Commissioner of Internal Revenue v. Arnoldus Woodworks International, Inc.

EN BANC [CA-G.R. SP No. 34019. August 31, 1995.] (C.T.A. Case No. 4269) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. ARNOLDUS WOODWORKS INTERNATIONAL, INCORPORATED and the COURT OF TAX APPEALS , respondents . D E C I S I O N BENIPAYO , J p : This is a petition for review of the decision of the Court of Tax Appeals in CTA Case No. 4269 cancelling and setting aside the deficiency income tax and percentage tax assessments issued by petitioner Commissioner of Internal Revenue against private respondent Arnoldus Woodworks International, Incorporated (AWII for brevity) for the year 1981. The relevant antecedents, as found by the Tax Court, are as follows: "Petitioner is a domestic corporation principally engaged in the business of manufacturing and exporting wooden products with its business address located at Doa Magdalena Hemady St., Quezon City. Petitioner is also engaged in the business as service contractor for repairs and mechanical devices. (Exh. 8, p. 101, Folder 1, BIR record) Petitioner's Articles of Incorporation was duly registered with the Securities and Exchange Commission on January 10, 1980. The principal place of business is located at Christ the King Compound, E. Rodriguez Ave., Quezon City. (Exhs, J, J-1 and J-2). "On July 31, 1986, the respondent sent Assessment Notices FAN-1-81-86-008482 (Exh. 3-a) and FAN-1-81-86-008483 (Exh. 3-b), dated July 28, 1986, at the petitioner's plant in Marilao, Bulacan assessing it for deficiency income and percentage taxes for the year 1981 in the total amount of P709,140.60, computed as follows: (Exh. 3, pp. 124-127, Folder 1, BIR record). " Deficiency Income Tax '"Net income per investigation P95,006.00 '"Add: Disallowances Donations to educational institutions lack of merit 944,686.00 '"Net income per review P1,039,692.00* '"Tax due thereon P 457,861.40 '"Less: Tax paid per return 33,252.00* '"Deficiency income tax P 424,609.40 '"20% interest from 4-16-82 to 4-15-85 (max.) 254,765.64 '"Total amount due and collectible P 679,375.04 '"*As corrected. '"Deficiency Percentage Tax '"Gross receipt per investigation P300,343.00 '"Tax due thereon P9,010.29 '"75% surcharge 6,757.71 '"20% interest from 2-21-82 to 7-28-86 13,997.57 '"Total amount due and collectible P29,765.57 "On October 27, 1986, petitioner filed its Tax Amnesty Return (Exh. G) dated October 24, 1986, pursuant to the provisions of Executive Order No.41, dated August 22, 1986, for the years 1981-1985. The Tax Amnesty Return showed petitioner's address as 'Christ the King Seminary Compound, E. Rodriguez Sr. Blvd., Quezon City, M.M.' (Exh. G-1). The amnesty tax amounting to P39,612.00 was paid under BIR Payment Order No. B 9133997, dated October 27, 1986 (Exh. G-2) and CB Confirmation Receipt No. B 9978125, dated October 27, 1986 (Exh. G-3). "The petitioner filed a request for reconsideration of the said deficiency assessments on September 4, 1987, alleging that it received a copy thereof only on August 31, 1987 (Exh. 9, p. 139, Folder 1, BIR record). "On May 12, 1988, the petitioner received a letter, dated April 11, 1988, from the respondent denying its request for reconsideration on the ground that it was filed beyond the thirty (30) day reglementary period provided for under Section 270 of the TaxCode (1986), and hence, had already attained the status of finality (Exh. 10, p. 154, Folder 1, BIR record). "Warrants of Distraint of Personal Property (Exh. D) and Levy on Real Property (Exh. C), both dated April 4, 1988, were issued and served against the properties of petitioner on May 19, 1988. Copies of said warrants were received by Mr. Purito F. Mopas, Manager of petitioner in its office in Lambakin, Marilao, Bulacan (Exh. D-2 and C-2). Likewise, Notice of Tax Lien was served to the Register of Deeds and Provincial Assessor of Malolos, Bulacan on May 30, 1988 (p. 176, Folder 1, BIR record). On May 23, 1988, petitioner filed a petition for review with a prayer for the issuance of a writ of preliminary injunction. Petitioner questions the finality of the assessments, the correctness and validity of the income tax assessments and that the deficiency percentage (contractor's) assessment in the amount of P29,765,57 has already been paid evidenced by BIR Revenue Tax Receipt No. A 92960088 and CB Confirmation Receipt No. A 10177723, dated April 16, 1982. "However, contrary to the