Commissioner of Internal Revenue v. Court of Tax Appeals

FOURTEENTH DIVISION [CA-G.R. SP No. 22530. June 11, 1992.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . COURT OF TAX APPEALS, HOLIDAY INN (PHIL.), INC., and HOLIDAY INN, Manila , respondent . D E C I S I O N GALVEZ , J p : Petition for Certiorari filed by the Commissioner of Internal Revenue to review and set aside the Decision rendered by respondent Court of Tax Appeals (CTA directing said petitioner to grant a refund and/or tax credit to private respondents (Phil.), Inc. and Holiday Inn manila (collectively, "Holiday Inn" for brevity), in the amount of P31,939.00 representing overpaid branch profit remittance tax for profits realized in the years 1978 and 1979. The factual antecedents are undisputed. Private respondent Holiday Inn (Phil.), Inc. is a resident foreign corporation engaged in hotel business with principal office address in the Philippines at No. 1700 Roxas Boulevard, Pasay City, Metro Manila; the other private respondent, Holiday Inn Manila is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, likewise engaged in the hotel business and with the same principal office as the former. By virtue of Section 24(b) (2) (ii) of the Tax Code of 1977 dealing on foreign corporations (now Sec. 25 (a) (5)) which requires that "any profit remitted abroad by a branch office to its mother company shall be subject to tax of fifteen percent (except those registered with the Export Processing Zone Authority), private respondents, for profits realized in the years 1978 and 1979, paid a profit remittance tax in 1978, 1979, and 1980, detailed as follows: DATE PAID OFFICIAL/CONFIRMATION AMOUNT May 24, 1978 RTR 33005593 P27,439.00 July 19, 1978 RTR 32712605 7,612.00 October 16, 1978 RTR 36608283 27,032.00 January 22, 1979 RTR A 0252296 33,928.00 January 23, 1979 CR A 0959424 July 19, 1979 RTR A 2153379 69,328.00 CR A 2844958 October 17, 1979 RTR A 2578059 46,231.00 October 19, 1979 CR A 3144661 January 17, 1980 RTR A 2756263 33,296.00 January 18, 1980 CR A 3566700 33,296.00 TOTAL : P244,866.00 ========== However, in a Bureau of Internal Revenue ruling dated January 21, 1989 issued by then Acting Commissioner of Internal Revenue Efren I. Plana, Section 24(b) (2) (ii) hereinbefore quoted was interpreted to mean that "the tax base upon which the 15% branch profit remittance tax . . . shall be imposed . . . (is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made." Said ruling is hereinbelow quoted as follows: "In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch profits remittance tax provided for under Section 24(b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branch profit shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out of which the remittance is to be made . "Please be guided accordingly." (Emphasis ours) Invoking the aforequoted ruling, private respondents, on April 30, 1980, claimed through their accounting firm, as refund from petitioner, the sum of P31,939.00 representing overpaid branch profit remittance taxes for the years 1978, 1979, and 1980, broken down as follows: Total Branch Official Profit Available Confirmation Date Tax Correct f o r Receipt No. Paid Paid Tax Due Overpayment 1978 CALENDAR QUARTERS: 1ST QUARTER P182,824.00 RTR 33005593 052478 P27,439.00 P23,860.00 P3,579.00 2ND QUARTER 50,745.00 RTR 32712606 071978 7,612.00 6,619.00 993.00 3RD QUARTER 180,215.75 RTR 36608283 101678 27,032.00 23,506.00 3,526.00 4TH QUARTER 226,184.98 RTR A0252296 012279 33,928.00 29, 502.00 4,426.00 CR A0959424 012379 1979 CALENDAR QUARTERS: 2ND QUARTER 462,189.50 RTR A2153379 071979 69,328.00 60,286.00 9,042.00 CR A2844958 071979 3RD QUARTER 308,210.00 RTR A2578059 101779 46,231.00 40,201.00 6,030.00 CR A3144661 101979 4TH QUARTER 221,974.00 RTR A2756263 011780 33,296.00 28,953.00 4,343.00 CR A3566700 011880 TOTAL: P31,939.00 ========== Apprehensive that they might be overtaken by the two-year prescriptive period provided for in Section 292 (now Section 204[3] of the Tax Code within which to institute judicial action for the recovery of overpaid branch profit remittance tax, private respondents, on May 5, 1989, filed a petition for review with the Court of Tax Appeals for the recovery of said amount of P31,939.00. On December 20, 1989, the Court of Tax Appeals rendered its decision on the case, the dispositive part of which reads: "WHEREFORE, respondent Commissioner of Internal Revenue is ordered to grant a refund and/or tax credit to petitioners Holiday Inn (Philippines) Incorporated and Holiday Inn Manila in the amount of P31,939.00 representing overpaid branch profits realized in the years 1978 and 1979. SO ORDERED." Not agreeable with the foregoing, the Commissioner of Internal Revenue filed a petition for review on certiorari