Commissioner of Internal Revenue v. Tikicraft Industries, Inc.

THIRTEENTH DIVISION [CA-G.R. SP No. 24488. August 26, 1991.] (C.T.A. Case No. 4266) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . TIKICRAFT INDUSTRIES, INC., and COURT OF TAX APPEALS , respondents . D E C I S I O N ABAD SANTOS , JR ., J p : On October 8, 1984, private respondent received petitioners pre-assessment notice, dated September 14, 1984 for alleged deficiency income tax, withholding tax and fixed taxes for the fiscal years ended June 30, 1981 and June 30, 1982 in the total amount of P638,806.07. In a basic protest dated October 15, 1984, and filed on October 16, 1984, private respondent disputed the assessment, and requested for time to go over the docket of the case and file a supplemental memorandum. In a letter dated February 20, 1985 and filed on February 21, 1985 with the Sector Audit Review in the office of the petitioner, private respondent supplemented its basic protest, indicating therein its justification against the assessment. On May 22, 1985, private respondent received petitioner's Assessment Notice and Letter of Demand dated April 25, 1985 for deficiency income tax, withholding tax and fixed taxes for the fiscal years ended June 30, 1981 and June 30, 1982 for P592,431.60, P39,457.95, P3,809.86 and P3,594.06 respectively. On June 6,1985, private respondent filed its protest to the Assessment Notice and Letter of Demand alleging that said assessment was premature since it was protested at its proposed assessment stage and that the same is still being considered. It is incorporated therein its protests of October 15, 1984 and February 20, 1985 as forming integral parts of its protests. Meanwhile, on August 22, 1986, the President of the Philippines, by virtue of her law making power under the freedom Constitution, issued Executive Order No. 41 which declared a "One-Time Tax Amnesty covering unpaid income taxes for the years 1981-1985." It was later amended by Executive Orders Nos. 54 and 64. The latest amendment expanded the coverage of the amnesty and extended the period within which taxpayers may avail themselves of the tax amnesty under E.O. 41, as amended, until December 15, 1986. On December 15, 1986, private respondent availed of the provisions of E.O. 41 as amended, under File No. 32-F-00460-41-B with payment evidenced by the CB confirmation receipt #5684515 and payment order no. 9479701 both dated December 15, 1986. On June 9, 1987 the Chief of the Receivable Accounts Division sent private respondent a final tracer requesting payment of the aforementioned deficiency assessment. Private respondent in its letter dated June 26, 1987 protested said final tracer. As additional ground, it invoked its availment of the provisions of E.O. 41, as amended. In a letter dated March 30, 1988 but received by private respondent only on April 12, 1988, the petitioner issued his final decision on the matter finding private respondent liable for the amount of P597,686.71. Private respondent was further informed that its availment of tax amnesty under E.O. 41 did not cancel and/or close the deficiency income tax assessment as the same was issued as early as April 25, 1985 and "pursuant to Revenue Memorandum Order No. 42-86, an income tax case where a deficiency tax assessment has already been issued beginning January 1 up to August 21, 1986, may no longer qualify under E.O. 41." Not in conformity with the final decision of the Commissioner of the Internal Revenue, Tikicrafts filed a petition for review with the Court of Tax Appeals which was docketed as CTA Case No. 4266. On January 31, 1991 the Court of Tax Appeals rendered a decision in favor of herein private respondent, the decretal portion of which reads, "Wherefore, finding the petition well taken, the same is granted and the subject assessment is hereby cancelled and terminated. No costs." Not convinced therewith, the Commissioner of Internal Revenue filed the instant petition for review on certiorari. In its petition, Petitioner interposed the following assignment of errors: "1. WHETHER OR NOT A REVENUE MEMORANDUM ORDER, PROMULGATED BY PETITIONER TO IMPLEMENT A LAW IS VALID. 