Airport Builders and Management Corp. v. Vinzons-Chato

SPECIAL FORMER FIFTH DIVISION [CA-G.R. SP NO. 47745. April 6, 2000.] AIRPORT BUILDERS AND MANAGEMENT CORPORATION (ABMC) and THE SPOUSES ROGELIO A. and VIRGINIA S. DIO , petitioners, vs . THE HONORABLE LIWAYWAY VINZONS-CHATO, in her capacity as Commissioner of Internal Revenue , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : This is an appeal by way of Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure from the Order of Dismissal of the Court of Tax Appeals promulgated on February 19, 1998, in CTA Case No. 5275 entitled "Airport Builders and Management Corporation (ABMC) and Spouses Rogelio and Virginia Dio versus The Honorable Liwayway Vinzons-Chato in her capacity as the Commissioner of Internal Revenue." 1 LibLex ANTECEDENT FACTS On May 27, I990, Revenue Officers Fortunato Lagmay, Jesus Emmanuel M. Savellano, Sonia T. Estorco and Thomas T. Que of the Tax Fraud Division of the Bureau of Internal Revenue (BIR) served upon petitioner ABMC a Letter of Authority dated May 25 1990 to examine its book of accounts and other accounting records for its :internal revenue taxes for 1986, 1987 and 1988 2 By virtue of that letter, said revenue officers examined the petitioner corporation's books of account and other accounting records. After terminating the examination, they computed the income tax liability of ABMC for 1988 in the amount of P26,041,509.00 The nature and the details of this tax liability are found in the Joint Affidavit executed on May 31, 1995 by said revenue officers. 3 The petitioners contested the findings of tax deficiency against them. They requested for a reinvestigation and ask for an opportunity to review the records of the case as evidenced by their various letters to the respondent commissioner, which letters were dated as follows: November 15, 1991, October 5, 1992, October 26, 1992, March 1, 1995 and February 28, 1995. 4 In their letter dated March 1, 1995, they asked that the same be referred to the Appellate Division. LexLib In a letter dated May 17, 1995, which was received by the petitioners on June 21, 1995, respondent commissioner denied the petitioners' request for reinvestigation, stating that said request cannot be given favorable action since there was no formal assessment yet. 5 Thereafter, in a letter to the Department of Justice dated May 31, 1995, the respondent commissioner recommended the criminal prosecution of the petitioners for attempting to defeat or evade payment of their income tax for 1988. Attached to the respondent commissioner's recommendation for criminal prosecution was the Joint Affidavit of the revenue officers who conducted the investigation. On July 7, 1995, the petitioners received a subpoena from the Department of Justice in connection with the Criminal Complaint in I.S. No. 95-388 involving the deficiency revenue tax for 1988 in the amount of P26,041,509.00. On August 5, 1995, the petitioners filed a Petition for Review 6 before the Court of Tax Appeals in order that said court would review and reverse the decision of the respondent commissioner regarding the income tax liability of the petitioners. The respondent commissioner filed a motion to dismiss 7 alleging that the Court of Tax Appeals did not have jurisdiction over the petition because there was no formal assessment and no decision was made by her on said assessment if one was indeed made. On February 19, 1998, the Court of Tax Appeals dismissed the petition for lack of jurisdiction stating that there was no assessment, and that even if there was one, there was no decision made by the respondent commissioner on a disputed assessment. On May 21, 1998, the petitioners filed the instant appeal asking that the following be resolved: I. WHETHER OR NOT AN ASSESSMENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1998 WAS ISSUED AGAINST PETITIONERS. II WHETHER OR NOT THE COMMISSIONER RENDERED A DECISION ON A DISPUTED ASSESSMENT WHICH IS APPEALABLE TO THE COURT OF TAX APPEALS. THE POSITION OF THE PETITIONERS The petitioner submits that there was an assessment. An assessment was made in the amount of P26,041,509.00 for the year 1988. This assessment was prepared by the Revenue Enforcement Officers in their Enforcement Officer's Audit Report on Income. The same assessment was contained in the Joint Affidavit executed by them.. An assessment is designed as a notice to a taxpayer of his tax liabilities and a demand for payment thereof. In the case at bar, the petitioners were informed of the assessment of their tax liabilities through the criminal complaint filed by the respondent commissioner with the Department of Justice (DOJ). It was also in this criminal complaint that demand was made upon the petitioners to pay the tax as computed by the BIR officers. Since no express reservation to institute a separate civil case was made, the civil case for the collection of the tax deficiency was deemed included in the criminal case. 8 The assessment made by the BIR enforcement officers who computed the tax liability of the petitioners was adopted and approved by the respondent commissioner so much so that she filed a criminal case against them for tax evasion. In Commissioner