with the Honorable Supreme Court, which, in turn, referred the same to us for consideration and adjudication on the merits (SC Resolution dated July 4, 1990, G.R. No. 92381). In arriving at its judgment, the Court of Tax Appeals relied mainly on the ruling in Commissioner of Internal Revenue vs. Burroughs Ltd. and the Court of Tax Appeals, 142 SCRA 324. We quote at length the assailed decision of respondent Court: "Four square with the case at bar on this point, by reason of the exact or close identity, of the factual settings, provisions of law as well as BIR ruling and memorandum involved, and the issue litigated, is Commissioner of Internal Revenue vs. Burroughs Limited and the Court of Tax Appeals, G.R. No. 66653, June 19, 1986, 142 SCRA 324. Because of its controlling effects on the instant case, we will quote at length from the decision. We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24(b) (2) (ii) which states: 'SEC. 24. Rates of tax on corporations. . . . (b) Tax on foreign corporations. . . . (2) (ii) Tax on branch profits remittances . Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15%) . . ." In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax . . . shall be imposed . . . (is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made.' xxx xxx xxx Applying therefore, the aforequoted ruling, the claim of private respondent (petitioners) that it made an overpayment in the amount of P172,058.90 (P31,939.00 in this case) which is the difference between the remittance tax actually paid of P1,147,058.70 (P244,866.00) and the remittance tax that should have been paid of P974,999.89 (P212,927.00), is well taken. As correctly held by respondent Court in its assailed decision 'Respondent concedes at least that in this ruling dated January 21, 1980 he held that under Section 24(b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of P1,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90.' Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states 'Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad.' Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited (petitioners Holiday Inn [Phils.], Inc. and Holiday Inn Manila) paid the branch profit remittance tax in question on March 14, 1979 (from May 24, 1978 to January 18, 1980). Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code. The prejudice that would result to private respondent Burroughs Limited (petitioners Holiday Inn [Phils.], Inc. and Holiday Inn Manila) by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90 (P31,939.00). And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited (petitioners Holiday Inn [Phils.], Inc. and Holiday Inn Manila) does not fall under any of them." We agree with the Court of Tax Appeals that the Burroughs ruling squarely applies to the present case. And consequently, for us to rule in favor of petitioner would be to go against the grain of the principle of stare decisis so well ensconced in this jurisdiction. In the light of the BIR ruling of January 21, 1980, therefore, the branch profit remittance tax due from private respondents for the years 1978 and 1979 should be P212,927.00, and not P244,866.00, and the difference of P31,939.00 which they overpaid, should be returned to them. Petitioner, however, argues that the January 21, 1980 ruling was subsequently clarified in an October 23, 1981 BIR ruling which explained that: "The above ruling (of January 21, 1989) merely emphasized the distinction between the total branch profit which is remittable and that portion of the branch profit actually remitted without deduction on account of the tax to be paid ." which was in turn supplemented by Revenue Memorandum Circular No. 8-82 issued on March 17, 1982, which reads: "REVENUE MEMORANDUM CIRCULAR NO. 8-82 "SUBJECT: Clarification as to proper tax base in the computation of the 15% branch profit remittance tax. "TO: All Internal Revenue Officers and Others Concerned. "In BIR Ruling No. 016-79 dated April 18, 1979 anent the 15% branch profit remittance tax as an income tax imposed under Section 24(b) (2), National Internal Revenue Code of 1977, as amended, this Office ruled that . . . the 15% branch profit remittance tax should be based on the amount of P1,504,330.43 representing profit derived from the disposition of the shares, 15% of which is P225,649.57. "It will be noted that the basis of the computation in accordance with the ruling is profit without deduction for the 15% tax ." "On January 21, 1980, this Office, in another ruling issued in answer to a query as to the tax base upon which the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. "As the latter ruling seems to have given rise to some misconception that it modified BIR Ruling No. 016-79 with respect to the manner of computations