allegations of petitioner, the BIR Revenue Tax Receipt (No. A 92960088) and CB Confirmation Receipt (No. A 10177723) refers to the payment of withholding taxes of P12,500.00 for Director's Fee and P3,000.00 for Special Bonus or a total of P15,500.00, instead of what it alleged to be payment of the alleged deficiency contractor's tax in the sum of P29,765.57 including increments thereto. (See Check Voucher No. 1465, dated April 15, 1982; pp. 75-76, Folder 1, BIR record). "Petitioner alleged that the deficiency assessments were received only on August 31, 1987. Respondent contended that petitioner could not have possibly received the subject assessments on August 31, 1987 or more than one (1) year from the time they were sent by registered mail, considering that the same were presumably received in the 'regular course of mail' under Section 5(v), Rule 131 of the RevisedRulesof Court. "To further buttress its claim that it is not liable for the payment of the assessment issued by the respondent, the petitioner alleged that it has applied for and was granted tax amnesty by the government for the years 1981 to 1985 under Executive OrderNo.41 (EO41) which took effect on August 22, 1986. The respondent, on the other hand, refutes this claim of petitioner, stating that under Revenue Memorandum OrderNo.4-87 (RMO4-87) dated February 9, 1987, implementing EO41, only those assessments issued after August 22, 1986 can be covered by the tax amnesty." (pp. 59-63, Rollo) Two principal issues were presented for resolution by the Court of Tax Appeals, viz: "1. Whether or not the assessments issued by the respondent assessing the petitioner for deficiency income and percentage taxes in the sum of P709,140.60 has already become final and unappealable; and "2. Whether or not the availment by the petitioner of the tax amnesty under EO41 cancelled the said assessments and liability thereunder." (p. 63, Rollo) Eventually, the respondent court rendered judgment, thus: "WHEREFORE, premises considered, judgment is hereby rendered granting the instant petition for review. The Deficiency Income Tax and Percentage Tax Assessments for the year 1981 in the sum of P709,140.60 is hereby cancelled and set aside in view of petitioner's availment of the tax amnesty pursuant to Executive OrderNo.41, as amended. The writ of preliminary injunction is hereby made permanent. Respondent is hereby ordered to desist from collecting the Deficiency Income and Percentage Tax Assessments issued against petitioner for the year 1981 in the sum of P709,140.60. "No pronouncement as to costs of suit. "SO ORDERED." (p. 71, ibid.) That decision is now assailed in this petition for review interposed by petitioner Commissioner of Internal Revenue. She maintains that: "The Tax Court's Decision is not in accord with the facts on record and with the applicable laws and jurisprudence. Specifically, it erred: "1. In holding that the assessment was not received in the regular course of the mail. "2. In not holding that the assessment has become final and unappealable. "3. In taking jurisdiction over the case. "4. In holding that the availment by private respondent of tax amnesty under Executive OrderNo.41 cancelled the assessment and liability thereunder." (pp. 15-16, ibid.) A careful review of the record compels us to affirm the appealed decision. Petitioner argues that since the subject assessment notices were dispatched to private respondent AWII by registered mail as early as July 31, 1986, it was highly improbable for said corporation to have received the same only on August 31, 1987. Petitioner contends that under Section 5(v), Rule 131 of the Revised Rules of Court, it is presumed that the assessments in question were received "in the regular course of the mail," such that they must have been received by AWII much earlier than August 31, 1987. This contention is specious. For aforesaid presumption to arise, it must be proved that the notices were properly addressed with postage pre-paid and that they were actually mailed (p. 518, Remedial Law Compendium, Vol. 2, by F.D. Regalado). In the present case, it has been established that the deficiency tax notices were sent to AWII's plant in Marilao, Bulacan and not to its head office in Quezon City. It is well to realize at this point that respondent corporation's place of business, as indicated in its corporate income tax return, is Christ The King Mission Seminary, E. Rodriguez