Commissioner of Internal Revenue v. United International Pictures AB

SPECIAL NINTH DIVISION [CA-G.R. SP No. 73200. June 22, 2006.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . UNITED INTERNATIONAL PICTURES AB , respondent . D E C I S I O N AREVALO-ZENAROSA , M . , J p : Before Us is a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, seeking to reverse and set aside the Decision 1 dated June 5, 2002 rendered by the Court of Tax Appeals which cancelled and set aside the assessments issued against the respondent for deficiency internal revenue taxes in the total amount of P13,137,261.29 for taxable year 1994 as well as the preliminary collection letter dated August 14, 1998. Likewise assailed is the October 2, 2002 Resolution denying the motion for reconsideration. The facts of the case as found by the Court of Tax Appeals are as follow: Respondent is the Philippine Branch of United International Pictures AB, a corporation organized and existing under the laws of Sweden duly licensed to engage in business in the Philippines, with office address at the 4th Floor, Ramon Magsaysay Center, 1680 Roxas Boulevard, Malate, Manila. On April 17, 1995, respondent filed its corporate income tax return for the calendar year ending December 31, 1994. On August 9, 1995, Letter of Authority No. 89422 was issued by the Revenue District Office (RDO) No. 34, authorizing the examination of the 1994 books of account and other accounting records of respondent for all internal revenue taxes due for the period January 1, 1994 to December 31, 1994. Respondent received the letter of authority on August 21, 1995 together with the Checklist of Requirements and Preliminary Requirements. On September 11, 1995, a Second Request for Presentation of Records was issued to respondent to which it partially complied by submitting some documents. On February 6, 1996, a re-validated letter of authority (No. 89781) was issued by RDO No. 34 authorizing the examination of respondent's 1994 book of accounts and other accounting records for all internal revenue taxes due for the year 1994. The same was received by the respondent on February 18, 1996. On July 10, 1996, respondent filed an amended corporate income tax return. On October 10, 1997, petitioner issued a Summons and/or Subpoena Duces Tecum requiring the respondent to submit the documents required therein. Despite having received the subpoena, respondent failed to comply and so on November 7, 1997, a criminal complaint was filed against respondent's General Manager, Tristan Leveriza, pursuant to Sections 7, 17 and 265 in relation to Sections 252 and 255 of the Tax Code, as amended. On November 14, 1997, a memorandum report was made by the revenue officer-in-charge recommending the issuance of a final assessment notice and the collection of respondent's deficiency internal revenue taxes based on the best evidence obtainable. On December 10, 1997, respondent submitted a Waiver of Statute of Limitations to RDO No. 34 extending the right of the government to assess up to June 30, 1998. On January 12, 1998, the Assessment Division of Revenue Region No. 6 issued Pre-Assessment Notices against respondent for 1994 deficiency income tax in the amount of P5,281,876.03, exclusive of interest, for deficiency value-added tax amounting to P2,616,362.15, excluding interest, for deficiency expanded withholding tax in the sum of P21,851.96, excluding interest and for deficiency withholding tax (increments only) of P728,210.87. Subsequently, the Assessment Division issued Final Assessment Notice No. 034-34-000034-94 and demand letters all dated January 19, 1998, for deficiency income tax of P8,186,907.85, value-added tax P4,186,179.44, expanded withholding tax of P34,963.14 and withholding tax (increments only) of P728,210.87. Thereafter, on April 22, 1998, a 1st Indorsement was issued by the Chief of the Assessment Division to the Chief of the Collection Division to effect collection of the above-mentioned tax liabilities. On August 19, 1998, respondent received from petitioner a Preliminary Collection Letter (PCL) 2 dated August 14, 1998 for the former's internal revenue liabilities for 1994, detailed as follows: Tax Due Surcharge Interest Compromise Total Amount Due P4,225,500.82 P1,056,375.21 P2,905,031.85 P P8,186,907.85 income 17,481.57 4,370.39 13,111.18 34,963.14 ewt 2,093,089.72 523,272.43 1,568,817.29 4,186,179.44 vat 732,221.52 4,989.55 728,210.87 w/h On August 24, 1998, respondent filed with the RDO No. 34 its protest 3 to the Preliminary Collection Letter (PCL) so issued on the following grounds: a) Respondent did not receive Assessment Notice No. 034-000034-94 as alleged in the PCL, hence, the issuance of the PCL without prior assessment notice has no legal basis; b) The