vs. Court of Tax Appeals, Adamson Management Corp, et al ., 9 the Court of Appeals ruled that the tax liability indicated in the criminal complaint filed with the DOJ is considered an implied formal assessment. With respect to the claim of respondent that there was no assessment since the procedure laid down in Revenue Regulation No. 12-85 governing administrative protests was not followed, the petitioners submit that this is not true. Rather, they went through all the steps of the procedure governing administrative protests of assessments as provided for in said regulation. The petitioners are of the view that the Ungab case 10 and the Sanchez case 11 are not applicable to the case at bar. In support of this view, they cited the case of Commissioner vs. Lucio Tan , 12 where the Supreme Court held: "xxx xxx xxx "In plain words, before one is prosecuted for willful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved. "Suppose the Commissioner, eventually resolves Fortune's motion for reconsideration of the assessment by pronouncing that the taxpayer is not liable for any deficiency assessment, then the criminal complaint filed against private respondents will have no leg to stand on." The complaint in the present case accuses the petitioners of willful attempt to defeat and evade payments of taxes. Before the petitioners may be said to have evaded the taxes, it must first be established that indeed the petitioners are liable for taxes because in taxation, it is the civil liability which gives rise to the criminal liability. The petitioners therefore submit that the better way to inform them of their tax liabilities was through an assessment, which assessment was protested by the petitioners on several occasions. This gave rise to a disputed assessment. The respondent commissioner decided against the said protest when she filed the criminal complaint for tax evasion against the petitioners. Section 7 of Republic Act No. 1125, the Act creating the Court of Tax Appeals (CTA), provides that the said court has exclusive jurisdiction to review by appeal ". . . decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, etc. . . ." The word "decision" has been interpreted to mean decisions of the Commissioner on the protest of the taxpayer against assessment. It does not signify the assessment itself ( Commissioner vs. Villa ) 13 The CTA can take cognizance only of the decisions of the Commissioner involving disputed assessments. The law unequivocally mentions "final decisions and disputed assessments," It does not make any mention of formal assessments. Thus, a formal assessment is not required. Hence, according to the petitioners, it is not the "formal assessment" that would confer jurisdiction to the CTA, but the Commissioner's decisions on the protest of the taxpayer against the findings of tax liabilities. The respondent commissioner's decisions in denying the reinvestigation which was contained in her letter dated May 17, 1995 and her filing of the criminal case is equivalent to a decision approving the disputed assessment, and this then was appealable to the CTA. llcd THE POSITION OF THE RESPONDENT The respondent submits that no assessment has been issued against the petitioners. Contrary to the petitioners' position that the details of the tax as given in the Joint Affidavit of the examiners and attached to the tax evasion complaint, more than suffices to qualify as an assessment, the respondent points out that the affidavit attached to the Complaint for tax evasion cannot be considered as an assessment. Moreover, the criminal action for tax evasion initiated thereby was a suit in a court of justice wherein the People of the Philippines charged the petitioners with tax evasion and for the collection of taxes due the government. llcd As held by the Court of Tax Appeals (CTA) in its assailed Resolution: ". . . a computation of tax liabilities in a criminal complaint cannot be considered as a formal assessment as held in Commissioner of Internal Revenue vs. Court of Tax Appeals and Spouses Antonio L. Sanchez and Editha Vito-Sanchez, CA G.R. SP No. 36564, promulgated on July 03, 1996, to wit: "We agree with the Solicitor General in his position in the matter, and we quote with approval, thus: '. . . Here, the civil aspect, i.e ., deficiency income taxes assessment is not deemed included in the criminal complaint filed against respondent spouses. This is so because the amounts of the proposed tax assessment were merely mentioned in the criminal complaint to show the discrepancy between the amounts indicated in the Income Tax Returns and the findings shown in the investigation/audit report submitted by petitioner's revenue examiners. This is in consonance with the rulings of the Supreme Court in the Ungab case (supra) (Ungab vs. Cusi, 97 SCRA 877)." (pp. 1-2 CTA Resolution, February 19, 1998) 14 In view of the above, since no formal assessment has been issued against the petitioners, the Court of Tax Appeals has no jurisdiction to act on the petition. Under Section 7 of Republic Act No. 1125, only decisions of the Commissioner of Internal Revenue involving, among others, disputed assessments are appealable to the Court of Tax Appeals. Granting arguendo