Filinvest Development Corp. v. Commissioner of Internal Revenue

SPECIAL FIFTH DIVISION [CA-G.R. SP No. 72992. December 16, 2003.] FILINVEST DEVELOPMENT CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GOZO-DADOLE , J p : This is a Petition filed under Rule 43 of the 1997 Rules of Civil Procedure (as amended) for review of the Decision 1 dated September 10, 2002 rendered by the Court of Tax Appeals in CTA Case No. 6182, entitled " Filinvest Development Corporation and Filinvest Alabang, Inc. vs. Commissioner of Internal Revenue ", insofar as the afore-mentioned Decision directs petitioner Filinvest Development Corporation to pay the amount of P5,691,972.03, representing deficiency income tax on allegedly undeclared interest income for the taxable year 1997, plus 20% delinquency interest computed from February 16, 2000 until full payment thereof. The dispositive portion of the assailed Decision reads: "WHEREFORE, in view of all the foregoing, the court finds the instant petition partly meritorious. Accordingly, Assessment Notice No. SP-INC-96-00018-2000 imposing deficiency income tax on FDC for taxable year 1996, Assessment Notice No. SP-DST-96-00020-2000 and SP-DST-97-00021-2000 imposing deficiency documentary stamp tax on FDC for taxable years 1996-1997, respectively and Assessment Notice No. SP-INV-97-0027-2000 imposing deficiency income tax on FAI for the taxable year 1997 are hereby CANCELLED and SET ASIDE. However, petitioner is hereby ORDERED to PAY the amount of P5,691,972.03 as deficiency income tax for taxable year 1997. In addition, petitioner is also ORDERED to PAY 20% delinquency interest computed from February 16, 2000 until full payment thereof pursuant to Section 249(c)(3) of the Tax Code . SO ORDERED." (emphasis supplied) The antecedent facts of the case are as follows: On November 29, 1996, Filinvest Development Corporation (FDC), Filinvest Alabang, Inc. (FAI) and, Filinvest Land Incorporated (FLI) entered into a Deed of Exchange 2 whereby FDC and FAI both transferred to FLI certain parcels of land with a total appraised value of P4,306,777,000.00 in exchange for 463,094,301 shares of stock in FLI. The transfer is intended to facilitate the development of medium-rise residential and commercial building. As a result of the Deed of Exchange, FDC's ownership over FLI increased by almost 7%. On January 13, 1997, FLI wrote to the Bureau of Internal Revenue (BIR) requesting for a ruling that no gain or loss would be recognized in such transfer of real properties. This was acted upon favorably by the BIR on February 3, 1997, with a ruling that the transaction falls squarely within the Tax Code provision of a tax-free exchange. 3 Meanwhile, FDC extended to its affiliates advances on various dates during the years 1996 and 1997. In November 1996, FDC entered into a Shareholder's Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a joint venture company named Filinvest Asia Corporation (FAC). The latter was tasked to manage 50% ownership interest of FDC in its project with the Philippine Bank of Communications. Pursuant to this agreement, FDC assigned to FAC a portion of its rights in the said project in payment of a subscription amounting to P500.7M worth of shares of stock in FAC. As a result, FDC reported a net loss of P190,695,061.00 in its Annual Income Tax Return for the taxable year 1996. On January 3, 2000, FDC received from the BIR a Formal Notice of Demand 4 with accompanying four Assessment Notices, all dated January 3, 2000, informing FDC that after investigation, the following taxes were found due: a deficiency income tax of P150,074,066.27 for 1996, a deficiency documentary stamp tax of P10,425,487.06 for the same year, a deficiency income tax of P5,716,972.03 for 1997, and a deficiency documentary stamp tax of P5,796,699.40, also for 1997. The said deficiency income tax assessments were based upon the examiner's findings that FDC failed to reflect in its income tax returns several interest income, gains on property and, advances to its affiliates. Likewise, FDC was found not to have reflected its taxable income resulting from the exchange of property for shares of stock in FLI. On January 26, 2000, FDC filed with the BIR a Request for Reconsideration/Protest 5 of the assessments against it. On