THIRD DIVISION
On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No.
G.R. No. 198677 November 26, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
BASF COATING + INKS PHILS., INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 of the
Court of Tax Appeals (CTA) En Banc, dated June 16, 2011, and Resolution2 dated
September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125).
The pertinent factual and procedural antecedents of the case are as follows:
Respondent was a corporation which was duly organized under and by virtue of the
laws of the Republic of the Philippines on August 1, 1990 with a term of existence of
fifty (50) years. Its BIR-registered address was at 101 Marcos Alvarez Avenue,
Barrio Talon, Las Piñas City. In a joint special meeting held on March 19, 2001,
majorityof the members of the Board of Directors and the stockholders representing
more than two-thirds (2/3) of the entire subscribed and outstanding capital stock of
herein respondent corporation, resolved to dissolve the corporation by shortening its
corporate term to March 31, 2001.3 Subsequently, respondent moved out of its
address in Las Piñas City and transferred to Carmelray Industrial Park, Canlubang,
Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal
Revenue (BIR) Revenue District Officer of Revenue District Office (RDO) No. 53,
Region 8, in Alabang, Muntinlupa City. The first letter, dated April 26, 2001, was a
notice of respondent's dissolution, in compliance with the requirements of Section
52(c) of the National Internal Revenue Code.4 On the other hand, the second letter,
dated June 22, 2001, was a manifestation indicating the submission of various
documents supporting respondent's dissolution, among which was BIR Form No.
1905, which refers to an update of information contained in its tax registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner
assessed respondent the aggregate amount of P18,671,343.14 representing
deficiencies in income tax, value added tax, withholding tax on compensation,
expanded withholding tax and documentary stamp tax, including increments, for the
taxable year 1999.6 The FAN was sent by registered mail on January 24, 2003 to
respondent's former address in Las Piñas City.
7, RDO No. 39, South Quezon City, issued a First Notice Before Issuance of
Warrant of Distraint and Levy, which was sent to the residence of one of
respondent's directors.7
On March 19, 2004, respondent filed a protest letter citing lack of due process and
prescription as grounds.8 On April 16, 2004, respondent filed a supplemental letter
of protest.9 Subsequently, on June 14, 2004, respondent submitted a letter wherein it
attached documents to prove the defenses raised in its protest letters.10
On January 10, 2005, after 180 dayshad lapsed without action on the part of
petitioner on respondent's protest, the latter filed a Petition for Review11 with the
CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its Decision,12
the dispositive portion of which reads, thus:
WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for
deficiency income tax in the amount of P14,227,425.39, deficiency value-added tax
of P3,981,245.66, deficiency withholding tax on compensation of P49,977.21,
deficiency expanded withholding tax of P156,261.97 and deficiency documentary
stamp tax of P256,432.91, including increments, in the aggregate amount of
P18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET
ASIDE.
SO ORDERED.13
The CTA Special First Division ruled that since petitioner was actually aware of
respondent's new address, the former's failure to send the Preliminary Assessment
Notice and FAN to the said address should not be taken against the latter.
Consequently, since there are no valid notices sent to respondent, the subsequent
assessments against it are considered void. Aggrieved by the Decision, petitioner
filed a Motion for Reconsideration, but the CTA Special First Division denied it in
its Resolution14 dated July 13, 2010.
Petitioner then filed a Petition for Review with the CTA En Banc.15
On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying
petitioner's Petition for Review for lack of merit. The CTA En Banc held that
petitioner's right to assess respondent for deficiency taxes for the taxable year 1999
1
has already prescribed and that the FAN issued to respondent never attained finality
because respondent did not receive it.
Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its
Resolution dated September 16, 2011.
Hence, the present petition with the following Assignment of Errors:
I such tax may be filed without assessment, at any time within ten (10) years after the
THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF
PETITIONER TO ASSESS HEREIN RESPONDENT FOR DEFICIENCY
INCOME TAX, VALUEADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY
STAMP TAX, FOR TAXABLE YEAR 1999 IS BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN
RULING THAT THE FORMAL ASSESSMENT NOTICE (FAN) FOR
RESPONDENT'S DEFICIENCY INCOME TAX, VALUE-ADDED TAX,
WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING
TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999 HAS
NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE.16
The petition lacks merit.
Petitioner contends that, insofar as respondent's alleged deficiency taxes for the
taxable year1999 are concerned, the running of the three-year prescriptive period to
assess, under Sections 203 and 222 of the National Internal Revenue Act of 1997
(Tax Reform Act of 1997) was suspended when respondent failed to notify
petitioner, in writing, of its change of address, pursuant to the provisions of Section
223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.
Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:
Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as
provided in Section 222,internal revenue taxes shall be assessed within three (3)
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. 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)
Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
(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.
(c) Any internal revenue tax which has been assessed within the period of limitation
as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon
as provided in paragraph (b) hereinabove, may be collected bydistraint or levy or by
a proceeding in court within the period agreed upon in writing before the expiration
of the five (5) -year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously
agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry
into any tax return filed in accordance with the provisions of any tax amnesty law or
decree.
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the
Statute of Limitations provided in Sections 203 and 222 on the making of assessment
and the beginning of distraint or levy a proceeding in court for collection, in respect
of any deficiency, shall be suspended for the period during which the Commissioner
is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for
a reinvestigation which is granted by the Commissioner; when the taxpayer cannot
be located in the address given by him in the return filed upon which a tax is being
2
assessed or collected: Provided, that, if the taxpayer informs the Commissioner of
any change in address, the running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion,
and no property could be located; and when the taxpayer is out of the Philippines.
(emphasis supplied)
In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:
Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a
written notice thereof to the Revenue District Officer or the district having
jurisdiction over his formerlegal residence and/or place of business, copy furnished
the Revenue District Officer having jurisdiction over his new legal residence or place
of business, the Revenue Computer Center and the Receivable Accounts Division,
BIR, National Office, Quezon City, and in case of failure to do so, any
communication referred to in these regulations previously sent to his former legal
residence or business address as appear in is tax return for the period involved shall
be considered valid and binding for purposes of the period within which to reply.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the
Statute of Limitations provided under the provisions of Sections 203 and 222 of the
same Act shall be suspended when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected. In
addition, Section 11 of Revenue Regulation No. 12-85 states that, in case of change
of address, the taxpayer is required to give a written notice thereof to the Revenue
District Officer or the district having jurisdiction over his former legal residence
and/or place of business. However, this Court agrees with both the CTA Special First
Division and the CTA En Banc in their ruling that the above mentioned provisions
on the suspension of the three-year period to assess apply only if the BIR
Commissioner is not aware of the whereabouts of the taxpayer.
In the present case, petitioner, by all indications, is well aware that respondent had
moved to its new address in Calamba, Laguna, as shown by the following documents
which form partof respondent's records with the BIR:
1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-
Added Tax and Other Percentage Taxes;17
2) General Information (BIR Form No. 23-02);18
3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19
4) Activity Report, dated October 17, 2002;20
5) Memorandum Report of Examiner, dated June 27, 2002;21
6) Revenue Officer's Audit Report on Income Tax;22
7) Revenue Officer's Audit Report on Value-Added Tax;23
8) Revenue Officer's Audit Report on Compensation Withholding Taxes;24
9) Revenue Officer's Audit Report on Expanded Withholding Taxes;25
10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26
The above documents, all of which were accomplished and signed by officers of the
BIR, clearly show that respondent's address is at Carmelray Industrial Park,
Canlubang, Calamba, Laguna. The CTA also found that BIR officers, at various
times prior to the issuance of the subject FAN, conducted examination and
investigation of respondent's tax liabilities for 1999 at the latter's new address in
Laguna as evidenced by the following, in addition to the above mentioned records:
1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R.
Garcia;27
2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated
March 20, 2002, signed by Revenue Officer I Eugene R. Garcia.28
Moreover, the CTA found that, based on records, the RDO sent respondent a letter
dated April 24, 2002 informing the latter of the results of their investigation and
inviting it to an informal conference.29 Subsequently, the RDO also sent respondent
another letter dated May 30, 2002, acknowledging receipt of the latter's reply to his
April 24, 2002 letter.30 These two letters were sent to respondent's new address in
Laguna. Had the RDO not been informed or was not aware of respondent's new
address, he could not have sent the said letters to the said address.
Furthermore, petitioner should have been alerted by the fact that prior to mailing the
FAN, petitioner sent to respondent's old address a Preliminary Assessment Notice
but it was "returned to sender." This was testified to by petitioner's Revenue Officer
II at its Revenue District Office 39 in Quezon City.31 Yet, despite this occurrence,
petitioner still insisted in mailing the FAN to respondent's old address.
Hence, despite the absence of a formal written notice of respondent's change of
address, the fact remains that petitioner became aware of respondent's new address as
shown by documents replete in its records. As a consequence, the running of the
three-year period to assess respondent was not suspended and has already prescribed.
3
It bears stressing that, in a number of cases, this Court has explained that the statute
of limitations on the collection of taxes primarily benefits the taxpayer. In these
cases, the Court exemplified the detrimental effects that the delay in the assessment
and collection of taxes inflicts upon the taxpayers. Thus, in Commissioner of Internal
Revenue v. Philippine Global Communication, Inc.,32 this Court echoed Justice
Montemayor's disquisition in his dissenting opinion in Collector of Internal Revenue
v. Suyoc Consolidated Mining Company,33 regarding the potential loss to the
taxpayer if the assessment and collection of taxes are not promptly made, thus:
Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the agency
charged with the assessment and collection may not tarry too long or indefinitely
tothe prejudice of the interests of the Government, which needs taxes to run it; and
for the taxpayer so that within a reasonable time after filing his return, hemay know
the amount of the assessment he is required to pay, whether or not such assessment is
well founded and reasonable so that he may either pay the amount of the assessment
or contest its validity incourt x x x. It would surely be prejudicial to the interest of
the taxpayer for the Government collecting agency to unduly delay the assessment
and the collection because by the time the collecting agency finally gets around to
making the assessment or making the collection, the taxpayer may then have lost his
papers and books to support his claim and contest that of the Government, and what
is more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay.34
Likewise, in Republic of the Philippines v. Ablaza,35 this Court elucidated that the
prescriptive period for the filing of actions for collection of taxes is justified by the
need to protect law-abiding citizens from possible harassment. Also, in Bank of the
Philippine Islands v. Commissioner of Internal Revenue,36 it was held that the
statute of limitations on the assessment and collection of taxes is principally intended
to afford protection to the taxpayer against unreasonable investigations as the
indefinite extension of the period for assessment deprives the taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after
the expiration of a reasonable period of time. Thus, in Commissioner of Internal
Revenue v. B.F. Goodrich Phils., Inc.,37 this Court ruled that the legal provisions on
prescription should be liberally construed to protect taxpayers and that, as a
corollary, the exceptions to the rule on prescription should be strictly construed.
It might not also be amiss to point out that petitioner's issuance of the First Notice
Before Issuance of Warrant of Distraint and Levy38 violated respondent's right to
due process because no valid notice of assessment was sent to it. An invalid
assessment bears no valid fruit. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle inadministrative
investigations: that taxpayers should be able to present their case and adduce
supporting evidence.39 In the instant case, respondent has not properly been
informed of the basis of its tax liabilities. Without complying with the unequivocal
mandate of first informing the taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest can be made.
It is true that taxes are the lifeblood of the government. However, in spite of all its
plenitude, the power to tax has its limits.40 Thus, in Commissioner of Internal
Revenue v. Algue, Inc.,41 this Court held:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.1âwphi1 On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
xxxx
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its partis expected
torespond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of
the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate
x x x that the law has not been observed.42
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law. In balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors of
the law on one side, and the constitutional rights of a citizen todue process of law
and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen’s right is amply protected by the Bill of Rights under the
Constitution.43
4
As to the second assigned error, petitioner's reliance on the provisions of Section
3.1.7 of BIR Revenue Regulation No. 12-9944 as well as on the case of Nava v.
Commissioner of Internal Revenue45 is misplaced, because in the said case, one of
the requirements ofa valid assessment notice is that the letter or notice must be
properly addressed. It is not enough that the notice is sent by registered mail as
provided under the said Revenue Regulation. In the instant case, the FAN was sent
tothe wrong address. Thus, the CTA is correct in holding that the FAN never attained
finality because respondent never received it, either actually or constructively.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax
Appeals En Banc, dated June 16, 2011, and its Resolution dated September 16, 2011,
in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are AFFIRMED.