that there is an assessment, there should be no other alternative but to dismiss the petition due to the clear absence of a decision on a disputed assessment. Furthermore, there is no protest to speak of in this case. Under Revenue Regulation No. 12-85 which set out the procedure governing administrative protests of assessments, before an assessments is issued, the taxpayer is first notified of the findings of the BIR Commissioner through a pre-assessment notice to which he is required to reply. If the taxpayer responds, he is allowed to examine the records of the case and to present his arguments in writing protesting the proposed assessment. If he fails to respond, or if the Commissioner finds the response to be without merit, an assessment will be issued. The taxpayer may protest the assessment by filing a request for reconsideration or reinvestigation within thirty(30) days from receipt of the assessment. If he fails to file a protest within a prescribed period, the assessment shall become final and unappealable, and he is thereby precluded from disputing the assessment. The final decision on the protest must be appealed to the Court of Appeals within thirty (30) days from receipt thereof; otherwise, the same shall become final and executory. Nowhere is it manifest that there was an assessment issued to the petitioners, much less a protest assuming that an assessment was issued by the Commissioner of Internal Revenue. The criminal complaint filed against the petitioners and which was served upon them through a subpoena was not a decision of the Commissioner appealable to the Court of Tax Appeals. The issuance of the subpoena to the petitioners was done by the Department of Justice in the exercise of its jurisdiction after finding merit in the Complaint filed by the BIR. After taking cognizance of the case, the DOJ has acquired jurisdiction over the same to the exclusion of the BIR. THE COURT'S RULING We uphold the Order of Dismissal of the Court of Tax Appeals. In the recent case of Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, et al ., 15 which is on all fours with the case at bar, the Highest Court of the land has finally settled the rule regarding the issues raised in this case. It held: "We agree with petitioner, Neither the NIRC nor the regulations governing the protests of assessments provide a specific definition or form of an assessment, However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. llcd "True as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. "To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed for its payment until the full payment. "The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty (30) days from the receipt thereof. Necessarily, the tax payer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. "It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. "In the present case, the revenue officers' Affidavit merely contained a computation of respondent's tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. "Respondents maintain that an assessment, in relation to taxation, is simply understood to mean: 'A notice to the effect that the amount therein stated is due as a tax and a demand for payment thereof. 'Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.' "Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. "The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment," 16 With respect to the issue raised by the petitioners that the respondent Commissioner's action in filing a recommendation for the criminal prosecution of the petitioners at the DOJ is tantamount to a decision and therefore is appealable to the CTA, the same holds no water. Since there is no assessment, it follows that there can be no protest and decision regarding the same. The Supreme Court has not abandoned the ruling in the Ungab case, Rather, in the Pascor case, it held: "Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as the case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab vs. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. LibLex "Private respondents insist that Section 222 should be read in relation to section 255 of the NIRC, which penalizes failure to file a return. They add that the tax assessment should precede criminal indictment. We disagree, To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. "The issuance of an assessment must be distinguished from the filing of the complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code." 17 In the light of the foregoing considerations, we find no cogent reason to reverse the order under review. WHEREFORE , the petition is hereby DISMISSED and the assailed order is AFFIRMED. SO ORDERED. Barrios and Cosico ., JJ ., concur. Footnotes 1. New Member, vice Justice Artemon D. Luna, who was retired. 2. Annex "A", Petition. 3. Annex "L-1", Id . 4. Annex "D", Annex "E", Annex "H" and Annex "I", Id . 5. p. 7, Id . 6. Annex "C", Petition. 7. Annex "G", Id . 8. Section 205, NIRC. 9. CA-G.R. SP No. 35520, March 29, 1996. 10. 97 SCRA 878. 11. CA-G.R. SP No. 36564. 12. 257 SCRA 200, 226. 13. 22 SCRA 1, 6. 14. pp. 16-18, Rollo (Annex "A" of the Petition). 15. G.R. No. 128315, June 29, 1999. 16. Id ., at pp. 10-15. 17. Id ., at pp. 15-17.