March 24, 2000, FDC submitted all relevant documents in support thereof. The request/protest had not been acted upon, hence, FDC sent to the BIR Appellate Division a letter, dated September 11, 2000, seeking an early resolution of the same. On September 19, 2000, FDC filed with the Commissioner of Internal Revenue a letter 6 reiterating this previous request. However, the BIR failed to take any action on FDC's request. FDC and FAI claim that the deficiency income tax assessments issued against them are improper because the transaction under the Deed of Exchange is tax-free. Moreover, the imputation of interest income on inter-company advances has no factual and legal basis because the prospective gain resulting from the alleged appreciation in the value of FDC's shareholdings in FAC is not taxable income. Finally FDC and FAI both postulate that the assessment of deficiency documentary stamp tax is erroneous for the reason that instructional letters or cash vouchers covering the advances given by FDC to its subsidiaries are not subject to any stamp tax. In contrast, the BIR defends its assessments by claiming that the exchange of property between FDC and FAI, on one hand, and FLI, on the other, is a taxable gain on the part of the former. Furthermore, the imposition of documentary stamp tax (DST) is warranted because loan transactions are, under the law, subject to DST. Consequently, on October 17, 2000 FDC and FAI, as petitioners, filed with the Court of Tax Appeals a Petition for Review 7 against the Commissioner of Internal Revenue (CIR), as respondent. The case was docketed as CTA Case No. 6182. TAacHE In its petition, FDC and FAI alleged that the exchange of their property for shares of stock in FLI under the Deed of Exchange is not considered taxable gain because the exchange meets all the requisites for the non-recognition of taxable gain, considering the fact that FAI and FDC collectively gained further control of FLI after the exchange. To bolster their contention, petitioner sought solace in BIR Ruling No. S-34-046-97 8 where the BIR explicitly stated that FDC, FAI and, FLI are not required to recognize a taxable gain or a deductible loss from the exchange. They, further, argued that there is no law which empowers the CIR to impute a theoretical interest on interest-free advances made by one taxpayer to another, even though they are related parties. Since FDC cannot demand the payment of interest from its affiliates in the absence of stipulation to this effect, neither could the BIR assess against FDC income tax on such unrealizable income. Moreso, income tax may not be imposed on a prospective gain from an alleged appreciation in the value of FDC's shareholdings in FAC because the same has not yet been realized through sale or conversion of the property. Finally, documentary stamp tax may not be imposed on mere instructional letters or cash vouchers evidencing advances extended by FDC to its affiliates because they are not categorized as promissory notes nor certificates of obligations. Hence, petitioners prayed that the deficiency income tax and documentary stamp tax assessments levied against FDC for the taxable years 1996 and 1997 and, the deficiency income tax assessments against FAI for taxable year 1997 be cancelled and annulled. The CIR filed its Answer 9 on November 28, 2000 claiming that the transfer of property for shares of stocks should not be considered as tax-free since FDC's interest in FLI was eroded after the exchange. Also, the transfer leading to the corporate re-organization did not result in further control for FDC. According to the respondent, petitioner FDC realized a taxable gain on dilution arising from the Shareholder's Agreement with Reco Herrera PTE Ltd. for the formation of a joint venture company. The deficiency assessments were justified by respondent on the basis of Section 50, 1997 Tax Code which vests upon the CIR the power to allocate or distribute income or deductions between or among organizations in order to prevent evasion of taxes, as well as, to place a controlled taxpayer on a tax parity with an uncontrolled taxpayer. Further, the respondent defended the impugned assessments by stating that loan transactions, such as those entered into by FDC with its affiliates, whether or not evidenced by formal agreement or by mere office memo, shall be subject to documentary stamp tax. Thus, respondent prayed that the instant petition be denied and that petitioners be ordered to pay the amount of taxes as assessed. During the pre-trial conference, the petitioners and respondent filed a Stipulation of Facts, Documents and Issues. 