2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENT IN QUESTION WAS EXTINGUISHED BY REASON OF PRIVATE RESPONDENT'S AVAILMENT OF EXECUTIVE ORDER NO. 41, AS AMENDED BY EXECUTIVE ORDER NO. 64; 3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME THE PRESUMPTION OF VALIDITY OF ASSESSMENT." (pp. 10-11, Rollo) Since the first and second assigned errors are interrelated this Court resolves to discuss them jointly. The kernel of the controversy boils down to the issue of whether or not the Secretary of Finance in the exercise of its rule-making powers can expand the provisions of E.O. 41 as amended. Petitioner contends that the Revenue Memorandum Orders are valid and legal having been issued by a person in authority pursuant to par. 1, Section 245 of the Tax Code which reads. "The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code." In the same vein, Section 9 of E.O. 41, provides, "The Minister (Secretary) of Finance, upon recommendation of the Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations to implement this Executive Order." In the case at bar, the petitioner argues that private respondent's availment of the tax amnesty under E.O. 41 did not cancel the deficiency income tax assessment in view of the provisions of RMO 42-86 promulgated by the Secretary of Finance which reads, "3.3. Situational coverage of the expanded tax amnesty. Income, donors, estate, business and other internal revenue tax cases where a deficiency tax assessment had been issued beginning January 1 up to August 21, 1986 shall not likewise qualify under the expanded tax amnesty." Petitioner also anchors his claim on the provisions of par. 1.02 and 1.02.3 of Revenue Memorandum Order No. 4-87 which declares, "1.02. A certification by the Tax Amnesty Implementation Officer of the fact of availment of the said tax amnesty shall be sufficient basis for: xxx xxx xxx 1.02.3 In appropriate cases, the cancellation/withdrawal of assessment notices and letters of demand issued after August 21, 1986 for the collection of income, business, estate or donors taxes during the same taxable years." In brief, the fulcrum of petitioner's stand are the provisions of RMO 42-86 and RMO 4-87 in maintaining that herein private respondent is not qualified to avail of the tax amnesty under E.O. 41 as amended because the tax assessment of private respondent was issued as early as April 25, 1985. We find no merit in petitioner's contention. There is no gainsaying that regulations are entitled to great respect from the courts especially if followed for some considerable period of time (Molina vs. Rafferty, 39 Phil. 169; People vs. Hernandez 59 Phil. 272). While rules and regulations promulgated by the administrative authorities are entitled to great respect and weight from the courts, it is a well-ingrained through principle that the rules and regulations issued by administrative officials to implement a law in order to be valid must not go beyond the terms and provisions of the latter. Thus in the case of Juan vs. Musngi (155 SCRA), the Supreme Court held: "Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution. In further amplification this court had consistently ruled that administrative regulations under legislative authority by a particular department must be in harmony with the provision of the law, and should be for the purpose of carrying into effect its general provisions. By such regulation, of course, the law itself cannot be extended." In fine, the power of the Secretary of Finance to promulgate rules and regulations, upon recommendation of the Commissioner of Internal Revenue, for the effective enforcement of internal revenue laws, is subject to the limitation that said rules and regulations should not be in conflict with the terms and provisions of a pre-existing law. The interpretation forced upon us by the petitioner with respect to the coverage of those who can avail of the tax amnesty under the provisions of E.O. 41 as amended is erroneous. Petitioner also insists that E.O. 41 as amended must be given only prospective application. Obviously, the title of E.O. 41 itself as amended by E.O. 64 "Declaring a One-Time Tax Amnesty covering Income Taxes, . . . and the Tax on Business under Chapter II, Title V of the National Internal Revenue Code, as amended. for the years 1981-1986". suggests that the tax amnesty has to be given retroactive effect so to include in its coverage unpaid income and business taxes for the past years specifically mentioned, namely 1981 to 1985. It is basic tenet in our jurisprudence that generally all laws must be given prospective application. The same principle applies to rules and regulations promulgated by administrative authorities as held by the Supreme Court in ABS-CBN vs. Court of Tax Appeals 108 SCRA 142. "A ruling or circular issued by the Commissioner of Internal Revenue has no retroactive effect if to so apply them would adversely affect the taxpayers. By analogy, the aforecited rule may be applied to rules and regulations promulgated by the Secretary