Bank of the Philippine Islands v. Commissioner of Internal Revenue

SECOND DIVISION [CA-G.R. SP No. 41025. May 29, 1998.] BANK OF THE PHILIPPINE ISLANDS , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N CUI , J p : Petition for review of the November 16, 1995 decision of the Court of Tax Appeals dismissing CTA Case No. 4715, as well as its resolution denying petitioner's motion for reconsideration. The facts of the case, as borne out by the records, are as follows: In a notice dated October 28, 1988, respondent informed petitioner that it incurred deficiency percentage and documentary stamp taxes in the amount of P129,488,656.63, broken down as follows: (a) P12,319,441.13 as deficiency percentage taxes for 1986; and (b) P117,169,215.50 as deficiency documentary stamp taxes for 1986. There is nothing in the records to show when this notice of October 28, 1988 was received by petitioner. In a letter dated December 10, 1988, petitioner replied as follows: 1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency assessment is to inform the taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more so when the assessment involves astronomical amounts, as in this case. We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and as to the percentage tax, it is important that the taxpayer be informed also as to what particular percentage tax the assessment refers to: 2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and the Bankers Association of the Philippines on this issue and of BPI's submission of its computations under this compromise. There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP compromise. On the other hand, if it relates to documentary stamp tax on some other issue, we should like to be informed about what those issues are. 3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since your letter does not even tell the taxpayer what particular percentage tax is involved and how your examiner arrived at the deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayer's decision on whether to pay or protests the assessment. LLjur On June 27, 1991, petitioner received a letter from respondent, dated May 8, 1991, explaining the basis of the assessments. On July 6, 1991, petitioner requested a reconsideration of the Commissioner's assessments as contained in his May 8, 1991 letter. On February 18, 1992, petitioner filed its petition (CTA No. 4715) for review before the Court of Tax Appeals which, after trial on the merits, dismissed the petition ruling that the assessments had already become final and unappealable. It likewise denied petitioner's motion for reconsideration. Hence, this petition. Despite the fact that evidence on the merits of the assessments had already been presented by the parties, the Court of Tax Appeals no longer ruled on the merits of the case as it allegedly did not have jurisdiction to entertain the same holding that the assessments had already become final as the petitioner did not protest the assessments within thirty (30) days from receipt thereof (pp. 5-19 of decision), and that granting that the assessments were seasonably protested, petitioner's failure to appeal respondent's decision within thirty (30) days from receipt thereof was fatal to petitioner's cause (pp. 19-22 of decision). In seeking a reversal of the decision of the lower court, petitioner contends that the letter of December 10, 1988 did not result in a disputed assessment as it was only respondent's letter of May 8, 1991 (where the respondent discussed at length the basis of this assessments) that stood as a proper letter of assessment. Petitioner further argues that the assessments became disputed only when, in its letter of July 6, 1991 (received by respondent on July 8, 1991), petitioner answered the explanations made by the Commissioner in his May 8, 1991 letter. Petitioner also discussed why the assessments for deficiency documentary stamp taxes and deficiency percentage taxes were erroneous. The only issues to be resolved in this case are: (a) whether or not the petitioner protested within the period allowed by law the assessments made by the Commissioner for deficiency percentage and documentary stamp taxes; and (b) assuming a protest was seasonably made, whether or not respondent's decision on the disputed assessments was elevated to the Court of Tax Appeals through a petition for review within the period allowed by law. Section 229 of the National Internal Revenue as amended, provides: Sec. 229. Protesting of assessment . When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by the implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association, or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable. Section 11 of Republic Act No. 1125, on the other hand, states in material part, that Sec 11. Who may appeal ; effect of appeal . Any person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs or any provincial or city or Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. (par. 1 of Sec. 11) We find merit in the petition. Petitioner's letter of December 10, 1988 clearly shows that petitioner was not ready and willing to pay the alleged deficiency assessments. In fact, the petitioner argued in said letter that there was no basis for said assessments as it allegedly did not know what deficiency percentage and documentary stamp taxes the assessments were referring to. Considering that the December 10, 1988 letter argued that there were no records to support the assessments, the letter was clearly in the nature of a request for reconsideration under Revenue Regulations