Republic v. Jai Alai Corp. of the Phil.

[CA No. 29232-R. August 3, 1966.] REPUBLIC OF THE PHILIPPINES , plaintiff and appellees , vs . JAI ALAI CORPORATION OF THE PHILIPPINES , defendant and appellant . Custodio A . Villalva for defendant and appellant. Solicitor General Edilberto Barot and Special Attorney Santiago M . Kapunan for plaintiff and appellee. SYLLABUS 1. TAXES AND ASSESSMENT; COLLECTION; JURISDICTION OF COURT OF FIRST INSTANCE. Once the decision of the Collector of Internal Revenue regarding the correctness, validity and legality of a tax assessment has become final and executory, the Court of First Instance, in turn, becomes vested with jurisdiction to entertain the action for the enforcement of the tax liability (Republic of the Philippines vs . Del Rosario, G.R. No. L-10460, March 11, 1959, and Uy Nam vs . Republic of the Philippines, G.R. No. L-13809, October 20, 1959), wherein the defendant can no longer dispute the assessment. 2. ID.; ID.; LETTERS OF DEMAND AS ASSESSMENT NOTICES. Letters of demand by the Collector of Internal Revenue for the payment of tax assessments constitute assessment notices (Alhambra Cigar, etc. vs . Collector, G.R. No. L-12026, May 29, 1959). D E C I S I O N SORIANO , J p : On January 20, 1958, plaintiff filed a complaint with the CFI of Manila to collect from defendant income taxes in the amounts of P2,000.00, P2,960.00, P4,400.00 and P5,840.00 with corresponding surcharges and interests, for the years 1948, 1949, 1950 and 1951, respectively, due from the latter as withholding agent of the Montepio Espanol de Pelotaris de Cesta a Punta of Barcelona, Spain, hereafter designated as Montepio. Defendant's motion to dismiss said complaint having been denied, it filed an answer admitting certain allegations of the complaint, while denying others; setting up special defenses and praying that the complaint be dismissed. After trial, the lower court rendered a decision for plaintiff the dispositive part of which reads as follows: "WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant ordering the defendant to pay plaintiff the sum of P2,000.00 plus 5% surcharge and 1% monthly interest on P1,920.00 beginning June 1, 1953 and P25 compromise penalty; the sum of P2,960 plus 5% surcharge, P25 compromise penalty and 1% monthly interest on the sum of P2,880 beginning June 1, 1953; the sum of P4,400 plus 5% surcharge, P25 as compromise penalty and 1% monthly interest on the sum of P4,320 beginning June 1, 1953; and the sum of P5,840 plus 5% surcharge, P25 compromise penalty and 1% interest on the sum of P5,700 beginning June 1, 1953 and to pay the costs". Defendant's motion to reconsider the said decision having been denied, it now appeals to us assigning five errors allegedly committed by the lower court. Defendant first contends that "The trial court erred in acquiring jurisdiction over this case, which involves disputed tax assessments". To resolve this assigned error, there is need to recall the following facts: According to plaintiff's Exhibit A, which is a memorandum of Examiner Narciso Rosales of the BIR dated November 10, 1952, on examination of the books of account of defendant, he found that the said corporation paid the Montepio royalties at the rate of $800.00 or P1,600.00 a month from May, 1948 to November 10, 1952, and that "Inasmuch as these payments are fixed and predetermined and that they are being paid periodically, the same are, therefore, subject to the withholding tax provided for by Section 54 of the National Internal Revenue Code". Accordingly, and based on the computations of the BIR, the corresponding income tax assessment notices were sent to defendant on May 5, 1953, requesting it to pay the said amounts of P2,000.00, P2,960.00, P4,400.00 and P5,840.00 on or before May 31, 1953 (Exhibits D, G, J and M). On January 5, 1956, the Collector of Internal Revenue wrote defendant the letter of demand Exhibit O, wherein it is stated that inasmuch as the said amounts have not been paid "notwithstanding the assessment notices of the said taxes issued against it" (Montepio), and "since you are the withholding agent of the said organization pursuant to the provisions of Section 53(b) of the National Internal Revenue Code, demand is hereby made upon you to pay the aforesaid amounts . . . plus the 5% surcharge thereon and the 1% monthly interest from May 31, 1953 to the date of payment" to the City Treasurer of Manila not later than January 31, 1956. On January 20, 