G.R. No. 211289 January 14, 2019, CIR vs. La Flor Dela Isabela

FACTS:
Respondent La Flor dela Isabela, Inc. (La Flor) is a domestic corporation duly organized and existing under Philippine Law. It filed monthly returns for the Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC) for calendar year 2005.

On September 3, 2008, La Flor executed a Waiver of the Statute of Limitations (Waiver) in connection with its internal revenue liabilities for the calendar year ending December 31, 2005 and another Waiver on February 16, 2009, to extend the period of assessment until December 31, 2009. 

La Flor received a copy of the Preliminary Assessment Notice for deficiency taxes for the taxable year 2005 on November 20, 2009. Another waiver was executed on December 2, 2009.

On January 7, 2010, La Flor received Formal Letter of Demand and Final Assessment Notices (FANs) covering the deficiency taxes for the taxable year 2005. All assessment notices were all dated December 17, 2009. 

On January 15, 2010, La Flor filed its Letter of Protest contesting the assessment notices. On July 20, 2010, petitioner Commissioner of Internal Revenue (CIR) issued the Final Decision on Disputed Assessment (FDDA) involving the alleged deficiency withholding taxes in the aggregate amount of ₱6,835,994.76. Aggrieved, it filed a petition for review before the CTA Division.

CTA Division Decision

On August 3, 2012, the CTA Division ruled in favor of La Flor. Based on the dates La Flor had filed its returns for EWT and WTC, the CIR had until February 15, 2008 to March 1, 2009 to issue an assessment pursuant to the three-year prescriptive period under Sec. 203 of the NIRC. The assessment was issued on December 17, 2009 which was beyond the prescriptive period.

On the other hand, the Waivers entered into by both parties did not effectively extend the prescriptive period for the issuance of the tax assessments. Waivers dated September 3, 2008 and December 2, 2009 were never presented or offered in evidence. While, Waiver dated February 16, 2009 did not comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 because it failed to state the nature and amount of the tax to be assessed.

The CIR moved for reconsideration but it was denied. It filed a Petition for Review before the CTA En Banc.

CTA En Banc Decision

On September 30, 2013, the CTA En Banc affirmed the Decision of the CTA Division. The EWT and WTC assessments were barred by prescription. The prescriptive period for the assessment of EWT and WTC for 2005 was not extended in view of the inadmissibility and invalidity of the Waivers between the CIR and La Flor. 

The CIR moved for reconsideration, but it was denied. Hence, this present petition.

ISSUES:
1. WON the prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.
2. WON La Flor's EWT and WTC assessments for 2005 were barred uy prescription.

HELD:

1. Yes. The prescriptive period under Section 203 of the NIRC applies to EWT and WTC assessments.

Withholding tax assessments such as EWT and WTC clearly contemplate deficiency internal revenue taxes. Their aim is to collect unpaid income taxes and not merely to impose a penalty on the withholding agent for its failure to comply with its statutory duty. Further, a holistic reading of the Tax Code reveals that the CIR's interpretation of Section 203 is erroneous. Based on NIRC Title X Chapter I, Section 247(b) and Section 251,  it is clear to see that the "penalties" are amounts collected on top of the deficiency tax assessments including deficiency withholding tax assessments. Thus, it was wrong for the CIR to restrict the EWT and WTC assessments against La Floras only for the purpose of imposing penalties and not for the collection of internal revenue taxes.

2. Yes. La Flor's EWT and WTC assessment for 2005 were barred by prescription.

The Court invalidated the waivers executed by the taxpayer in the case of Commissioner of Internal Revenue v. Standard Chartered Bank, because: (1) they were signed by Assistant Commissioner-Large Taxpayers Service and not by the CIR; (2) the date of acceptance was not shown; (3) they did not specify the kind and amount of the tax due; and (4) the waivers speak of a request for extension of time within which to present additional documents and not for reinvestigation and/or reconsideration of the pending internal revenue case as required under RMO No. 20-90. Tested against the requirements of RMO 20-90 and relevant jurisprudence, the Court cannot but agree with the CTA's finding that the waivers subject of this case suffer from the following defects: a) the waivers in this case did not specify the kind of tax and the amount of tax due; b) the September 3, 2008, February 16, 2009 and December 2, 2009 Waivers failed to indicate the specific tax involved and the exact amount of the tax to be assessed or collected. The Waivers did not effectively extend the prescriptive period under Section 203 on account of their invalidity. The issue on whether the CTA was correct in not admitting them as evidence becomes immaterial since even if they were properly offered or considered by the CTA, the same conclusion would be reached — the assessments had prescribed as there was no valid waiver.

