Bloomfield Educational Foundation, Inc. v. Parayno

SECOND DIVISION [CA-G.R. SP No. 81815. March 31, 2005.] BLOOMFIELD EDUCATIONAL FOUNDATION, INC., RUDLIN INTERNATIONAL, INC. and SPS. RODOLFO J. LAGERA and MA. ERLINDA J. LAGERA , petitioners , vs . HON. GUILLERMO PARAYNO, COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N ASUNCION-VICENTE , R ., J p : THE CASE Before This Court is a petition for review under Rule 43 of the Rules of Court assailing the resolution dated June 30, 2003 1 of the Court of Tax Appeals (CTA) in CTA Case No. 6614 dismissing petitioner's petition on ground of lack of jurisdiction. Likewise subject of this appeal is the resolution dated December 18, 2003 2 denying petitioners' motion for reconsideration. THE FACTS The antecedent facts as disclosed by the records are as follows: Through tax assessment notices similarly dated September 27, 2001, the Bureau of Internal Revenue (BIR) assessed petitioners of deficiency taxes, surcharge and interest as follows: Bloomfield Educational Foundation, Inc. 3 Nature of Tax Period Amount Expanded Withholding Tax- 1986-1991 P3,641,815.17 Rent Surcharge & Interest on Late 1987-1991 P178,458.32 Remittance of Taxes Withheld on Income Payment Surcharge and Interest on 1987-1991 P1,609,606.25 Late Remittance of Taxes Withheld on Wages Rudlin International, Inc. 4 Nature of Tax Period Amount Income Tax 1987-1991 P10,360,827.98 Documentary Stamp Tax 1988-1989 P116,100.23 Spouses Rudolfo and Erlinda Lagera Nature of Tax Period Amount Income Tax 1987-1991 P20,056,783.33 On February 11, 2002, Final Notices Before Seizure were separately sent petitioners reiterating the BIR's demand for payment of their (petitioners') tax liabilities. 5 In a letter dated April 29, 2002, 6 petitioners, through counsel, requested BIR for the recall of its Final Notices Before Seizure on the ground that petitioners still have a pending Consolidated Motion to Dismiss 7 in connection with the complaints filed by the BIR against them with the Department of Justice (DOJ) and docketed as DOJ I.S. Nos. 95-153, 95-189 and 95-197. In the same letter, petitioners restated their position in their Consolidated Motion to Dismiss, to wit: that petitioner Bloomfield cannot be charged for non-payment of income tax because it is a tax-exempt educational institution; that petitioner Rodolfo Lagera cannot be charged for non-payment of income tax on advances because advances are considered liabilities and not income; and that petitioner Rudlin International, Inc. (Rudlin, for brevity) cannot be charged for non-filing of income tax returns because certified copies of Rudlin's income tax returns covering the disputed period were subsequently produced to prove that the same were properly filed. aSEDHC On June 18, 2002, the BIR separately sent petitioners its reply to their request for the recall of the Final Notices Before Seizure, stating as follows: 8 ". . . (P)lease be informed that after a careful study of the issues presented in this case, we found no legal or factual basis to uphold your contention. Our records show that despite the ample opportunities afforded you, you failed to dispute the correctness of the said assessment within the reglamentary (sic) period of thirty (30) days upon receipt of the assessment notice as provided for under Section 29 of the Tax Code, as amended that as a consequence of such failure, the assessment has become `final and executory' and notwithstanding the demand letters sent to you in various dated (sic), you failed to settle your aforesaid tax liabilities." Through a letter dated July 29, 2002, petitioners reiterated their position before the BIR and again requested that enforcement of collection of their alleged tax liabilities be held in abeyance, stating thus: 9 "Please recall that the principal issue which we have raised in our letter dated 29 April 2002 is that as early as 22 December 1997 our clients had filed a Consolidated Motion to Dismiss in DOJ I.S. No. 95-1593, DOJ I.S. No. 95-189 and DOJ I.S. No. 95-197 which the Bureau of Internal Revenue had filed against our clients involving their alleged tax liabilities. The said motion was with the conformity of Atty. Osias Baldovino, the then Assistant Chief, Prosecution and Litigation Division of the BIR. Considering that the said Consolidated Motion to Dismiss was uncontested, our clients reasonably presumed that the subject cases had been dismissed. Alternatively, we requested that in the event the said Consolidated Motion to Dismiss is still pending disposition, the same should be resolved in favor of our clients in view of the indubitable grounds on which said motion was based. With due respect, we noticed that your reply letters dated 18 June 2002 failed to mention or skirted the issue on the disposition of the aforesaid Consolidated Motion to Dismiss. We respectfully maintain that the granting of the said uncontested Motion to Dismiss necessarily precludes any assessments against our clients or alternatively, pending resolution of the Consolidated Motion to Dismiss, the purported assessments cannot become "final and executory because the same are precipitate and premature." On August 6, 2002, Warrant of Distraint and/or Levy were separately served by the BIR upon petitioners. 