Commissioner of Internal Revenue v. Carnation Phils., Inc.

[CA-G.R. SP No. 30220. May 31, 1994.] (C.T.A. Case No. 4263) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CARNATION PHILS., INC. (NOW MERGED WITH NESTLE PHILIPPINES, INC.) and THE COURT OF TAX APPEALS , respondents . D E C I S I O N GUTIERREZ , J p : Petitioner for review of the decision of the Court of Tax Appeals (CTA) dated January 26, 1993 in C.T.A. Case No. 4263, "Carnation Phils. Inc. (now merged with Nestle Philips., Inc.) vs. Commissioner of Internal Revenue". On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax Return of taxable year ending September 30, 1981; and its Manufactures/Procedures Percentage Tax Return for the quarter ending September 30, 1981. On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Jaime O. Lardizabal, signed three separate "Waivers of the Statute of Limitations Under the National Internal Revenue Code" wherein it: ". . . waives the running of the prescriptive period provide for in Sections 318 and 319 and other related provisions of the National In tern al Revenue Code and consents to the assessment and collection of the taxes which may be found due after reinvestigation and reconsideration at any time before or after the lapse of the period of limitations fixed by said Sections 318 and 319 and other relevant provisions of the Nat ion al Internal Revenue Code, but not after (13 April 1987 for the earlier-executed waiver or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer (petitioner herein) does not waive any prescription already accrued in its favor." The waivers were not signed by the BIR Commissioner or any of his agents. On August 5, 1987, Carnation received BIR's latter of demand dated July 29, 1987 asking the said corporation to pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by Assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-87-005826. In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof. On September 30, 1987, Carnation filed a supplemental protest. These protests were denied by the BIR Commissioner in letter dated March 15, 1988. Whereupon, Carnation appealed to the CTA. On January 26, 1993, the CTA issued the questioned order, the dispositive portion of which reads: "WHEREFORE, the Court, finds the assessments for allegedly deficient income and sales taxes for petitioner's fiscal year ending September 30, 1981 covered by Demand Letter No. FAS-1B-81-87 and Assessment Notices No. FAS-1-81-87-005824, FAS-1-81-87-005825, and FAS-4-81-87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to be NULL AND VOID for having been issued beyond the five-year prescriptive period provide by law ." Hence, this petition by the BIR Commissioner. The sole controversial issue posed before Us is whether or not the three waivers signed by Carnation are valid and binding. The following provisions of the Tax Code are pertinent, thus: "Sec. 318. 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 last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code." "Sec. 319. Exceptions as to period of limitation of assessment and collection of taxes . . . . "(b) Where before the expiration of the time prescribe in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon . The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. "xxx xxx xxx" Simply put, internal revenue taxes shall be assessed within five years after the filling of the return by the taxpayer. However, an assessment may still be made after this five-year period if both the BIR Commissioner and the taxpayer have consented or agreed in writing thereto. Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982 and November 20, 1981, respectively. However, Carnation's income and sales taxes were assessed only on July 29, 1987, or beyond the five-year prescriptive period. The CTA held that the three waivers signed by Carnation have no binding effect for lack of consent on the part of the BIR Commissioner. Upon the other hand, petitioner BIR Commissioner maintains that the waivers are valid although not signed by the BIR Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate the binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing one's right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver. We cannot go along with petitioner's theory. Section 319 of the Tax Code earlier quoted is clear and explicit that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required by law. We agree with the CTA in holding "these waivers to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of Internal Revenue)." The ruling of the Supreme Court in Collector of Internal Revenue vs. Solano, 1 is in point, thus: ". . . The only agreement that could have suspended the running of the prescriptive period for the collection of the tax in question is as correctly pointed out by the Court of Tax Appeals, a written agreement between Solano and the Collector, entered into before the expiration of the five-year prescriptive period, extending the limitation prescribed by law." For sure, no such written agreement concerning the said three waivers exists between the petitioner and private respondent Carnation. WHEREFORE, the petition is DENIED DUE COURSE and is DISMISSED. The assailed decision of respondent CTA is affirmed in toto . SO ORDERED. Lantin and Carpio Morales, JJ., concur. Footnotes 1. L-11475 (July 31, 1958) cited in Collector of Internal Revenue v. Pineda, 2 SCRA 401 (1961) and Cordero vs. Gonda, 18 SCRA 331 (1966).