of the 15% branch profit remittance tax, this Office issued a clarificatory ruling on October 23, 1981 explaining "The above ruling (of January 21, 1980) merely emphasized the distinction between the total branch profit which is remittable and that portion of the branch profit actually remitted without deduction on account of the tax to be paid. "The phrase 'any profit remitted abroad' should be construed to mean the profit to be remitted. Hence, there must be an actual remittance, as distinguished from profit which is remittable. "To give an example: If the total branch profit is P115,000.00 but the amount to be remitted is only P100,000.00, then the tax base should be P100,000.00. "However, the 15% profit remittance tax imposed by Section 24(b) (2) of the Tax Code is an income tax. It is therefore clear that the same is non-deductible from the (gross) profit income. Inasmuch as the tax is an exaction on profit realized for remittance abroad, the deduction thereof as an expense is not sustained by law since nowhere in Section 30 of the Tax Code is it provided that the same is deductible. Besides, deductions from gross income are matters of legislative grace, what is not expressly granted by law is deemed withheld. "Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad." "It is desired that this Circular be given as wide a publicity as possible. (SGD) RUBEN B. ANCHETA Acting Commissioner" It is the submission of petitioner that Section 327 of the 1977 Tax Code (now Section 246 of the Tax Code of 1986) which prohibits the retroactivity of BIR rulings if prejudicial to a taxpayer, does not apply to the case at bar because the subsequent BIR rulings dated October 23, 1981 and March 17, 1982, did not actually revoke, modify, nor reverse the earlier BIR ruling of January 21, 1980 (which is the basis of private respondents' claim for refund) but merely clarified the "misconceptions" that the January 21, 1980 ruling have created as to the tax base of the branch profit of the remittance tax. In fine, since the subsequent clarificatory rulings of petitioner dated October 23, 1981 and March 17, 1982, did not revoke nor reverse, but merely gave clarity to the earlier BIR ruling of January 21, 1980, the later rulings can be given a retroactive application. A reading however, of the Burroughs case shows that petitioner, in direct contradiction to what he now posits, adopted therein the stance that the January 21, 1980 BIR ruling was REVOKED by BIR Memorandum Circular No. 8-82 dated March 17, 1982, which posture was struck down by the Supreme Court as follows: "Petitioner contends that respondent is no longer entitled to a refund because Memorandum CircularNo.8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1989. The said memorandum circular states 'Considering that the 15% profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad.' "Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979 . Memorandum CircularNo.8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National InternalRevenueCode which provides 'SEC. 327. Non-retroactivity of rulings . Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following case 9a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gather by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or 9c) where the taxpayer acted in bad faith.' (ABS-CBN Broadcasting Corp. vs. CTA, 108 SCRA 151-152)." (pp. 328-329) Petitioner, under the principle of estoppel, cannot now be permitted to assume a contrary view to enable him to circumvent or go around the ruling laid down in Burroughs . While we are not unaware of the well-worn principle that the Government is never estopped from collecting taxes because of errors on the part of its agents (Zamora vs. CTA, 36 SCRA 77; Balmaceda, vs. Corominas & Co., Inc. 66 SCRA 555), such rule also admits of exceptions in the interest of justice and fair play. As explained in ABS-CBN Broadcasting Corporation vs. Court of Tax Appeals, 108 SCRA 142. "The insertion of Sec. 338-A (now Section 327) into the National InternalRevenueCode, as held in the case of Tuazon, Jr. vs. Lingad (58 SCRA 170) is indicative of legislative intention to support the principle of good faith. In fact, in the United States, from where Sec. 24(b) was patterned, it has been held that the Commissioner or Collector is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom (Ford Motor co. vs. U.S. 9 F. Supp. 580 (1935) or where there has been a misrepresentation to the taxpayer (J.W. Carter Music Co. vs. Bass, 20 F. 2d 390 [1927], pp. 151-152). In the light of the foregoing, we find no compelling reason to disturb the judgment of respondent Court of Tax Appeals. WHEREFORE, premises considered, the petition is hereby DENIED. No costs. SO ORDERED. Paras and Isnani JJ., concur.