1956, defendant's Mr. J. Laurea wrote the Collector of Internal Revenue, acknowledging receipt of Exhibit O, and stating that in view of the fact that the Montepio is a mutual aid association, the same is exempt from income tax under Section 27 (b) of the National Internal Revenue Code and no tax need be withheld from payments made to the said mutual aid association either under Sec. 53(b) or Sec. 54 of the said Code (Exhibit P). On October 11, 1957, the Collector of Internal Revenue addressed another letter of demand to defendant's Mr. J. Laurea, with the warning of court action in case the amounts demanded in Exhibit O are not paid, inasmuch as ". . . upon due consideration of the facts of the case and the evidence submitted by you, this Office cannot see its way clear in considering the said Montepio as falling under any of the class of exempt organizations provided for in Section 27 of the National Internal Revenue Code, it appearing that the royalties paid by the Jai Alai Corporation of the Philippines to the Montepio will eventually insure to the benefit of the members thereof in the form of pensions" (Exhibit Q). In his letter to the Collector of Internal Revenue of November 25, 1957, said defendant's Mr. J. Laurea insists on the exemption of Montepio from tax not only under Sec. 27 but also under Sec. 29(b) of the National Internal Revenue Code, it being a non-stock and non-profit organization whose main function is to extend life, sickness and accident benefits to the Jai Alai players working in various frontons throughout the world (Exhibit R). On December 20, 1957, the Collector of Internal Revenue replied to Exhibit R, reiterating his demand that defendant pay the amounts due from the latter, again under pain of court action should it fail to do so, the said Collector being still of the view that the royalties paid by defendant to Montepio will eventually insure to the benefit of the members thereof in the form of pensions (Exhibit T). Finally, on January 18, 1958, defendant's Mr. J. Laurea wrote the Collector of Internal Revenue the letter (Exhibit S), informing the latter that defendant could not acquiesce to the view stated in Exhibit T, and standing pat on the opinion "that the Montepio Espanol de Pelotaris de Cesta a Punta being a non-stock and non-profit organization whose main function is to extend life, sickness and accident benefits to the employees of its members should fall under the provisions of Sections 27 & 29(b) of the National Internal Revenue Code". It will be noted from what has just been set out that, while defendant argued back and forthwith the Collector of Internal Revenue regarding the alleged exemption of Montepio from tax under Secs. 27 and 29(b) of the National Internal Revenue Code, it never took an appeal to or file a petition for review with the Court of Tax Appeals within thirty (30) days from receipt on October 18, 1957, of the decision of the said Collector of October 11, 1957 (Exhibit Q), or at any other time. Said remedy is provided in the following sections of Act No. 1125: "SECTION 7. Jurisdiction . The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided: "(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code, or other law or part of law administered by the Bureau of Internal Revenue . . ." "SECTION 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, . . . may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. . .". For failure to file said petition for review or appeal, the said decision of the Collector of Internal Revenue regarding the correctness, validity and legality of the tax assessments in question had become final and executory, and the Court of First Instance, in turn, becomes vested with jurisdiction to entertain the present action for the enforcement of the said tax liability (Republic of the Philippines vs . Del Rosario, G.R. No. L-10460, March 11, 1959, and Uy Ham vs . Republic of the Philippines, G.R. No. L-13809, October 20, 1959). It is pointed out at page 3 of the Brief for Appellant, however, that "No notices of the tax assessments were received by the defendant-appellant and the trial court correctly found that the 'defendant offered evidence tending to show that it did not receive the original assessments, Exhibits D, G, J and M'". This quotation from the decision of the trial court is, however misleading, for what the latter really ruled on the question of service of the said notices of assessment on defendant is as follows: "As to the