SO ORDERED.

5

MENDOZA, J.:
Presented before us is a novel issue. When may a Final Decision on Disputed
Assessment (FDDA) be declared void, and in the event that the FDD A is found
void, what would be its effect on the tax assessment?
Assailed in these consolidated petitions for review on certiorari filed under Rule 45
of the Rules of Court are the May 22, 2014 Decision[1]and the November 26, 2014
Resolution[2] of the Court of Tax Appeals (CTA) En Banc which affirmed the
November 22, 2012 Decision[3]of the CTA Division, Second Division (CTA
Division).
Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and
existing under Philippine laws. On July 11, 2006, it received a copy of Letter of
Authority (LOA) No. 00067824, dated July 4, 2006, issued by the Commissioner of
Internal Revenue (CIR), authorizing the investigation of all internal revenue taxes for
taxable year 2005.[4]
On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of
Informal Conference (NIC), as well as the detailed computation of its supposed tax
liability. On May 28, 2008, it received a copy of the Preliminary Assessment
Notice[5] (PAN), dated May 20, 2008, together with the attached details of
discrepancies for the calendar year ending December 31, 2005. [6] Upon investigation,
Liquigaz was initially assessed with deficiency withholding tax liabilities, inclusive
of interest, in the aggregate amount of P23,931,708.72, broken down as follows:
Expanded Withholding Tax (EWT) P5,456,141.82
Withholding Tax on Compensation (WTC) P4,435,463.97
Fringe Benefits Tax (FBT) P14,040,102.93
TOTAL P23,931,708.72
Thereafter, on June 25, 2008, it received a Formal Letter of Demand [7] (FLD)/Formal
Assessment Notice (FAN), together with its attached details of discrepancies, for the
calendar year ending December 31, 2005. The total deficiency withholding tax
liabilities, inclusive of interest, under the FLD was P24,332,347.20, which may be
broken down as follows:
EWT P 5,535,890.38
WTC P 4,500,169.94
FBT P 14,296,286.88
TOTAL P 24,332,347.20
On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and subsequently
submitted its supporting documents on September 23, 2008.
Then, on July 1, 2010, it received a copy of the FDDA [8] covering the tax audit under
LOA No. 00067824 for the calendar year ending December 31, 2005. As reflected in
the FDDA, the CIR still found Liquigaz liable for deficiency withholding tax
liabilities, inclusive of interest, in the aggregate amount of P22,380,025.19, which
may be broken down as follows:
EWT P 3,479,426.75
WTC P 4,508,025.93
FBT P14,392,572.51
TOTAL P 22,380,025.19
Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the
CTA Division assailing the validity of the FDDA issued by the CIR. [9]
The CTA Division Ruling
In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's
petition cancelling the EWT and FBT assessments but affirmed with modification
the WTC assessment. It ruled that the portion of the FDDA relating to the EWT and
the FBT assessment was void pursuant to Section 228 of the National Internal
Revenue Code (NIRC) of 1997, as implemented by Revenue Regulations (RR) No.
12-99.
The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued
did not provide the details thereof, hence, Liquigaz had no way of knowing what
items were considered by the CIR in arriving at the deficiency assessments. This was
especially true because the FDDA reflected a different amount from what was stated
in the FLD/FAN. The CTA Division explained that though the legal bases for the
EWT and FBT assessment were stated in the FDDA, the taxpayer was not notified of
the factual bases thereof, as required in Section 228 of the NIRC.
On the other hand, it upheld the WTC assessment against Liquigaz. It noted that the
factual bases used in the FLD and the FDDA with regard thereto were the same as
the difference in the amount merely resulted from the use of a different tax rate.
The CTA Division agreed with Liquigaz that the tax rate of 25.40% was more
appropriate because it represents the effective tax compensation paid, computed
6
based on the total withholding tax on compensation paid and the total taxable
compensation income for the taxable year 2005. It did not give credence to
Liquigaz's explanation that the salaries account included accrued bonus, 13 th month
pay, de minimis benefits and other benefits and contributions which were not subject
to withholding tax on compensation. The CTA Division relied on the report prepared
by Antonio O. Maceda, Jr., the court-commissioned independent accountant, which
found that Liquigaz was unable to substantiate the discrepancy found by the CIR on
its withholding tax liability on compensation. The dispositive portion of the CTA
Division decision reads:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, the assessments for deficiency expanded withholding tax in the amount
of P3,479,426.75 and fringe benefits tax in the amount of P14,392,572.51 issued by
respondent against petitioner for taxable year 2005, both inclusive of interest and
compromise penalty is hereby CANCELLED and WITHDRAWNfor being void.
However, the assessment for deficiency withholding tax on compensation for taxable
year 2005 is hereby AFFIRMED with MODIFICATIONS. Accordingly, petitioner
is hereby ORDERED to PAY respondent the amount of P2,958,546.23, inclusive of
the 25% surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as
amended, computed as follows:
Salaries per ITR P52,239,313.00
Less: Salaries per Alphalist P42,921,057-16
Discrepancy P9,318,255-84
Tax rate 25.40%
Basic Withholding Tax on Compensation P2,366,836.98
Add: 25% Surcharge P591,709.5
Total Amount Due P2,958,546.23
In addition, petitioner is liable to pay: (a) deficiency interest at the rate of twenty
percent (20%) per annum of the basic deficiency withholding tax on compensation of
P2,958,546.23 computed from January 20, 2006 until full payment thereof pursuant
to Section 249(B) of the NIRC of 1997, as amended; and (b) delinquency interest at
the rate of twenty percent (20%) per annum on the total amount due of
£2,958,546.23 and on the deficiency interest which have accrued as aforestated in (a)
computed from July 1, 2010 until full payment thereof, pursuant to Section 249(0(3)
of the NIRC of 1997, as amended.
The compromise penalty of P25,000.00, originally imposed by respondent is hereby
excluded there being no compromise agreement between the parties.
SO ORDERED[10]
Both the CIR and Liquigaz moved for reconsideration, but their respective motions
were denied by the CTA Division in its February 20, 2013 Resolution.
Aggrieved, they filed their respective petitions for review before the CTA En Banc.
The CTA En Bane- Ruling
In its May 22, 2014 Decision, the CTA En Banc affirmed the assailed decision of the
CTA Division. It reiterated its pronouncement that the requirement that the taxpayer
should be informed in writing of the law and the facts on which the assessment was
made applies to the FDDA— otherwise the assessment would be void. The CTA En
Bane explained that the FDDA determined the final tax liability of the taxpayer,
which may be the subject of an appeal before the CTA.
The CTA En Banc echoed the findings of the CTA Division that while the FDDA
indicated the legal provisions relied upon for the assessment, the source of the
amounts from which the assessments arose were not shown. It emphasized the need
for stating the factual bases as the FDDA reflected different amounts than that
contained in the FLD/FAN.
On the other hand, the CTA En Banc sustained Liquigaz' WTC assessment. It
observed that the basis for the assessment was the same for the FLD and the FDDA,
which was a comparison of the salaries declared in the Income Tax Return (ITR) and
the Alphalist that resulted in a discrepancy of P9,318,255.84. The CTA En
Banc highlighted that the change in the amount of assessed WTC deficiency simply
arose from the revision of the tax rate used—from 32% to the effective tax rate of
25.40% suggested by Liquigaz.
Further, it disregarded the explanation of Liquigaz on the ground of its failure to
specify how much of the salaries account pertained to de minimis benefits, accrued
bonuses, salaries and wages, and contributions to the Social Security System,
Medicare and Pag-Ibig Fund. The CTA En Banc reiterated that even the court-
commissioned independent accountant reported that Liquigaz was unable to
substantiate the discrepancy found by the CIR.
Both parties moved for a partial reconsideration of the CTA En Banc Decision, but
the latter denied the motions in its November 26, 2014 Resolution.
Not satisfied, both parties filed their respective petitions for review, anchored on
7
 SOLE ISSUE
WHETHER THE COURT OF TAX APPEALS EN BANC ERRED IN
PARTIALLY UPHOLDING THE VALIDITY OF THE ASSESSMENT AS TO
THE WITHHOLDING TAX ON COMPENSATION BUT DECLARING
INVALID THE ASSESSMENT ON EXPANDED WITHHOLDING TAX AND
FRINGE BENEFITS TAX.
The present consolidated petitions revolve around the same FDDA where Liquigaz
seeks the cancellation of its remaining tax liability and the CIR aims to revive the
assessments struck down by the tax court. Basically, Liquigaz asserts that like its
assessment for EWT and FBT deficiency, the WTC assessment should have been
invalidated because the FDDA did not provide for the facts on which the assessment
was based. It argues that it was deprived of due process because in not stating the
factual basis of the assessment, the CIR did not consider the defenses and supporting
documents it presented.
Moreover, Liquigaz is adamant that even if the FDDA would be upheld, it should not
be liable for the deficiency WTC liability because the CIR erred in comparing its
ITR and Alphalist to determine possible discrepancies. It explains that the salaries of
its employees reflected in its ITR does not reflect the total taxable income paid and
received by the employees because the same refers to the gross salaries of the
employees, which included amounts that were not subject to WTC.
On the other hand, the CIR avers that the assessments for EWT and FBT liability
should be upheld because the FDDA must be taken together with the PAN and FAN,
where details of the assessments were attached. Hence, the CIR counters that
Liquigaz was fully apprised of not only the laws, but also the facts on which the
assessment was based, which were likewise evidenced by the fact that it was able to
file a protest on the assessment. Further, the CIR avers that even if the FDDA would
be declared void, it should not result in the automatic abatement of tax liability
especially because RR No. 12-99 merely states that a void decision of the CIR or his
representative shall not be considered as a decision on the assessment.
The Court's Ruling
Central to the resolution of the issue is Section 228[11] of the NIRC and RR No. 12-
99,[12] as amended. They lay out the procedure to be followed in tax assessments.
Under Section 228 of the NIRC, a taxpayer shall be informed in writing of the law
and the facts on which the assessment is made, otherwise, the assessment shall be
void. In implementing Section 228 of the NIRC, RR No. 12-99 reiterates the
requirement that a taxpayer must be informed in writing of the law and the facts on
which his tax liability was based, to wit:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax
Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the taxpayer
agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in writing, by the Revenue District
Office or by the Special Investigation Division, as the case may be (in the case
Revenue Regional Offices) or by the Chief of Division concerned (in the case of the
BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment
of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer
fails to respond within.fifteen (15) days from date of receipt of the notice for
informal conference, he shall be considered in default, in which case, the Revenue
District Officer or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the National Office, as the case may be,
shall endorse the case with the least possible delay to the: Assessment Division of
the Revenue Regional Office or to the Commissioner or his duly authorized
representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative,
as the case may be, it is determined that there exists sufficient basis to assess the
taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at
least by registered, mail, a Preliminary Assessment Notice (PAN) for the proposed
assessment, showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (see illustration in ANNEX
A hereof). If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the PAN, he shall be considered in default, in which case, a formal letter of
demand and assessment notice shall be caused to be issued by the said Office, calling
for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties. xxx
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based,otherwise, the
8
formal letter of demand and assessment notice shall be void (see illustration in
ANNEX B hereof), xxx
3.1.5 Disputed Assessment. — The taxpayer or his duly authorized representative
may protest administratively against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof. If there are
several issues involved in the formal letter of demand and assessment notice but the
taxpayer only disputes or protests against the validity of some of-the issues raised,
the taxpayer shall be required to pay the deficiency tax or taxes attributable to the
undisputed issues, in which case, a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax, inclusive of the applicable surcharge
and/or interest. No action shall be taken on the taxpayer's disputed issues until the
taxpayer has paid the deficiency tax or taxes attributable to the said undisputed
issues. The prescriptive period for assessment or collection of the tax or taxes
attributable to the disputed issues shall be suspended, xxx
3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the
Commissioner or his duly authorized representative shall (a) state the facts, the
applicable law, rules and regulations, or jurisprudence on which such decision
is based, otherwise, the decision shall be void (see illustration in ANNEX C hereof),
in which case, the same shall not be considered a decision on a disputed assessment;
and (b) that the same is his final decision.
[Emphases and Underscoring Supplied]
The importance of providing the taxpayer of adequate written notice of his tax
