Commissioner of Internal Revenue v. Limcangco

SPECIAL SIXTEENTH DIVISION [CA-G.R. SP No. 30608. June 11, 1988.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . EDUARDO M. LIMCANGCO AND COURT OF TAX APPEALS , respondents . D E C I S I O N MONTENEGRO , J p : This is a petition for review of the March 4, 1993 decision of the Court of Tax Appeals in CTA Case No. 4827, entitled, Eduardo M. Limcangco vs. Commissioner of Internal Revenue" ordering the Commissioner of Internal Revenue desists from collecting the 1981 deficiency income taxes of P177,512.00 it had assessed against private respondent. The antecedent facts, as recited by respondent Court of Tax Appeals in the assailed decision, are as follow: "Petitioner (herein private respondent) is a Filipino citizen with residence and postal address at 214 Venice Street, BF International Village, Las Pias, Metro Manila. An Assessment Notice dated November 8, 1985 was issued by respondent (herein petitioner) against petitioner for its 1981 alleged deficiency income tax in the total amount of P177,512.00 (BIR Records, p. 12). Receipt of said assessment notice was denied by petitioner in the Petition for Review (CTA Records, p. 2) but subsequently admitted in hearing of this case (January 12, 1993, TSN, p. 10, CTA Records, p. 47). "Pursuant to Executive Order No. 41 (Declaring a One-Time Tax Amnesty Covering Unpaid Income Taxes For the Years 1981 to 1985), petitioner filed on November 3, 1986 a Tax Amnesty Returns with the BIR Revenue District No. 32A West Makati (CTA Records, p. 10). "Warrant of Distraint of Personal Property and Warrant of Levy on Real Property both dated November 19, 1987 were received by petitioner on January 10, 1991 (BIR Records, p. 45 and p. 43 respectively). An offer to settle the assessment of P177,512.00 by way of compromise payment of 30% of the basic tax or P33,283.30 was made to the Commissioner of Internal Revenue in a letter dated February 14, 1991 (BIR Records, p. 63). This was denied by the Assistant Commissioner Collection Service in a letter dated July 11, 1991 (BIR Records, p. 79). Petitioner, through counsel wrote the Chief, Collection Enforcement Division on September 3, 1991 setting forth the contention that inasmuch as he has already availed of the Tax Amnesty under E.O. No. 41, the 1981 deficiency income tax assessment should no longer have been pursued but should have been cancelled as a matter of course (BIR Records, pp. 84-87). In a reply dated April 10, 1991 (BIR Records, pp. 95-97), the Commissioner of Internal Revenue ruled that the availment by petitioner of the Tax Amnesty under Executive Order No. 41 did not result in the cancellation of the assessment issued on November 8, 1985 since only those assessments issued after August 21, 1986 can be cancelled as a result of the availment of the Tax Amnesty pursuant to Revenue Memorandum Order No. 4-87. The reason for the cut-off date of August 21, 1986 is that the following day, August 22, 1986 Executive Order No. 41 took effect. Respondent contends that to hold that said tax amnesty includes those assessed on or before August 21, 1986 would result in the retroactive, instead of prospective application of the law. Since the tax liability exists only upon issuance of an assessment, availment of Executive Order No. 41 relieves a taxpayer only with respect to income tax liabilities assessed on or after August 22, 1986. From this final decision of the Commissioner of Internal Revenue, which was received by petitioner's counsel on June 8, 1992, petitioner appealed to this Court on July 3, 1992 (Petition for Review, CTA Records, pp. 1-6)." (Annex "A"; Rollo, pp. 29-32) The dispute, according to respondent Court of Tax Appeals, was clearly due to respondent's (petitioner herein) impression as stated in Revenue Memorandum Order No. 4-87 that petitioner's (private respondent herein) availment of the tax amnesty under Executive Order No. 41, did not result in the cancellation of the assessment issued on November 8, 1985 since only those assessments issued after August 21, 1986 can be cancelled which is not of first impression, having had occasion to rule on the same issue in the cases of R.O.H. Auto Products Philippines, Inc. v. The Commissioner of Internal Revenue, C.T.A. Case No. 4318, August 20, 1990 and Bay Foods Specialties, Inc. v. The Commissioner of Internal Revenue, C.T.A. Case No. 4246, August 7, 1991 (Decision, pp. 5-6; Rollo, p. 32-33). On March 4, 1993, respondent Court of Tax Appeals rendered the assailed decision ordering petitioner Commissioner of Internal Revenue "to desist from collecting the 1981 deficiency