Commissioner of Internal Revenue v. Ariete

TWENTY FIRST DIVISION [CA-G.R. SP No. 70693. June 14, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . JULIETA ARIETE , respondent . D E C I S I O N LIBREA-LEAGOGO, C. , J p : This is a Petition for Review filed by the petitioner under Rule 43 of the 1997 Rules of Civil Procedure, assailing the Decision dated 15 January 2002 and Resolution dated 03 May 2002 rendered by the Court of Tax Appeals in CTA Case No. 5880 entitled, Julieta Ariete vs. The Commissioner, Bureau of Internal Revenue, et al. On 20 June 2002, this Court (Special Seventh Division) issued a Resolution 1 requiring the respondent to file her comment on the instant petition within ten (10) days from notice thereof and gave the petitioner five (5) days from receipt of such comment within which to file his Reply thereto. After granting several motions for extension of time filed respondent this Court (Special First Division), on 30 June 2003, issued a Resolution 2 granting, but for the last time, respondent's motion for a sixth extension of time to file her comment to the instant petition. On 04 July 2003, this Court (Special First Division) issued a Resolution 3 denying respondent's motion for extension of time to file comment dated 15 June 2003. It further declared the respondent to have waived the filing of her comment to the instant petition for failure to file the same within the last extension of time granted by the Court, which expired on 15 June 2003. The Honorable Court then required the parties to file their respective Memoranda within fifteen (15) days from notice thereof. On 18 July 2003, the petitioner filed a Manifestation 4 that he is adopting the Petition for Review as his Memorandum. This Court issued a Resolution 5 dated 01 August 2003 noting said Manifestation. Per report of the JRD on 19 August 2003, no Memorandum was filed by respondent. On 02 March 2004, this Court (Fifteenth Division) issued a Resolution 6 submitting the instant Petition for decision sans respondent's Memorandum. On 26 May 2004, the instant Petition was raffled to the present ponente as part of her initial caseload. ANTECEDENT FACTS The undisputed facts as found by the Court of Tax Appeals ("CTA") in its assailed Decision and quoted in the instant Petition by the petitioner are as follows: Petitioner is of legal age, a single mother and with address at Barangay Pag-asa, Kapalong, Davao del Norte. On May 21, 1997, a Mr. George P. Mercado filed with the Special Investigation Division, Revenue Region No. 19, Davao City, an Affidavit stating that Petitioner earned substantial income in 1994, 1995 and 1996 but did not pay income tax (Exhibit 1, pp. 34 and 35, BIR records). Acting on said Affidavit, the Chief of the Special Investigation Division concerned, Mr. Vivencio M. Vidallo, issued Mission Order No. 118-97 dated May 23, 1997, directing Revenue Officer Eustaquia M. Valdez to conduct a preliminary verification of the denunciation so made and to submit progress report on the matter (Exhibits 2 and 3, pp. 36 and 39, records). Chief Vidallo also sent an Access to BIR Records to Revenue District No. 112, Tagum, Davao del Norte to inquire if the income tax returns of Petitioner for the years 1993 to 1996 were available for examination (p. 43, BIR records). In reply thereto, a Certification was issued that Ms. Julieta N. Ariete has no records of income tax returns for the period involved (p. 46, BIR records). Subsequently, Revenue Officer Valdez submitted a report on October 15, 1997 that herein Petitioner admitted, among others, her non-filing of income tax returns (Exhibit 4, p. 61, BIR records). On December 2, 1997, Petitioner filed her income tax returns for the years 1993, 1994, 1995 and 1996 under Revenue Memorandum Order Nos. 59-97 and 63-97, otherwise known as the Voluntary Assessment Program (VAP) (pp. 204, 211, 235, 258, BIR records). On July 28, 1998, a Letter of Authority was issued by the Regional Director to investigate Petitioner for tax purposes covering the years 1993 to 1996 (Exhibit 5, p. 170, BIR records). On October 14, 1998, Revenue Officer Valdez executed a memorandum for the Chief, Special Investigation Division, recommending that petitioner be assessed deficiency income taxes for the years 1993 to 1996 (Exhibit 7, pp. 272 to 274, BIR records). Consequently, four (4) assessment notices were issued on January 22, 1999 against herein Petitioner with total deficiency income taxes, inclusive of