PLI Properties, Inc. v. Commissioner of Internal Revenue

TWELFTH DIVISION [CA-G.R. SP No. 56895. March 20, 2001.] PLI PROPERTIES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N ENRIQUEZ , JR. , J p : This is a petition for review on appeal filed by PLI Properties, Inc. assailing the Decision of the Court of Tax Appeals (hereinafter "CTA") dated September 10, 1999 in CTA Case No. 5578, the dispositive portion of which reads as follows: "WHEREFORE, finding no solid proof that the VAT in the amount of P381,810.01 was erroneously paid by Petitioner, we are constrained to DISMISS the instant Petition for Review for lack of merit. SO ORDERED." The pertinent facts as culled from the records are as follows: 1. Petitioner leased out to USA Laboratories its parcel of land located in Laguna, effective October 15, 1993 for P181,338.00 per month for the first two years subject to 10% increase every two years. 2. For the period January 1996 to August 1997, petitioner paid the Value Added Tax (VAT) on the rental fee with the Bureau of Internal Revenue (BIR) in the amount of P381,810.01. 3. On November 25, 1997, petitioner filed with the Revenue District Office No. 39 of the BIR, a claim for refund of the above amount on the ground that the VAT payments were erroneously made since USA Laboratories Inc. failed to pay the rentals on the land for the period January 1996 to August 1997. There being no action on its claim and since the two-year prescriptive period was about to expire, petitioner filed a petition before the CTA. 4. The CTA dismissed the petition. Thus this appeal. Petitioner assails the decision of the CTA on the following grounds: I "THE COURT OF TAX APPEALS ERRED IN NOT GRANTING A REFUND TO PETITIONER FOR EVAT THAT WAS ERRONEOUSLY PAID BY THE PETITIONER. II THE COURT OF TAX APPEALS ERRED IN NOT GRANTING A NEW TRIAL DESPITE OF THE EXISTENCE OF NEWLY DISCOVERED ONLY AFTER THE TRIAL HAD ENDED." We find the petition devoid of merit. The Tax Reform Act of 1997 (Republic Act No. 8424) provides for the payment of value added tax equivalent to 10% of gross receipts derived from the lease of properties irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. Petitioner asserts that since the lessee has failed to pay the rental fee for the period January 1996 until August 1997, petitioner has no obligation to pay the VAT for the said period, and that the VAT payment amounting to P381,810.01 for the above period was erroneously made. It is important at this point for the Court to determine whether petitioner was using the actual or cash method of accounting and keeping its book in order to hold that the rental fee for the period January 1996 to August 1997 constitutes income subject to VAT. The CTA held that petitioner adopts the actual method of accounting. Under this method income, gains and profits are included in gross income when earned, whether received or not and expenses are allowed as deductions when incurred although not yet paid. It is right to receive and not the actual receipt that determines the inclusion of the amount in gross income ( Teodoro and De Leon, The Law on Income Taxation, p . 336 ) The unpaid rental fees incurred by lessee USA Laboratories, Inc. for the years 1996 and 1997 were therefore income already earned during the said years to be reported in the 1996 and 1997. Income Tax Returns (ITR) and subject to the 10% VAT. The petitioner was aware of the above method as in fact it paid the corresponding VAT for the period January 1996 to August 1997 despite non-receipt of the rental fee from the lessee. Petitioner also declared the unpaid rental fees as part of its annual income in the years 1996 and 1997 in the ITRs. It attached the Certificate of Creditable Taxes Withheld at Source issued by the lessee for the period January to December 1996 in its 1996 ITR. The issuance of the certificate pre-supposes payment by the lessee of the rental fee for the year 1996. Petitioner never made adjustments in the succeeding tax returns to reflect errors if any. The Tax Reform Act of 1997 does not state that gross receipts refer only to cash transactions and not to credit transactions. In fact, in sale of goods or properties, the taxpayers pays the VAT based on the total sales or gross receipts regardless of whether the sales are in cash or on account, or whether or not the taxpayers is able to collect from the customers. The same principle should apply to lease of properties. Non-payment of the rental fee is not a valid ground to suspend payment of the VAT thereon, otherwise, the collection of tax which is the lifeblood of the government, shall be made to depend on whether or not the lessor could successfully collect from the lessee. We do not find merit in petitioner's contention that the lessee's ITRs for 1996 and 1997 as well as its audited financial statements which allegedly show non-payment of rental fee to the petitioner are newly discovered evidence which if presented would alter the decision of the CTA. The requisites for newly discovered evidence as a ground for new trial are, (a) the evidence was discovered after the trial; (b) such evidence could not have been discovered and produced at the trial with reasonable diligence; and (c) that it is material, not merely cumulative, corroborative or impeaching; and is of such weight that if admitted, will probably change the judgment (Commission on Internal Revenue vs. A. Soriano Corporation, 267 SCRA 313; Amper vs. Sandiganbayan, 279 SCRA 434) As correctly pointed out by the CTA, petitioner did not exercise reasonable diligence in securing the documents. Petitioner filed the case before the CTA on February 13, 1998 and offered its evidence on October 21, 1998. It had plenty of time to secure the said documents or to just present a representative from USA Laboratories, Inc. to testify on the alleged non-payment of rental fee by the lessee shall not justify suspension of the payment of the VAT thereon. Therefore, the presentation of the documents in question shall fail to alter the judgment in this case. WHEREFORE, in view of the foregoing, the judgment appealed from is hereby AFFIRMED. SO ORDERED. Reyes and Velasco, Jr . , JJ . , concur.