No. 12-85. Consequently, a protest was filed within the period allowed by law. Looking at the case from another angle, it is clear that the notice dated October 28, 1988 should not even be considered an assessment at all because, as correctly pointed out by petitioner, the same did not provide, even in a general way, reasons why deficiency taxes were being collected from petitioner. Elementary concerns for due process of law should have prompted the respondent to inform petitioner of the legal and factual basis of the former's decision to charge the latter for deficiency documentary stamp and gross receipts taxes. We are not in accord with the findings of the Court of Tax Appeals that the petition for review, filed by petitioner with the Court of Tax Appeals on February 18, 1992, was time-barred. We are of the view that the thirty (30) day period within which to elevate the question on the correctness of the assessments started when petitioner received, on January 21, 1992, respondent's denial of the motion for reconsideration of the May 8, 1991 letter, and not on June 27, 1991, when the Commissioner's May 8, 1991 letter was received by the petitioner. In arriving at such conclusion, we are guided by the fact that the notice of October 28, 1988 was not a valid assessment because, as already stated earlier, that notice did not inform the taxpayer of the legal and factual basis for the assessment. The respondent's letter of May 8, 1991, which gave the reasons for the charge of deficiency documentary and gross receipts taxes, was the proper assessment. And when the petitioner, after having received respondent's letter of May 8, 1991, disputed the findings of the respondent through its letter of July 6, 1991, the written response of the respondent to this letter of July 6, 1991, which response was dated December 12, 1991 and received by petitioner on January 21, 1992, contained the decision on the disputed assessment from which the thirty (30) day period within which to bring action to the Court of Tax Appeals commenced. Consequently, the filing of the petition for review with the Court of Tax Appeals on February 18, 1992 was well within the thirty (30) day period provided for by law. The Court notes that even on grounds of equity, the Court of Tax Appeals should have entertained the petition because it appears that a substantial portion of the total amount assessed was for the account of another Government institution (the National Treasurer). Considering that payment is one of the modes of extinguishing an obligation under Article 1231 of the Civil Code, circumstances warrant that the Court of Tax Appeals should have heard and decided the merits of the bank's petition for review even if one were to argue that the same was time-barred. Assuming that the petition was filed a few days late, strong considerations of substantial significance are manifest in the petition which warrant the relaxation of the stringent application of technical rules in the exercise of equity jurisdiction (G.R. No. 103028, Delgado vda. de dela Rosa v. Court of Appeals, Oct. 10, 1997). In a number of cases, the Supreme Court, in the exercise of equity jurisdiction, decided to disregard technicalities in order to resolve the case on its merits. (St. Peter Memorial Park, Inc. v. Cleofas 121 SCRA 287; Helmuth Jr. v. People 112 SCRA 573.) Rules of procedure are intended to promote, not to defeat, substantial justice and, therefore, they should not be applied in a very rigid and technical sense (Serrano v. Court of Appeals 139 SCRA 179, 186). In a very recent case (G.R. No. 103028 Carlota Delgado vda. de dela Rosa v. Court of Appeals et al., promulgated Oct. 10, 1997), the Supreme Court, in ruling that a delay in the filing of an appeal may be excused on ground of substantial justice, said: In Castro v. Court of Appeals, reiterated in Velasco v. Gayapa, Jr., We stressed the importance and real purpose of appeal and ruled: An appeal is an essential part of our judicial system. We have advised the courts to proceed with caution so as not to deprive a party of the right to appeal (National Waterworks and Sewerage Authority vs. Municipality of Libmanan, 97 SCRA 138) and instructed that every party litigant should be afforded the amplest opportunity for the proper and just disposition of his cause, freed from the constraints of technicalities (A-One Fees, Inc. vs. Court of Appeals, 100 SCRA 590). The rules of procedure are not to be applied in a very rigid and technical sense. The rules of procedure are used only to help secure, not override substantial justice. (Gregorio vs. Court of Appeals, 72 SCRA 120). Therefore, we ruled in Republic vs. Court of Appeals (83 SCRA 453) that a six-day delay in the perfection of the appeal does not warrant its dismissal. And again in Ramos vs. Bagasao, 96 SCRA 395), this Court held that the delay of four (4) days in filing a notice of appeal and a motion for extension of time to file a record on appeal can be excused on the basis of equity. (Emphasis Ours). While petitioner has prayed that we resolve the case on its merits, we consider it proper, however, to remand the same to the Court of Tax Appeals in order that said Court may resolve the case on its merits. WHEREFORE, the petition is hereby GRANTED . The decision of the Court of Tax Appeals dated November 16, 1995 and its resolution dated May 27, 1996, are hereby reversed and set aside , and the Court of Tax Appeals is directed to decide CTA Case No. 4715 on its merits with reasonable dispatch. SO ORDERED. Mabutas , Jr . and Aquino , JJ ., concur.