interests and surcharges, of P191,463.04 (Annexes A to D, Petition and pp. 330 to 333, BIR records) broken down as follows: 1993 P6,462.18 1994 47,187.39 1995 27,729.64 1996 113,083.83 P191,463.04 Petitioner then filed an Assessment Protest with Prayer for Reinvestigation on February 22, 1999 (Annex E, Petition). The same was denied in a letter dated March 30, 1999, (Annex F, Petition). On April 16, 1999, Petitioner offered a Compromise Settlement (Annex G, Petition) but was denied (Annex H, Petition). xxx xxx xxx. 7 Respondent filed with the CTA a Petition for Review 8 to assail the decision 9 of the Bureau of Internal Revenue, Revenue Region No. 19 denying with finality her request for reinvestigation and disapproving her availment of the VAP and to contest the four assessment notices issued against her. The petitioner then filed his Answer 10 and Amended Answer 11 to the said petition. On 15 January 2002, the CTA rendered the assailed Decision 12 , pertinent portion of which reads: After a careful deliberation of the arguments of the parties, documents available on record, applicable law, order and jurisprudence, We rule in favor of the Petitioner. Revenue Memorandum Order Nos. 59-97, 60-97 and 63-97 are quite categorical on who are covered or not covered by the VAP. Petitioner is to Our mind qualified to avail thereof. It is worthy to note that when Petitioner filed her income returns on December 2, 1997, she was not yet under investigation by the Bureau of the Special Investigation Division of Revenue Region No. 19. The Letter of Authority to investigate Petitioner for tax purposes was issued only on July 28, 1998 (Exhibit 5). Moreover, as pointed out by the Petitioner, her case was not duly recorded in the Official Registry Book of the Bureau before her availment of the VAP. It bears emphasis also that RMO Nos. 59-97, 60-97 and 63-97 all contain the same requirement before a person may be excluded from the coverage of the VAP, namely: (a) The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation Division; (b) The investigation must be as result of a verified information filed by an informer under Section 281 of the NIRC, as amended; and (c) The investigation must be duly registered in the Official Registry Book of the Bureau before the date of availment under the VAP. The conjunctive and is being used and all the above requisites must be present before a person may be excluded from the coverage of the VAP. And is a conjunctive, used to denote a joinder, a union (Words and Phrases, Vol. 3 p. 570). The word and is a conjunction used to connect words, phrases or sentences, accepted as binding together and as relating the one to the other ( ibid., p. 571). And is a conjunction connecting words or phrases expressing the idea that the latter is to be added or taken along with the first. It is said to be equivalent to "as well as" (Bouvier's Law Dictionary, Vol. 1, p. 194). The rationale behind the VAP is to give taxpayers a final opportunity to come up with a clean slate before they will be dealt with strictly for not paying their correct taxes. Therefore, it was enacted to encourage taxpayers to pay their taxes or pay the correct taxes. Note that under the said Revenue Memorandum Orders, among the benefits that can be availed by the taxpayer-applicant are: 1) A bonafide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the taxpayer-applicant from any criminal or civil liability incident to the misdeclarations of incomes, purchases, deductions, etc., and non-filing of return . 2) The taxpayer who shall avail of the VAP shall be liable only for the payment of the basic tax due. (Emphasis supplied). Granting that at the outset there was a violation of the Internal Revenue Code (non-filing of income tax returns), yet, by virtue of the VAP, Petitioner was given the her fault and be absolved of any criminal incident to her non-filing of income tax returns. Finally, so holding that Petitioner's availment of the VAP is appropriate, the assessments issued against her for deficiency income taxes are therefore not valid nor binding. xxx xxx xxx WHEREFORE, finding the assessments issued against herein Petitioner to be erroneous, the same are hereby CANCELLED and SET ASIDE. SO ORDERED On 13 February 2002, petitioner filed a Motion for Reconsideration 13 of the Decision dated 15 January 2002, on the following grounds: 1) Contrary to the finding of this Honorable Court, before petitioner's availment of the benefits under