alleged violation of the due process clause of the constitution, there exists a disputable presumption that the assessment notices, Exhibits D, G, J and M were received by defendant in the ordinary course of the mail. However, the letter dated January 5, 1966 (Exh. O) admittedly received by defendant and the other demand letter dated October 11, 1957 (Exh. Q) received October 18, 1957 purge whatever defect there may be. It is noted that Exhibits O and Q may constitute assessment notices as defined in Alhambra Cigar, etc. vs . Collector, G.R. No. L-12026, promulgated May 29, 1959". (P. 110, Record on Appeal). It will also not escape attention that in said letter Exhibit O addressed by the Collector of Internal Revenue to defendant on January 5, 1956, the former already made mention of the said assessment notices of the said taxes issued against the Montepio thru defendant, yet in the latter's answer (Exhibit P) to said letter, defendant never complained not having received the said assessment notices, hence the implication that they were in fact received by defendant. At page 6 of said Brief for Appellant, the point is further made that "Under these circumstances, where defendant-appellant has consistently disputed the tax assessments, the trial court should not have taken cognizance of and acquired jurisdiction over this case of disputed tax assessments". We have no quarrel with defendant's insistence, which is true, that it has all along disputed the tax assessments in question, but our point is that the Collector of Internal Revenue having already ruled upon the validity and legality of the said assessments as of October 11, 1957 (Exhibit Q), defendant should have appealed therefrom within thirty (30) days from receipt thereof on October 18, 1957, as it was its right and duty under the aforequoted Sections 7 and 11 of Act No. 1125. Having failed to do so within the said period, or at any other time, defendant could no longer dispute the said Collector's assessments before the trial Court, the latter's jurisdiction over the case at bar being with respect to plaintiff's action for the collection of sums of money and not with respect to any question regarding the validity or legality of the tax assessments in question. We accordingly find no merit in defendant's first assignment of error under consideration. Defendant next contends in its brief that "The trial court erred in not finding that Montepio, as the withholding principal of defendant-appellant, is exempt from the payment of the taxes herein sought to be collected". This point was briefly but decisively answered by the trial court "that the correctness and legality of the assessment is already settled because (of) the failure of defendant to file a petition for review with the Court of Tax Appeals within 30 days from the date of the decision of the Collector, admittedly received by defendant on October 18, 1967, pursuant to Section 11 of Republic Act 1125" (Pages 108-109, Record on Appeal). We therefore see eye to eye with the following refutation of the error under consideration found at page 10 of the Brief for Appellee: "We consider the issue of whether Montepio is an exempt organization under the law academic, for the reason that, even assuming for the sake of argument that it is an exempt organization, still this defense is impertinent and immaterial, for, by express and unmistakable mandate of Sections 7 and 11 of the Tax Code, appellant is precluded from disputing the assessment made by the Bureau." Defendant also complains that "The trial court erred in not holding that the non-service of the notices of the tax assessments to the defendant-appellant was violative of the due process clause of the Constitution and, consequently, did not establish a cause for this judicial action". Although we have resolved the question raised in this third assigned error in our discussion of defendant's first assigned error, nevertheless we repeat the legal presumption invoked at pages 11-12 of the Brief for Appellee "(1) that official duty relative to the issuance to appellant of the assessment notices was regularly performed; and (2) that the assessment notices, having been duly directed and mailed to appellant, were received by it in the ordinary course of the mail. And even assuming for the sake of argument that appellant did not receive the assessment notices, inasmuch as it admits having received appellee's letter of demand dated January 5, 1956, Exhibit 'O', and