Commissioner of Internal Revenue v. Sime Darby Philippines, Inc.

FIFTEENTH DIVISION [CA-G.R. SP No. 35191. February 28, 1995.] (CTA Case No. 4448) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SIME DARBY PHILIPPINES, INC., ET AL. , respondents . D E C I S I O N TORRES, JR . , J p : This is a petition for review instituted by petitioner Commissioner of Internal Revenue assailing the decision dated August 8, 1994 of the Court of Tax Appeals in CTA Case No. 4448 entitled "Sime Darby Pilipinas, Inc. vs. commissioner of Internal Revenue, the dispositive portion of which reads: 1 "WHEREFORE, judgment is hereby rendered cancelling the deficiency income and sales tax assessments for the fiscal years ending June 30, 1986 and June 30, 1987 issued by respondent against petitioner. However, petitioner is hereby ordered to pay in favor of respondent the sum of P185,437.72 as penalty for late filing and payment of royalty tax for the fourth quarter ending June 30, 1987. No pronouncement as to costs. SO ORDERED." The antecedents as disclosed by the records are as follows: It appears that on April 14, 1989, petitioner Commissioner of Internal Revenue sent the private respondent Sime Darby a pre-assessment notice for its liability covering the following deficiency taxes for the fiscal years ending June 30, 1986 and June 30, 1987, inclusive of interests and surcharge: A. Income Tax FY 6-30-86 P4,032,937,66 FY 6-30-87 3,328,323.21 B. FY 6-30-86 9,475,151.03 FY 6-30-86 14,623,220.58 C. Penalty for late filing and Payment of Royalty Tax Fourth Quarter Ending June 30, 1987 185,437.72 D. Contractors Fee 1,190.49 T O T A L P31,646,260.69 ============ On May 2, 1989, private respondent filed with the then Audit Review Unit of the petitioner its protest assailing the accuracy of the deficiency assessment. On April 14, 1989, the petitioner issued a formal assessment reiterating its liability. On June 1, 1989, private respondent filed another protest seeking for the reinvestigation of the assessment and at the same time admitting its liability for the assessed deficiency contractor's tax amounting to P1,190.49 which it paid on the same date, as evidenced by BIR Payment Order No. C-5589703 and CB Confirmation Receipt No. B-16571211. On February 20, 1990, the petitioner denied the protest against the merit of the assessment and for which demanded for the payment of the balance of P31,645,070.00. Thus, on April 20, 1990, private respondent filed a petition for review before the respondent Court of Tax Appeals. 2 On November 19, 1990, and answer thereto was filed by the petitioner. 3 On august 8, 1994, the respondent tax court rendered a decision cancelling the deficiency income and sales tax assessment for the fiscal years ending June 30, 1986 and June 30, 1987. 4 Hence, this petition for review. Petitioner raised several assignment of errors allegedly committed by the respondent court, to wit: I WHETHER OR NOT PRIVATE RESPONDENT IS LIABLE TO PAY THE DEFICIENCY INCOME TAX FOR FISCAL YEARS JUNE 30, 1986 AND JUNE 30, 1987 IN THE TOTAL AMOUNT OF P7,361,260.87 II WHETHER OR NOT PRIVATE RESPONDENT IS LIABLE TO PAY THE DEFICIENCY SALES TAX FOR FISCAL YEARS JUNE 30, 1986 AND JUNE 30, 1987 IN THE TOTAL AMOUNT OF P24,098,371.61. Petitioner submits that the private respondent is liable to pay deficiency income tax in the total amount of P7,361,260.67 and the respondent court should not have allowed the cost of long distance calls amounting to P48,436.79 (FY 1985-1986) and P107,306.22 (FY 1986-1987) as deductions from its gross revenues for fiscal years June 30, 1986 to June 30, 1987 for it is violative of Section 30 (1) (a) in relation to Section 40 of the Tax Code. It is further added that "the finding of the respondent tax court that private respondent did not incur any expenses in the generation of non-taxable income was not fully substantiated, hence, erroneous." The respondent court in resolving the private respondent's non-liability of the assessed deficiency income tax stated: "It has also been held that in order to be accruable in the taxable year, a valid obligation upon which the profit (or loss in the case of a deduction) is to be determined must have existed in the year in which the obligation became binding or enforceable (Utah Idaho Sugar Co. vs. Staye Tax Commission, 73 P 2 g 974). Therefore, it cannot be said that the petitioner accrued its long distance calls at the time that they were actually made. It would be impractical for the petitioner to claim as deductible expense the mere estimate of the costs of the long distance calls it