Belle Corporation v. Commissioner of Internal Revenue

FORMER SEVENTH DIVISION [CA-G.R. SP No. 73071. May 18, 2007.] BELLE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N SUNDIAM , J p : This is a Petition for Review filed under Rule 43 of the revised Rules of Civil Procedure seeking to annul and set aside the Decision, dated April 4, 2002, rendered by the Court of Tax Appeals in CTA Case No. 5930. The dispositive portion of the assailed Decision reads: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED to PAY to the respondent the amount of P26,062,980.08 representing deficiency income, capital gains and documentary stamp taxes for taxable year ended December 31, 1995, inclusive of surcharge and deficiency interest. In addition, petitioner is also ORDERED to PAY 20% delinquency interest computed from March 1, 1999 until full payment thereof pursuant to Section 249 (a) (c) (3) of the 1995 Tax Code. SO ORDERED" [ Rollo, p. 57 ]. Likewise assailed is the Resolution, dated September 10, 2002, rendered by the CTA, denying petitioner's Motion for Reconsideration and Motion for Presentation of the Originals of the Annexes attached to the Motion for Reconsideration, to wit: "WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration and the Motion for Presentation of the Originals of the Annexes attached to the Motion for Reconsideration are hereby DENIED for lack of merit. SO ORDERED" [ Rollo, p. 69 ]. The factual antecedents are as follows: Petitioner Belle Corporation is a domestic corporation engaged in the business of developing subdivision and land improvements which are intended for sale to the general public. During the taxable year ended December 31, 1995, petitioner sold on various dates and to various buyers its shares of stock in the Country Club at Tagaytay Highlands, Inc. ["TCCATH" shares for brevity], a stock, non-profit corporation. Petitioner allegedly paid the capital gains tax and documentary stamp tax due on each sale of TCCATH shares of stock [ Rollo, pp. 43-44; 22 ]. Likewise, during the same taxable year, petitioner sold condominium units at "Pinecrest Village" and commenced the sale of condominium units at "The Villas", both projects being part of the Tagaytay Highlands Community Condominium Project of which petitioner is the developer [Ibid] . For the same taxable year, petitioner filed its corporate income tax return together with attachments thereto which included the sale of Pinecrest Village and The Villas units [Ibid] . On August 13, 1996, a Letter of Authority No. 143678 was served to petitioner by respondent Commissioner of Internal Revenue (CIR) with respect to the examination of its books of accounts and other accounting records for all internal revenue taxes for the period from January 1, 1995 to December 31, 1995. In the course of the examination, documents requested by the respondent CIR were submitted by the petitioner and formed part of BIR records [Rollo, p. 44] . On November 27, 1997, the Bureau of Internal Revenue Intelligence and Investigation Service Division sent a letter to petitioner stating as follows: "Gentlemen: Please be informed that upon review of the report of investigation covering your internal revenue tax liabilities for the taxable year 1995, there was found due from you the total amount of Php30,500,728.92 representing deficiency income, capital gains and documentary stamp taxes , including increments thereon, details of which are shown hereunder: A. INCOME TAX 1995 Deficiency Income Tax P9,240,000.00 Add: 25% Surcharge 2,310,000.00 20% Interest p.a. from 4/15/96 to 12/30/97 3,944,931.40 Compromise penalty 25,000.00 Total Amount Due & Collectible P15,519,931.40 =========== B. CAPITAL GAINS TAX 1995 Deficiency Capital Gains Tax P - Add: 25% surcharge 8,593,750.00 20% Interest p.a. 6,263,047.52 Compromise Penalty 25,000.00 Total Amount Due & Collectible P14,881,797.52 ============ C. DOCUMENTARY STAMP TAX 1995 25% Surcharge P99,000.00 Total amount Due & Collectible P99,000.00" [Emphasis supplied, Rollo, p. 77] ========= Thereafter, on January 29, 1999, respondent CIR sent three (3) Assessment Notice(s) to petitioner. The assessment, including increments, covers the following: Assessment No. Particulars of Deficiency Amount RE-95-IT-153-97 Income Tax P15,519,931.40 RE-95-CGT-154-97 Capital Gains Tax 14,881,797.52 RE-95-DST-155-97 Documentary Stamp Tax 99,000.00 Total: P30,500,728.92 [see Rollo, pp. 