10 In a Resolution 11 promulgated on February 16, 2001, the Court of Tax Appeals (CTA) approved the same. Meanwhile, the Formal Offer of Documentary Evidence 12 filed by petitioners on August 10, 2001 was admitted by the CTA subject to a final evaluation as regards their probative value. Afterwhich, trial ensured where the petitioners presented the oral testimony of Susana Macabelda for the purpose of proving the type of documentation covering the advances granted by FDC which became the subject of the impugned deficiency tax assessment. For its part, respondent presented neither testimonial nor documentary evidence. On September 10, 2002, the CTA rendered its Decision 13 finding the petition partly meritorious. It cancelled and set aside the assessed deficiency income taxes for the years 1996 and 1997, as well as, the documentary stamp tax for 1997 against petitioners. Nevertheless, the court ordered petitioner FDC to pay P5,691,972.03 representing deficiency income tax on undeclared interest income for the taxable year 1997, plus 20% delinquency interest computed from February 16, 2000 until full payment thereof. According to the CTA, the exchange of properties between FDC and FAI, on one hand, and FLI, on the other, resulted in the further control of FDC and FAI, as far as stock ownership in FLI is concerned. Evidence disclosed that, after the exchange, new shares of stock were issued and, as a result FDC owned 61.03% and FAI had 9.96% stockholdings. Since the law contemplates as collective increase of equity participation in the transferee corporation, the court found that the seeming reduction in the number of shares owned by FDC, after the exchange, should be viewed together with the increase of ownership of FAI. Hence, any again or loss derived from the transaction is a tax-free exchange. Anent the alleged interest income on the advances made by petitioner FDC to its affiliates, the court found dubious FDC's act of extending several cash advances to its affiliates (FLI. FAI and Davao Sugar Central Co.) with no stipulation on interest. Thus, the court invoked the CIR's power, under Section 43 (now Section 50) of the Tax Code, to make necessary adjustments by rectifying any distortions on income, through the adoption of reasonable standards in order to determine the true net income of each of the parties. The CTA posits that the said provision of law is intended to place a controlled taxpayer on a tax parity with an uncontrolled taxpayer by determining the true net income from the property and business of a controlled taxpayer. Thus, the court ruled that in case of understatement of the true taxable net income, the CIR shall intervene by making distributions, apportionments, or allocations of gross income or deductions for the purpose of forestalling tax evasion. Furthermore, the CTA ruled that the increase in value of shares in FAC owned by the petitioner FDC did not result to any economic advantage on the part of the latter. It held that in the absence of sale or conversion of the property, a mere increase in the value of the shares purchased is not income, but merely an unrealized increase in capital. On this score, the assessment by the BIR of deficiency income tax on the joint venture transaction was struck down by the CTA. Finally, the CTA ruled that the instructional letters or vouchers issued by petitioner FDC cannot be considered loan agreements as to warrant the imposition of documentary stamp tax. These documents do not embody an express stipulation between the parties where one is obliged to deliver and the other to re-pay. It is merely an internal document, unilaterally prepared by petitioner FDC for the purpose of recording the advance it made to its affiliates and, to avoid the co-mingling of funds of the corporate affiliates. As such, the imposition by the respondent of documentary stamp tax on instructional letters or vouchers was set aside by the CTA. Not satisfied by the above-stated Decision of the CTA, insofar as it orders FDC to pay deficiency income tax on allegedly undeclared interest income for the taxable year 1997, plus 20% delinquency interest thereon, FDC filed the instant petition 14 on October 11, 2002, assigning the following errors committed by the tax court, to wit: "I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DEFICIENCY INCOME TAX ON ALLEGEDLY UNDECLARED INTEREST INCOME FROM ADVANCES WHICH IT EXTENDED TO AFFILIATES FOR THE TAXABLE YEAR 1997, NOTWITHSTANDING THAT PETITIONER DID NOT ACTUALLY EARN ANY INTEREST INCOME ON SAID ADVANCES. II. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT AN "ARM'S-LENGTH" INTEREST RATE, OR THEORETICAL INTEREST INCOME, MAY BE IMPUTED ON PETITIONER ON THE BASIS OF SECTION 43 OF THE OLD NATIONAL INTERNAL REVENUE CODE (NOW SECTION 50 OF THE 1997 NATIONAL INTERNAL REVENUE CODE) AND SECTION 179(B) OF REVENUE REGULATIONS NO. 2 IMPLEMENTING SECTION 43; III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE 1965-69 REGULATIONS ON THE LAW OF FEDERAL INCOME TAXATION OF THE UNITED STATES, PARTICULARLY SECTION 1.482-2 THEREOF, HAVE "PERSUASIVE EFFECT" IN THE PHILIPPINES; IV. THE COURT OF TAX APPEALS ERRED IN TAKING COGNIZANCE OF THE AFORESAID REGULATIONS, NOTWITHSTANDING THAT RESPONDENT DID NOT PRESENT EVIDENCE TO PROVE THE EXISTENCE THEREOF; V. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DEFICIENCY INCOME TAX ON ALLEGEDLY UNDECLARED INTEREST INCOME UNDER SECTION 43 OF THE OLD NATIONAL INTERNAL REVENUE CODE, NOTWITHSTANDING THE LACK OF FACTUAL AND EVIDENTIARY BASIS THEREFOR; VI. THE COURT OF TAX APPEALS ERRED IN UPHOLDING THE COMPUTATION MADE BY RESPONDENT COMMISSIONER OF PETITIONER'S SUPPOSED INTEREST INCOME BASED ON THE ALLEGED SCHEDULE OF INTEREST RATES OF THE BANGKO SENTRAL NG PILIPINAS, DESPITE THE NON-PRESENTATION BY RESPONDENT OF ANY EVIDENCE ON SUCH ALLEGED SCHEDULE; VII. THE COURT OF TAX APPEALS ERRED IN FINDING THAT IT WAS "QUITE DUBIOUS" FOR PETITIONER TO ADVANCE MONEY TO ITS AFFILIATES WITHOUT INTEREST; VIII. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DEFICIENCY INCOME TAX ON ALLEGEDLY UNDECLARED INTEREST INCOME, NOTWITHSTANDING ITS FINDING THAT THERE WAS "NO STIPULATION ON INTEREST" WITH REGARD TO THE CASH ADVANCES EXTENDED BY PETITIONER TO ITS AFFILIATES and; IX. THE COURT OF TAX APPEALS ERRED IN ORDERING PETITIONER TO PAY THE AMOUNT OF P5,691,972.03, REPRESENTING DEFICIENCY INCOME TAX ON ALLEGEDLY UNDECLARED INTEREST INCOME FOR THE TAXABLE YEAR 1997, PLUS 20% DELINQUENCY INTEREST COMPUTED FROM FEBRUARY 16, 2000 UNTIL FULL PAYMENT THEREOF. 15 Petitioner in its first and second assigned errors contends that there is no statutory authority for the CTA's decision affirming the imputation by respondent CIR of an "arm's-length" interest rate or a theoretical interest income on petitioner. Petitioner claims that the power of the CIR under Section 43 of the old Tax Code is merely to distribute, apportion or allocate gross income or deductions between or among organizations, trades or business owned or controlled directly or indirectly by the same interests. According to petitioner, the CIR has no authority to make an imputation of an imaginary interest income because his power to distribute, apportion and allocate do not include the power to impute an "arms-length" interest rate or imaginary interest income. Moreover, Section 43 is directed only against controlled taxpayers and not against the mother or holding corporation. Thus, the CTA erred in imputing interest income to FDC, the parent company and in failing to distribute any gross income or deductions among the affiliates of FDC, under Section 43. Parenthetically, petitioner, in its fifth, sixth and seventh assigned errors, claims that there is no factual and evidentiary basis for the application of Section 43 of the old NIRC and of Section 170(b) of Revenue Regulations No. 2. This is because such statute can only be invoked where the taxable net income of the controlled taxpayer is understated or where there is a clear case of tax evasion. According to petitioner, respondent has not established that there had been an understatement of income of any taxpayer controlled by FDC or that the latter had resorted to any fraudulent scheme of tax