liability is undeniable. Section 228 of the NIRC declares that an assessment is void if
the taxpayer is not notified in writing of the facts and law on which it is made.
Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state the facts and
law on which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile,
Section 3.1.6 of RR No. 12-99 specifically requires that the decision of the CIR or
his duly authorized representative on a disputed assessment shall state the facts, law
and rules and regulations, or jurisprudence on which the decision is based. Failure to
do so would invalidate the FDDA.
The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99
indicates that the requirement of informing the taxpayer of the legal and factual bases
of the assessment and the decision made against him is mandatory. [13] The
requirement of providing the taxpayer with written notice of the factual and legal
bases applies both to the FLD/FAN and the FDDA.
Section 228 of the NIRC should not be read restrictively as to limit the written
notice'only to the assessment itself. As implemented by RR No. 12-99, the written
notice requirement for both the FLD and the FAN is in observance of due process—
to afford the taxpayer adequate opportunity to file a protest on the assessment and
thereafter file an appeal in case of an adverse decision.
To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to
file an intelligent appeal before the CTA as they would be unaware on how the CIR
or his' authorized representative appreciated the defense raised in connection with the
assessment. On the other hand, it raises the possibility that the amounts reflected in
the FDDA were arbitrarily made if the factual and legal bases thereof are not shown.
A void FDDA does not
ipso facto render the
assessment void
The CIR arid Liquigaz are at odds with regards to the effect of a void FDDA.
Liquigaz harps that a void FDDA will lead to a void assessment because the FDDA
ultimately determines the final tax'liability of a'taxpayer, which may then be
appealed before the CTA. On the other hand, the CIR believes that a void FDDA
does not ipso facto result in the nullification of the assessment.
In resolving the issue on the effects of a void FDDA, it is necessary to differentiate
an "assessment" from a "decision." In St. Stephen's Association v. Collector of
Internal Revenue,[14] the Court has long recognized that a "decision"- differs from an
"assessment," to wit:
In the first place, we believe the respondent court erred in holding that the
assessment in question is the respondent Collector's decision or ruling appealable to
it, and that consequently, the period of thirty days prescribed by section li of
Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a
taxpayer questions an assessment and asks the Collector to reconsider or cancel the
same because he (the taxpayer) believes he is not liable therefor, the assessment
becomes a "disputed assessment" that the Collector must decide, and the taxpayer
can appeal to the Court of Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment, in accordance with paragraph (1) of section 7,
Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax
Appeals to review "decisions of the Collector of Internal Revenue in cases
involving disputed assessment..."
The difference is likewise readily apparent in Section 7[15] of R.A. 1125,[16] as
amended, where the CTA is conferred with appellate jurisdiction over the decision of
the CIR in cases involving disputed assessments, as well as inaction of the CIR in
disputed assessments. From the foregoing, it is clear that what is appealable to the
CTA is the "decision" of the CIR on disputed assessment and not the assessment
9
itself.
An assessment becomes a disputed assessment after a taxpayer has filed its protest to
the assessment in the administrative level. Thereafter, the CIR either issues a
decision on the disputed assessment or fails to act on it and is, therefore, considered
denied. The taxpayer may then appeal the decision on the disputed assessment or the
inaction of the CIR. As such, the FDDA is not the only means that the final tax
liability of a taxpayer is fixed, which may then be appealed by the taxpayer. Under
the law, inaction on the part of the CIR may likewise result in the finality of a
taxpayer's tax liability as it is deemed a denial of the protest filed by the latter, which
may also be appealed before the CTA.
Clearly, a decision of the CIR on a disputed assessment differs from the assessment
itself. Hence, the invalidity of one does not necessarily result to the invalidity of the
other—unless the law or regulations otherwise provide.
Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is
not informed in writing of the law and the facts on which it is based. It is, however,
silent with regards to a decision on a disputed assessment by the CIR which fails to
state the law and facts on which it is based. This void is filled by RR No. 12-99
where it is stated that failure of the FDDA to reflect the facts and law on which it is
based will make the decision void. It, however, does not extend to the nullification of
the entire assessment.
With the effects of a void FDDA expounded, the next issue to be addressed is
whether the assailed FDDA is void for failure to state the facts and law on which it
was based.
The FDDA must state the
facts and law on which it
is based to provide the
taxpayer the opportunity
to file an intelligent
appeal
The CIR and Liquigaz are also in disagreement whether the FDDA issued was
compliant with the mandatory requirement of written notice laid out in the law and
implementing rules and regulations. Liquigaz argues that the FDDA is void as it did
not contain the factual bases of the assessment and merely showed the amounts of its
alleged tax liabilities.
A perusal of the FDDA issued in the case at bench reveals that it merely contained a
table of Liquigaz's supposed tax liabilities, without providing any details. The CIR
explains that the FDDA still complied with the requirements of the law as it was
issued in connection with the PAN and FLD/FAN, which had an attachment of the
details of discrepancies. Hence, the CIR concludes that Liquigaz was sufficiently
informed in writing of the factual bases of the assessment.
The reason for requiring that taxpayers be informed in writing of the facts and law on
which the assessment is made is the constitutional guarantee that no person shall be
deprived of his property without due process of law.[17] Merely notifying the
taxpayer of its tax liabilities without elaborating on its details is insufficient. In CIR
v. Reyes,[18] the Court further explained:.
In the present case, Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made:. She was merely notified of the
findings by the CIR, who had simply relied upon the provisions of former Section
229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the
Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old -requirement- of merely notifying the taxpayer of the CIR's
findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made; otherwise, the assessment itself
would be invalid, xxx
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated
that the taxpayer must be informed of both the law and facts on which the assessment
was based. Thus, the CIR should have required the assessment officers of the Bureau
of Internal Revenue (BIR) to follow the clear mandate of the new law. The old
regulation governing the issuance of estate tax assessment notices ran afoul of the
rule that tax regulations — old as they were — should be in harmony with, and not
supplant or modify, the law. xxx
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be
accorded due process. Not only was the law here disregarded, but no valid notice
was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations: that
taxpayers should be able to present their case and adduce supporting evidence. In
the instant case, respondent has not been informed of the basis of the estate tax
liability. Without complying with the unequivocal mandate of first informing
the taxpayer of the government's claim, there can be no deprivation of
property, because no effective protest can be made. The haphazard shot at
slapping an assessment, supposedly based on estate taxation's general provisions that
10
are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand
letter sent, reveals the lack of basis for — not to mention the insufficiency of — the
gross figures and details of the itemized deductions indicated in the notice and the
letter. This Court cannot countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment .and collection "should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself."
[Emphases Supplied]
In CIR v. United Salvage and Towage (Phils.), Inc.,[19] the Court struck down an
assessment where the FAN only contained a table of the taxes due without providing
further detail thereto, to wit:
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable
year 1994 will show that other than a tabulation of the alleged deficiency taxes due,
no further detail regarding the assessment was provided by petitioner. Only the
resulting interest, surcharge and penalty were anchored with legal basis. Petitioner
should have at least attached a detailed notice of discrepancy or stated an
explanation why the amount of P48,461.76 is collectible against respondent and
how the same was arrived at. Any short-cuts to the prescribed content of the
assessment or the process thereof should not be countenanced, in consonance with
the ruling in Commissioner of Internal Revenue v. Enron Subic Power Corporation
to wit:
The CIR insists that an examination of the facts shows that Enron was properly
apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
Enron's representative of the tax deficiency, informed it of the proposed tax
deficiency assessment through a preliminary five-day letter and furnished Enron a
copy of the audit working paper allegedly showing in detail the legal and factual
bases of the assessment. The CIR argues that these steps sufficed to inform Enron of
the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment. These
steps were mere perfunctory discharges of the CIR's duties in correctly assessing a
taxpayer. The requirement for issuing a preliminary or final notice, as the case may
be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the
CIR issued an advice, a preliminary letter during the pre-assessment stage and a final
notice, in the order required by law, does not necessarily mean that Enron was
informed of the law and facts on which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99
would be rendered nugatory. The alleged "factual bases" in the advice, preliminary
letter and "audit working papers" did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must now
be informed not only of the law but also of the facts on which the assessment is
made. Such amendment is in keeping with the constitutional principle that no '
person shall be deprived of property without due process. In view of the absence of a
fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void.....
xxx
Applying the aforequoted rulings to the case at bar, it is clear that the assailed
deficiency tax assessment for the EWT in 1994 disregarded the provisions of Section
228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue Regulations
No. 12-99 by not providing the legal and factual bases of« the assessment. Hence,
the formal letter of demand and the notice of assessment issued relative thereto are
void.
[Emphasis Supplied]
Nevertheless, the requirement of providing the taxpayer with written notice of the
facts and law used as basis for the assessment is not to be mechanically. applied.
Emphasis on the purpose of the written notice is important. The requirement should
be in place so that the taxpayer could be adequately informed of the basis of the
assessment enabling him to prepare an intelligent protest or appeal of the assessment
or decision. In Samar-I Electric Cooperative v. CIR,[20] the Court elaborated:
The above information provided to petitioner enabled it to protest the PAN by
questioning respondent's interpretation of the laws cited as legal basis for the
computation of the deficiency withholding taxes and assessment of minimum
corporate income tax despite petitioner's position that it remains exempt therefrom.
11
In its letter-reply dated May 27, 2002, respondent answered the arguments raised by tax deficiency did not comply with the requirement in Section 3.1.6 of RR No. 12-
petitioner in its protest, and requested it to pay the assessed deficiency on the date of 99, as amended, for failure to inform Liquigaz of the factual basis thereof.
payment stated in the PAN. A second protest letter dated June 23, 2002 was sent by
petitioner, to which respondent replied (letter dated July 8, 2002) answering each of The CIR erred in claiming that Liquigaz was informed of the factual bases of the
the. two issues reiterated by petitioner: (1) validity of EO 93 withdrawing the tax assessment because the FDDA made reference to the PAN and FAN/FLD, which
exemption privileges under PD 269; and (2) retroactive application of RR No. 8- were accompanied by details of the alleged discrepancies. The CTA En
2000. The FAN was finally received by petitioner on September 24, 2002, and Banc highlighted that the amounts in the FAN and the FDDA were different. As
protested by it in a letter dated October 14, 2002 which reiterated in lengthy pointed out by the CTA, the FLD/FAN and the FDDA reflected the following
arguments its earlier interpretation of the laws and regulations upon which the amounts:[21]
assessments were based.
Basic Expanded Withholding
Fringe
Although the FAN and demand letter issued to petitioner were not accompanied by a Deficiency Withholding Tax on Total
Benefits Tax
written explanation of the legal and factual bases of the deficiency taxes assessed Tax Tax Compensation
against the petitioner, the records showed that respondent in its letter dated April 10, Per FLD P3,675,048.78 P2,981,841.84 P9,501,564-07 P16,158,454.72
2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length Per FDDA P1,823,782.67 P2,366,836.98 P7,572,236.16 P11,762,855.81
the factual and legal bases of the deficiency tax assessments and denying the protest. Difference P1,851,266.11 P615,004.80 P1,929,327.91 P4,395,598.91

