Interpretation of the Provisions of Section 257 (B) (5) of the National Internal Revenue Code

DOJ OPINION NO. 041 , s. 2010 September 1, 2010 Secretary Cesar V. Purisima Department of Finance Roxas Boulevard corner Pablo Ocampo, Sr.,Street Manila Dear Secretary Purisima : This refers to your request for opinion on the query stated therein relating to the interpretation of the provisions of Section 257 (B) (5) of the National Internal Revenue Code (NIRC). HEacAS Specifically, opinion is requested on whether the responsible officers of banks and other lending/financial institutions who knowingly extend loans to taxpayers keeping multiple books of accounts may be held liable as principals for violation of Section 257 (B) (5) of the NIRC. The legal provision adverted to reads, to wit: Sec. 257. Penal Liability for Making False Entries, Record or Reports, or Using Falsified or Fake Accountable Forms. xxx xxx xxx (B) Any person who: xxx xxx xxx (5) Keeps two (2) or more sets of such records or books of accounts; xxx xxx xxx ...shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty Thousand Pesos (P50,000) but not more than One Hundred Thousand Pesos (P100,000) and suffer imprisonment of not less than two (2) years but not more than six (6) years. You state that several banks and lending/financial institutions have been extending loans and/or accommodating taxpayers who have been keeping two (2) or more sets of books of accounts; that, in fact, they extend loans on the basis of the so-called "second book"; and that you believe that these banks and lending institutions are punishable under the above-quoted Section 257, among other provisions, of the NIRC. You likewise aver that since the Bangko Sentral ng Pilipinas (BSP) has also a stake in the faithful reporting of transactions entered into by banks and other financial institutions, it is imperative that this pernicious practice must be stopped; and that once your position is confirmed by this Department, you intend to institute criminal actions not only against those maintaining multiple books of accounts but also against the responsible officers of the banking/lending institutions that use these documents. AcCTaD With regret, we have to decline to render the requested opinion. It bears stress, at the outset, that the issue herein raised is actually whether, on the basis of the facts presented, a criminal violation or liability, as stated in Section 257 of the NIRC, exists. Unfortunately, however, the question of whether criminal violation or liability exists is addressed to the prosecuting officer. Thus, any opinion that the undersigned may render would have no useful purpose for said opinion or ruling would neither be conclusive nor binding upon the prosecuting officers upon whom under the law devolve the duty of deciding whether or not to file a complaint for violation of the law, after an investigation of the facts of the case and a determination of the sufficiency of the evidence to warrant a prosecution ( Maddela vs. Aquino , 104 Phil. 133). Such opinion on my part would be misconstrued as undue interference in or intrusion into the exercise of the discretion by the prosecuting officer in making such determination, which discretion must be free from pressure and other irrelevant considerations ( People vs. Santos , 30 SCRA 100). 1 While the Secretary of Justice is given the power to review, revise or reverse the said findings of the prosecuting officers (also, Sec. 12, DOJ Circular No. 70, s. 2000 [2000 NPS Rules on Appeals]), the latter are given the widest leeway in the exercise of the discretion, which discretion must be "free from pressure and other irrelevant considerations (No. 25, s. 2008)". 2 Besides, even if we want to render the opinion requested, we cannot. The rationale is because the issue raised undeniably involves the substantive rights of private parties, i.e. , the taxpayers and the officers of the banking/lending institutions. Since the opinion of the Secretary of Justice is merely advisory in nature, such opinion would not be binding upon the private parties who may be adversely affected thereby and who may, in all probability, take issue therewith and contest the same before the courts. As a matter of policy, therefore, the Secretary of Justice has consistently refrained from rendering opinion on questions that are justiciable in nature or can be the subject of litigation before the courts. 3 Nonetheless, for your information and guidance only ,we would like to make the following comments and observations. SDIACc It is a cardinal rule in statutory construction, that the intent of the legislature must be determined from a consideration of the whole of the statute and not from a reading of only a particular or an isolated part thereof ( Philippine Global Communications, Inc. vs. Relova ,145 SCRA 385; Aisporna vs. Court of Appeals ,113 SCRA 459). Stated differently, a word, phrase or provision should not be construed in isolation but must be interpreted in relation to the other provisions of the law. This rule is expressed in the latin maxim ut res magis valeat quam pereat or, that construction is to be sought which gives effect to the whole of the statute its every words. (No. 31, s. 2009; Nos. 10, 2, s. 2008) Section 253 of the said NIRC, insofar as material, provides, thus: Sec. 253. General Provisions. xxx xxx xxx (b) Any person who willfully aids or abets in the commission of a crime penalized herein or who causes the commission of any such offense by another shall be liable in the same manner as the principal. (stress added) Resolving the issue raised, in the light of the above-quoted provisions of the NIRC, the logical conclusion appears to be that the responsible officers of banks and/or lending/financial institutions who grant loans to persons even as said officers are fully aware the loan grantees maintain multiple records or books of accounts in violation of Section 257, earlier-quoted, are equally guilty as the loan grantees. The legislative intent is beyond doubt from a reading of the provisions of Sections 253 and 257 that interpretation is no longer necessary only application. 4 The liability for violation of Section 257 (B) (5) of the NIRC attaches not only to those who keep two or more records or books of accounts but to those who knowingly abet or allow the commission of the said prohibited act as well. Thus, when a responsible banking/lending/financial institution officer grants loans to a person even as he fully knows that said person keeps multiple books of accounts, which is clearly prohibited by the NIRC, said officer is equally guilty of the crime committed by the loan grantee. ICTacD Besides, Republic Act No. 8791, or "The General Banking Law of 2000", in part, states: SEC. 55. Prohibited Transactions. 55.1. No director, officer, employee, or agent of any bank shall (a) Make false entries in any bank report or statement or participate in any fraudulent transaction, thereby affecting the financial interest of, or causing damage to, the bank or any person; xxx xxx xxx 55.2. No borrower of a bank shall xxx xxx xxx (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining, renewing, or increasing a loan or other credit accommodation or extending the period thereof; xxx xxx xxx 55.3. No examiner, officer or employee of the Bangko Sentral, or of any department, bureau, office, branch or agency of the Government, that is assigned to supervise, examine, assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. xxx xxx xxx (emphasis ours) In interpretation of statutes, one of the basic rules states that every effort must be used to make all acts stand and harmonize; the rationale being that it is to be presumed that laws are enacted with full knowledge on the part of the legislature of all existing laws on the subject. 5 Construed in relation to the earlier-quoted NIRC provisions, the liability of responsible officers/officials of banking/lending/financial institutions for the commission of the acts prohibited under Section 257 of the NIRC cannot be denied. This is true especially because the prohibited acts under R.A. No. 8791 are worded in the negative. The rationale is because, unlike affirmative words which are considered directory ( McGee vs. Republic ,94 Phil. 820),negative and prohibitory words are regarded as mandatory (see also, Fule vs. Court of Appeals , 162 SCRA 446; 82 C.J.S. [Statutes] 377). 6 Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. Secretary of Justice Op. No. 27, s. 2009; also, Nos. 66, 62 & 25, s. 2008. 2. Ibid. , No. 10, current series. 3. Id. , Nos. 19, 16 & 12, current series; Nos. 74, 72 & 69, s. 2009. 4. Id. , No. 12, current series, citing Ramos vs. Court of Appeals ,108 SCRA 728, 733. 5. Id. , No. 34, s. 2008, citing Op. No. 57, s. 1995. 6. Id. , No. 63, s. 2008.