assessment notice is invalid for its failure to comply with Section 228 of the Tax Code, i.e., the assessment notice does not state the facts and the law upon which the assessment was made; and c) Since the respondent did not receive Assessment Notice No. 034-000034-94, the PCL should be considered as the assessment notice for respondent's alleged deficiency taxes for 1994. However, the same is already barred by prescription. On October 9, 1998, the case was endorsed to the Legal Division of Revenue Region No. 6-Manila, for the resolution of the following issues: (1) That the assessment notice is not valid for its failure to conform with Section 228 of the Tax Code. The taxpayer alleged that they did not receive any Assessment Notice or any other communication pertaining thereto; and (2) That the Preliminary Collection Letter is already barred by prescription. On October 23, 1998, respondent filed its supplemental protest memorandum. 4 However, because the protest letter and the supplemental protest memorandum were not resolved, respondent, on May 21, 1999, filed a petition for review 5 before the Court of Tax Appeals (CTA), praying that the assessment and the Preliminary Collection Letter (PCL) against it be declared as null and void. Respondent maintained that it did not receive Assessment Notice No. 034-34-000034-94 while the petitioner averred otherwise. Petitioner Commissioner of Internal Revenue (CIR) insisted that although it cannot prove actual receipt by the respondent of the registered mail containing the assessment notice and demand letters, there was nonetheless, constructive receipt thereof since the mail was returned to the sender unclaimed. Petitioner alleged that with the receipt of the notices by the respondent on four different dates, constructive receipt of the assessment notices and demand letters was already completed. It then cited the case of Collector vs. Bautista (L-12250 and L-12259, May 27, 1959), where the Supreme Court ruled that an assessment is deemed made when the notice is released, mailed or sent to the taxpayer for the purpose of giving effect to said assessment. Considering that respondent failed to file a protest on the assessment within thirty days from receipt thereof, petitioner claims that the assessment has become final, unappealable and demandable. On the other hand, respondent countered that if the taxpayer denies ever having received an assessment from the Bureau of Internal Revenue (BIR), it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee. The presumption that a mailed letter is deemed received by the addressee in the ordinary course of mail is merely a disputable presumption, subject to controversion. The moment the respondent denied having received the assessment notice, the burden is now shifted to the petitioner to prove receipt thereof by the former. On June 5, 2002, the CTA rendered the assailed decision, the dispositive portion of which reads: "WHEREFORE, in the light of all the foregoing, the assessments issued against the petitioner (herein respondent) for deficiency internal revenue taxes in the total amount of P13,137,261.29 for the taxable year 1994 as well as the preliminary collection letter dated August 14, 1998 are hereby CANCELLED and SET ASIDE. SO ORDERED." The CTA found that indeed, no final assessment notice was sent to the respondent. Petitioner's certification from the Central Post Office merely proved the mailing of a registered letter and the return thereof to the sender as unclaimed mail, but not the actual receipt thereof by the respondent. This is also true with the Transmittal Record which even contained conflicting dates and amounts different from those in the formal assessment notices and. Nonetheless, the preliminary collection letter (PCL) may be considered as the assessment notice in itself. But just the same, petitioner's right to assess the respondent for the year 1994 had already prescribed. While the respondent extended the three year prescriptive period to assess until June 30, 1998, petitioner was only able to issue the preliminary collection letter on August 19, 1998. With the above ruling unfavorable to its cause, petitioner sought for reconsideration but this was denied in a Resolution 6 dated October 2, 2002. Hence, the filing of the instant petition for review raising the following arguments: ARGUMENTS I ASSESSMENT NOTICES NO. 034-34-000034-94 AND DEMAND LETTERS DATED JANUARY 19, 1998 WERE ISSUED WITHIN THE THREE (3) YEAR PRESCRIPTIVE PERIOD UNDER SECTION 203 OF THE TAX CODE. II THE ASSESSMENTS HAVE BECOME FINAL AND DEMANDABLE FOR FAILURE OF RESPONDENT TO PROTEST THE SAME DESPITE ITS CONSTRUCTIVE RECEIPT THEREOF. III THE PRELIMINARY COLLECTION LETTER SHOULD NOT HAVE BEEN CONSIDERED AS FINAL ASSESSMENT NOTICE BY THE COURT OF TAX APPEALS. RULING Prefatorily, we emphasize that internal revenue taxes are generally self-assessing because they do not need a letter of demand or assessment notice. 