Considering the foregoing exchange of correspondence and documents between the

parties, we find that the requirement of Section 228 was substantially complied with.
Respondent had fully informed petitioner in writing of the factual and legal bases of
the deficiency taxes assessment, which enabled the latter to file an "effective"
protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due
process was thus not violated.
Thus, substantial compliance with the requirement under Section 228 of the NIRC is
permissible, provided that the taxpayer would be eventually apprised in writing of
the factual and legal bases of the assessment to allow him to file an effective protest
against.
The above-cited cases refer to the compliance of the FAN/FLD of the due process
requirement embodied in Section 228 of the NIRC and RR No. 12-99. These may
likewise applied to the FDDA, which is similarly required to include a written notice
of the factual and legal bases thereof. Without sounding repetitious, it is important to
note that Section 228 of the NIRC did not limit the requirement of stating the facts
and law only to the FAN/FLD. On the other hand, RR No. 12-99 detailed the process
of assessment and required that both the FAN/FLD and the FDDA state the law and
facts on which it is based.
Guided by the foregoing, the Court now turns to the FDDA in issue.
As such, the Court agrees with the tax court that it becomes even more imperative
that the FDDA contain details of the discrepancy. Failure to do so would deprive
Liquigaz adequate opportunity to prepare an intelligent appeal. It would have no way
of determining what were considered by the CIR in the: defenses it had raised in the
protest to the FLD. Further, without the details of the assessment, it would open the
possibility that the reduction of the assessment could have been arbitrarily or
capriciously arrived at.
The Court, however, finds that the CTA erred in concluding that the assessment on
EWT and FBT deficiency was void because the FDDA covering the same was void.
The assessment remains valid notwithstanding the nullity of the FDDA because as
discussed above, the assessment itself differs from a decision on the disputed
assessment.
As established, an FDDA that does not inform the taxpayer in writing of the facts
and law on which it is based renders the decision void. Therefore, it is as if there was
no decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR,
which may still be appealed before the CTA and the assessment evaluated on the
basis of the available evidence and documents. The merits of the EWT and FBT
assessment should have been discussed and not merely brushed aside on account of
the void FDDA.

It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any On the other hand, the Court agrees that the FDDA substantially informed Liquigaz
details on the specific transactions which gave rise to its supposed tax deficiencies. of its tax liabilities with regard to its WTC assessment. As highlighted by the CTA,
While it provided for the legal bases of the assessment, it fell short of informing the basis for the assessment was the same for the FLD and the FDDA, where the
Liquigaz of the factual bases thereof. Thus, the FDDA as regards the EWT and FBT salaries reflected in the ITR and the alphalist were compared resulting in a

12
discrepancy of P9,318,255.84. The change in the amount of assessed deficiency
withholding taxes on compensation merely arose from the modification of the tax
rates used— 32% in the FLD and the effective tax rate of 25.40% in the FDDA. The
Court notes it was Liquigaz itself which proposed the rate of 25.40% as a more
appropriate tax rate as it represented the effective tax on compensation paid for
taxable year 2005.[22] As such, Liquigaz was effectively informed in writing of the
factual bases of its assessment for WTC because the basis for the FDDA, with
regards to the WTC, was identical with the FAN— which had a detail of discrepancy
attached to it.

Further, the Court sees no reason to reverse the decision of the CTA as to the amount
of WTC liability of Liquigaz. It is a time-honored doctrine that the findings and
conclusions of the CTA are accorded the highest respect and will not be lightly set
aside because by the very nature of the CTA, it is dedicated exclusively to the
resolution of tax problems and has accordingly developed an expertise on the
subject.[23] The issue of Liquigaz' WTC liability had been thoroughly discussed in the
courts a quo and even the court-appointed independent accountant had found that
Liquigaz was unable to substantiate its claim concerning the discrepancies in its
WTC.

To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA

to state the facts and law on which it is based renders the decision void—but not
necessarily the assessment. Tax laws may not be extended by implication beyond the
clear import of their language, nor their operation enlarged so as to embrace matters
not specifically provided.[24]

WHEREFORE, the May 22, 2014 Decision and the November 26, 2014 Resolution
of the Court of Tax Appeals En Banc are PARTIALLY AFFIRMED in that the
assessment on deficiency Withholding Tax in Compensation is upheld.