the Voluntary Assessment Program (VAP) on December 2, 1997, she was already under investigation by the Special Investigation Division as a result of a verified information filed by an informer under Section 281 (now 282) of the Tax Code; 2) The fact that the verified information filed by the informer under Section 281 (282) of the Tax Code was not recorded in the Official Registry Book of the BIR is a mere procedural omission which should not defeat the underlying reason behind the qualification of persons already under investigation for fraud or tax evasion before their availment of the VAP. On 03 May 2002, CTA rendered the assailed Resolution 14 , the pertinent portion of which reads. Anent the first ground, we stand pat with our ruling that petitioner was not disqualified to avail of the VAP. The reasons were laid down in the assailed decision and we deem it unnecessary to reiterate the same. We do not agree with the respondent that the requirement of recording in the Official Registry Book of the Bureau of Internal Revenue is merely procedural and of no moment in this case. Revenue Memorandum Order Nos. 59-97, 60-97 and 63-97 do not provide that if the investigation emanated from an information filed with the Special Investigation Division, said requisite is no longer essential. In fact, the recording requirement is categorically mandated therein. Further, if we adopt respondent's view that what needs to be recorded is the information and not the investigation, then with more reason that such information should be recorded in the Official Registry Book of the BIR. It is worthy that RMO NO. 12-93 provides, among others, viz : Having taken cognizance of the confidential information, the same shall be transmitted by the LRRD to the Records Division, BIR, National Office, for numbering and recording in the Confidential Entry Book provided for the purpose. The individual entries to be made by the Records Division shall indicate the day and time the information is received, the name and address of the informer, name and address of the person denounced, names and addresses of the witnesses, if any, the subject matter of the information and the list of records, documents and books submitted, if any. xxx xxx xxx There being no issues nor material facts which have not been raised and considered by us in the assailed decision, the instant motion filed on February 13, 2002, is hereby DENIED for lack of merit. SO ORDERED. Hence, the instant Petition. ISSUE The sale issue to be resolved in this Petition, the resolution of which will determine the validity or invalidity of the assessments made by the petitioner against the respondent for deficiency income taxes, is whether or not the respondent's availment of the Voluntary Assessment Program (VAP) is valid. RULING We rule against the petitioner. A careful reading of the three revenue memorandum orders, namely, Revenue Memorandum Order No. 59-97 (RMO No. 59-97) 15 , Revenue Memorandum Order No. 60-97 (RMO No. 60-97) 16 and Revenue Memorandum Order No. 63-97 (RMO No. 63-97) 17 leads us to dismiss the instant Petition. RMO No. 59-97, providing for the Voluntary Assessment Program (VAP) and supplemented by RMO Nos. 60-97 and 63-97 were issued by then Commissioner of Internal Revenue Liwayway Vinzons-Chato by virtue of the authority vested in her under Sec. 204 of the National Internal Revenue Code, as amended, to compromise, abate and refund or credit taxes. As stated in RMO No. 63-97, issued on November 27, 1997 expanding the coverage of RMO Nos. 59-97 and 60-97 on the VAP, the purpose of the said revenue memorandum orders is not only to give taxpayers a final opportunity to come up with a clean slate but also to accelerate the collection of taxes, save the government on administration and collection costs thereby, raising government revenues. These purposes are sought to be accomplished by encouraging those who failed to file the required tax returns or underdeclared their internal revenue tax liabilities for taxable years 1993 to 1996 to declare their untaxed income and pay the tax due thereon. RMO No. 59-97 provides the general condition on who may avail of the benefits under VAP, to wit: 2. Who may avail Any person liable to pay any of the above-cited internal revenue taxes for the above specified period, who due to it inadvertence or otherwise, has under-declared his internal revenue tax liabilities or has not filed the required tax return may avail of the benefits under