evasion. Accordingly, petitioner argued that the respondent should not use a theoretical interests based on the schedule of interest rates implemented by the Bangko Sentral ng Pilipinas (BSP) since the same was not proven in the trial. To further bolster its assertions, petitioner, in its eighth assigned error, posits that the BIR's imputation of an "arm's-length" interest rate on FDC's advances violates Article 1956 which prohibits the imposition of interest in the absence of express stipulation therefor. Petitioner argues that it could not legally recognize and collect interest income for advances to its affiliates because there is no written agreement for this purpose. As such, there is absolutely no basis for the BIR to assess against petitioner an income tax on such unrealizable and unrealized interest income. Petitioner's contentions are meritorious. To provide proper perspective, it would be wise to state the law prevailing at the time the subject transaction took place. Section 43 of the National Internal Revenue Code (now Section 50, Republic Act No. 8424, Tax Reform Act of 1997) provides: "In any case of two or more organizations, trades or businesses, whether or not incorporated and whether or not organized in the Philippines, owned or controlled directly or indirectly by the same interests, the Commissioner of Internal Revenue is authorized to distribute, apportion, or allocate gross income or deductions between or among such organizations, trades or business, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trade or businesses." Section 43 empowers the Commissioner of Internal Revenue to rectify abnormalities and distortions in income brought about by common control through the adoption of standards considered fair, reasonable or at arm's-length. 16 According to Revenue Memorandum Order No. 63-99 17 , Section 43 does not apply to alleged indebtedness which was in fact a contribution of capital . In the instance case, the subject transaction from which deficiency income tax was assessed involves cash advances made by petitioner to its affiliates. A perusal of the record at hand reveals that petitioner borrows money from a bank with interest and later re-lends (or advances) the same to its affiliates without payment of interest. 18 In the course of the trial, it was proven that such advances were extended by FDC to its affiliates and subsidiaries to give the latter financial assistance for operational and capital expenditures. 19 Such advances are evidence by instructional letters or cash vouchers issued by the petitioner. Hence, this Court is of the considered opinion that Section 43 of the old Tax Code finds no application in the case at bar, for the reason that the subject transaction distinctly relates to cash advances made by petitioner (mother company) in favor of its affiliates to enable the latter to sustain its operational and capital expenditures. Respondent Commissioner of Internal Revenue miserably failed to controvert this fact. Further, the peculiar feature of the subject transaction, in no wise, indicates a loan agreement between petitioner and its affiliates. In fact, the cancellation of the deficiency documentary stamp tax assessment against petitioner was premised on the absence of a stipulation between the parties requiring one to deliver and the other to re-pay. Notably, the CTA categorically declared that the instructional letters and cash vouchers containing petitioner's advances to its affiliates, are not loan agreements. 20 An eminent authority on Taxation once declared that documentary stamp tax is a privilege tax because it is really imposed on the transaction rather than on the document. 