The case is REMANDED to the Court of Tax Appeals for the assessment on
deficiency Expanded Withholding Tax and Fringe Benefits Tax.

SO ORDERED.

13
 G.R. No. 212825, December 07, 2015
Revenue
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEXT MOBILE, September January
Third Waiver January 18, 2005 District
INC. (FORMERLY NEXTEL COMMUNICATIONS PHILS., 30, 2005 12,2005
Officer
INC.), Respondent.
DECISION
Revenue
VELASCO JR., J.: Fourth September
None May 3, 2005 District
This is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse Waiver 30, 2005
Officer
and set aside the Decision of the Court of Tax Appeals En Banc affirming the earlier
decision of its First Division in CTA Case No. 7965, cancelling and withdrawing Revenue
petitioner's formal letter of demand and assessment notices to respondent for having October 31, March 17,
Fifth Waiver May 3, 2005 District
been issued beyond the prescriptive period provided by law. 2005 2005
Officer
The Facts
On September 26, 2005, respondent received from the BIR a Preliminary
On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Assessment Notice dated September 16, 2005 to which it filed a Reply.
Annual Income Tax Return (ITR) for taxable year ending December 31, 2001.
Respondent also filed its Monthly Remittance Returns of Final Income Taxes On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and
Withheld (BIR Form No. 1601-F), its Monthly Remittance Returns of Expanded Assessment Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR,
Withholding Tax (BIR Form No. 1501-E) and its Monthly Remittance Return of demanding payment of deficiency income tax, final withholding tax (FWT),
Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for year ending expanded withholding tax (EWT), increments for late remittance of taxes withheld,
December 31, 2001. and compromise penalty for failure to file returns/late filing/late remittance of taxes
withheld, in the total amount of P313,339,610.42 for the taxable year ending
On September 25, 2003, respondent received a copy of the Letter of Authority dated December 31, 2001.
September 8, 2003 signed by Regional Director Nestor S. Valeroso authorizing
Revenue Officer Nenita L. Crespo of Revenue District Office 43 to examine On November 23, 2005, respondent filed its protest against the FLD and requested
respondent's books of accounts and other accounting records for income and the reinvestigation of the assessments. On July 28, 2009, respondent received a letter
withholding taxes for the period covering January 1, 2001 to December 31, 2001. from the BIR denying its protest. Thus, on August 27, 2009, respondent filed a
Petition for Review before the CTA docketed as CTA Case No. 7965.
Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently Ruling of the CTA Former First Division
executed several waivers of the statute of limitations to extend the prescriptive
period of assessment for taxes due in taxable year ending December 31, 2001 On December 11, 2012, the former First Division of the CTA (CTA First Division)
(Waivers), the details of which are summarized as follows: rendered a Decision granting respondent's Petition for Review and declared the FLD
dated October 17, 2005 and Assessment Notices/Demand No. 43-734 dated October
Extended 17, 2005 cancelled and withdrawn for being issued beyond the three-year
Date of Date of BIR
Waiver Date of prescriptive period provided by law.
Execution Acknowledgment Signatory
Prescription
It was held that based on the date of filing of respondent's Annual ITR as well as the
Revenue
March 30, August 26, dates of filing of its monthly BIR Form Nos. 1601-F, 1601-E and 1601-C, it is clear
First Waiver August 30, 2004 District
2005 2004 that the adverted FLD and the Final Assessment Notices both dated October 17,
Officer
2005 were issued beyond the three-year prescriptive period provided under Section
203 ot the 1997 National Internal Revenue Code (NIRC), as amended.
Revenue
Second June 30, October 22,
October 22, 2004 District
Waiver 2005 2004 The tax court also rejected petitioner's claim that this case falls under the exception
Officer
as to the three-year prescriptive period for assessment and that the 10-year
prescriptive period should apply on the ground of filing a false or fraudulent return.
14
Under Section 222(a) of the 1997 NIRC, as amended, in case a taxpayer filed a false
or fraudulent return, the Commissioner of Internal Revenue (CIR) may assess a
taxpayer for deficiency tax within ten (10) years after the discovery of the falsity or
the fraud. The tax court explained that petitioner failed to substantiate its allegation
by clear and convincing proof that respondent filed a false or fraudulent return.
Furthermore, the CTA First Division held that the Waivers executed by Sarmiento
did not validly extend the three-year prescriptive period to assess respondent for
deficiency income tax, FWT, EWT, increments for late remittance of tax withheld
and compromise penalty, for, as found, the Waivers were not properly executed
according to the procedure in Revenue Memorandum Order No. 20-90 (RMO 20-
90)1 and Revenue Delegation Authority Order No. 05-01 (RDAO 05-01).2
The tax court declared that, in this case, the Waivers have no binding effect on
respondent for the following reasons:chanRoblesvirtualLawlibrary
First, Sarmiento signed the Waivers without any notarized written authority from
respondent's Board of Directors. Petitioner's witness explicitly admitted that he did
not require Sarmiento to present any notarized written authority from the Board of
Directors of respondent, authorizing her to sign the Waivers. Petitioner's witness also
confirmed that Revenue District Officer Raul Vicente L. Recto (RDO Recto)
accepted the Waivers as submitted.
Second, even assuming that Sarmiento had the necessary board authority, the
Waivers are still invalid as the respective dates of their acceptance by RDO Recto
are not indicated therein.
Third, records of this case reveal additional irregularities in the subject Waivers:
(1) The fact of receipt by respondent of its copy of the Second Waiver was not
indicated on the face of the original Second Waiver;
(2) Respondent received its copy of the First and the Third Waivers on the same
day, May 23, 2005; and
(3) Respondent received its copy of the Fourth and the Fifth Waivers on the same
day, May 13, 2005.
Finally, the CTA held that estoppel does not apply in questioning the validity of a
waiver of the statute of limitations. It stated that the BIR cannot hide behind the
doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-
01.
Petitioner's Motion for Reconsideration was denied on March 14, 2013.
Petitioner filed a Petition for Review before the CTA En Banc.
On May 28, 2014, the CTA En Banc rendered a Decision denying the Petition for
Review and affirmed that of the former CTA First Division.
It held that the five (5) Waivers of the statute of limitations were not valid and
binding; thus, the three-year period of limitation within which to assess deficiency
taxes was not extended. It also held that the records belie the allegation that
respondent filed false and fraudulent tax returns; thus, the extension of the period of
limitation from three (3) to ten (10) years does not apply.
Issue
Petitioner has filed the instant petition on the issue of whether or not the CIR's right
to assess respondent's deficiency taxes had already prescribed.
Our Ruling
The petition has merit.
Section 2033 of the 1997 NIRC mandates the BIR to assess internal revenue taxes
within three years from the last day prescribed by law for the filing of the tax return
or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is not valid and
effective. Exceptions to this rule are provided under Section 222 4 of the NIRC.
Section 222(b) of the NIRC provides that the period to assess and collect taxes may
only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90 issued on April
4, 1990 and RDAO 05-015 issued on August 2, 2001 provide the procedure for the
proper execution of a waiver. RMO 20-90 reads:
April 4, 1990
REVENUE MEMORANDUM ORDER NO. 20-90
Subject: Proper Execution of the Waiver of the Statute of Limitations under the
National Internal Revenue Code
To: All Internal Revenue Officers and Others Concerned
Pursuant to Section 223 of the Tax Code, internal revenue taxes may be assessed or
collected after the ordinary prescriptive period, if before its expiration, both the
Commissioner and the taxpayer have agreed in writing to its assessment and/or
collection after said period. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period previously
agreed upon. This written agreement between the Commissioner and the taxpayer is
the so-called Waiver of the Statute of Limitations. In the execution of said waiver,
15
the following procedures should be followed:chanRoblesvirtualLawlibrary
1. The waiver must be in the form identified hereof. This form may be reproduced by
the Office concerned but there should be no deviation from such form. The phrase
"but not after ______ 19____" should be filled up. This indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect
the assessment/collection of the tax in addition to the ordinary prescriptive period.
2. The waiver shall 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.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal
Revenue .or the revenue official authorized by him, as hereinafter provided, shall
sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The
date of such acceptance by the Bureau should be indicated. 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.
3. The following revenue officials are authorized to sign the
waiver:chanRoblesvirtualLawlibrary
xxxx
4. The waiver must be executed in three (3) 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
shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found
not to have complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with.
This Revenue Memorandum Order shall take effect immediately.
(SGD.)JOSEU. ONG
Commissioner of Internal Revenue
The Court has consistently held that a waiver of the statute of limitations must
faithfully comply with the provisions of RMO No. 20-90 and RDAO 05-01 in order
to be valid and binding.
In Philippine Journalists, Inc. v. Commissioner of Internal Revenue6 the Court
declared the waiver executed by petitioner therein invalid because: (1) it did not
specify a definite agreed date between the BIR and petitioner within which the
former may assess and collect revenue taxes; (2) it was signed only by a revenue
district officer, not the Commissioner; (3) there was no date of acceptance; and (4)
petitioner was not furnished a copy of the waiver.
Philippine Journalists tells us that since a waiver of the statute of limitations is a
derogation of the taxpayer's right to security against prolonged and unscrupulous
investigations, waivers of this kind must be carefully and strictly
construed. Philippine Journalists also clarifies that a waiver of the statute of
limitations is not a waiver of the right to invoke the defense of prescription but rather
an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. It is not a unilateral
act by the taxpayer of the BIR but is a bilateral agreement between two parties.
In Commissioner of Internal Revenue v. FMF Development Corporation 7 the Court
found the waiver in question defective because: (1) it was not proved that respondent
therein was furnished a copy of the BIR-accepted waiver; (2) the waiver was signed
by a revenue district officer instead of the Commissioner as mandated by the NIRC
and RMO 20-90 considering that the case involved an amount of more than
P1,000,000.00, and the period to assess was not yet about to prescribe; and (3) it did
not contain the date of acceptance by the CIR. The Court explained that the date of
acceptance by the CIR is a requisite necessary to determine whether the waiver was
validly accepted before the expiration of the original period. 8
In CIR v. Kudos Metal Corporation,9 the waivers executed by Kudos were found
ineffective to extend the period to assess or collect taxes because: (1) the accountant
who executed the waivers had no notarized written board authority to sign the
waivers in behalf of respondent corporation; (2) there was no date of acceptance
indicated on the waivers; and (3) the fact of receipt by respondent of its file copy was
not indicated in the original copies of the waivers.
The Court rejected the CIR's argument that since it was the one who asked for
additional time, Kudos should be considered estopped from raising the defense of
prescription. The Court held that the BIR cannot hide behind the doctrine of estoppel
to cover its failure to comply with its RMO 20-90 and RDAO 05-01. Having caused
