PBP Financing & Leasing Corp. v. Court of Tax Appeals

FOURTEENTH DIVISION [CA-G.R. SP No. 35853. November 26, 1997.] PBP FINANCING and LEASING CORPORATION , petitioner , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N SANDOVAL GUTIERREZ , J p : Petitioner for review of the decision of the Court of Tax Appeals dated October 28, 1994 in C.T.A. Case No. 4233, "PBP Financing and Leasing Corporation vs. Commissioner of Internal Revenue." Petitioner PBP Financing and Leasing Corporation (hereinafter referred to as PBP) is a domestic corporation duly organized and existing under the Philippine laws. On September 23, 1986, PBP received from the Bureau of Internal Revenue (BIR) a demand letter dated July 21, 1986 1 assessing and demanding payment of deficiency revenue taxes, inclusive of surcharges, interest and compromise penalties for the years 1981 and 1982 thus: 1981 Deficiency Income Tax P24,687.25 Deficiency Gross Receipts Tax 7,038.80 Deficiency Doc. Stamp Tax 566,199.91 597,825.96 1982 Deficiency Income Tax P1,065,334.21 Deficiency Expanded Withholding tax 145,404.00 Deficiency Gross Receipts Tax 212,190.25 Deficiency Documentary Stamp Tax 2,115,910.31 3,538,839.77 Total for taxable years P4,136,664.73 1981 and 1982 ========== In its letter to the BIR dated October 21, 1986 2 , PBP, through its auditor SGV and Company, protested the deficiency assessments and requested reconsideration thereof. The BIR denied PBP's protest and reiterated its demand for payment of deficiency revenue taxes, prompting PBP to appeal to the Court of Tax Appeals (CTA). After hearing, the CTA rendered its decision, the dispositive portion of which partly reads: "Petitioner is hereby ordered to immediately pay the total amount of P218,928.49, as deficiency gross receipts tax for the years 1981 and 1982 plus 20% interest per annum from July 31, 1986 until fully paid pursuant to Section 193 (a) (3) (i) of the 1977 Tax Code and the amount of P145,404.00 as deficiency expanded withholding tax for 1982 , inclusive of 25% surcharge and 14% interest from February 1, 1981 to July 31, 1986 pursuant to Section 54(e) of the same Code. "SO ORDERED." Hence, the instant petition. Petitioner PBP contends that the CTA erred in upholding the BIR assessments for deficiency gross receipts tax in 1982. It insists that the same should be computed on the basis of revenue actually received, not on the revenues that merely accrued in its financial books. Petitioner likewise claims that CTA erred in upholding the BIR assessment for deficiency expanded withholding tax considering that such assessment has no basis. The so called management fees paid to Producers Bank are mere "consideration for the loan of personnel" from the said bank; and even assuming that such payments were indeed management fees, however, such amounts were not paid to a management consultant or agency, but to a bank. Consequently, the same payments should not have been subjected to expanded withholding tax. In their comment on the petition, through the Solicitor General, the respondents maintain that the assessments of petitioner's gross receipts tax were correctly based on the revenues that accrued to its financial books inasmuch as it used the accrual method of accounting. Also, the payments made to Producers Bank for the professional services rendered by some of its personnel are income payments to the said individuals although coursed through the bank. Thus, such payments should be subjected to expanded withholding tax. The petitioner lacks merit. Section 37 of the National Internal Revenue Code 3 clearly provides that the taxable income shall be computed on the basis of the taxpayer's annual accounting period in accordance with the method of accounting regularly employed in keeping the books of such taxpayer. There is no question that petitioner, at the time of the disputed assessments, was employing the so-called accrual method of accounting, under which method, income is included in gross income when earned, whether received or not. Accordingly, the disputed deficiency gross receipts tax was properly assessed on the basis of petitioner's accrued revenues. With respect to the 1981 deficiency gross receipts taxes in the amount of P7,038.80, records show that petitioner initially offered to pay the same to respondent BIR, under compromise pursuant to Executive Order No. 44. However, as correctly observed by respondent CTA, records do not show that the BIR accepted the offer. Thereafter, no further action was taken by the petitioner. In fact, it did not contest or appeal from the disputed assessments which have become final and demandable. Thus, petitioner is now barred from questioning its correctness. As to the 1982 assessment, petitioner failed to show that the BIR erroneously computed the same. It is elementary that all presumptions are in favor of the correctness of the assessments made by the BIR and that it is incumbent upon the taxpayer to prove the contrary. 