FIRST DIVISION
G.R. No. 192173, July 29, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. STANDARD CHARTERED BANK, Respondent.
D E C I S I O N
PEREZ, J.:
For the Court’s consideration is a Petition for Review on Certiorari which seeks to reverse and set aside the 1 March 2010 Decision1 and the 30 April 2010 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 522, affirming in toto the Decision3 and Resolution4 dated 27 February 2009 and 29 July 2009, respectively, of the Second Division of the CTA (CTA in Division) in CTA Case No. 7165. The court a quo cancelled and set aside the Formal Letter of Demand and Assessment Notices dated 24 June 2004 issued by petitioner against respondent for deficiency income tax, final income tax – Foreign Currency Deposit Unit (FCDU), and expanded withholding tax (EWT) in the aggregate amount of P33,076,944.18, including increments covering taxable year 1998, for having been issued beyond the reglementary period.
On July 14, 2004, [respondent] received [petitioner’s] Formal Letter of Demand dated June 24, 2004, for alleged deficiency income tax, final income tax – FCDU, [withholding tax – compensation (WTC)], EWT, [final withholding tax (FWT)], and increments for taxable year 1998 in the aggregate amount of P33,326,211.37, broken down as follows:
chanRoblesvirtualLawlibraryOn August 12, 2004, [respondent] protested the said assessment by filing a letter-protest dated August 9, 2004 addressed to the BIR Deputy Commissioner for Large Taxpayers’ Service stating the factual and legal bases of the assessment, and requested that it be withdrawn and cancelled.
Tax Basic Tax Interest Compromise Penalty TotalIncome Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67Final Income Tax – FCDU 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30Withholding Tax - Compensation 50,282.59 55,450.48 12,000.00 117,733.07Expanded Withholding Tax 678,361.62 748,081.59 20,000.00 1,446,443.21Final Withholding Tax 56,845.84 62,688.28 12,000.00 131,534.12TOTAL 16,128,246.04 17,103,965.33 94,000.00 33,326,211.37
As of the date of filing of this Petition for Review, [petitioner] has not rendered a decision on [respondent’s] protest.
In view of [petitioner’s] inaction on [respondent’s] protest, on March 9, 2005, [respondent] filed the present Petition for Review.
x x x x
On October 14, 2005, [respondent] filed a Motion for Leave of Court to Serve Supplemental Petition, with attached Supplemental Petition for Review, pursuant to Rule 10 of the 1997 Rules of Civil Procedure, as amended, in view of the alleged payments made by [respondent] through the BIR’s Electronic Filing and Payment System (eFPS) as regards its deficiency [WTC] and [FWT] assessments in the amounts of P124,967.73 and P139,713.11, respectively. In its Supplemental Petition for Review, (respondent) seeks to be fully credited of the payments it made to cover the deficiency [WTC] and [FWT]. Thus, the remaining assessments cover only the deficiency income tax, final income tax – FCDU, and [EWT] in the modified total amount of P33,076,944.18, computed as follows:
chanRoblesvirtualLawlibraryFinding merit in [respondent’s] motion, the same was granted and the Supplemental Petition for Review was admitted in a Resolution dated December 12, 2005.
Tax Basic Tax Interest Compromise Penalty TotalIncome Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67Final Income Tax – FCDU 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30Expanded Withholding Tax 678,361.62 748,081.59 20,000.00 1,446,443.21TOTAL 16,021,117.61 16,985,826.57 70,000.00 33,076,944.18
[Respondent] presented Chona G. Reyes, its Vice-President, as witness, and documentary exhibits which were admitted by the Court in its Resolutions dated October 1, 2007, and January 31, 2008.
On the other hand, [petitioner] presented Juan M. Luna, Jr., Revenue Officer II of the BIR LTAID I, as witness, and documentary evidence marked as Exhibits “1” to “4”.
Thereafter, the parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, afterwhich the case shall be deemed submitted for decision.
