Chemical Industries of the Philippines v. Commissioner of Internal Revenue

FOURTH DIVISION [CA-G.R. SP No. 51206. February 19, 2004.] CHEMICAL INDUSTRIES OF THE PHILIPPINES , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N ASUNCION, EJ. , J p : This is a Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure from the Resolution dated January 28, 1999 of the Court of Tax Appeals denying petitioner Chemical Industries of the Philippines, Inc.'s Motion for Reconsideration of the Decision dated October 29, 1998 in CTA Case No. 5257 for lack of merit. The facts are as follows: On April 12, 1983, Chemical Industries of the Philippines, Inc. (hereinafter Chemical Industries) filed its Annual Income Tax Return for the calendar year 1982 with a net income of P15,574.00. On September 15, 1987, the Commissioner of Internal Revenue (hereinafter CIR) issued Assessment Notice No. 32-06-4b-000512-82 against Chemical Industries based on the disallowance of the deducted interest expense and bank charges in the amount of P7,822,898.00 from the latter's income. The reason for said disallowance was that the loan proceeds were used in the acquisition of investments in stocks of affiliated companies. Chemical Industries, on November 4, 1987 filed a protest against the above assessment on the ground that the increase in the investments in the stocks of affiliated companies was allegedly due to stock swapping, spin off, offset of investment losses and unpaid subscriptions. On June 5, 1989, the CIR again sent a demand letter to Chemical Industries for the payment its tax liability in the amount of P4,364,539.00. However, Chemical Industries reiterated its earlier protest on the questioned assessment. On October 1, 1991, Chemical Industries was required by the CIR to submit documentary evidence in support of its position in relation to the disallowed items from its 1982 tax return. Chemical Industries submitted its evidence on October 10. 1991. The corporation on March 2, 1992. submitted a Waiver of the Statute of Limitations pending the reconsideration of its protest effective until December 31, 1993. Thereafter, conferences were held between the parties before the Appellate Division of the Bureau of Internal Revenue. On May 6, 1995, Chemical Industries received a letter from Liwayway Vinzons-Chato, the CIR denying its protest dated January 30, 1995. The dispositive portion of the said letter states: "In view of the foregoing, your protest is hereby denied. Accordingly, you are requested to pay the total amount of P4,364,539.00 as deficiency income tax for 1982 within fifteen (15) days from your receipt hereof, to the nearest BIR Collection Agent stationed thereat, and after payment, this case will be considered closed and terminated. This constitutes the final decision of this Office on the matter." Consequently, Chemical Industries filed a motion for reconsideration of the CIR's decision but the same was withdrawn in view of the filing of its Petition for Review before the Court of Tax Appeals (CTA) on June 2, 1995. After due trial, the CTA issued a Decision on October 29, 1998, the decretal portion of which reads: "WHEREFORE, in view of all the foregoing, the Court hereby ORDERS petitioner to PAY deficiency income tax for 1982 amounting to P1,966,547.26, computed as follows: Net Income per return P15,574.00 Add interest expense paid to Polyphosphates Inc. 2,023,851.00 Adjusted Net Income P2,039,425.00 =========== Tax due: first P100,000.00 P25,000.00 in excess at 35% 678,798.75 Total P703,798.75 Less: income tax paid 5,451.00 Basic deficiency income tax P698,347.75 Add: a. Interest on deficiency Sec. 51 (d), 1982 Tax Code maximum 3 years (698,347.75 x 60%) 419,008.65 b. Additions to tax Sec. 51(e)(2), 1982 Tax Code maximum 3 years (1,117,356.40 x 60%) 670,413.84 c. 10% Surcharge (1,787,770.24 x 10%) 178,777.02 TOTAL TAXES DUE P1,966,547.26 =========== SO ORDERED." Chemical Industries then filed a Motion for Reconsideration from the above Decision but the same was denied in a Resolution dated January 28, 1999 for lack of merit. Hence, the instant petition. Before this Court, petitioner Chemical Industries submits that a) the portion of the Decision of the Honorable CTA subject of the motion for reconsideration was contrary to the evidence and the law, and b) the Honorable CTA acted in grave abuse of discretion in denying the motion for reconsideration on the ground that the petitioner failed to present evidence to prove it or another company were not personal holding companies, when the subject matter was never