21 In short, the law taxes the document because of the transaction. If in the tax court's view, the instructional letters and cash vouchers issued by petitioner are not taxable because they are not loan agreements, we find no cogent reason why a tax should now be imposed on the transaction from which these documents were issued. In view of the foregoing, we agree with petitioner in claiming that the application of Section 43 of the old Tax Code is misplaced. Moreover, respondent went beyond its authority and utterly disregarded the evident purpose of the law when he issued the deficiency tax assessment against petitioner for interest income allegedly derived by the latter. Concededly, the purpose of Section 43 is to place a controlled taxpayer on a tax parity with an uncontrolled taxpayer, by determining, according to the standard of an uncontrolled taxpayer, the true net income from the property and business of a controlled taxpayer. If this has not been done and the taxable net incomes are thereby understated , the statute grants the CIR the authority to intervene by making distributions, apportionments or allocations of gross income or deductions among the controlled taxpayers to determine the true net income of each controlled taxpayer. 22 A presumption of control arises if income or deductions have been arbitrarily shifted. 23 Emphatically, transactions between the controlled taxpayer and another will be subjected to special scrutiny to ascertain whether the common control is being used to reduce, avoid or escape taxes . Indubitably, an exercise of the Commissioner's power under this statute is premised on evidence of fraud or evasion in the payment of taxes. Such circumstance is not present in the case at bar, since there is no evidence that the income of petitioner had been arbitrarily shifted to evade or avoid the payment of taxes. Otherwise stated, there is no showing that petitioner's advances to its affiliates are designed to evade the payment of taxes, or that petitioner deliberately devised a scheme to avoid the payment thereof. the intention to minimize taxes, when used in the context of fraud, must be proven by clear and convincing evidence amounting to more than mere preponderance. Mere understatement of tax, in itself, does not prove fraud. 24 As previously discussed, the grant of advances are considered legitimate business undertakings intended to give financial assistance to its affiliates. The non-imposition of interest by petitioner for advance to its affiliates is not an indicia of fraud. Moreover, the net income of petitioner has not, in any way, been understated as there is no interest income realized from the advances, which necessitate a declaration in petitioner's income tax return. As correctly pointed out by petitioner, no interest shall be due unless it has been expressly stipulated in writing. 25 The right to interest arises only by virtue of a contract or by virtue of damages for delay and failure to pay the principal on which interest is demanded. 26 In the present case, respondent failed to show that petitioner and its affiliates agreed on the payment of interest for its advances. Likewise, we could not impute the payment of interest on a mere conjecture that petitioner's affiliates would, eventually, be unable to pay the principal amount on which interest is demanded. Corollarily, the schedule of interest rates prescribed by the Bangko Sentral ng Pilipinas (BSP) may not be used in the instant case due to the absence of an "arm's-length" transaction warranting its imposition. In its third and fourth assigned errors, petitioner reiterates its previous argument that there is no implementing revenue regulation authorizing the CIR to impute a theoretical or imaginary interest income. In the absence of a Philippine Supreme Court decision upholding the authority of the BIR to collect a deficiency tax on account of a theoretical or imaginary interest on such advances, petitioner argued that the imputation cannot be sustained. The tax court's adoption of a foreign rule or regulation allowing the imputation of interest income on an "arm's-length" or theoretical interest rate, despite the absence of a similar rule or regulation in this jurisdiction constitutes an amendment to the National Internal Revenue Code (NIRC) without the benefit of congressional action. Petitioner claimed that the American regulation clashes with existing Philippine law which disallows interest unless expressly stipulated in writing. Moreso, there is no basis for the CTA to take cognizance of the U.S. income tax regulation because respondent failed to adduce evidence to prove the existence thereof. We agree. Foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to take judicial notice of them. Well-settled is the principle that foreign laws must be alleged and proved. 