7 An assessment, however, is not altogether inconsequential; it is relevant in the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as in the imposition of surcharges and interest, in the application of statute of limitations and in the establishment of tax liens. 8 Section 228 of the Tax Code, reads: Section 228. Protesting of Assessment . When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings : Provided, however, that a preassessment notice shall not be required in the following cases: . . . 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. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. (emphasis supplied) Petitioner argues that the postal certificate on the mailing and sending of the registered letter to respondent, proves that the assessment notices and demand letters were actually released for mailing on January 19, 1998, well within the 3-year prescriptive period to assess under section 203 of the Tax Code. It reiterates that Registered Letter No. 43235 which have been mailed and sent to the respondent contained the assessment notices and demand letters dated January 19, 1998. This was evidenced by the postal certificate, BIR Transmittal Record and registry receipt attached thereto as well as the testimony of the releasing officer, Teresita Maglunog. Particularly, the CTA should have given credence to Maglunog's testimony, she being the mailing clerk in charge of the actual issuance and mailing of notices of assessment. The Court is unimpressed. A review of the testimony of Maglunog revealed that she only relied on the postal certificate and Transmittal Record to prove that Registered Letter No. 43235, allegedly containing the assessment notices and demand letters, were mailed to the respondent on January 19, 1998. But then, as correctly found by the Tax Court, these pieces of evidence are insufficient to prove that the subject assessment notices and demand letters were actually received by the respondent. Anent the postal certificate, the CTA aptly observed that it merely proved that: (1) Registered Letter No. 43235 was sent by the BIR to the respondent on January 19, 1998; (2) four registry notices were sent to the respondent; and (3) the same letter was returned to sender as unclaimed mail on March 3, 1998. The certificate did not establish that the assessment notices and the demand letters were actually received by the respondent or whether the registered letter contained the required assessment notices with the appurtenant demand letters. Nor can constructive service be taken to buttress petitioner's case. The rule on service by registered mail contemplates two (2) situations: first, actual service the completeness of which is determined upon receipt by the addressee of the registered mail and, second, constructive service the completeness of which is determined upon the expiration of five (5) days from the date of first notice of the postmaster without the addressee having claimed the registered mail. 9 "Inasmuch as the exception only refers to constructive and not actual service, such exception must be applied upon conclusive proof that a first notice was duly sent by the postmaster to the addressee. Not only is it required that notice of the registered mail be sent but that it should also be delivered to and received by the addressee. Notably, the presumption that official duty has been regularly performed is not applicable in the situation . It is incumbent upon a party who relies on constructive service or who contends that his adversary was served with a copy of a final order or judgment upon the expiration of five days from the first notice of registered mail sent by the postmaster to prove that the first notice was sent and delivered to the addressee." 10 Herein, the certification from the post office presented by the petitioner did not state whether the registry notices were actually delivered to and received by the respondent. It only stated that four registry notices were sent to the respondent without however stating the circumstances as to how, when and to whom the delivery was made. Sans any conclusive proof, constructive service cannot be appreciated in favor of the petitioner, In the early case of Hernandez vs. Navarro (G.R. No. L-28296, November 24, 1972), the Supreme Court held: ". . . Consequently, it cannot be too much to expect that when the post office makes a certification regarding delivery of registered mail, such certification should include the data not only as to whether or not the corresponding notices were issued or sent but also as to