Sr., Quezon City. Under Section 2 of Revenue Regulations No. 12-85 dated November 27, 1985 (Procedure Covering Administrative Protests on Assessments of the Bureau of Internal Revenue): "When the Commissioner or his duly authorized representative finds that taxes should be assessed, he shall first notify the taxpayer of his findings in the attached prescribed form as Annex B hereof. The notice shall be made in writing and sent to the taxpayer at the address indicated in his return or at his last known address as stated change of address." Not only that the subject notices were improperly addressed, petitioner had even failed to prove that the same had been actually received by private respondent in the due course of mail. We find it useful, at this juncture, to quote the following findings of the Tax Court: "Although the evidence pertaining to the case at bar reveals that the assessment notices were sent by registered mail on July 31, 1986, in the plant of petitioner in Marilao, Bulacan there is a complete absence of proof to establish that the petitioner actually received them. The respondent clings to the presumption of law that a letter duly directed and mailed was received in the regular course of the mail'. [Sec. 3(v), Rule 131 of the Revised Rules of Court). "While it may be true that a letter would unlikely be received after more than one year from the time it was duly mailed, the respondent failed to realize that such contention is merely a disputable presumption. It is put on inference provided for by law to be conveniently used in appreciation of evidence. As such, it is subject to rebuttal which will shift the burden of proof to the party alleging the same. Petitioner herein denies that it had received any assessment notices prior to August 31, 1987. Neither did it receive any assessment notices in its plant in Marilao, Bulacan. The letter of Authority sent by respondent was not received in Marilao, Bulacan but in the principal place of business of petitioner. From the time of incorporation up to the present petitioner maintains its office at Christ the King Seminary Compound, Doa Magdalena Hemady Street, Quezon City as testified by petitioner's witnesses; Fr. Anthony J. Ranada, Finance Manager, and Mr. Rogelio Tampinco, Accountant-Bookkeeper. (TSN, dated November 29, 1989 and May 14, 1990). This was in fact stipulated by both parties. (p. 8, TSN dated May 14, 1990). In fact on rebuttal evidence, petitioner's witness Mr. Rogelio P. Tampinco testified that the Letter of Authority (No. 0034335 RR dated September 14, 1984) addressed to petitioner in its plant in Marilao, Bulacan, was actually received by him on October 22, 1984 in the Quezon City office of petitioner. (pp. 5-6, TSN dated November 16, 1992). "xxx xxx xxx "The records reveal that the petitioner firmly stood pat on its claim that it received the 'Order of Payment,' which is actually an assessment, only on August 31, 1987. In other words, it did not receive it in the due course of mail. It likewise denied having received the other assessment notices sent to its plant site in Marilao, Bulacan. "It was therefore incumbent upon the respondent to prove by contrary evidence that the petitioner indeed received the assessment in the due course of mail for Us to consider the present action as having been filed out of time. The onus probandi was shifted to respondent. Having failed to establish her claim by preponderance of evidence, We cannot consider that the present action of the petitioner has prescribed. This is especially true in the instant case where the Corporate Income Tax Return under review by the respondent clearly indicates that the taxpayer's principal place of business is Christ the King Mission Seminary, E. Rodriguez Sr., Quezon City and not Marilao, Bulacan." (pp. 64-67, Rollo). Moreover, under Section 8, Rule 13 of the Rules of Court service by registered mail is deemed complete upon actual receipt by the addressee. If he fails to claim his mail from the post office within five (5) days from the date of first notice of the postmaster, service shall take effect at the expiration of such time. And under Section 10 of the same Rule, proof of such service shall consist of an affidavit of the person mailing of facts showing compliance with section 5 of Rule 10, the receipt issued by the mailing office, and the registry return card evidencing receipt of the mail by the addressee, or in lieu