4 Unfortunately, petitioner failed to overcome the presumption of correctness of the BIR's assessments. Also, We cannot go along with petitioner's contention that the management fees paid to Producers Bank are not subject to expanded withholding tax. Pertinent is Section 1 of Revenue Regulation 6-85, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations, which provides in part: "Section 1. Income payments subject to creditable withholding tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: (a) Professional fees , talent fees , etc . paid to individuals . On the gross professional, promotional and talent fees or any other form of remuneration paid to the following individuals ten per centum (10%): 1) Those individually engaged in the practice of professions or callings; lawyers; certified public accountants; doctors of medicines; architects; civil, electrical, chemical, mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic engineers and marine surveyors; doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco; actuaries; and interior decorators; 2) Professional entertainers such as actors and actresses, singers and emcees. xxx xxx xxx 3) Professional athletes including basketball players, pelotaries and jockeys; 4) All directors involved in movies, stage, radio, television and musical productions; 5) Insurance agents and insurance adjusters; 6) Management and technical consultants. 7) Business and bookkeeping agents and agencies; 8) Other recipients of talent fees: xxx xxx xxx (b) Professional fees , talent fees , etc . paid to taxable juridical persons . On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph paid to taxable juridical person. five per centum (5%) (emphasis supplied) Section 1 above clearly states that professional fees or remuneration made to person, natural or juridical mentioned therein, are subject to creditable withholding taxes. The professional services rendered by the employees of the Producers Bank may be considered as services rendered by management and technical consultants whose income payments are subject to withholding taxes pursuant to the above provisions. cdll But petitioner vigorously argues that the management fees were paid to the bank, not to a management consultant or agency. This argument is misplaced. As correctly observed by the Solicitor General, the nature of income payments cannot be changed by simply arguing that the same were paid to a bank and not directly to its personnel who rendered professional services. Moreover, Section 4 of Revenue Memorandum Circular No. 57-79 provides: "Sec. 4. The withholding tax shall not apply to income payments to the following: a). National Government and its instrumentalities including provinces, cities, municipalities as well as government-owned or controlled corporations; b). Persons enjoying income tax exemptions; and c). Exempt organizations under Section 27 of the National Internal Revenue Code, as amended, exempt income derived from real or personal property or from any activity conducted for profit. The exemption shall be allowed only if the payee above-mentioned in subparagraphs (b) and (c) shall have presented to the payor a certificate of exemption issued by the CIR." Petitioner's income payments to Producers Bank for professional services earlier mentioned are not within the purview of the above provisions. It has been the long-standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed expertise on the subject, unless there has been abuse or improvident exercise of authority or discretion. 5 Here, We find no such abuse or improvident exercise of authority on the part of respondent CTA. ACCORDINGLY, the petition is hereby DENIED DUE COURSE and is DISMISSED. Costs against petitioner. SO ORDERED. Callejo, Sr . and Amin, JJ . , concur. Footnotes 1. Rollo , pp. 36-38. 2. Rollo , pp. 39-47. 3. "SEC. 37. General rule . The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be ) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner of Internal Revenue does clearly reflect the income. . . ." 4. Commissioner of Internal Revenue vs. Antonio Tuason, Inc., 173 SCRA 397, 401, citing Mindanao Bus Company vs. Commissioner of Internal Revenue, 1 SCRA 538. 5. Commissioner of Internal Revenue vs. Court of Appeals, 204 SCRA 182 (1991).