of Finance. Conversely, a rule or regulation may be given retroactive application if the same would be beneficial to the taxpayer, as in the case at bar. Furthermore, Section 4 of Executive Order No. 41 unequivocally enumerates those taxpayers who may not avail themselves of the tax amnesty, and evidently private respondent is not one of them. The exceptions enumerated in Sec. 4 of E.O. 41 read as follows: "a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14; b) Those with income tax cases already filed in Court as of the effectivity hereof. c) Those with criminal cases involving violations of the income tax already filed in court as of the effectivity hereof.' d) Those that have withholding tax liabilities under the National Internal Revenue Code, as amended, insofar as the said liabilities are concerned. e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of information furnished under Section 316 of the National Internal Revenue Code, as amended. f) Those with pending cases involving unexplained a/or unlawfully acquired wealth before the Sandiganbayan: g) Those liable under a Title Seven, Chapter Three (Frauds,, Illegal Exactions and Transactions) and Chapter Four (Malversation of Public Funds and Property) of the Revised Penal Code, as amended." It is well to stress that taxpayers whose tax assessments were issued prior to August 22, 1986 are not among the exceptions. Under the rule of " expressio unuis est esclusio alterius ," where a statute enumerates the subjects or things on which it is to operate it has to be construed as excluding from its effects all those not expressly mentioned." (Davis Place vs. Liquor Control Commission, 269 N.W., p 594). Likewise it is an elementary rule in statutory construction that an "an express exception, exemption or saving clause excludes the others." (Lewis Sutherland, Statutory Const. p. 494). Hence, since Section 4 of E.O. 41 specifically mentions the exceptions from the coverage of the tax amnesty, it necessarily follows that others not mentioned, such as taxpayers who were issued assessments prior to August 21, 1986, are not included in the exceptions. Even assuming for the sake of argument that RMO 42-86 is valid and has the force and effect of law, still the instant case is outside the purview of the additional exception provided therein because the subject assessment was issued on April 25, 1985 while those excepted are assessments issued beginning January 1, 1986 up to August 21, 1986. To expostulate that RMO 42-86 is silent on the year of January 1, this Court holds that petitioner must bear the consequences caused by the ambiguity of said provision because under the rule in statutory construction, "ambiguous provisions should be strictly construed against the party who caused the same" (Art. 1377 of the Civil Code). The statute which is being administered may not be altered or added by the exercise of the power to make the regulations thereunder (42 Am. Jur. 428). Verily, a rule or regulation promulgated by the Secretary of Finance can only be sustained if the same pass the test of conformity with the terms and provisions of the law. Regulations in conflict with the law are null and void. For reasons aforecited. We find that the questioned Revenue Memorandum Orders promulgated by the Secretary of Finance have the effect of expanding the provisions of Sec. 4 of E.O. 41 by including therein exceptions not contemplated by said law, hence, the same are held to be null in void. On the third assignment of error: Petitioner contends that private respondent failed to overcome the presumption of validity of the questioned rulings of the Commissioner of Internal Revenue. Again, there is no merit in this contention. Even granting that the questioned assessment is valid, private respondent's availment of the tax amnesty under E.O. 41 as amended in effect cancelled and/or closed its deficiency income tax assessment in the amount of P598,431.00 for the fiscal year ended June 30, 1981. There is no denying that the availment by private respondent of the tax amnesty entails the enjoyment of the immunities and privileges set forth in Sec. 6 of E.O. 41 including relief from any income and business tax liabilities from 1981 to 1985. Therefore, the questioned assessment although presumed valid is rendered moot and academic by virtue of private respondent's availment of the tax amnesty. WHEREFORE, in view of the foregoing considerations, the petition for review is DENIED for lack of merit. Consequently, the decision appealed from is hereby AFFIRMED. SO ORDERED. Buena and Gonzaga-Reyes, JJ., concur.