79-81] =========== On March 1, 1999, petitioner, through counsel, protested the above assessment by requesting for reconsideration thereof. In protesting the assessment, petitioner did not question its validity for failure to state the law and the facts on which it is made [Rollo, p. 46] . DaScCH In a letter, dated April 28, 1999, sent to respondent CIR, petitioner considered the documents attached to the protest and those submitted to the BIR, which formed part of the BIR records, as constituting all relevant supporting documents of its protest in compliance with Section 228 of the Tax Code. There being no action on the part the respondent CIR, on September 24, 1999, petitioner filed an appeal before the Court of Tax Appeals (CTA). On April 4, 2002, the CTA rendered a Decision partially modifying the findings of respondent CIR by decreasing the total deficiency tax assessment from Php30,500,728.92 to Php26,062,980.08, but affirming respondent CIR's findings with respect to the alleged untimely payment of the capital gains tax and the documentary stamp tax for failure of petitioner to present the Deeds of Assignment covering the TCCATH shares [Rollo, pp. 47-57] . Petitioner filed a Motion for Reconsideration, attaching the 529 Deeds of Assignment covering the TCCATH shares sold to prove the fact of timely payment of capital gains tax and documentary stamp tax on the sale of said shares. Thereafter, on June 13, 2001, petitioner filed a Motion for Presentation of Originals to the annexes attached to the Motion for Reconsideration. Both Motions were denied by the CTA in its Resolution, dated September 10, 2002 [Rollo, p. 69] . Hence, the instant petition with petitioner assigning as errors the following: "1. THE CTA ERRED IN NOT FINDING THAT THE ASSESSMENTS WERE NULL AND VOID FOR HAVING BEEN ISSUED WITHOUT STATING THE LAW AND THE FACTS ON WHICH THE ASSESSMENT IS BASED AS REQUIRED BY SEC. 228 OF THE TAX CODE; 2. ON THE ASSUMPTION THAT THE ASSESSMENTS ARE VALID, THE CTA ERRED IN FINDING THAT PETITIONER FAILED TO PROVE BY DOCUMENTARY EVIDENCE THAT THE INCOME TAX ASSESSMENT IN ISSUE WAS ALREADY REPORTED IN 1994; 3. ON THE ASSUMPTION THAT THE ASSESSMENT ARE VALID, THE CTA ERRED IN FINDING THAT THERE WAS AN INCOME TAX DEFICIENCY FOR THE TAXABLE YEAR 1995; 4. THE CTA ERRED IN DENYING THE PRESENTATION OF THE ORIGINAL DEEDS OF ASSIGNMENT TOGETHER WITH THE CORRESPONDING CGT AND DST RECEIPTS TO PROVE THE FACT OF TIMELY PAYMENT; 5. ON THE ASSUMPTION THAT THE ASSESSMENTS ARE VALID, THE CTA ERRED IN UPHOLDING THE ASSESSMENT FOR LATE PAYMENTS OF CGT AND DST" [Rollo, p. 23] . Parenthetically, it must be stressed that the burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not only that the Commissioner of Internal Revenue is wrong but the taxpayer is right ( Tan Guan vs. CTA, 19 SCRA 903 ), otherwise, the presumption in favor of the correctness of tax assessment stands ( Sy Po vs. CTA, 164 SCRA 524 ). In the case of Commissioner of Internal Revenue vs. Hantex Trading Co., Inc., (454 SCRA 301) , the Supreme Court held that: "We agree with the contention of petitioner that, as a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment . It is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima facie case of liability on the part of the taxpayer is made. If a taxpayer files a petition for review in the CTA and assails the assessment, the prima facie presumption is that the assessment made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties " [Emphasis supplied]. The burden of proving the illegality of the assessment lies upon the petitioner alleging it to be so. In the case at bar, we find that petitioner failed to discharge this duty. Anent the first issue, petitioner asserts that in the instant case, the assessment letter, dated November 27, 1997, of respondent CIR falls short of the requirement mandated by Section 228 of the Tax Code which provides, among other things, that the " taxpayer should be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. " Petitioner submits this matter can be raised at any stage of the proceedings precisely because waivers of void assessments are frowned upon for being contrary to public policy. We are not persuaded. It is worth emphasizing that respondent CIR's disputed assessment was issued on November 27, 1997 when the applicable law on protesting an assessment is found under Section 229 of the old Tax Code or the National