G.R. No. 162155 August 28, 2007, CIR vs Primetown Property Group, Inc.

FACTS:
On March 11, 1999, Gilbert Yap, vice chair of Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap, his business was good on the first quarter of 1997 but then the increase of labor and materials made it difficult in obtaining financing projects, hence suffered losses on that same year. Respondent paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales to the BIR in the total amount of ₱26,318,398.32.

On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA).

On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit, invoking Section 229 of the National Internal Revenue Code (NIRC).

The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a refund or credit commenced on that date. The tax court applied Article 13 of the Civil Code which states: Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years are of three hundred sixty-five days each; months, of thirty days; days, of twenty-four hours, and nights from sunset to sunrise.

Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was filed beyond the reglementary period.

Respondent moved for reconsideration but it was denied. Hence, it filed an appeal in the CA.

On August 1, 2003, the CA reversed and set aside the decision of the CTA. It ruled that Article 13 of the Civil Code did not distinguish between a regular year and a leap year. According to the CA: The rule that a year has 365 days applies, notwithstanding the fact that a particular year is a leap year.

Petitioners moved for reconsideration but it was denied. Thus, this appeal.

ISSUES:

Whether or not the petition filed by respondent is within the 2-year prescriptive period.

HELD:

Yes. The Court held that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period. CIR's petition was DENIED. 

The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not. The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. 

As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, the court ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap year.

However, in 1987, EO 292 or the Administrative Code of 1987 was enacted. Section 31, Chapter VIII, Book I thereof provides:

Sec. 31. Legal Periods. — "Year" shall be understood to be twelve calendar months; "month" of thirty days, unless it refers to a specific calendar month in which case it shall be computed according to the number of days the specific month contains; "day", to a day of twenty-four hours and; "night" from sunrise to sunset. 

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, The Court holds that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, from April 15, 1998 up to April 14, 2000.

G.R. No. L-14519. July 26, 1960 Republic vs Ablaza

FACTS:

Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee Luis G. Ablaza, amounting to P5,254.70. The accountants for Ablaza requested a reinvestigation of tax liability, on the following grounds:
    (1) the assessment is erroneous and incomplete; 
    (2) the assessment is based on third-party information, and 

    (3) neither the taxpayer nor his accountants were permitted to appear in person.

The petition for reinvestigation was granted. Days after, the accountants for Ablaza again sent another letter to the Collector of Internal Revenue submitting a copy of their own computation. And on March 10, 1954, the accountants for Ablaza sent a letter to the examiner of accounts and collections of the Bureau of Internal Revenue, stating a portion which:

"In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October 16, 1951, and your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we are not as yet advised of the results of the requested reinvestigation.

In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of the taxpayer’s side of the case, and if it is found out that said assessment is proper and in order, we assure you of our assistance in the speedy disposition of this case." 

After the reinvestigation, Collector of Internal Revenue made a final assessment of amounted to P2,066.56. Notice of the said assessment was sent and upon receipt thereof the accountants of Ablaza, on its letter dated May 8, 1957, protested the assessments on the ground that the income taxes are no longer collectible for the reason that they have already prescribed. 

The Collector did not agree to the alleged claim of prescription, thus, an action was instituted by him in the Court of First Instance. The said court upheld the contention of Ablaza. Hence, an appeal was filed asserting that the prescriptive period has not fully run at the time of the assessment.

ISSUE:

Whether or not the action to collect the assessed income taxes had prescribed.

HELD:

Yes. The Court finds the appeal without merit and hereby affirms the judgment of the lower court dismissing the action without costs.

 

Upon request of Ablaza's accountants dated October 14, 1951 for reinvestigation of the assessment of the income taxes against him, the period of prescription of action to collect the taxes was suspended. (Sec. 333, C. A. No. 466.) The provision of law on prescription was adopted in statute books upon recommendation of the tax commissioner of the Philippines which declares:

"Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time." (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322)

The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.

The question in the case at bar boils down to the interpretation of the letter dated March 10, 1954, quoted above. If said letter be interpreted as a request for further investigation or a new investigation, different and distinct from the investigation demanded or prayed for in Ablaza’s first letter, then the period of prescription would continue to be suspended thereby. But if the letter in question does not ask for another investigation, the result would be just the opposite. In the Court's opinion, the letter in question does not ask for another investigation. Nowhere does the letter imply a demand or request for a different or new and distinct reinvestigation from that already requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the suspension of the period of limitations.