the defects in the waivers, the Court held that the BIR must bear the
consequence.10 Hence, the BIR assessments were found to be issued beyond the
three-year period and declared void.11 Further, the Court stressed that there is
compliance with RMO 20-90 only after the taxpayer receives a copy of the waiver
accepted by the BIR, viz:
The flaw in the appellate court's reasoning stems from its assumption that the waiver
is a unilateral act of the taxpayer when it is in fact and in law an agreement between
the taxpayer and the BIR. When the petitioner's comptroller signed the waiver on
16
September 22, 1997, it was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO No. 20-90 only after the
taxpayer received a copy of the waiver accepted by the BIR. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the
existence of the document but of the acceptance by the BIR and the perfection of the
agreement.12ChanRoblesVirtualawlibrary
The deficiencies of the Waivers in this case are the same as the defects of the waiver
in Kudos. In the instant case, the CTA found the Waivers because of the following
flaws: (1) they were executed without a notarized board authority; (2) the dates of
acceptance by the BIR were not indicated therein; and (3) the fact of receipt by
respondent of its copy of the Second Waiver was not indicated on the face of the
original Second Waiver.
To be sure, both parties in this case are at fault.
Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner.
However, her authority to sign these Waivers was not presented upon their
submission to the BIR. In fact, later on, her authority to sign was questioned by
respondent itself, the very same entity that caused her to sign such in the first place.
Thus, it is clear that respondent violated RMO No. 20-90 which states that in case of
a corporate taxpayer, the waiver must be signed by its responsible officials 13 and
RDAO 01-05 which requires the presentation of a written and notarized authority to
the BIR.14
Similarly, the BIR violated its own rules and was careless in performing its functions
with respect to these Waivers. It is very clear that under RDAO 05-01 it is the duty
of the authorized revenue official to ensure that the waiver is duly accomplished
and signed by the taxpayer or his authorized representative before affixing his
signature to signify acceptance of the same. It also instructs that in case the
authority is delegated by the taxpayer to a representative, the concerned
revenue official shall see to it that such delegation is in writing and duly
notarized. Furthermore, it mandates that the waiver should not be accepted by the
concerned BIR office and official unless duly notarized.15
Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for five
times, to perform its duties in relation thereto: to verify Ms. Sarmiento's authority to
execute them, demand the presentation of a notarized document evidencing the same,
refuse acceptance of the Waivers when no such document was presented, affix the
dates of its acceptance on each waiver, and indicate on the Second Waiver the date
of respondent's receipt thereof.
Both parties knew the infirmities of the Waivers yet they continued dealing with
each other on the strength of these documents without bothering to rectify these
infirmities. In fact, in its Letter Protest to the BIR, respondent did not even question
the validity of the Waivers or call attention to their alleged defects.
In this case, respondent, after deliberately executing defective waivers, raised the
very same deficiencies it caused to avoid the tax liability determined by the BIR
during the extended assessment period. It must be remembered that by virtue of these
Waivers, respondent was given the opportunity to gather and submit documents to
substantiate its claims before the CIR during investigation. It was able to postpone
the payment of taxes, as well as contest and negotiate the assessment against it. Yet,
after enjoying these benefits, respondent challenged the validity of the Waivers when
the consequences thereof were not in its favor. In other words, respondent's act of
impugning these Waivers after benefiting therefrom and allowing petitioner to rely
on the same is an act of bad faith.
On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in
place precisely because the BIR put them there. Yet, instead of strictly enforcing its
provisions, the BIR defied the mandates of its very own issuances. Verily, if the BIR
was truly determined to validly assess and collect taxes from respondent after the
prescriptive period, it should have been prudent enough to make sure that all the
requirements for the effectivity of the Waivers were followed not only by its revenue
officers but also by respondent. The BIR stood to lose millions of pesos in case the
Waivers were declared void, as they eventually were by the CTA, but it appears that
it was too negligent to even comply with its most basic requirements.
The BIR's negligence in this case is so gross that it amounts to malice and bad faith.
Without doubt, the BIR knew that waivers should conform strictly to RMO 20-90
and RDAO 05-01 in order to be valid. In fact, the mandatory nature of the
requirements, as ruled by this Court, has been recognized by the BIR itself in its
issuances such as Revenue Memorandum Circular No. 6-2005,16 among others.
Nevertheless, the BIR allowed respondent to submit, and it duly received, five
defective Waivers when it was its duty to exact compliance with RMO 20-90 and
RDAO 05-01 and follow the procedure dictated therein. It even openly admitted that
it did not require respondent to present any notarized authority to sign the questioned
Waivers.17 The BIR failed to demand respondent to follow the requirements for the
validity of the Waivers when it had the duty to do so, most especially because it had
the highest interest at stake. If it was serious in collecting taxes, the BIR should have
meticulously complied with the foregoing orders, leaving no stone unturned.
The general rule is that when a waiver does not comply with the requisites for its
validity specified under RMO No. 20-90 and RDAO 01-05, it is invalid and
ineffective to extend the prescriptive period to assess taxes. However, due to its
peculiar circumstances, We shall treat this case as an exception to this rule and find
the Waivers valid for the reasons discussed below.
First, the parties in this case are in pari delicto or "in equal fault." In pari
17
delicto connotes that the two parties to a controversy are equally culpable or guilty
and they shall have no action against each other. However, although the parties are in
pari delicto, the Court may interfere and grant relief at the suit of one of them, where
public policy requires its intervention, even though the result may be that a benefit
will be derived by one party who is in equal guilt with the other. 18
Here, to uphold the validity of the Waivers would be consistent with the public
policy embodied in the principle that taxes are the lifeblood of the government, and
their prompt and certain availability is an imperious need. 19 Taxes are the nation's
lifeblood through which government agencies continue to operate and which the
State discharges its functions for the welfare of its constituents.20 As between the
parties, it would be more equitable if petitioner's lapses were allowed to pass and
consequently uphold the Waivers in order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with
clean hands.21 Parties who do not come to court with clean hands cannot be allowed
to benefit from their own wrongdoing.22Following the foregoing principle,
respondent should not be allowed to benefit from the flaws in its own Waivers and
successfully insist on their invalidity in order to evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it
is true that the Court has repeatedly held that the doctrine of estoppel must be
sparingly applied as an exception to the statute of limitations for assessment of taxes,
the Court finds that the application of the doctrine is justified in this case. Verily, the
application of estoppel in this case would promote the administration of the law,
prevent injustice and avert the accomplishment of a wrong and undue advantage.
Respondent executed five Waivers and delivered them to petitioner, one after the
other. It allowed petitioner to rely on them and did not raise any objection against
their validity until petitioner assessed taxes and penalties against it. Moreover, the
application of estoppel is necessary to prevent the undue injury that the government
would suffer because of the cancellation of petitioner's assessment of respondent's
tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the
taxpayer, on the one hand, after voluntarily executing waivers, insisted on their
invalidity by raising the very same defects it caused. On the other hand, the BIR
miserably failed to exact from respondent compliance with its rules. The BIR's
negligence in the performance of its duties was so gross that it amounted to malice
and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to
the mistakes in the Waivers. Such a situation is dangerous and open to abuse by
unscrupulous taxpayers who intend to escape their responsibility to pay taxes by
mere expedient of hiding behind technicalities.
It is true that petitioner was also at fault here because it was careless in complying
with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless,
petitioner's negligence may be addressed by enforcing the provisions imposing
administrative liabilities upon the officers responsible for these errors. 23 The BIR's
right to assess and collect taxes should not be jeopardized merely because of the
mistakes and lapses of its officers, especially in cases like this where the taxpayer is
obviously in bad faith.24
As regards petitioner's claim that the 10-year period of limitation within which to
assess deficiency taxes provided in Section 222(a) of the 1997 NIRC is applicable in
this case as respondent allegedly filed false and fraudulent returns, there is no reason
to disturb the tax court's findings that records failed to establish, even by prima
facie evidence, that respondent Next Mobile filed false and fraudulent returns
on the ground of substantial underdeclaration of income in respondent Next
Mobile's Annual ITR for taxable year ending December 31, 2001.25cralawred
While the Court rules that the subject Waivers are valid, We, however, refer back to
the tax court the determination of the merits of respondent's petition seeking the
nullification of the BIR Formal Letter of Demand and Assessment Notices/Demand
No. 43-734.
WHEREFORE, premises considered, the Court resolves to GRANT the petition.
The Decision of the Court of Tax Appeals En Banc dated May 28, 2014 in CTA EB
Case No. 1001 is hereby REVERSED and SET ASIDE. Accordingly, let this case
be remanded to the Court of Tax Appeals for further proceedings in order to
determine and rule on the merits of respondent's petition seeking the nullification of
the BIR Formal Letter of Demand and Assessment Notices/Demand No. 43-734,
both dated October 17, 2005.
SO ORDERED.
18
 FIRST DIVISION
On 17 March 1992, petitioner was served with a Warrant of Distraint and/or Levy to
enforce collection of the deficiency income tax for the year 1987. Petitioner filed a
BARCELON, ROXAS G. R. No. 157064 formal protest, dated 25 March 1992, against the Warrant of Distraint and/or Levy,
SECURITIES, INC. (now known requesting for its cancellation. On 3 July 1998, petitioner received a letter dated 30
as UBP Securities, Inc.) P r ese n t: April 1998 from the respondent denying the protest with finality. [4]
Petitioner,
P ANG ANIB AN, C.J. , On 31 July 1998, petitioner filed a petition for review with the CTA. After
C ha ir ma n, due notice and hearing, the CTA rendered a decision in favor of petitioner on 17
YN AR ES - S ANT I AGO May 2000. The CTA ruled on the primary issue of prescription and found it
- versus - AU ST RI A - M ART IN E Z, unnecessary to decide the issues on the validity and propriety of the assessment. It
C ALLEJ O , S R ., a nd maintained that while a mailed letter is deemed received by the addressee in the
CH I C O - N AZAR IO , JJ . course of mail, this is merely a disputable presumption. It reasoned that the direct
denial of the petitioner shifts the burden of proof to the respondent that the mailed
COMMISSIONER OF Promulgated: letter was actually received by the petitioner. The CTA found the BIR records
INTERNAL REVENUE, submitted by the respondent immaterial, self-serving, and therefore insufficient to
Respondent. August 7, 2006 prove that the assessment notice was mailed and duly received by the
x--------------------------------------------------x petitioner.[5] The dispositive portion of this decision reads:

WHEREFORE, in view of the foregoing,

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
seeking to set aside the Decision of the Court of Appeals in CA-G.R. SP No. 60209
dated 11 July 2002,[1] ordering the petitioner to pay the Government the amount
of P826,698.31 as deficiency income tax for the year 1987 plus 25% surcharge and
20% interest per annum.The Court of Appeals, in its assailed Decision, reversed the
Decision of the Court of Tax Appeals (CTA) dated 17 May 2000[2] in C.T.A. Case
No. 5662.
Petitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.) is a
corporation engaged in the trading of securities. On 14 April 1988, petitioner filed its
Annual Income Tax Return for taxable year 1987. After an audit investigation
conducted by the Bureau of Internal Revenue (BIR), respondent Commissioner of
Internal Revenue (CIR) issued an assessment for deficiency income tax in the
amount of P826,698.31 arising from the disallowance of the item on salaries,
bonuses and allowances in the amount of P1,219,093,93 as part of the deductible
business expense since petitioner failed to subject the salaries, bonuses and
allowances to withholding taxes. This assessment was covered by Formal
Assessment Notice No. FAN-1-87-91-000649 dated 1 February 1991, which,
respondent alleges, was sent to petitioner through registered mail on 6 February
1991.However, petitioner denies receiving the formal assessment notice. [3]
the 1988 deficiency tax assessment against petitioner is hereby
CANCELLED. Respondent is hereby ORDERED TO DESIST
from collecting said deficiency tax. No pronouncement as to
costs.[6]
On 6 June 2000, respondent moved for reconsideration of the aforesaid
decision but was denied by the CTA in a Resolution dated 25 July 2000. Thereafter,
respondent appealed to the Court of Appeals on 31 August 2001. In reversing the
CTA decision, the Court of Appeals found the evidence presented by the respondent
to be sufficient proof that the tax assessment notice was mailed to
the petitioner, therefore the legal presumption that it was received should
apply.[7] Thus, the Court of Appeals ruled that:
WHEREFORE, the petition is hereby
GRANTED. The decision dated May 17, 2000 as well as
the Resolution dated July 25, 2000 are hereby
REVERSED and SET ASIDE, and a new on entered
ordering the respondent to pay the amount
of P826,698.31 as deficiency income tax for the year
1987 plus 25% surcharge and 20% interest per annum
from February 6, 1991 until fully paid pursuant to
Sections 248 and 249 of the Tax Code.[8]