furthermore, considering that it has been established beyond doubt that appellant also received the Bureau's letter of demand dated October 11, 1957, Exhibit 'Q', appellant cannot claim that it had been deprived of the due process of law for not being notified of its tax liabilities. It should be noted that both Exhibits 'O' and 'Q' set forth in details, among others, the tax liabilities of appellant; consequently, they have the same legal effects of an assessment notice". Defendant's attempt to distinguish at page 21 of his brief that "Notice of the tax assessment is different from the demand to pay that tax assessment", is nullified by the very case of Alhambra etc. vs . Collector etc. G. R. No. L-12026, May 29, 1959, cited at page 22 of its brief, because in the said case the following was said: ". . . An assessment is not an action or proceeding for the collection of taxes. It is merely a notice to the effect that the amount therein stated is due as tax and a demand for the payment thereof". In other words, an assessment is at once a notice of the tax due and a demand for the payment thereof, a purpose which is clearly served by said Exhibits O and Q. Finally, the error under consideration seems to insinuate that defendant was deprived of due process, when the fact of the matter is that it was the one who deprived itself of its right to appeal to the Court of Tax Appeals through its own neglect or for reasons only known to itself. Defendant likewise points out that "The trial Court erred in not holding that the cause of action did not accrue to appellee when it filed this judicial proceeding on January 20, 1958". It is argued under this assigned error that "even long after November 17, 1957, when the ruling in Exhibit Q allegedly became final and executory, the Collector modified, altered, and amended Exhibit 'Q' by subsequent ruling issued on December 20, 1957, which is Exhibit 'T' presented by the appellee, proving conclusively that the Collector did not intend his ruling in Exhibit 'Q' to be final and executory; otherwise, he would not have modified it in Exhibit 'T'". (Page 24, Brief for Appellant.) It is a sufficient answer to this argument that the Collector's letter Exhibit T was occasioned by or a reply to defendant's letter of November 25, 1957 marked Exhibit R. In other words, had not been for defendant's letter Exhibit R, Collector would not have written the letter Exhibit T since for purposes of defendant's tax liability plaintiff's letter exhibit Q sufficiently served the purpose of a notice and a demand. Moreover, said Exhibit T is merely a reiteration and not a modification, alteration or amendment of Exhibit Q, hence, we find no merit in defendant's fourth assigned error. Defendant lastly claims that "The trial Court erred in not resolving the admissibility or inadmissibility of Exhibits 2, 4, 4-A, 5, 5-A to 5-C, 7-A, 7-B, 11, 11-A and 11-B of defendant-appellant". According to defendant, the trial court held in abeyance the determination of the admissibility or inadmissibility of the said exhibits as follows: "COURT: Exhibits 2, 4, 4-A, 5, 5-A to 5-C, Exhibits 7-A, 7-B, Exhibits 11, 11-A, 11-B the resolution on these exhibits is held in abeyance as the Court will have to study the admissibility of the exhibits in view of the objection of the plaintiff". (T. s. n., page 93)". The said exhibits bear on defendant's main defense that the Montepio is a mutual aid association exempt from taxation. The ruling on the inadmissibility of the same may be gathered from the following portion of the appealed decision found at pages 108 and 109 of the Record on Appeal: "The main defense, however, must fall because of the timely objection interposed by plaintiff to such evidence on the ground that the correctness and legality of the assessment is already settled because (of) the failure of defendant to file a petition for review with the Court of Tax Appeals within 30 days from the date of the decision of the Collector, admittedly received by defendant on October 18, 1957, pursuant to Section 11 of Republic Act 1125 . . .". In the lights of our discussion and holding with respect to defendant's four assigned errors, we cannot but sustain and find in order the ruling just quoted of the trial court, and therefore, overrule the last error assigned by defendant. WHEREFORE, the appealed decision is hereby affirmed, with the costs against defendant-appellant in this instance. casia Lucero and Concepcion, Jr . , JJ . , concur.