B.F. Goodrich Philippines, Inc. v. Commissioner of Internal Revenue

[CA-G.R. SP No. 25100. February 14, 1992.] (C.T.A. Case No. 3237) B.F. GOODRICH PHILIPPINES, INC. (now SIME DARBY INTERNATIONAL TIRE CO., INC.) , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N DE PANO , J p : This is a petition for review of the decision dated March 29, 1991 in CTA Case No. 3237 "B.F. Goodrich, Phil., Inc. (now Sime Darby International Tire Co., Inc.) versus The Commissioner of Internal Revenue," whose dispositive portion reads, thus: "WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981 until fully paid provided that the maximum amount that may be collected as interest on delinquency shall in no case exceed an amount corresponding to a period of three years pursuant to Section 130(b)(1) and (c) of the 1977 Tax Code, as amended by P.D. No. 1705, which took effect on August 1, 1980." "SO ORDERED." (p. 17, rec.) The foregoing decision was the culmination of the petition filed by the petitioner questioning the assessment issued by the respondent Commissioner of Internal Revenue of "deficiency donor's tax in the sum of P1,020,850.40" levied on the petitioner's sale of the 995-hectare property situated in Tumagubong, Lamitan, Basilan to Siltown Realty Philippines, Inc. on June 21, 1974 for P500,000.00. The respondent Commissioner had first assessed taxes on the said sale by assessment dated April 23, 1975, levying taxes on the petitioner in the amount of P6,005.35, which amount was paid by the petitioner, and acknowledged in the respondent Commissioner's letter of confirmation No. 10115 which terminated the examination/investigation of the matter. A subsequent assessment, however, was made on October 10, 1980 which, because of questions raised by the petitioner, was modified by an assessment dated March 16, 1981, levying the amount of P1,020,850.40 representing deficiency donor's tax. This latter assessment was the fruit of an examination made by respondent Commissioner's examiners on the income, business and other tax liabilities of Siltown Realty Phils., Inc. (not on the petitioner's income, business, and other tax liabilities) which, to reiterate, arose from the petitioner's sale of its above-995 hectares to said Siltown Realty Phils., Inc., for P500,000.00. Revenue Examiner Valentin V. Santos had reported to the respondent Commissioner, the following: "1. SILTOWN REALTY PHILIPPINES, INC., B.F. Goodrich Bldg., corner Ayala and Buendia Avenues, Makati, Metro Manila was incorporated on May 20, 1974 and duly registered with the Securities and Exchange Commission under Registration Certificate No. 56186 dated May 29, 1974; "2. It is also registered with the Board of Investment under Registration Certificate No. 492 dated June 20, 1974. The certificate issued authorized subject taxpayer to engage in the realty business, primarily, to hold and acquire the land of B.F. Goodrich Philippines, Inc., subject, however, to the conditions that: "a) it will limit its landholding to the land excluding improvements thereon presently owned by B.F. Goodrich Philippines, Inc., and cd "b) it shall submit an annual report of its business activities on or before March 31 of each year, in accordance with the provisions of R.A. 5455. "3. Prior to the taxable year under review, a Deed of Sale was executed on June 21, 1974 by and between B.F. Goodrich Philippines, Inc. and Siltown Realty Philippines, Inc., whereby parcels of land situated in Tumajubong, Lamitan, Basilan owned by the former and containing an area of NINE HUNDRED NINETY FIVE (995) hectares, more or less, were sold to the latter for the principal sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00); xxx xxx xxx "5. Per tax declaration No. 1082 (2645) of the Register of Deeds of Basilan (certified true copy of tax declaration forming part of this report) filed by B.F. Goodrich Philippines, Inc. under P.D. No. 76 and sworn to accordingly on March 25, 1974, the value of the agricultural and urban landholdings of B.F. Goodrich Philippines, Inc. which is the subject of the foregoing Deed of Sale (No. 3 above) is P2,475,467.00 and P207,700.00, respectively, or an aggregate value of P2,683,467.00;" (Annex A, Petition; pp. 10-11, rec.) The respondent Commissioner, as a result of the above report, imposed the subsequent assessment on the basis of Section 111 of the National Internal Revenue Code of 1974, which provides, thus: "Sec. 111. Transfer for less than adequate and full consideration . Where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year." The petitioner subsequently brought the matter up to the respondent Court of Tax Appeals by petition for review, whose above decision contains the following summary of the assessments made against the petitioner, to wit: "Considering, therefore, the findings made by Us in this case, and comparing them with the computations and findings made by Revenue Examiner Valentin B. Santos (BIR Record, supra ), we deem that the total amount due from petitioner is as follows: Fair Market Value (under P.D. No. 76 Sold P2,685,467.00 Deduct: Selling Price 500,00.00 Amount subject to Donor's Tax for insufficient consideration under Section 111, NIRCP 2,183,467.00 Tax Due thereon P 615,577.00 Add: 50% Surcharge 307,788.50 14% Interest from 7/21/74 to 7/21/77 (42% Max.) 387,813.51 TOTAL AMOUNT DUE P1,311,179.01 (p. 16, rec.) The respondent Court of Tax Appeals, adopting the view of the respondent Commissioner, considered the transfer of the above properties by the petitioner to the Siltown Realty Phil., Inc. on June 21, 1974 for P500,000.00 as a transfer for insufficient consideration, viewing the difference between the sale price of P500,000.00 and declared value of the properties at P2,683,467.00, as a gift or donation from the petitioner to Siltown Realty Phil., Inc., subject to donor's tax. The respondent Court of Tax Appeals agreed with the respondent Commissioner that there was falsity involved in the transfer and, by authority of Section 15 of the 1974 National Internal Revenue Code, he made the above assessment, observing that the matter fell under the exceptions stated in Section 337 of the 1974 National Internal Revenue Code. The petitioner disagrees with the respondent Court of Tax Appeals; this has impelled the petitioner to file this petition for review. The petitioner now contends that the respondent Court of Tax Appeals erred in ruling: that the transfer of its former properties on June 21, 1974 to Siltown Realty Phil., Inc. was for insufficient consideration, which thus subjects it to the payment of insufficient donor's