Internal Revenue Code of 1977 which specifically provides: "Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable." As aptly pointed out by respondent CIR in his Comment (on the Petition for Review), Section 228 of R.A. No. 8424, otherwise known as "The Tax Reform Act of 1997" is not applicable in the case at bench because said law took effect on January 1, 1998, while the disputed assessment is dated November 27, 1997 . Sec. 8, Title XIV-Final Provisions of R.A. 8424 on Effectivity specifically provided that " This Act shall take effect on January 1, 1998 ." Therefore, at the time the disputed assessment was issued, there was yet no provision requiring the Commissioner of Internal Revenue to state in writing the facts and the law upon which the assessment was made. The said requirement was not yet incorporated or does not appear in then Section 229 of the old tax code or the National Internal Revenue Code of 1977, which was later amended. Section 229 of the old tax code became Section 228 of the now Tax Reform Act of 1997, thus, the provision relied upon by petitioner in claiming that respondent CIR's assessment was void for failure to state in writing the facts and the law upon which the assessment was made was yet inexistent at the time the disputed assessment was issued. Moreover, a perusal of the three Assessment Notice(s) [see Rollo, pp. 79-81], sent to petitioner by respondent CIR, showing the details/particulars of the assessments, are contained in printed BIR Forms, which forms are considered official documents. Therefore, the assessments per se contained in those BIR Forms enjoy the presumption that they were valid and issued by the respondent in the performance of his regular duties until proven otherwise. Nevertheless, We find the CTA's explanation on the said issue to be in order, to wit: ". . ., we believe that petitioner was fully informed of the law and the facts on which the assessment is made thus answering the second issue in the affirmative. It bears emphasis that the purpose of the aforesaid requirement is to give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the proposed assessment(s). As correctly pointed out by respondent, as early as May 14, 1997, which is prior to the issuance of the subject assessments, petitioner already submitted its comment regarding two issues raised by revenue examiners: first, the alleged understatement of 1995 sales of Pinecrest Village units by 7.4 million, and second, the reckoning date for the payment of capital gains tax on sales of shares and the documentary stamp tax thereon (pp. 439-442, BIR Records). It is to be noted that these issues constitute the very bases of assessments which were subsequently issued. Likewise, in its protest letter dated March 1, 1999, petitioner was able to explain in detail and submit documents to support its claim that the assessments were erroneous. Verily, at the time the assessments were issued, petitioners knew very well the law and the facts on which they were based. The purpose of the law having been served, Section 228 of the Tax Code may be deemed to have been complied with . TCAScE Since we rule that by petitioner's actual knowledge of the bases of the assessments, the requirement under Section 228 of the Tax Code that 'the taxpayer be informed of the law and the facts on which the assessment is made' is deemed to have been complied, it follows then that the assessments dated November 27, 1997 are not null and void , even if the same failed to state the law and the facts on which they were based" [Emphasis supplied, Rollo, pp. 49-50] . In sum, respondent CIR's deficiency tax assessment, issued to petitioner on November 27, 1997, cannot be considered as null and void by reason of respondent CIR's failure to state in writing the facts and the law upon which the assessment was made. Petitioner, discussing jointly the second and third issues, contends that it disagrees regarding the CTA's finding of lack of sufficient documentation that the subject sales of Pinecrest and The Villas condominium units amounting to Php19,000,000.00, actually transpired in 1994 because payments thereon "were started only in 1995 and all other formalities were completed in 1995" for the reason that: (1) an oral contract of sale is valid and that (2) the delivery of the thing bought or payment of the price is not necessary for the perfection of the contract. Petitioner maintains