Philippine National Oil Co. v. Court of Tax Appeals

THIRD DIVISION [CA-G.R. SP No. 29583. April 23, 1993.] (C.T.A. Case No. 4249) PHILIPPINES NATIONAL OIL COMPANY , petitioner , vs . THE COURT OF TAX APPEALS, THE COMMISSIONER OF INTERNAL REVENUE, & TIRSO B. SAVELLANO , respondents . D E C I S I O N ORDOEZ-BENITEZ , J p : This is a petition for review which seeks the reversal of the decision of Court of Tax Appeals in CTA Case No. 4249, the dispositive portion of which reads as follows: "WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and Philippine National Bank on the other, WITHOUT FORCE AND EFFECT; The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against Philippines National Bank which has become final and unappealable by collecting from Philippine National Bank the deficiency withholding tax, plus interest totaling P294,958.450.73; Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding total tax collected in this case or P44,243,767.00 subject to existing rules and regulations governing payment of reward to informers. No pronouncement as to costs. SO ORDERED." (p. 72, Rollo) The facts as gathered from the pleadings filed with this court are as follows: On June 24, 1986, private respondent Tirso B. Savellano submitted to the Bureau of Internal Revenue a sworn statement denominated as Confidential Information No. 1853 denouncing that the Philippine National Bank failed to withhold the then 15% final tax on interest earnings and/or yields from the money placement of petitioner, Philippine National Oil Company, as required by P.D. 1931 which took effect on June 11, 1984. On October 8, 1986, the BIR sent a letter of demand to PNB, as withholding agent, for the payment of P376,301,133.33 representing withholding taxes inclusive of interest on the money placement of petitioner for the period of from October 15, 1984 to October 15, 1986. Petitioner was informed about the demand letter sent to PNB. On October 14, 1986, petitioner replied and it proposed to settle the tax liability demanded from PNB through offsetting said liability against the pending claim for tax refund/credit of the National Power Corporation with the BIR which is due to PNOC. In reply thereto, BIR contended that the proposal for offsetting is at that time premature, hence petitioner was requested to settle its tax liability in the amount of P385,961,580.82. made up of P303,343,765.32 as withholding final tax, plus interest computed until November 15, 1986 in the amount of P82,617,815.50. On June 9, 1987, petitioner offered to compromise the withholding taxes by paying P91,003,129.89 representing 30% of P303,343,766.29 pursuant to Executive Order No. 44 which took effect on September 4, 1986. This offer was approved by the then BIR Commissioner Bienvenido Tan in a letter dated June 22, 1987. Subsequently, tax payment in the amount of P91,003,129.89 was received by the BIR. And private respondent Savellano was paid the informer's reward of 15% of P91,003,129.89. However, in a letter dated January 7, 1988, private respondent Savellano assailed the legality of the compromise agreement entered into by the BIR and PNOC, and claimed that the tax liability should have been collected in full. He therefore claimed for additional informer's reward in the sum of P43,800,915.25. But the Commissioner of BIR, in a letter dated March 8, 1988, denied private respondent's claim for additional reward. The latter then sought a reconsideration thereof. On April 8, 1988, even as the aforesaid motion for reconsideration was pending in the BIR, private respondent Savellano filed a " Petition for Review ad cautelam " with the Court of Tax Appeals in pursuance of his claim that the Commissioner of BIR acted with grave abuse of discretion and/or whimsical exercise of jurisdiction in entering into a compromise agreement resulting in a gross and unconscionable diminution of his reward. He prayed for the enforcement and collection of the tax against liable parties PNB and/or PNOC, and the payment to him by respondent BIR of the 15% informer's reward on the total tax liability collected. Answering the petition, the Commissioner of BIR averred that private respondent Savellano has no cause of action against him inasmuch as he (Savellano) has been sufficiently paid for what is due him. The BIR Commissioner counterclaimed for exemplary damages against PNOC because the petition is allegedly maliciously filed. Subsequently, the petition was amended impleading PNB and PNOC as respondents they being part of the compromise agreement. PNB and PNOC filed separate motions to dismiss the petition on similar allegations of lack of jurisdiction. Meanwhile, BIR Commission filed an amended answer reiterating his stand as those alleged in his answer. On the part of private respondent Savellano, he opposed the motions of PNB and PNOC to dismiss the petition. On November 28, 1988, public respondent Court of Tax Appeals denied the motion to dismiss on the ground that the basis thereof do not appear to be indubitable. Thereafter, PNOC and PNB filed their respective answers. The first averred, among other things, that it has no privity with