10 This again prompted petitioners to request that garnishment and seizure of their properties be held in abeyance pending resolution of their Consolidated Motion to Dismiss by the BIR. 11 Through a letter dated January 20, 2003, the BIR, through its Chief of the Collection Enforcement Division, denied petitioners' request to hold in abeyance the seizure and garnishment proceedings against them. 12 As a final recourse, petitioners then filed a petition for review with the court of Tax Appeals (CTA) appealing the aforesaid letter dated January 20, 2003. 13 Respondent Commissioner of Internal Revenue thereafter filed a motion to dismiss with the CTA alleging that the subject assessment has already attained finality, petitioners having failed to seasonably file a protest against the same, and hence, the CTA no longer has jurisdiction to entertain the petition nor to determine the accuracy of the tax assessments of September 27, 2001. 14 On June 30, 2003, respondent issued the first of its questioned resolution granting respondent's motion to dismiss and dismissing the petition for lack of jurisdiction. 15 Petitioners' motion for reconsideration 16 was likewise denied on December 18, 2003. 17 Hence, this petition before this Court. THIS ISSUES The petition is anchored on the following grounds: I THE COURT OF TAX APPEALS GRAVELY ERRED IN DISMISSING THE PETITION FOR REVIEW ASSAILING THE DECISION OF THE RESPONDENT COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, THROUGH COLLECTION ENFORCEMENT DIVISION CHIEF RAMON WILFREDO B. PAGARIGAN CONTAINED IN THE LETTER DATED 20 JANUARY 2003 FOR LACK OF JURISDICTION. II THE FILING OF THE PETITION FOR REVIEW WITH THE COURT OF TAX APPEALS MUST BE RECKONED FROM PETITIONERS' RECEIPT OF THE LETTER OF FINAL DEMAND DATED 20 JANUARY 2003 WHICH FOR THE FIRST TIME DENIED THE LONG PENDING AND UNRESOLVED "CONSOLIDATED MOTION TO DISMISS" DATED 19 DECEMBER 1997 WHICH WAS FILED BY THE PETITIONERS IN PROTEST TO THE PREVIOUS ASSESSMENTS OR ACTIONS OF THE RESPONDENT COMMISSIONER OR HIS REPRESENTATIVE. III THE ASSESSMENTS PREVIOUSLY MADE BY THE COMMISSIONER OF INTERNAL REVENUE OR HIS DULY AUTHORIZED REPRESENTATIVES WERE VOID AND INEFFECTUAL FOR FAILURE TO STATE THE FACTS AND THE LAW ON WHICH THEY WERE BASED AND DUE TO SUCH FATAL INFIRMITY THEY COULD NOT RIPEN INTO FINALITY. IV PETITIONERS ARE NOT LIABLE FOR ANY INTERNAL REVENUE TAX LIABILITIES AND/OR DELINQUENCIES BECAUSE: A. BLOOMFIELD EDUCATIONAL FOUNDATION INC., IS TAX-EXEMPT AS A NON-STOCK AND NON-PROFIT EDUCATIONAL INSTITUTION PURSUANT TO THE PROVISIONS OF SECTION 4(3) OF ARTICLE XIV OF THE 1987 CONSTITUTION. B. BLOOMFIELD EDUCATIONAL FOUNDATION INC., HAS DULY REMITTED THE WITHHOLDING TAX WITHHELD ON SALARIES AND HAS NO OBLIGATION TO COLLECT ANY EXPANDED WITHHOLDING TAX ON COMPENSATION FOR THE SERVICES OF A PROFESSIONAL PARTNERSHIP AND UNREMITTED RENTALS. C. RUDLIN INTERNATIONAL, INC. HAS DULY FILED ITS INCOME TAX RETURN FOR THE COVERED TAX YEARS AND ACCORDINGLY PAID THE TAXES DUE, INCLUDING DOCUMENTARY STAMP TAX. D. THE SPOUSES RODOLFO J. LAGERA AND MA. ERLINDA J. LAGERA ARE NOT LIABLE TO PAY INCOME TAX ON ADVANCES WHICH ARE LIABILITIES, NOT INCOME. E. RUDLIN INTERNATIONAL, INC. AND THE SPOUSES RODOLFO J. LAGERA AND MA. ERLINDA J. LAGERA HAD VALIDLY AVAILED OF THE VOLUNTARY ASSESSMENT PROGRAM AND THE COMMISSIONER OF INTERNAL REVENUE IS ESTOPPED FROM INVALIDATING SAID AVAILMENT. DTIaHE The first and second grounds of the petition, being interrelated, shall be discussed jointly. Petitioners contend that their Consolidated Motion to Dismiss was interposed as an attack against the tax assessments of September 27, 2001 and hence, unless and until respondent issues its resolution on said motion, no "final assessment" which may be the subject of a protest can be said to have been issued against petitioners. We disagree. Petitioners' Consolidated Motion to Dismiss cannot be considered as a protest to the disputed assessment for the reason that said motion was filed on December 22, 1997, 18 way before the disputed assessment was issued by the BIR on September 27, 2001. 19 Clearly, at the time the Consolidated Motion to Dismiss was filed by petitioners in 1997, there were still no tax assessments to protest. In fact, the caption clearly shows that said motion is for DOJ I.S. Nos. 95-153, 95-189 and 95-197, 20 which is a consolidated complaint for non-payment of income tax against petitioners before the Department of Justice (DOJ) and seeks the dismissal of said complaints. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. An assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. 21 The Joint Affidavit of the BIR Revenue Officers 22 which became the basis of DOJ I.S. Nos. 95-153, 95-189 and 95-197 is not the assessment contemplated under Section 228 of the Tax Code which may be the subject of a protest. Other than the fact that it was executed for purposes of the preliminary investigation before the DOJ, there is nothing in the said affidavit which makes a demand for payment within a prescribed period upon petitioners. In the case of Commissioner of Internal Revenue v. Pascor Realty , 23 the Supreme Court rejected private respondents' contention that the BIR Examiners' Joint Affidavit which was attached to the criminal complaint for tax evasion filed with the DOJ constituted an "assessment", and held: "We agree with petitioner. Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of all assessment. To consider the affidavit attached to the Complaint as proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment. 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. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. 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. It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Respondents maintain that an assessment, in relation to taxation, is simply understood to mean: "A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof." "Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls. Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion charges filed, not of an assessment. . . " Indeed, the undisputed facts of this case show that petitioners have failed to timely file a protest on the assessments of September 27, 2001, thereby rendering such assessments final. 24 Anent the third issue, petitioners argue that the assessments dated September 27, 2001 cannot constitute a valid appealable decision of the Commissioner and are void because they do not contain "the law and the facts on which the assessment is made" contrary to the provisions of paragraph 2 of Section 228 of the National Internal Revenue Code of 1997. We are not persuaded. Section 228 of the National Internal Revenue Code provides: SEC. 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 pre-assessment notice shall not be required in the following cases: (a) . . . (b) . . . (c) . . . (d) . . . (e) . . . 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 become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable." It thus appears that the requirement of a statement of "the facts and the law on which the assessment is made" refers to the pre-assessment notice, for it is when "the taxpayer fails to respond (that) the Commissioner or his duly authorized representative shall issue an assessment." Records of the present case clearly show that prior to the issuance of the assessments of September 27, 2001, petitioners have been sufficiently informed of the legal and factual bases thereof. As correctly pointed out by the Solicitor General: "The complaints for tax evasion filed against petitioners with the Department of Justice contained the law and the facts on which the assessments were made (Annexes "D" and "E" of Petition). The fact that petitioners filed a "Consolidated Position Paper" (Annex "F" of Petition) and "Consolidated Motion to Dismiss" (Annex "G" of Petition), controverting the findings of the BIR, shows that they actually knew of the legal and factual bases of the assessment." 25 We thus see no reversible error on the part of the CTA in holding that it has lost jurisdiction to resolve questions concerning the assessments of September 27, 2001 against petitioners, the same having lapsed into finality. For the same reason, this Court can no longer, and sees no more need to, pass upon the fourth issue raised herein by petitioners as it contests the propriety and correctness of the assessments of September 27, 2001. WHEREFORE, the instant petition with prayer for injunction is hereby DISMISSED for lack of merit. SO ORDERED. Jacinto and Reyes, JJ., concur. Footnotes 1. Annex "A" of the petition, pp. 40-43, Rollo 2. Annex "B" of the petition, pp. 44-48, Rollo 3. pp. 111-112, Rollo 4. pp. 113-114, Rollo 5. pp. 116-119, Rollo 6. pp. 120-122, Rollo 7. pp. 101-103, Rollo 8. pp. 126-128, Rollo 9. pp. 129-130, Rollo 10. pp. 131-143, Rollo 11. p. 144, Rollo 12. pp. 70-71, Rollo 13. pp. 49-64, Rollo 14. pp. 148-153, Rollo 15. pp. 40-43, Rollo 16. pp. 154-167, Rollo 17. pp. 44-48, Rollo 18. pp. 123, Rollo 19. pp. 111-115, Rollo 20. p. 123, Rollo 21. Tupaz v. Ulep , 316 SCRA 118, October 1, 1999 22. pp. 89-92, Rollo 23. 309 SCRA 402, June 29, 1999 24. Section 228 of the National Internal Revenue Code of 1997 25. p. 211, Rollo