VAP. By virtue of the above provision, the respondent applied with the Bureau of Internal Revenue (BIR) to avail of the benefits under VAP. Paragraph 3 of RMO No. 59-97 enumerates the persons excluded from the coverage of VAP, to wit: 3. Persons/Cases not covered The following shall be excluded from the coverage of the VAP under this Order: 3.1. Dealers of petroleum products and purchasers of goods and services from petroleum companies who have availed of the VAP under RMO No. 39-96, as amended by RMO No. 10-97; 3.2. Withholding agents with respect to their withholding tax liabilities; 3.3. Persons to whom a validly issued Letter of Authority has been served; 3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; and 3.5. Tax cases filed in Court." Petitioner maintains that respondent falls within the terms of subparagraph 3.4, therefore, she is disqualified to avail of the benefits under VAP. The pertinent portion of the petitioner's arguments raised in the instant Petition is quoted hereunder: The records show that on May 21, 1997, George P. Mercado filed with the Special Investigation Division, Revenue Region No. 19, Davao City an affidavit stating that respondent earned a substantial income in 1994, 1995 and 1996 but did not pay income tax (Annex C, Petition). Said affidavit is a verified information filed by an informer under Section 281 (now 282) of the Tax Code since it is a lead to the discovery of fraud upon the internal revenue laws or violations of any of the provisions thereof . As a result of said verified information, the Chief of the Special Investigation Division directed Revenue Officer Eustaquia Valdez to conduct a preliminary verification and to report on the matter (Annexes D and E, Petition). Pursuant to said directive, Ms. Valdez testified that in July of 1997, together with her Group Supervisor, Mrs. Rimurin, she went to see respondent in her residence Tagum, Davao del Norte and that she had an informal. interview respondent who admitted that she (respondent) has not filed any return for the years 1993 to 1996 ( p. 20, TSN, January 9, 2001 ). On October 15, 1997, Ms. Valdez submitted a written report of the preliminary verification (Annex H. Petition). Furthermore, the Chief of the Special Investigation Division sent an Access to BIR Records to Revenue District No. 112, Tagum, Davao del Norte, to inquire if income tax returns of respondent for the years 1993 to 1996 were available for examination (Annex F, Petition) and, in reply thereto, a Certification was issued that respondent has no records of income tax returns for the period involved (Annex G, Petition). All the foregoing facts, taken together, clearly show that before respondent's availment of the VAP on December 2, 1997, she was already under investigation by the Special Investigation Division as a result of a verified information filed by an informer under Section 281 (now 282) of the Tax Code. The preliminary verification conducted by Ms. Valdez and the sending of an Access to BIR records by the Chief of the Special Investigation Division constitute acts of investigation. xxx xxx xxx Nevertheless, notwithstanding the rationale behind the VAP, taxpayers who are already under investigation for fraud, tax evasion, non-filing of returns and other violations of the Tax Code before their availment of the VAP are not covered by the VAP, that is, they are not entitled to the benefits under the VAP. Why? What is the underlying reason for this disqualification? The reason, we submit, is because the availment of the VAP by such taxpayers is no longer voluntary. Voluntariness is the very essence of the Voluntary Assessment Program. The availment is no longer voluntary because the fraud has already been discovered by the taxing authority before the taxpayers declared the fraud by availing themselves of the VAP. In the case at bar, since respondent's non-filing of income tax returns for the years 1993 to 1996 has already been discovered by the BIR before she availed herself of the VAP, her availment was not voluntary. Consequently, the fact that the verified information that respondent did not file income tax returns, for which she was investigated, was not recorded in the Official Registry Book of the BIR is of no moment. Such failure to record the information is a mere procedural omission which should not defeat the underlying reason behind the disqualification of persons already under investigation for fraud or tax evasion from availing