that it was not necessary for it to have received the full or part or even 25% of the consideration for the subject units in 1994; that neither was it necessary for petitioner to execute a document evidencing the sale in 1994 before it can consider the oral contract of sale as valid. Furthermore, petitioner posits that even without waiting to receive at least 25% of the selling price, it went ahead to report its gross revenue derived from such sales of Pinecrest and the Villas units and included it in its income tax return for 1994, the year such sales were perfected. Thus, it is not illogical but it is civic-mindedness and tax consciousness of the highest order. Petitioner finds it ironic that it is now being penalized by a deficiency assessment on the very same income on which it has already paid the taxes due thereon. We are not persuaded. Although We agree that a contract of sale, more particularly of realty, is perfected by mere consent and that an oral contract of sale of realty is valid, however, it is a factual finding of the CTA that: " The deficiency income tax assessment resulted from the following findings of the BIR examiner as stated in Exhibit 1, thus : 'However, it was discovered during the course of the investigation that sales allegedly reported in 1994 showed as sales in 1995, (see page 408). The transactions showed that payments for the units sold only commenced and all other formalities have been completed and transpired in 1995, hence, the same are included as an adjustment to the taxable income for 1995. The transactions were unearthed from scrutinizing and collating the taxpayer's official receipts, subsidiary ledgers from receivables and schedule of sales for the period.' Based on the said findings, the BIR examiner computed the alleged deficiency income tax as follows. Sales allegedly reported in 1994 but record show Sales transpired in 1995 Fung Ka Fun 1-0199 P5,500,000.00 MG Holdings 1-0136 3,200,000.00 Rene Ledesma 1-0137 3,900,000.00 Elizabeth Romualdes 1-0015 3,400,000.00 Cesar Purisima/SGV 1-0033 4,700,000.00 Ricardo Po 1-0056 3,400,000.00 Rachel Remullah Shah- South Seven Realty Corp. 1-0092 5,400,000.00 Total P29,400,000.00 Less: Sales in 1995 Per Belle Schedule 3,100,000.00 Adjustment for 1995 Sales P26,500,000.00 Tax due thereon P9,240,000.00 Surcharge 2,310,000.00 Interest 04/15/96 to 12/30/97 3,944,931.40 Compromise Penalty 25,000.00 Total Amount Due P15,519,931.40 [Rollo, p. 45] ========= It appears that, as found by respondent CIR after it investigated and examined petitioner's books of accounts and other accounting records, regarding the sales transactions for the sale of Pinecrest units and The Villas units allegedly reported as sales in 1994 by petitioner because of verbal agreements, no evidence was presented to prove that the said verbal contracts indeed took place and was in fact recorded in 1994. In fact, the CTA in its Resolution, denying petitioner's motion for reconsideration of the Decision, dated April 4, 2000, stated that: ". . . . Since petitioner's act of recognizing the subject verbal contracts of sale in 1994 and the consequent tax payment without single centavo having been received, it is contrary to what should have been done in accordance with the usual practice stated in its Notes to Financial Statements , petitioner could have easily disclosed the existence and recognition of said verbal contracts of realty in the said Notes to Financial Statements. Moreover, petitioner could have presented its 1994 books of accounts such as the general ledger, subsidiary ledger, sales register, and other source documents such as sales documents and vouchers supporting the entries shown in the said books of accounts in order for this court to trace and ascertain that the sales amount of P19,000,000.00 indeed formed part of the 1994 gross sales of P563,200,000.00" [Emphasis supplied, Rollo, p. 62] Based from the foregoing, since the CTA found it contrary to the usual practice that petitioner would pay the taxes for sales not yet realized and have not received a single centavo for, it is incumbent upon petitioner to show by convincing evidence that indeed it already paid the taxes due on the sale of Pinecrest and The Villas units allegedly reported in 1994 but the payments thereof were started and the formalities for the said sale completed in 1995. Petitioner discussing jointly the last 2 issues regarding the