had made. Hence, the obligation on the part of the petitioner to pay or expend money which constitute a deductible loss did not occur until it received from the telephone company the demand to pay a definite fixed amount representing the costs of long distance phone calls made. xxx xxx xxx However, the undisputed claim of the petitioner is that no expenses were incurred in the production of its passive income such as income earned from the interests in bank deposits. Moreover, these income had already been subjected to a final withholding tax of P28%. By the very nature of a final tax, the income is taxed based on its gross amount, without consideration of any deductions or costs that may have actually been incurred in their production. We therefore cannot find any valid reason for the respondent's allocation of deductible expenses to the petitioner's income that has been subject to a final tax. Neither can we find any legal basis for adopting the above-mentioned formula in view of the unrefuted testimony of the petitioner's witness that during the examination on its accounting records, all the pertinent journals, ledgers and documents covering both taxable and non-taxable revenues were duly presented to the respondent." As to the second issue, petitioner contends that the private respondent should be liable to pay the assessed deficiency sales tax it appearing that "by the promulgation of P.D. 2031, tires, as the finished product of private respondent are likewise taxable at the same rate of 20% thus, the automatic application of its payment of 10% advance sales tax has no leg to stand on". Contrary to the petitioner's contention, We agree with the respondent tax court's ruling that the nylon and fabrics imported by the private respondent are used exclusively for the manufacture or tires (not intended for clothing), thus, the subject importations are classified as non-essential articles taxable at the rate of 30% pursuant to Section 163 of the 1986 Tax Code as amended by P.D. 2031 and E.O. 36. Further, Section 63 (n) of the Tax Code specifically excludes tires from those enumerated essential articles whose raw materials shall be fixed at the same rate as the finished product. Accordingly, the assailed decision stated that: ". . . Therefore, there is no legal basis for the respondent in imposing an advanced sales tax on nylon and fabric which is equal to the rate imposed on tires. Consequently, the entire 30% advanced sales tax imposed paid by the petitioner on the imported raw material should be allowed to be credited against the 20% sales tax imposed on tires under Section 163 (4) of the same TaxCode." The above-quoted finding of fact of the respondent tax court are well-substantiated by evidence on record. Contrary to petitioner's assertion that the findings of fact and rulings of the tax court were not in accordance with law and existing jurisprudence, We find that the petitioner failed to present evidence which may controvert the respondent tax court findings. Private respondent maintains that petitioner did not even bother to present a single evidence if only to give the disputed tax assessments some semblance of Validity which led the Court of Tax Appeals to issue a resolution dated May 17, 1993 declaring the petitioner to have waived her right to present evidence. It appears, therefore, that the arguments raised in this petition for review had been raised for the first time on appeal. We take heed of the settled rule that: 5 "To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question raised at the administrative forum. Thus, it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal." Admittedly, it is not advisable for the Appellate Court to set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of its authority. 6 We agree with the finding of the respondent tax court as to the non-liability of the assessed deficiency income and sales taxes for the fiscal year June 30, 1986 to June 30, 1987 is final absent a clear showing that the judgment was not bases on substantial evidence. IN VIEW OF THE FOREGOING PREMISES, the instant petitioner for review is hereby DENIED for lack of merit. No pronouncement as to costs. IT IS SO ORDERED. Mabutas , Jr . and Adefuin-Dela Cruz , JJ ., concur. Footnotes 1. Decision, Rollo, pages 38-50. 2. Petition, Rollo, pages 21-32. 3. Answer, Rollo, pages 33-37. 4. Decision, Rollo, pages 38-50. 5. Commissioner of Internal Revenue vs. Wander Philippines, Inc., et al., L-68375, April 15, 1988. 6. Commissioner of Internal Revenue vs. Court of Tax Appeals, G.R. No. 61509, April 19, 1988.