themselves of the VAP. In this case, the information was filed in the Special Investigation Division in Davao City, whereas the Official Registry Book is found in the Records Division of the BIR National Office in Quezon City. This would explain the procedural omission. Incidentally, the Tax Court stated that the investigation must be duly recorded in the Official Registry Book. We submit that what is to be recorded is the information, not the investigation. xxx xxx xxx." 18 We are not persuaded by the petitioner's arguments. RMO No. 59-97 in defining who may apply under VAP uses the phrase Any person , and added thereto . . . liable to pay any of the above-cited internal revenue taxes for the above specified period who due to inadvertence or otherwise, has underdeclared his internal revenue tax liabilities or has not filed the required tax returns may avail of the benefits under VAP. What may be inferred from the use by the taxing authority of a broad and general language in defining who are qualified to apply under VAP is its intention to reach as many taxpayers as possible subject only to the exclusion of those case specifically enumerated therein. Applying the rules of statutory construction, the exceptions enumerated in paragraph 3 of RMO No. 59-97, as well as those added in RMO No. 63-97, should be strictly construed and all doubts should be resolved in favor of the general provision stated under paragraph 2 thereof rather than the said expectations. In Samson vs. Court of Appeals , 19 the Supreme Court had the occasion to apply this rule of statutory construction, to wit: Under the rules of statutory construction, exceptions, as a general rule , should be strictly, but reasonably construed; they extend only so far as their language fairly warrants, and all doubts should be resolved in favor of the general provisions rather than the exception. Where a general rule is established by statute with exceptions, the court will not curtail the former nor add to the latter by implication . . . (Francisco, Statutory Construction, p. 304, citing 69 C.J., Section 643, pp. 10921093) <Emphasis supplied> Strictly construing the language used in the exception under subparagraph 3.4, we cannot agree with the petitioner's position that all the conditions set forth therein are present in the respondent's case. We will start with the question as to whether not the respondent was already under investigation for violation of the Tax Code provisions at the time she applied under VAP on December 2, 1997. The records show that she was indeed under investigation. Albeit, the Letter of Authority was issued only on 28 July 1998, there is no question that on 23 May 1997, a Mission Order No. 118-97 had already been issued by the Chief of Special Investigation Division of the BIR, Revenue Region No. 19 to Intelligence Officer Eustaquio M. Valdez authorizing the conduct of monitoring and surveillance activities on the respondent. This investigation was preceded by the filing of a verified information by a certain George Mercado alleging respondent's failure to pay her income taxes for the years 1994 to 1996. However, subparagraph 3.4 provides for another condition to determine whether or not a taxpayer-applicant is excluded from the coverage of VAP, to wit: ". . . and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP." We now proceed to the question as to whether or not to requirement of recording in the Official Registry Book of the BIR is present in the respondent's case. At this juncture, we affirm CTA's finding that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. Petitioner claims that this was merely a procedural omission which does not affect respondent's exclusion from the coverage of the VAP. Petitioner's position is that the Official Registry Book of the BIR is merely a procedural requirement which can be dispensed with for the purpose of determining who are excluded from the coverage of RMO No. 59-97. We do not agree. Contrary to the petitioner's contention, it can be gleaned from the clear wordings of RMO No. 59-97 that the recording in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer-applicant under the VAP may be excluded from the coverage thereof as this requirement was preceded by the word and. As correctly pointed out by the CTA in its assailed Decision: The conjunctive and is being used and all the above requisites must be present before a person may be excluded from the coverage of the VAP. And is