27 Nevertheless, respondent did not allege in his Answer, nor did he prove in the course of the trial, the existence of Section 482 of the Internal Revenue Code of the United States. Apparently, this American law allows the imputation of interest income based on an "arm's-length" interest rate. Surprisingly, the CTA took cognizance of the same. This is an apparent transgression of a settled rule that courts shall consider no evidence which has not been formally offered. 28 While the absence of local laws and jurisprudence does not per se prevent our courts from making reference of foreign statutes, this practice must be exercised with due care and prudence, having in mind the superiority of domestic rules over foreign statutes. Finally, petitioner in its ninth assigned error argues that respondent cannot hold it liable to pay deficiency income tax based on allegedly undeclared interest income. In the formal demand letter dated January 3, 2000, no provision in the NIRC or regulation issued thereunder is cited by the BIR as legal basis for the assessment. Also, there is no jurisprudential basis for the theoretical interest income being imputed to FDC. For these reasons, petitioner posits that its non-payment of the alleged deficiency income tax was in good faith and no delinquency interest may be charged against it. Likewise, petitioner impugns the CTA decision which used P5,691,972.03 as basis for the imposition of the 20% delinquency interest per annum because the deficiency income tax as computed is only P4,164,756.00. Petitioner's arguments are partly tenable. The law is explicit. Section 228 of the Tax Reform Act (R.A. 8424) provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. In the same vein, the demand letter calling for payment of the taxpayer's deficiency tax shall state the law, rules and regulations, or jurisprudence upon which the assessment is made. A perusal of the formal demand letter 29 dated January 3, 2000 reveals that the complete details covering the discrepancies as found by the respondent are shown in an accompanying schedule attached to such letter. However, for reasons discussed above, we, still, cannot uphold the respondent's view finding the petitioner liable for deficiency income tax on undeclared interest income. Consequentially, the imposition of delinquency interest has no leg to stand on. WHEREFORE, premises considered, the instant petition is hereby GRANTED. The assailed Decision dated September 10, 2002 rendered by the Court of Tax Appeals in CTA Case No. 6182, directing petitioner Filinvest Development Corporation to pay the amount of P5,691,972.03, representing deficiency income tax on allegedly undeclared interest income for the taxable year 1997, plus 20% delinquency interest computed from February 16, 2000 until full payment thereof, is REVERSED and SET ASIDE and, a new one entered annulling Assessment Notice No. SP-INC-97-00019-2000 imposing deficiency income tax on petitioner for taxable year 1997. No pronouncement as to costs. SO ORDERED. HSacEI Labitoria and * Vidallon-Magtolis, JJ . , concur. Footnotes * In lieu of J. Carandang who inhibited herself. 1. Rollo , page 1516. 2. Rollo , page 191. 3. Rollo , page 103, 111. 4. Rollo , page 196-206. 5. Rollo , page 86. 6. Rollo , page 161. 7. Rollo , page 53. 8. Rollo , page 153. 9. Rollo , page 216. 10. Rollo , page 223. 11. Rollo , page 346. 12. Rollo , page 247. 13. Rollo , page 516. 14. Rollo , page 11. 15. Rollo , page 15-17. 16. Rev. Memo. Order No. 03-99. 17. cited in De Leon, The National Internal Revenue Code Annotated, 2000 Edition, page 362. 18. Transcript of Stenographic Notes, July 25, 2001, page 11. 19. Transcript of Stenographic Notes, June 26, 2001, page 14. 20. Decision promulgated on September 10, 2002, page 537. 21. Hector De Leon, The National Internal Revenue Code Annotated, 2000 Edition, page 722. 22. Sec. 179(b), Rev. Reg. No. 2. 23. Sec. 179. 24. Yutivo Sons Hardware Co. vs. CTA , 1 SCRA 160, cited in Dimaampao, Tax Principles and Remedies, 1st Edition, 2002, page 119. 25. Article 1956, New Civil Code. 26. Baretto vs. Santa Marina , 37 Phil. 568. 27. Wildvalley Shipping, Co. Ltd. vs. Court of Appeals , 342 SCRA 213; Llorente vs. Court of Appeals , 345 SCRA 592. 28. Republic vs. Sandiganbayan , 255 SCRA 438; Candido vs. Court of Appeals , 253 SCRA 78. 29. Rollo , page 196-2002.