private respondent Savellano; that the BIR Commissioner's discretionary act in entering the compromise agreement has legal basis under Executive Order No. 44, and RMO Nos. 39-86 and 4-87; and that the Court of Tax Appeals has no jurisdiction to resolve the case against it. On the other hand, the second asserted lack of jurisdiction by the Court of Tax Appeals; and that BIR Commissioner's act was discretionary on his part and therefore it cannot be reviewed or interfered with by courts. Later on, both PNOC and PNB filed their respective amended answers incorporating an opinion of the Commission on Audit disallowing the payment of private respondent's informer's award. In the meantime, in a letter dated January 16, 1991, BIR Commissioner assessed PNB the deficiency withholding tax in the amount of P294,958,450.73, computed as follows: WITHHOLDING TAX PLUS interest under letter of demand date Nov. 11, 1986 P385,966,508.82 Less: Amount paid under E.O. 44 P91,003,129.89 Amount still due and collectible P294,958,450.73 This assessment-letter was received by PNB on February 6, 1991, and was protested by it through a letter dated April 11,1991. On June 11, 1991, PNB appealed the P294,958,450.73 withholding tax assessment against it to the Department of Justice, docketed as DOJ Case No. OSJ-91-10 allegedly pursuant to the provision of P.D. 242. On August 2, 1991, BIR issued a warrant of garnishment against PNB addressed to the Governor of the Central Bank of the Philippines. On August 23, 1991 a debit advice was issued against the demand deposit account of PNB for the amount of P294,958,450.73 and such amount was transferred to the demand deposit in trust for the BIR Commissioner. After due proceedings, the lower court on May 28, 1992, rendered its assailed division. It declared the compromise agreement between the BIR on the one hand, and PNB and the PNOC on the other, as without force and effect inasmuch as the BIR Commissioner committed a mistake of law in relying on Executive Order No. 44 as the basis in entering the compromise agreement. According to the respondent court, the then BIR Commissioner had no authority to enter into said compromise agreement on the basis of E.O. No. 44 because on the day said agreement was executed (June 22, 1987) said E.O. No. 44 was no longer effective, it being effective only until March 31. 1987. Besides, the respondent court added, E.O. No. 44 contemplated disputed or delinquent taxes but the case of PNOC and PNB involves withholding of tax assessment which is actually not a tax but a penalty which could not be the subject of a compromise based on E.O. No 44. The respondent court then ordered the enforcement of the assessment of January 16, 1991 against PNB for the deficiency withholding tax, plus interest totalling P295,958,450.73 and that, thereafter, private respondent may be paid the balance of his entitlement to informer's award (P44,243,767.00) based on fifteen (15%) percent of the deficiency withholding total tax collected. After PNB's and PNOC's motions for reconsideration were denied on November 16, 1992, PNOC filed this present petition with this Court. It contends that respondent court had no jurisdiction over the petition filed by private respondent Savellano, and over PNOC and PNB because: 1) the petition is essentially a money claim (tax informer's award) against the state which claim could only prosper when the state is sued with its consent, but there was none in this case; and 2) that the real controversy is a legal question involving two government owned and controlled corporations (PNOC and PNB) and the BIR over which the Department of Justice has jurisdiction as mandated by P.D. 242. The respondent court had jurisdiction over the case. First, the petition filed by private respondent with the respondent court is anchored on the former's claim for informer's reward under Section 316 (now Section 281, National Internal Revenue Code) of the Tax Code, Obviously, the respondent court has jurisdiction over it because decision of the Commissioner of Internal Revenue in matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue is subjected to its appellate jurisdiction. Thus: "Sec. 7. Jurisdiction . The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decision of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue Code; . . . " (Sec. 7, R.A. 1125). This Court ruled that the general clause other matters arising under the NIRC or other law or part of law administrative by the BIR, comprehends all controversies involving the exercise of the Commissioner of Internal Revenue of the powers and prerogative granted to him under the Internal Revenue Code or other law or parts of the laws administered by him, the jurisdiction of which cannot be taken by the regular courts of justice but rests with the Court of Tax Appeals exclusively (Dolores P. Mojica vs. Misael P. Vera, et al., CA-G.R. No. 43742-R, Oct. 9, 1972). When the Commissioner of the BIR refused private respondent's claim for additional informer's reward based on Section 281 of the NIRC, such denial was a decision on a matter arising under the National Internal Revenue Code. The