." (CA Rollo, pp. 60-61). Finally, the case of Bayer Pharmaceuticals, Inc. which is heavily relied upon by petitioner is not applicable for the simple reason that the facts thereof are different from those obtaining in this case. Bayer Pharmaceuticals, Inc. could not pay or remit the royalties in question to the non-resident foreign corporation. Bayer Aktiengesellschaft, Lever-Kusen Bayermerk in 1972 due to Central Bank restrictions then enforced, hence it was then under no obligation to withhold and pay income tax withheld at source on said royalties and therefore not liable for deficiency withholding tax at source assessed by respondent Commissioner of Internal Revenue. Verily, the pivotal element of the Central Bank restriction has not been alleged nor shown by evidence to have been the cause of petitioner's inability to withhold and pay the income tax withheld at source in the case at bar. In view of the above, we find that the Court of Tax Appeals did no commit any error of fact or law that will warrant a reversal of its decision. Factual finding of the Court of Tax Appeals can only be disturbed on appeals if not supported by substantial evidence (Sy Po vs. Court of Tax Appeals, 164 SCRA 524). WHEREFORE, the decision of the respondent court is hereby AFFIRMED in toto with cost against the petitioner. SO ORDERED. Gonzaga-Reyes and Abad Santos Jr., JJ. , concur.