tax; that the transfer was not for full market value; and that the authority of the respondent Commissioner to make a subsequent assessment had not prescribed. The respondents, through the Solicitor General, have submitted their Comment to the petition, defending their action saying, in substance, that the petition is deficient in form; that the imposition of deficient donor's tax against the petitioner is lawful and justified; and that the authority to make such a subsequent examination has not prescribed. The Court finds for the petitioner. The subsequent assessment made by the respondent Commissioner on October 10, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the return for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and the assessment of taxes due for such year including that on the transfer of properties on June 21, 1974 was made on April 13, 1975 and acknowledged by letter of confirmation No. 101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Internal Revenue Code of 1974, which provides: "Sec. 331. Period of limitation upon assessment and collection . Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such a last day: Provided , That this limitation shall not apply to cases already investigated prior to the approval of this Code." It is not in dispute that the petitioner was first assessed for taxes on the transfer of petitioner's properties on April 23, 1975 in the amount of P6,005.35, which the petitioner had duly paid. The assessment of October 10, 1980 a subsequent assessment for the same taxable year, 1974, is certainly beyond the five-year prescription set in the above provision of law. The respondent court's decision uses Section 337 of the same Code to justify the respondent Commissioner's said subsequent assessment, which is justified on the ground of "falsity." This is one of the grounds used in Section 15 of the National Internal Revenue Code of 1974. It seems that this is applicable where no previous assessment has been made, as may be gleaned from the language of the provision, and/or where the assessment is made within the five-year period. What is involved here is not a first assessment; nor is it one within the 5-year period started in Section 331 above. Since what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the very specific terms " fraud, irregularity and mistake ." "Falsity" does not appear to be included in this enumeration. Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a subsequent assessment made beyond the five-year period, then, it may be validly justified only by a "fraud, irregularity and mistake" on the part of the taxpayer. The respondent Court of Tax Appeals does not even hint that the petitioner committed fraud in this matter; perhaps, because the basis and justification for its subsequent assessment on the transaction of June 21, 1974 is the petitioner's own Tax Declaration No. 1082 (2645), which places the fair market value of the properties involved at P2,683,467.00 a public document on file with the appropriate government authority since 1974. Obviously, there could have been no fraud, for fraud at the least implies and connotates an active and deliberate intent as deceit, which is surely absent in this case. As the Supreme Court puts it in "Aznar vs. Court of Tax Appeals, et al.," 58 SCRA 519, fraud is "actual and constructive," in this wise: "The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. (p. 543) The petitioner had filed its returns for 1974, including its above transaction; it was assessed on the transfer on April 23, 1975; it had paid what was assessed by the government; there is no allegation that it had actually pursued a course of evading payment of taxes due; the government has had five years to pursue and investigate the matter from April 15, 1975; the basis for its tax deficiency assessment was in its hands since 1974. Thus, there appears to be no justification for pushing aside and ignoring Section 331 of the National Internal Revenue Code of 1974 which imposes a five-year period of prescription against multiple assessment on the same transaction within the same taxable year. The respondent Commission cannot justify a subsequent assessment for the same taxable year beyond the five-year period on grounds other than those enumerated in Section 337. Expresio unius est exclusio alterius . The respondent Commissioner is barred by law from the subsequent assessment in this case on a ground not provided by law. The Supreme Court, in "Commissioner of Internal Revenue vs. Gonzales, et al.," 18 SCRA 757, includes the following statement apropos hereto, to wit: "The law imposes upon the taxpayer the burden of supplying by the return the information upon which an assessment would be based. His duty complied with, the taxpayer is not bound to do anything more than to wait for the Commissioner to assess the tax. However, he is not required to wait forever. Section 331 of the Tax Code gives the Commissioner five years within which to make his assessment. Except, of course, if the taxpayer failed to observe the law, in which case Section 332 of the same Code grants the Commissioner a longer period. Non-observance consists in filing a false or fraudulent return with intent to evade the tax or in filing no return at all." (p. 768) There appears to be no false or fraudulent return in this case with intent to evade payment of taxes. The return for 1974 were duly filed; assessment was made in 1975 and duly paid thereafter. The subsequent assessment was made on letters of authority addressed to Siltown Realty Philippines, Inc., not on the petitioner, and indicates an initial violation of the petitioner's right to due process of law because it was slapped a subsequent assessment for the same taxable year without opportunity to contest the same. As to falsity, it is not refuted that the price of P500,000.00 is not the only consideration for the property. Siltown Realty Philippines, Inc., in fact, cannot dispose of the properties for 25 years, and must allow the petitioner a continuing lease of fifty (50) years so that the petitioner may use the property for planting rubber trees and harvesting therefrom to feed its tire manufacturing industry. No, the petitioner has not given the properties as a gift, for which it must pay for insufficient donor's tax. Siltown Realty Phils., Inc. appears to have been created to provide the petitioner an instrument to hold its 995-hectare property on Basilan for as long as it wills. WHEREFORE, the questioned judgment is hereby SET ASIDE. No costs. SO ORDERED. Victor and Vailoces, JJ ., concur.