a conjunctive, used to denote a joinder, a union (Words and Phrases, Vol. 3, p. 570). The word and is a conjunction used to connect words, phrases or sentences, accepted as binding together and as relating the one to the other (ibid., p. 571). And is a conjunction connecting words or phrases expressing the idea that the latter is to be added or taken along with the first. It is said to be equivalent to as well as (Bouvier s Law Dictionary, Vol. 1, p. 194) 20 <Emphasis Supplied> In the concurring opinion of Justice Castro in the case of Philippine Constitution Association, Inc. vs. Mathay , 21 he reiterates the significance of the use of conjunction and, to wit: The key word is the particle and. And is a conjunction pertinently defined as meaning together with, joined with (Funk and Wagnalls New Standard Dictionary of the English Language, p. 105); along or together with, added to or linked to, used to conjoin word with word, phrase with phrase, clause with clause (Webster's New International Dictionary, p. 98). The word and does not mean or; it is a conjunction used to denote a joinder or union, binding together, relating the one to the other (See 3 Words and Phrases, 569571.). As understood from the common and usual meaning of the conjunction and, the expiration of the full term of all the members of the Senate is inseparable from the expiration of the full term of all the members of the House of Representatives. From the perspective of semantics, it is undeniably perceived that those who framed the constitutional provision, when they utilized the word and, stated what they meant and meant what they stated. xxx xxx xxx Applying the above principle, we find that the taxing authority in using the conjunction and in subparagraph 3.4 of RMO No. 50-97 intends the same in its usual and common meaning. This means that the recording in the Official Registry Book of the BIR is a condition sine qua non that must concur with the first condition stated, otherwise, the taxing authority would not have provided the same as a requirement. This interpretation is more in faithful compliance with the mandate of the said revenue memorandum orders that is, to reach as many taxpayers as possible, by providing that if one of the conditions is absent then, a taxpayer may avail of the benefits under VAP subject only to the general conditions set forth in paragraph 2 of RMO No. 59-97. The above conclusion finds strength in the face of RMO No. 63-97 wherein the Commissioner of Internal Revenue not only retained the conjunction and but also underscored it in paragraph 3.4 thereof. The inevitable conclusion is that the said requirement is a mandatory requirement which must concur with the other conditions set forth therein for the purpose of determining who are disqualified from availing the benefits provided under VAP. Finally, we reiterate the principle that the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases . 22 Consequently, . . ., this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority." 23 Section 10, Rule 43 of the 1997 Rules of Civil Procedures provides that: . . . . The findings of fact of the court or agency concerned, when supported by substantial evidence, shall be binding on the Court of Appeals , and, applying the above principle on the binding effect of the factual findings and conclusions reached by the Court of Tax Appeals, we sustain the latter's findings and conclusion. WHEREFORE, premises considered, the Decision dated 15 January 2002 and Resolution dated 03 May 2002 of the Court of Tax Appeals are hereby AFFIRMED. The Petition is DENIED DUE COURSE and hereby ordered DISMISSED. SO ORDERED. Tayag and Camello, JJ ., concur. Footnotes 1. Rollo , p. 104 2. Ibid , p. 136 3. Ibid , p. 140 4. Ibid , p. 144 5. Ibid , p. 147 6. Ibid , p. 148 7. Ibid , pp. 810 8. Ibid , pp. 4857 9. Ibid , p. 67 10. Ibid , pp. 7680 11. Id , pp. 8185 12. Ibid , pp. 2129 13. Ibid , pp. 8692 14. Ibid , pp. 3032 15. Ibid , pp. 9396 16. Ibid , pp. 9799 17. Ibid , p. 100101 18. Ibid , pp. 1416 19. G.R. No. L-43182, November 25, 1986, 145 SCRA 654, 659. 20. Rollo , p.26 21. G.R. No. L-25554, October 4, 1996, 18 SCRA 300, 329330. 22. Commissioner of Internal Revenue vs. Court of Appeals , G.R. No. 115349, 23 April 18, 1997, 271 SCRA 605, 619. 23. Commissioner of Internal Revenue vs. Wander Philippines, Inc. G.R. No. L-68375, April 15, 1988, 160 SCRA 573, 579, citing Reyes vs. Commissioner of Internal Revenue , 24 SCRA 198, July 29, 1968.