how, when and to whom the delivery thereof was made. Accordingly, the certification in the case at bar that the first and second notices addressed to Atty. Narvasa had been "issued" can hardly suffice the requirements of equity and justice. It was incumbent upon the post office to further certify that said notices were reportedly received. When there are several related acts supposed to be performed by a public officer or employee in regard to a particular matter, the presumption of regularity in the performance of official functions would not arise and be considered as comprehending all the required acts, if the certification issued by the proper office refers only to some of such acts, particularly in instances wherein proof of whether or not all of them have been performed is available under the law or office regulations to the officer making the certification. In other words, the omission of some of the acts in the certification may justify the inference that from the proof available to the officer there is no showing that they have also been performed. . ." 11 (emphasis ours) Likewise, the Transmittal Record cannot be given much probative weight in view of the manifest inconsistencies therein, which necessarily renders them unreliable in proving the mailing of the assessment notices and demand letters on January 19, 1998. As noted by the Tax Court, the transmittal letter does not clearly indicate whether it was the assessment notices and demand letters that were mailed. In fact, except for the VAT deficiency assessment, the amounts listed in the transmittal record are quite different from the amounts listed in the formal assessment notices. Instead, the figures pertain more to those amounts in the pre-assessment notices. Also, it would highly be improbable that the final assessment notices dated January 19, 1998 have been prepared earlier on January 16, 1998, by the Assessment Division and Billing Division and later transmitted to the Administrative Section on January 17, 1998. The issuance of the final assessment notices and demand letters should precede the receipt by the other divisions and not vice versa. Hence, the Tax Court ruled: "Common practice and logic dictate that the date(s) the assessment notices and demand letters were issued are necessarily anterior to the date(s) of actual release or mailing thereof. Therefore, there can only be one rational conclusion to these glaring contradictions: what was mailed on January 19, 1998 were the pre-assessment notices which were dated January 12, 1998 and approved for final assessment on January 15, 1998." Petitioner however insists that in the absence of concrete proof to the contrary, the presumption that the assessment notices and demand letters were received in the regular course of mail must stand. Respondent, therefore, has the burden of proving that it did not receive the same. That mere denial of receipt, without sufficient evidence, should not effectively destroy the presumption of regularity of the mailing procedure. This argument too must fail. In Republic vs. Court of Appeals (149 SCRA 351), 12 the Supreme Court held that while a mailed matter is deemed received by the addressee in the ordinary course of mail, still, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. This, the petitioner failed to discharge in the case at bar. Although an assessment is deemed made when notice to this effect is released, mailed or sent by the Commissioner and it is not required that the notice be received by the taxpayer within the prescriptive period, 13 due process requires at the very least that such notice must be served on and received by the taxpayer to enable him to determine his remedies thereon. 14 Consequently, an assessment that has not been received by the person liable for the payment of the tax, cannot become final and executory. 15 In the absence of evidence showing that the final assessment notices and demand letters dated January 19, 1998 were indeed sent to the respondent, what then can be considered as the assessment for purposes of reckoning the prescriptive periods? The Highest Court elucidated the importance of an assessment in this manner: "The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. . . Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon." 16 In the case at bar, aside from the Final Assessment Notice No. 034-34-000034-94 and demand letters all dated January 19, 1998, no other succeeding assessment notices or follow-up letters were sent or received by the respondent. Rather, it was a Preliminary Collection Letter that was subsequently received by the respondent on August 19, 1998. The PCL indicated a computation. of respondent's alleged tax liabilities for the year 1994 and demanded from him payment within a specified period, it stated: "To avoid the accumulation of interest and surcharges, it is requested that you pay the aforesaid tax liability/ies within ten (10) days from receipt hereof at the Revenue District Office No. 34, Paco Pandacan Sta. Ana, Revenue Region No. 6, Manila. However, if payment had already been made, please send or bring to us your copies of the receipts of payment together with this letter to be the basis for canceling/closing your liability/ies. Otherwise, we shall be constrained to enforce the collection thereof thru the administrative summary remedies provided for by law, without further notice." The foregoing contents of the PCL can sufficiently make up for an assessment. An assessment has been described as containing not only a computation of tax liabilities but also a demand for payment within a prescribed period the ultimate purpose of which is to ascertain the amount that each taxpayer is to pay. 17 In accordance with Section 228 of the Tax Code which provides that an assessment may be protested within thirty days from receipt of the same, respondent in this case timely filed its protest on August 24, 1998 after receiving the PCL on August 19, 1998. So too is the petition for review filed before the Court of Tax Appeals which was properly and timely filed. We shall now address the issue of whether the right of the petitioner to assess respondent's tax liability for the year 1994 had already prescribed. Sec. 203 of the Tax Code reads: "Section 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period : Provided, that in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day." As an exception to the three-year prescriptive period, Sec. 222 (b) provides that where before to the expiration of the time prescribed for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period may again be extended by subsequent agreement in writing made before the expiration of the period previously agreed upon. Applying the same to the case at bar, it becomes clear that the right of the petitioner to assess respondent's tax liabilities for the year 1994 had already prescribed. It may be recalled that on December 10, 1997, respondent submitted a Waiver of Statute of Limitations to RDO No. 34 extending the right to assess up to June 30, 1998. But despite the extended period, it was only on August 19, 1998 that the petitioner was able to issue the preliminary collection letter to the respondent. For being issued beyond the prescriptive period, the PCL can no longer be binding against the respondent. Because of its recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination. 18 Herein, we find the decision of the CTA amply supported by substantial evidence, thus, there is no need to deviate therefrom. WHEREFORE, the petition for review is hereby DENIED. The Decision dated June 5, 2002 rendered by the Court of Tax Appeals is AFFIRMED. SO ORDERED. Dacudao and Abdulwahid, JJ., concur. Footnotes 1. Rollo , pp. 40-49. 2. Ibid, p. 86. 3. Id. , pp. 87-90. 4. Id. , pp. 91-97. 5. Id. , pp. 73-81. 6. Id., pp. 50-54. 7. The Fundamentals of Taxation by Hector S. de Leon, 2000 edition, p. 183. 8. Tax Law and Jurisprudence by Justices Jose Vitug and Ernesto D. Acosta, 2nd edition, 2000, p. 282. 9. Jesus G. Santos vs. Court of Appeals, et al ., G.R. No. 128061, September 3, 1998. Section 10, Rule 13 of the 1997 Rules of Civil Procedure provides: Completeness of service. Personal service is complete upon actual delivery. Service by ordinary mail is complete upon the expiration of ten (10) days after mailing, unless the court otherwise provides. Service by registered mail is complete upon actual receipt by the addressee, or after five (5) days from the date he received the first notice of the postmaster, whichever date is earlier. 10. Aguilar vs. Court of Appeals , G.R. No. 120972, July 19, 1999. 11. Cited in Jesus G. Santos vs. Court of Appeals, supra . 12. See also Commissioner of Internal Revenue vs. Paseo Insurance Agency, Inc. and the Court of Tax Appeals , CA-G.R. SP No. 33526, February 24, 1995; Commissioner of Internal Revenue vs. Arnoldus Woodworks International, Inc. and the Court of Tax Appeals , CA-G.R. SP No. 34019, August 31, 1995. 13. Basilan Estates, Inc. vs. Commissioner of Internal Revenue , 21 SCRA 17. 14. Commissioner of Internal Revenue vs. PASCOR Realty and Development Corporation , G.R. No. 128315, June 29, 1999. 15. Republic vs. De La Rama , 18 SCRA 861, cited in Estate of the Late Juliana Diez Vda. De Gabriel vs. Commissioner of Internal Revenue , G.R. No. 155541, January 27, 2004. 16. Commissioner of Internal Revenue vs. PASCOR, supra . 17. Tupaz vs. Ulep, G.R. No. 127777, October 1, 1999. 18. Philippine Refining Company vs. Court of Appeals , G.R. No. 118794. May 8, 1996.