income taxes of P177,512.00 it had assessed against petitioner for the same are considered cancelled and withdrawn with the proper availment of petitioner of the amnesty under Executive Order No. 41, as amended" (Annex A; Rollo, pp. 37-38). Hence, the instant petition for review. Petitioner assigns a single error to wit: "I, RESPONDENT COURT OF TAX APPEALS ERRED IN FINDING THAT PRIVATE RESPONDENT'S TAX LIABILITY WAS EXTINGUISHED WHEN IT AVAILED OF THE TAX AMNESTY UNDER EXECUTIVE ORDER NO. 41." (Rollo, p. 12) Petitioner Commissioner of Internal Revenue contends that the assessment for the 1981 deficiency income tax was issued on November 8, 1985, long before the effectivity of E.O. No. 41; that in the letter dated November 8, 1985, private respondent was informed that upon investigation there was found due from him the sum of P177,512.00 as deficiency income tax for 1981; that on November 3, 1986, after he was assessed deficiency income tax for 1981, respondent filed a tax amnesty return and paid only the amount of P6,321.50; that knowing fully well of the investigation and tax deficiency assessment by petitioner, private respondent filed the tax amnesty return out of compulsion to save himself from the payment of the subject tax assessment. In other words, according to petitioner Commissioner of Internal Revenue, private respondent's availment of the tax amnesty and subsequent filing of the tax amnesty return were not voluntary (Rollo. pp. 16-17). Citing paragraph 1.02 of Revenue Memorandum Order No. 4-87, petitioner Commissioner of Internal Revenue further contends that the availment of the tax amnesty under Executive Order No. 41 did not result in the cancellation/withdrawal of assessments issued on or before August 21, 1986. According to petitioner, assessments issued before the effectivity of E.O. No. 41 on August 22, 1986 are not covered by the tax Amnesty (Rollo, pp. 18-19). On March 29, 1994, it appearing, as stated by respondent Court of Tax Appeals in its decision, that the issue raised in the case is the very same issue raised in Commissioner of Internal Revenue versus D.O.H. Auto Products Philippines, Inc., Court of Appeals, and Court of Tax Appeals, then already elevated to the Supreme Court as G.R. No. 108358, this Court issued resolution suspending proceedings in the case until after the Honorable Supreme Court has resolved G.R. No. 108358. In the same resolution, petitioner Commissioner of Internal Revenue was directed to inform this Court of whatever resolution or decision the Supreme Court may reach in said G.R. No. 108358. This Court did not hear from petitioner Commissioner of Internal Revenue until it was learned by accident that the Honorable Supreme Court had decided G.R. No. 108358, reported in 240 SCRA 368. This happened notwithstanding that this Court, in its resolution of September 22, 1995, directed petitioner Commissioner of Internal Revenue: "Considering that more than a year has already elapsed since the Court issued its resolution March 29, 1994 suspending proceedings in this case, petitioner is required to inform this Court within ten (10) days from notice of developments in G.R. No. 108358 pending before the Supreme Court. Petitioner is further warned that failure on its part to respond to this resolution is construed by this Court as indicating disinterest to pursue the petition, and the Court would act accordingly." (Rollo, p. 80) In Commissioner of Internal Revenue vs. Court of Tax Appeals, 240 SCRA 368, the Supreme Court ruled: "The real and only issue is whether or not the position taken by the Commissioner coincides with the meaning and intent of Executive Order No. 41. "We agree with both the Court of Appeals and Court of Tax Appeals that Executive Order No. 41 is quite explicit and requires hardly anything beyond a simple application of its provisions. It reads: 'SEC. 1. Scope of Amnesty . A one-time tax amnesty covering unpaid income taxes for the years 1981 to 1985 is hereby declared. 'SEC. 2. Conditions of the Amnesty . A taxpayer who wishes to avail himself of the tax amnesty shall, on or before October 31, 1986: 'a) file a sworn statement declaring his net worth as of December 31, 1985: 'b) file a certified true copy of his statement declaring his net worth as of December 31, 1980 on record with the Bureau of Internal Revenue, or if no such record exists, file a statement of said net worth therewith, subject to verification by the Bureau of Internal Revenue: 'c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth from December 31, 1980 to December 31, 1985; Provided, That in no case shall the tax be less than P5,000.00 for individuals and P10,000.00 for juridical persons. 