[Petitioner’s] “Memorandum” was filed on August 4, 2008, while [respondent’s] Memorandum was filed on October 24, 2008 after a series of motions for extension of time to file memorandum were granted by the [c]ourt. The case was deemed submitted for decision on November 12, 2008.5
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SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section 222, internal revenue taxes shall be assessed within three 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.This mandate governs the question of prescription of the government’s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation by not indefinitely extending the period of assessment and depriving the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time.13ChanRoblesVirtualawlibrary
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. (Emphasis supplied)
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SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –From the foregoing, the above provision authorizes the extension of the original three-year prescriptive period by the execution of a valid waiver, where the taxpayer and the Commissioner of Internal Revenue (CIR) may stipulate to extend the period of assessment by a written agreement executed prior to the lapse of the period prescribed by law, and by subsequent written agreements before the expiration of the period previously agreed upon. It must be kept in mind that the very reason why the law provided for prescription is to give taxpayers peace of mind, that is, to safeguard them from unreasonable examination, investigation, or assessment. The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.14ChanRoblesVirtualawlibrary
x x x x
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (Emphasis supplied)
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1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase “but not after ____ 19 __”, which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.The provisions of the RMO and RDAO explicitly show their mandatory nature, requiring strict compliance. Hence, failure to comply with any of the requisites renders a waiver defective and ineffectual. It is worth mentioning that strict compliance with the requirements set forth in RMO No. 20-90 has been upheld in the PJI case.17 In reversing the decision of the Court of Appeals promulgated on 5 August 2003, this Court ruled that:
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. (Emphases supplied)
chanroblesvirtuallawlibrary
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period of assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time x x xApplying the rules and rulings, the waivers in question were defective and did not validly extend the original three-year prescriptive period. As correctly found by the CTA in Division, and affirmed in toto by the CTA En Banc, the subject waivers of the Statute of Limitations were in clear violation of RMO No. 20-90:
x x x x
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. A cursory reading of the Order supports petitioner’s argument that the RMO must be strictly followed, x x x”18 (Emphasis supplied)
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Taking into consideration the foregoing defects in the First and Second Waivers presented and admitted in evidence before the court a quo, the period to assess the tax liabilities of respondent for taxable year 1998 was never extended. Consequently, when the succeeding waivers of Statute of Limitations were subsequently executed covering the same tax liabilities of respondent, and there being no assessment having been issued as of that time, prescription has already set in. We therefore hold that the subject waivers did not extend the period to assess the subject deficiency tax liabilities of respondent for taxable year 1998. The aforesaid waivers cannot be considered as “subsequent written agreement(s) made before the expiration of the period previously agreed upon” referred to in the second sentence of the earlier quoted Section 222(b) of the NIRC of 1997, as amended, since there is no “period previously agreed upon” to speak of.
1) This case involves assessment amounting to more than P1,000,000.00. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR. A perusal of the First and Second Waivers of the Statute of Limitations shows that they were signed by Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad and Assistant Commissioner-Large Taxpayers Service Edwin R. Abella respectively, and not by the Commissioner of Internal Revenue; 2) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad of the First Waiver was not indicated therein; 3) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Edwin R. Abella of the Second Waiver was not indicated therein; 4) The First and Second Waivers of Statute of Limitations did not specify the kind and amount of the tax due; and 5) The tenor of the Waiver of the Statute of Limitations signed by petitioner’s authorized representative failed to comply with the prescribed requirements of RMO No. 20-90. The subject waiver speaks of a request for extension of time within which to present additional documents, whereas the waiver provided under RMO No. 20-90 pertains to the approval by the Commissioner of Internal Revenue of the taxpayer’s request for re-investigation and/or reconsideration of his/its pending internal revenue case.19
Endnotes:
* Per Special Order No. 2102 dated 13 July 2015.
** Acting member per Special Order No. 2103 dated 13 July 2015.
1Rollo, pp. 26-37; Penned by Associate Justice Caesar A. Casanova with Presiding Justice Ernesto D. Acosta, Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-Manalastas concurring.
2 Id. at 39-41.
3 Id. at 89-188; Penned by Associate Justice Olga Palanca-Enriquez with Associate Justices Juanito C. Castañeda, Jr. and Associate Justices Erlinda P. Uy concurring.
4 Id. at 120-127.
5 Id. at 91-97; CTA in Division Decision dated 27 February 2009.
6 Id. at 89-118.
7 Id. at 112-114; 488 Phil. 219 (2004).
8 Id. at 115; CTA in Division Decision dated 27 February 2009.
9 Id. at 120-127; CTA in Division Resolution dated 29 July 2009.
10 R.A. No. 1125, otherwise known as “An Act Creating the Court of Tax Appeals,” as amended by R.A. No. 9282, also known as “An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as Amended, Otherwise known as the Law Creating the Court of Tax Appeals, and for Other Purposes,” which took effect on 23 April 2004.
11Rollo, pp. 26-37.
12 Id. at 39-41.
13 See CIR v. FMF Dev't. Corp., 579 Phil. 174, 183 (2008).
14CIR v. B.F. Goodrich Phils., Inc., 363 Phil. 169 178 (1999).
15 488 Phil. 219, 231-232 (2004).
16CIR v. Kudos Metal Corporation, 634 Phil. 314, 323-326 (2010).
17Philippine Journalists, Inc. v. CIR, supra note 15.
18 Id. at 229-230.
19Rollo, pp. 111-112; CTA in Division Decision dated 27 February 2009.
20 Id. at 122.
21 Id. at 30.
22 Article 1231 (1), Civil Code of the Philippines.
23Republic of the Philippines v. Ablaza, 108 Phil. 1105, 1108 (1960).
24 See CIR v. Kudos Metal Corp., supra note 16 at 329.cralawred