made an issue by the respondent Commissioner of Internal Revenue. The appeal is without merit. Petitioner Chemical Industries alleges that the portion of the Decision of the CTA declaring Chemical Industries and Polyphosphates, Inc. as "related taxpayers" falling under Section 30 (b)(3)(B) of the 1982 Tax Code was contrary to the evidence and the law. We disagree. In the instant case, petitioner Chemical Industries as the party claiming for the tax deduction failed to discharge the burden to prove its entitlement to the same before the Commissioner of Internal Revenue and the CTA. Both the CIR and the CTA found petitioner Chemical Industries and Polyphosphates, Inc. and Polyphosphate, Inc. as "related taxpayers" falling under the prohibition under Section 30 (b)(3)(B) in relation to Section 31 (b) of the 1982 Tax Code (now, Section 36 (B)(3) of the 1997 National Internal Revenue Code ). Hence, the disallowance of the claimed deduction of its interest expense and bank charges from its gross income. Based on the foregoing, the questioned interpretation of the said provisions are entitled to respect in the absence of proof that the same was done whimsically or capriciously. Moreover, inasmuch as the questioned ruling was made by the CIR in the exercise of her power to make judgments or opinions in connection with the implementation of the provisions of the Internal Revenue Code, the same commands respect and weight. ( Protector's Services, Inc. vs. Court of Appeals, 330 SCRA 404 ) This Court also agrees with the finding of the CIR and the CTA that the alleged entitlement to the subject deductible items by petitioner Chemical Industries are covered by Section 30(b)(3)(B) and Section 31(b) of the then Tax Code, hence, We are "duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction." ( Commissioner of Internal Revenue vs. Court of Appeals , 298 SCRA 83) DTAESI It being settled that "(A)s the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Also, 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 cases and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority." ( Commissioner of Internal Revenue vs. Court of Appeals , 329 SCRA 237) It is also contended that the CTA acted in grave abuse of discretion in denying petitioner Chemical Industries' motion for reconsideration on the ground that the latter failed to present evidence to prove it or another company were not personal holding companies, when the subject matter was never made an issue by the respondent Commissioner of Internal Revenue. Petitioner Chemical Industries claims that since the Commissioner of Internal Revenue did not raise that either it or Polyphosphates, Inc. are personal holding companies, the burden is not on them to prove that Chemical Industries is not a personal holding company, and neither does Polyphosphates, Inc. The argument deserves no credence. We cannot agree to petitioner's allegation that in view of the fact that the issue on its status as a personal holding company was never raised before the CIR then it was improperly adjudicated upon before the proceedings in the CTA. This is because when a case is brought before a court or tribunal, the said "court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if its finds that their consideration is necessary in arriving at a just decision of the case." ( Villegas vs. Court of Appeals , 351 SCRA 69) Records show that the denial of petitioner Chemical Industries' claimed deductions was based on its being classified as a personal holding company. The resolution of the same is essential to the disposition of its claim for deduction. Considering that a claimant has the burden of proof to establish the factual basis of his entitlement for tax exemption ( Citibank, N.A. vs. Court of Appeals , 280 SCRA 459) and that "laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power ( Sea-Land Service, Inc. vs. Court of Appeals , 357 SCRA 441), then petitioner Chemical Industries' failure to discharge this burden in the proceedings below due to the absence of the presentation of its management agreement contract with Polyphosphates, Inc. was fatal to its cause. Consequently, the conclusion of the CTA on the matter shall stand. We therefore find that no grave abuse of discretion was committed by the CTA dismissing petitioner Chemical Industries' motion for reconsideration. WHEREFORE, the foregoing considered, the Resolution dated January 28, 1999 and the October 29, 1998 Decision of the Court of Tax Appeals are AFFIRMED. SO ORDERED. SADECI Jacinto and Bersamin, JJ ., concur.