thereof the letter unclaimed together with the certified or sworn copy of the notice given by the postmaster to the addressee. In this case, apart from an alleged and dubious registry receipt, no other and proper evidence has been adduced by petitioner to prove that private respondent had indeed received the questioned assessment notice. Against these facts and the categorical denial by the taxpayer, the disputable presumption in Sec. 3(v) of Rule 131 simply cannot operate. In fact, what private respondent admits to have received on August 31, 1987 was an order of payment based on the supposed assessment notice, not the assessment notice itself. Under the circumstances, it cannot be validly argued that the disputed deficiency to an assessment had become final and unappealable. At all events, when the private respondent received the payment order or deficiency tax assessments on August 31, 1987, it filed its request for reconsideration thereof on September 4, 1987. We hold that the filing of the request was made well within the period prescribed by law (Section 229, National Internal Revenue Code). And, from the decision of the Commissioner denying AWII's request for reconsideration, respondent corporation may appeal to the Court of Tax Appeals following Section 7 of R.A. 1125 conferring upon said court exclusive appellate jurisdiction to review by appeal, among others, "decisions 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 law administered by the Bureau of Internal Revenue." Moreover, We sense no merit in petitioner's contention that AWII's availment of tax amnesty under Executive Order No. 41 had not extinguished its liability for the deficiency taxes in question. E.O. 41 is quite explicit and requires hardly anything beyond a simple application of its provisions. It reads: "Section 1. Scope of Amnesty . A one-time tax amnesty covering unpaid income taxes for the years 1981 to 1985 is hereby declared. "Section 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. "Section 4. Exceptions . The following taxpayers may not avail themselves of the amnesty herein granted: "a) Those falling under the provisions of Executive OrderNos.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 InternalRevenueCode, 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 InternalRevenueCode, as amended; "f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan; "g) Those liable under Title Seven, Chapter Three (Fraud, Illegal Exactions and Transactions) and Chapter Four (Malversation of Public Funds and Property) of the RevisedPenalCode, as amended. xxx xxx xxx "Section 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." If, as the Commissioner argues, Revenue Memorandum Order No. 4-87 implementing Executive Order No. 41 had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on August 22, 1986 and not those assessments theretofore made, the law could have simply so provided in its exclusionary clauses. It did not. The invoked provisions of the memorandum order read: "To All Internal Revenue Officers and Others Concerned: "1.0. To give effect and substance to the immunity provisions of the tax amnesty under Executive OrderNo.41, as expanded by Executive Order No. 64, the following instructions are hereby issued: xxx xxx xxx "1.02. A certification by the Tax Amnesty Implementation Officer of the fact of availment of the said tax amnesty shall be a 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 donor's taxes due during the same taxable years." The conclusion is 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 (Commissioner of Internal Revenue vs. Court of Appeals, R.O.H. Auto Products Philippines, Inc. and The Court of Tax Appeals, G. R. No. 108358, January 20, 1995). Taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case E.O. 41) expressly and clearly declares. While the authority of the Secretary of Finance, in conjunction with that of the Commissioner of Internal Revenue, to promulgate all rules and regulations for the effective enforcement of internal revenue laws, as well as administrative opinions and rulings, cannot be controverted, and as such, deserve weight and respect by the courts, much more fundamental 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, not to supplant or to modify, the law. WHEREFORE, judgment is hereby rendered affirming the appealed decision. No pronouncement as to costs. SO ORDERED. Galvez and Solano , JJ ., concur.