capital gains tax and documentary stamp tax argues that the computations of respondent CIR on the alleged late payments of the capital gains tax and documentary stamp tax on the sale of TCCATH shares of stock were based on a unilateral and arbitrary presumption. In this light, We are inclined to believe respondent CIR when it explained in its Memorandum [Rollo, p. 127] that its investigation disclosed that the purchase price of the TCCATH shares of stock were paid in full by the buyers in 1995 when they executed Reservation Agreements for Membership in TCCATH, and said purchase price were recognized by petitioner as income in 1995 [see Rollo, p. 134] . Section 7 of Revenue Regulations No. 2-82 provides for the time of payment of capital gains tax on sale of shares of stock not traded through any local stock exchange, thus: " SEC. 7. Payment of Tax and Manner of Filing Returns . The tax imposed by Section 5 of these Regulations shall be collected as follows: (a) Payment of tax . xxx xxx xxx (2) Tax on gains on sale of shares of stock not traded through any local stock exchange . The tax on net capital gains shall be paid by the seller on a per transaction basis upon filing the required return within 30 days following each sale or other disposition of shares of stock . (b) Manner of Filing Returns . xxx xxx xxx (2) On sale of shares of stock not traded through any local stock exchange. Taxpayers subject to the net capital gains tax shall, within 30 days following each sale or other disposition of shares of stock, file in duplicate a capital gains tax return on BIR Form No. ____ showing, among others, the name of seller and buyer; amount realized (selling price or fair market value of the other property received) and contract price; cost or adjusted basis; date of acquisition; sale or disposition. The return shall be accompanied with a copy of the instrument sale ." From the foregoing, the capital gains tax accrues only upon the consummation of the sale. Since, the investigation of respondent CIR disclosed that TCCATH shares were paid in full when the buyers executed Reservation Agreements for Membership in TCCATH in 1995, it follows then that payment of the capital gains tax should have been made in that year. The factual issue of whether or not capital gains tax and corresponding documentary stamp tax on the sales of TCCATH shares were timely paid can only be ascertained through corresponding Deeds of Assignments. But according to the CTA, petitioner failed to submit these vital documents. We find that the factual ruling of CTA on this matter should be upheld, to wit: "In the case at bar, the BIR records (pp. 401 & 404) show that only the one share to Eduardo Lucero and one share sold to Evergisto Macatulad have corresponding Deeds of Assignment which were executed on July 29, 1996. The capital gains tax on the said shares in the total amount of P120,000.00 was timely paid on July 31, 1996 (BIR records, pages 402 & 405). However, as to the sale of the remaining 527 TCCATH shares, no Deeds of Assignment were presented by petitioner. The Court, therefore, could not ascertain with certainty whether there was timely payment of the capital gains tax due thereon. Consequently, petitioner should be assessed for deficiency capital gains tax of P14,812,324.90 on the sale of 527 TCCATH shares " [Rollo, pp. 54-55] . TEDHaA Interestingly, petitioner recognized through its witness, Manuel Lahoz, that the sale of TCCATH shares were paid in full and income in the year 1995, to wit: "Q: When a person is interested in buying shares in the Country Club at Tagaytay Highlands, Inc., they are required to accomplish a Reservation Agreement, Application for Membership and Applicant's Information Sheet, is that correct? A: Yes, sir, that's correct. Q: And are they also required to tender the full amount of the purchase price of the share, is that correct? A: Yes, sir, that's correct. Q: In 1995, do these buyers actually tendered the full amount of the purchase price of the shares? A: Yes, sir, they did . Q: And the petitioner already recognized this payment of the purchase price as income in 1995? A: Yes, sir, it did " [ see Rollo, pp. 134-135 ] . Apparently, the sales of TCCATH shares were deemed consummated and completed in 1995. Hence, the deficiency assessment on the late payment of capital gains tax and the corresponding documentary stamp tax was not based on unilateral and