respondent therefore had jurisdiction over the petition. Indeed, private respondent's claims for informer's award is a money claim but said claim is authorized by law specifically the National Internal Revenue Code. Second, P.D. 242 is not applicable to the present controversy of herein parties. Section 1 of P.D. 242 clearly provides that disputes, claims and controversies solely between or among the department, bureaus, offices, agencies and instrumentalities of the National Government, including government-owned or controlled corporations excluding constitutional offices arising from the interpretation and application of statutes, contracts or agreements shall be administratively settled or adjudicated. The inapplicability of P.D. 242 is at once clear because the present controversy involves a private person, herein private respondent Savellano. Petitioner further contends that the respondent court erred in declaring the compromise agreement between the BIR Commissioner and PNOC as without force and effect. According to it, said compromise agreement was entered into pursuant to Executive Order No. 44, and RMO Nos. 39-86 and 4-87. The contention is not tenable. As correctly ruled by respondent court, Executive Order No. 44 authorizes the BIR Commissioner to compromise disputed assessment or delinquent account pending as of December 31, 1985, upon the payment of an amount equal to thirty percent (30%) of the basic tax assessed, but in the case at bar the subject matter of the compromise agreement was withholding taxes which on the part of the withholding agent, PNB, is a penalty for failure to withheld and remit the same. And penalty could not be the subject of compromise agreement under said E.O. No. 44. In addition, the respondent court also correctly ruled that E.O. No. 44 applies only to disputed assessment or delinquent account pending as of December 31, 1985 and it (E.O. No. 44) remained effective only until March 31, 1987, but herein petitioner made the offer only on June 22, 1987, far beyond the effectively of said E.O. No. 44. The implementing guideline of E.O. No. 44 which is the Revenue Memorandum No. 39-86 which provided the application for compromise settlement on or before March 31, 1987 is valid even if the payment of the compromise amount is made after the said date, is null and void as it unduly extended and was in conflict with, E.O. No. 44. Basic is the rule that implementing guidelines or rules in conflict with the basic law are null and void (Tayug Rural Bank vs. Central Bank of the Philippines, 146 SCRA 120). Petitioner next contends that respondent court erred in concluding that private respondent Savellano is entitled to an additional informer's reward. According to it, Savellano is entitled only to a percentage of the amount of taxes actually collected under the compromise agreement to which he has already been paid. The contention is not meritorious. Under the facts of the case, there has long been "actual" collection of the tax by the BIR from the PNOC/PNB as shown by the following: 1. On August 12, 1991, in view of the finality of the January 16, 1991 assessment for deficiency final withholding tax, plus interest, and to enforce collection of the balance due on the aforementioned deficiency final withholding tax, plus interest, the BIR issued a warrant of garnishment against the PNB for the amount of P294,958,450.73. 2. On August 23, 1991, the warrant of garnishment was duly served upon the Central Bank of the Philippines (CBP, for short) which simultaneously issued a debit advice to the PNB for the amount of P294,958,450.73 with a corresponding transfer to the demand deposit-in-trust of the BIR with the CBP for the same amount. 3. On September 2, 1992, the CBP again issued a debit advice against the demand deposit account of the PNB with the CBP for the amount of P294,958,450.73 which was actually credited to the demand deposit account of the Treasurer of the Republic of the Philippines. 4. On November 4, 1992, the Treasurer of the Republic of the Philippines, upon request of the BIR, issued a journal voucher crediting the amount of P294,958,450.73 to the account of the BIR designated as Fund 104. Inasmuch as there have already been actual collection of the taxes, private respondent Savellano is indeed entitled to 15% informer's award as mandated under Section 281 of the Tax Code. Petitioner's citation of the Commission on Audit's decision in COA Decisions Nos. 740 and 193-0 dated February 8, 1989 and July 29, 1991, respectively, wherein the payment to private respondent Savellano of the informer's award in the sum of P2,397,924.75 from National Coal Authority deficiency taxes was disallowed, is now of no moment because the Honorable Supreme Court, in the consolidated case of "The Commissioner of Internal Revenue vs. The Commission of Audit', G.R. No. 101976, and "Tirso B. Savellano vs. The Commission on Audit" G.R. No. 102258, promulgated on January 29, 1993, had already set aside the decisions of the Commission on Audit. WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against petitioner. SO ORDERED. Buena and Montenegro JJ., concur.