'SEC. 3. Computation of Net Worth . In computing the net worths referred to in Section 2 hereof, the following rules shall govern: 'a) Non-cash assets shall be valued at acquisition cost. 'b) Foreign currencies shall be valued at the rates of exchange prevailing as of the date of the net worth statement. 'SEC. 4. Exceptions . The following taxpayers may not avail themselves of the amnesty herein granted: '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 law 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 or unlawfully acquired wealth before the Sandiganbayan: 'g) Those liable under 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. 'xxx xxx xxx 'SEC. 9. The Minister of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations to implement this Executive Order. dctai 'xxx xxx xxx 'SEC. 11. This Executive Order shall take effect immediately. 'DONE in the City of Manila, this 22nd day of August in the year of Our Lord, nineteen hundred and eighty-six.' The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by Executive Order No. 54, dated 04 November 1986, and, its coverage expanded, under Executive Order No. 64, dated 17 November 1986, to include estate and donors taxes and taxes on business. "If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion in unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it. "It might not be amiss to recall that the taxable periods covered by the amnesty include the years immediately preceding the 1986 revolution during which time there had been persistent calls, all too vivid to be easily forgotten, for civil disobedience, most particularly in the payment of taxes, to the martial law regime. It should be understandable then that those who ultimately took over the reigns of government following the successful revolution would promptly provide for a broad, and not a confined, tax amnesty. "Relative to the two other issues raised by the Commissioner, we need only quote from Executive Order No. 41 itself; thus; xxx xxx xxx 'a) The taxpayer shall be relieved of any income tax liability on any untaxed income from January 1, 1981 to December 31, 1985, including increments thereto and penalties on account of the non-payment of the said tax. Civil, criminal or administrative liability arising from the non-payment of the said tax, which are actionable under the National Internal Revenue Code, as amended, are likewise deemed extinguished. 'b) The taxpayer's tax amnesty declaration shall not be admissible in evidence in all proceedings before judicial, quasi-judicial or administrative bodies, in which he is a defendant or respondent, and the same shall not be examined, inquired or looked into by any persons, government officials, bureau or office. 'c) The books of account and other records of the taxpayer for the period from January 1, 1981 to December 31, 1985 shall not be examined for income purposes: Provided, That the Commissioner of Internal Revenue may authorize in writing the examination of the said books of accounts and other records to verify the validity of correctness of a claim for grant of any tax refund, tax credit (other than refund on credit of withheld taxes on wages), tax incentives, and/or exemptions under existing laws. "xxx xxx xxx (at pages 372-375) Inasmuch as the issue raised in the case at bench is the very same issue presented and resolved in the above case of Commissioner of Internal Revenue vs. Court of Appeals, supra , this Court cannot do otherwise but apply the ruling of the Honorable Supreme Court. cdll This Court, on its own, finds nothing which justifies petitioner's ground for denying private respondents' claim to the benefits of the amnesty law. Section 4 of the law enumerates, in no uncertain terms, taxpayers who may not avail of the amnesty granted. Private respondent does not fall under any of the exceptions. The Supreme Court in the above case of Commissioner of Internal Revenue vs. Court of Appeals quoted with approval the observation of the Court of Appeals that "(T)he added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement" (at page 371). The Supreme Court in said case of Commissioner of Internal Revenue vs. Court of Appeals , 240 SCRA 368, further ruled: "The authority of the Minister of Finance (now the Secretary of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law." (at page 372) WHEREFORE, premises considered, the petition for review is DENIED DUE COURSE and DISMISSED. dctai SO ORDERED. * Tuquero and Dacudao, JJ., concur. Footnotes * Vice Justice Salvador J. Valdez, Jr. who is on leave.