arbitrary presumption. We likewise uphold the ruling of the CTA on the issue of deficiency documentary stamp tax assessment, to wit: "Finally, as to deficiency documentary stamp tax, Sections 3 and 4 of Revenue Regulations No. 9-94 provides that the documentary stamp tax shall be paid at the time the act is done or transaction had, i.e., at the same time the document was executed, thus: SEC. 4. Time and Manner of Payment of Documentary Stamp Tax . . . . . If, however, the amount of the documentary stamp tax due on the taxable document is ten pesos (P10.00) or more, the documentary stamp tax shall be paid by the taxpayer at the time the act is done or transaction had , . . . . SEC. 3 . Definition of Terms . For purposes of these Regulations, the following term shall mean: xxx xxx xxx (i) "At the time such act is done or transaction had" means on the same date the document was executed, i.e., made, signed, issued, accepted or transferred." As stated earlier, the two shares sold to Eduardo Lucero and Evergisto Macatulad have corresponding Deeds of Assignment which were executed on July 29, 1996. Based on RR 9-94, the documentary stamp tax due of P1,500.00 should be paid on the same day, July 29, 1996. Thus, there was late payment of documentary stamp tax on the two shares. Since, petitioner failed to submit the Deeds of Assignment as to the remaining 527 shares, petitioner should be made liable to pay the full documentary stamp tax assessment of P99,000.00" [Rollo, pp. 55-56] Finally, the CTA was correct in not considering the Deeds of Assignment and other documents attached to petitioner's Motion for Reconsideration on the ground that they were not formally offered in evidence as required under Section 34, Rule 132 of the Rules of Court. And as aptly ruled by the CTA in its Resolution, dated September 10, 2002, denying petitioners' Motion for Presentation of Originals attached to annexes in the Motion for Reconsideration, to wit: "Accordingly, evidence should be presented on the proper occasion, viz., during the trial. And when the evidence are finally formally offered, it must not be on a piecemeal basis. The court desires to stress that litigants should not be allowed to play with long enshrined judicial procedures. . . ." Furthermore, the CTA in the same Resolution eloquently stated that: "Assessments are usually made when (1) a person fails to make and file a required return or other document at the time prescribed by law, (2) or willfully or otherwise, files false or fraudulent return or other document, or (3) when there is a reason to believe that any such report is false, incomplete or erroneous (Section 6, B, Title I, R.A. 8424). In all these situations, the prevailing factor is the attempt of or at least a suspicion that the taxpayer is trying to evade its tax responsibilities . Clearly, in assessment, the government is enforcing obedience to a duty, viz ., the duty to surrender part of one's hard-earned income as contribution to the running of the government. The payment is imposed rather than volunteered. In the case before us, there is no prior payment made, whether by mistake or as a result of an imposition or demand. There is nothing to refund which if not done would unjustly enrich someone, in this case the Government. And more importantly, the questioned assessment was aimed at protecting the interest of the government from attempt of petitioner to evade its tax liability . xxx xxx xxx In the case at bar, the government, as represented by respondent, exerted efforts both substantial and procedural requirements to enforce its duty and demand compliance from the taxpayer. It actively participated in the trial and presented counter evidence when the petitioner brought the case before this court. Both parties were given the opportunity to prove their case. But due to its inadvertence and negligence, petitioner not only failed to submit vital documents during the trial, but decided to ask the court belatedly to allow it to attach the same via a Motion for Reconsideration . xxx xxx xxx This court could not understand why petitioner failed to submit the subject documents considering that the same were available and as it turned out, are vital to its case " [Emphasis Ours, Rollo, pp. 66-67] . WHEREFORE, premises considered, the petition is hereby DENIED. The assailed Decision of the CTA is AFFIRMED. SO ORDERED. Reyes and Salazar-Fernando, JJ., concur.