19
 Petitioner moved for reconsideration of the said decision but the same was
denied by the Court of Appeals in its assailed Resolution dated 30 January 2003.[9]
Hence, this Petition for Review on Certiorari raising the following issues:
I CTA.
W HET HE R O R NOT LE G AL B AS ES E XIST F O R
T HE CO U RT OF AP P E ALS FI NDI NG T H AT T HE
CO U RT O F T AX AP P E ALS C OMMIT T ED G RO S S
ER R O R IN T HE AP P R E CI AT I O N OF F ACT S .
II
WHETHER OR NOT THE COURT OF APPEALS WAS
CORRECT IN REVERSING THE SUBJECT DECISION OF
THE COURT OF TAX APPEALS.
III
WHETHER OR NOT THE RIGHT OF THE BUREAU OF
INTERNAL REVENUE TO ASSESS PETITIONER FOR
ALLEGED DEFICIENCY INCOME TAX FOR 1987 HAS
PRESCRIBED.
IV
WHETHER OR NOT THE RIGHT OF THE BUREAU OF
INTERNAL REVENUE TO COLLECT THE SUBJECT
ALLEGED DEFICIENCY INCOME TAX FOR 1987 HAS
PRESCRIBED.
V was mailed. Once these facts are proved, the
WHETHER OR NOT PETITIONER IS LIABLE FOR THE
ALLEGED DEFICIENCY INCOME TAX ASSESSMENT FOR
1987.
VI
WHETHER OR NOT THE SUBJECT ASSESSMENT IS
VIOLATIVE OF THE RIGHT OF PETITIONER TO DUE
PROCESS.[10]
This Court finds the instant Petition meritorious.
The core issue in this case is whether or not respondents right to assess
petitioners alleged deficiency income tax is barred by prescription, the resolution of
which depends on reviewing the findings of fact of the Court of Appeals and the
While the general rule is that factual findings of the Court of Appeals are
binding on this Court, there are, however, recognized exceptions [11] thereto, such as
when the findings are contrary to those of the trial court or, in this case, the CTA. [12]
In its Decision, the CTA resolved the issues raised by the parties thus:
Jurisprudence is replete with cases holding that if the
taxpayer denies ever having received an assessment from the BIR,
it is incumbent upon the latter to prove by competent evidence that
such notice was indeed received by the addressee. The onus
probandi was shifted to respondent to prove by contrary evidence
that the Petitioner received the assessment in the due course of
mail. The Supreme Court has consistently held that while a mailed
letter is deemed received by the addressee in the course of mail,
this is merely a disputable presumption subject
to controversion and a direct denial thereof shifts the burden to the
party favored by the presumption to prove that the mailed letter
was indeed received by the addressee (Republic vs. Court of
Appeals, 149 SCRA 351). Thus as held by the Supreme Court
in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13
SCRA 104, January 30, 1965:
The facts to be proved to raise this
presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it
presumption is that the letter was received by the
addressee as soon as it could have been
transmitted to him in the ordinary course of the
mail. But if one of the said facts fails to appear,
the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57
citing Enriquez vs. Sunlife Assurance of Canada,
41 Phil 269).
In the instant case, Respondent utterly failed to discharge
this duty. No substantial evidence was ever presented to prove that
20
the assessment notice No. FAN-1-87-91-000649 or other supposed
notices subsequent thereto were in fact issued or sent to the
taxpayer. As a matter of fact, it only submitted the BIR record
book which allegedly contains the list of taxpayers names, the
reference number, the year, the nature of tax, the city/municipality
and the amount (see Exh. 5-a for the Respondent). Purportedly,
Respondent intended to show to this Court that all assessments
made are entered into a record book in chronological order
outlining the details of the assessment and the taxpayer liable
thereon. However, as can be gleaned from the face of the exhibit,
all entries thereon appears to be immaterial and impertinent in
proving that the assessment notice was mailed and duly received
by Petitioner. Nothing indicates therein all essential facts that
could sustain the burden of proof being shifted to the Respondent.
What is essential to prove the fact of mailing is the registry receipt
issued by the Bureau of Posts or the Registry return card which
would have been signed by the Petitioner or its
authorized representative. And if said documents cannot be
located, Respondent at the very least, should have submitted to the
Court a certification issued by the Bureau of Posts and any other
pertinent document which is executed with the intervention of the
Bureau of Posts. This Court does not put much credence to the self
serving documentations made by the BIR personnel especially if
they are unsupported by substantial evidence establishing the fact
of mailing. Thus:
While we have held that an assessment
is made when sent within the prescribed period,
even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-
12250 and L-12259, May 27, 1959), this ruling
makes it the more imperative that the release,
mailing or sending of the notice be clearly and
satisfactorily proved. Mere notations made
without the taxpayers intervention, notice or
control, without adequate supporting evidence
cannot suffice; otherwise, the taxpayer would be
at the mercy of the revenue offices, without
adequate protection or defense. (Nava vs. CIR,
13 SCRA 104, January 30, 1965).
xxxx
The failure of the respondent to prove receipt of the
assessment by the Petitioner leads to the conclusion that no
assessment was issued. Consequently, the governments right to
issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc.
vs. CIR CTA Case 4885, August 22, 1996).[13]
Jurisprudence has consistently shown that this Court accords the findings of
fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals[14] this Court recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the consideration of tax problems,
has necessarily developed an expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident exercise of authority. Such
findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the Tax
Court.[15] In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.
Under Section 203[16] of the National Internal Revenue Code (NIRC),
respondent had three (3) years from the last day for the filing of the return to send an
assessment notice to petitioner. In the case of Collector of Internal Revenue v.
Bautista,[17] this Court held that an assessment is made within the prescriptive period
if notice to this effect is released, mailed or sent by the CIR to the taxpayer within
said period. Receipt thereof by the taxpayer within the prescriptive period is not
necessary. At this point, it should be clarified that the rule does not dispense with the
requirement that the taxpayer should actually receive, even beyond the prescriptive
period, the assessment notice which was timely released, mailed and sent.
In the present case, records show that petitioner filed its Annual Income Tax
Return for taxable year 1987 on 14 April 1988.[18] The last day for filing by
petitioner of its return was on 15 April 1988,[19] thus, giving respondent until 15
April 1991 within which to send an assessment notice. While respondent avers that it
sent the assessment notice dated 1 February 1991 on 6 February 1991, within the
three (3)-year period prescribed by law, petitioner denies having received an
assessment notice from respondent. Petitioner alleges that it came to know of the
deficiency tax assessment only on 17 March 1992 when it was served with the
Warrant of Distraint and Levy.[20]
In Protectors Services, Inc. v. Court of Appeals,[21] this Court ruled that
when a mail matter is sent by registered mail, there exists a presumption, set forth
under Section 3(v), Rule 131 of the Rules of Court, [22] that it was received in the
regular course of mail. The facts to be proved in order to raise this presumption are:
(a) that the letter was properly addressed with postage prepaid; and (b) that it was
21
mailed. While a mailed letter is deemed received by the addressee in the ordinary
course of mail, this is still merely a disputable presumption subject to controversion,
and a direct denial of the receipt thereof shifts the burden upon the party favored by
the presumption to prove that the mailed letter was indeed received by the
addressee.[23]
In the present case, petitioner denies receiving the assessment notice, and
the respondent was unable to present substantial evidence that such notice was,
indeed, mailed or sent by the respondent before the BIRs right to assess had
prescribed and that said notice was received by the petitioner. The respondent
presented the BIR record book where the name of the taxpayer, the kind of tax
assessed, the registry receipt number and the date of mailing were noted. The BIR
records custodian, Ingrid Versola, also testified that she made the entries
therein. Respondent offered the entry in the BIR record book and the testimony of its
record custodian as entries in official records in accordance with Section 44, Rule
130 of the Rules of Court,[24] which states that:
Section 44. Entries in official records. - Entries in official records
made in the performance of his duty by a public officer of
the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facie evidence of the facts
therein stated.
The foregoing rule on evidence, however, must be read in accordance with
this Courts pronouncement in Africa v. Caltex (Phil.), Inc.,[25] where it has been held
that an entrant must have personal knowledge of the facts stated by him or such facts
were acquired by him from reports made by persons under a legal duty to submit the
same.
There are three requisites for admissibility under the rule just
mentioned: (a) that the entry was made by a public officer, or by
another person specially enjoined by law to do so; (b) that it was
made by the public officer in the performance of his duties, or by
such other person in the performance of a duty specially enjoined
by law; and (c) that the public officer or other person had sufficient
knowledge of the facts by him stated, which must have been
acquired by him personally or through official information x x x.
In this case, the entries made by Ingrid Versola were not based on her
personal knowledge as she did not attest to the fact that she personally prepared and
mailed the assessment notice. Nor was it stated in the transcript of stenographic
notes[26] how and from whom she obtained the pertinent information. Moreover, she
did not attest to the fact that she acquired the reports from persons under a legal duty
to submit the same. Hence, Rule 130, Section 44 finds no application in the present
case. Thus, the evidence offered by respondent does not qualify as an exception to
the rule against hearsay evidence.
Furthermore, independent evidence, such as the registry receipt of the
assessment notice, or a certification from the Bureau of Posts, could have easily been
obtained. Yet respondent failed to present such evidence.
In the case of Nava v. Commissioner of Internal Revenue, [27] this Court
stressed on the importance of proving the release, mailing or sending of the notice.
While we have held that an assessment is made when sent within
the prescribed period, even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the
release, mailing, or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayers
intervention, notice, or control, without adequate supporting
evidence, cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or
defense.
In the present case, the evidence offered by the respondent fails to convince
this Court that Formal Assessment Notice No. FAN-1-87-91-000649 was released,
mailed, or sent before 15 April 1991, or before the lapse of the period of limitation
upon assessment and collection prescribed by Section 203 of the NIRC. Such
evidence, therefore, is insufficient to give rise to the presumption that the assessment
notice was received in the regular course of mail. Consequently, the right of the
government to assess and collect the alleged deficiency tax is barred by prescription.
IN VIEW OF THE FOREGOING, the instant Petition
is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No.
60209 dated 11 July 2002, is hereby REVERSED and SET ASIDE, and the
Decision of the Court of Tax Appeals in C.T.A. Case No. 5662, dated 17 May
2000, cancelling the 1988 Deficiency Tax Assessment
against Barcelon, Roxas Securitites, Inc. (now known as UPB Securities, Inc.) for
being barred by prescription, is hereby REINSTATED. No costs.
SO ORDERED.
22
 SECOND DIVISION
January 27, 2016
G.R. No. 208731
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner,
vs.
BUREAU OF INTERNAL REVENUE, COMMISSIONER OF INTERNAL
REVENUE, and REGIONAL DIRECTOR, REVENUE REGION No.
6, Respondents.
DECISION
CARPIO, J.:
The Case
G.R. No. 208731 is a petition for review1 assailing the Decision2 promulgated on 18
February 2013 as well as the Resolution3 promulgated on 23 July 2013 by the Court
of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 844. The CTA EB
affirmed the Decision dated 6 July 20114 and Resolution5 dated 13 October 2011 of
the Court of Tax Appeals' First Division (CTA 1st Division) in CTA Case No. 7880.
In its 6 July 2011 Decision, the CTA 1st Division ruled in favor of the Bureau of
Internal Revenue (BIR), Commissioner of Internal Revenue (CIR), and the Regional
Director of Revenue Region No. 6 (collectively, respondents) and against petitioner
Philippine Amusement and Gaming Corporation (PAGCOR). The CTA 1st Division
dismissed PAGCOR's petition for review seeking the cancellation of the Final
Assessment Notice (FAN) dated 14 January 2008 which respondents issued for
alleged deficiency fringe benefits tax in 2004. The CTA 1st Division ruled that
PAGCOR's petition was filed out of time.
The Facts
The CTA 1st Division recited the facts as follows:
[PAGCOR] claims that it is a duly organized government-owned and controlled
corporation existing under and by virtue of Presidential Decree No. 1869, as
amended, with business address at the 6th Floor, Hyatt Hotel and Casino, Pedro Gil
comer M.H. Del Pilar Streets, Malate, Manila. It was created to regulate, establish
and operate clubs and casinos for amusement and recreation, including sports
gaming pools, and such other forms of amusement and recreation.
Respondent [CIR], on the other hand, is the Head of the [BIR] with authority, among
others, to resolve protests on assessments issued by her office or her authorized
representatives. She holds office at the BIR National Office Building, Agham Road,
Diliman, Quezon City.
[PAGCOR] provides a car plan program to its qualified officers under which sixty
percent (60%) of the car plan availment is shouldered by PAGCOR and the
remaining forty percent (40%) for the account of the officer, payable in five (5)
years.
On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated September
28, 2007 from BIR Regional Director Alfredo Misajon [RD Misajon] of Revenue
Region 6, Revenue District No. 33, for an informal conference to discuss the result
of its investigation on [PAGCOR's] internal revenue taxes in 2004. The Post
Reporting Notice shows that [PAGCOR] has deficiencies on Value Added Tax
(VAT), Withholding Tax on VAT (WTV), Expanded Withholding Tax (EWT), and
Fringe Benefits Tax (FBI).
Subsequently, the BIR abandoned the claim for deficiency assessments on VAT,
WTV and EWT in the Letter to [PAGCOR] dated November 23, 2007 in view of the
principles laid down in Commissioner of Internal Revenue vs. Acesite Hotel
Corporation [G.R. No. 147295] exempting [PAGCOR] and its contractors from
VAT. However, the assessment on deficiency FBT subsists and remains due to date.
On January 17, 2008, [PAGCOR] received a Final Assessment Notice [FAN] dated
January 14, 2008, with demand for payment of deficiency FBT for taxable year 2004
in the amount of P48,589,507.65.
On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to [RD
Misajon] of Revenue Region No. 6 of the BIR.
On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter
dated August 13, 2008, there being no action taken thereon as of that date.
In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR]
was informed that the Legal Division of Revenue Region No. 6 sustained Revenue
Officer Ma. Elena Llantada on the imposition of FBT against it based on the
provisions of Revenue Regulations (RR) No. 3-98 and that its protest was forwarded
to the Assessment Division for further action.
On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional
Director, Revenue Region No. 6 (Manila), stating that its letter protest was referred
to Revenue District Office No. 33 for appropriate action.
On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging
respondents' inaction in its protest on the disputed deficiency FBT. 6
The CTA 1st Division's Ruling
The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled in
favor of respondents. The CTA 1st Division ruled that RD Misajon's issuance of the
FAN was a valid delegation of authority, and PAGCOR's administrative protest was
validly and seasonably filed on 24 January 2008. The petition for review filed with
the CTA 1st Division, however, was filed out of time. The CTA 1st Division stated:
As earlier stated, [PAGCOR] timely filed its administrative protest on January 24,
2008. In accordance with Section 228 of the Tax Code, respondent CIR or her duly
authorized representative had 180 days or until July 22, 2008 to act on the protest.
After the expiration of the 180-day period without action on the protest, as in the
instant case, the taxpayer, specifically [PAGCOR], had 30 days or until August 21,
2008 to assail the non-determination of its protest.
Clearly, the conclusion that the instant Petition for Review was filed beyond the
reglementary period for appeal on March 11, 2009, effectively depriving the Court of
jurisdiction over the petition, is inescapable.
And as provided in Section 228 of the NIRC, the failure of [PAGCOR] to appeal
from an assessment on time rendered the same final, executory and demandable.
Consequently, [PAGCOR] is already precluded from disputing the correctness of the
assessment. The failure to comply with the 30-day statutory period would bar the
23
appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and
determine the correctness of the assessment.
Even assuming in gratia argumenti that the [CTA] has jurisdiction over the case as
claimed by [PAGCOR], the petition must still fail on the ground that [PAGCOR] is
not exempt from payment of the assessed FBT under its charter.
xxxx
Since the car plan provided by [PAGCOR] partakes of the nature of a personal
expense attributable to its employees, it shall be treated as taxable fringe benefit of
its employees, whether or not the same is duly receipted in the name of the employer.
Therefore, [PAGCOR's] obligation as an agent of the government to withhold and
remit the final tax on the fringe benefit received by its employees is personal and
direct. The government's cause of action against [PAGCOR] is not for the collection
of income tax, for which [PAGCOR] is exempted, but for the enforcement of the
withholding provision of the 1997 NIRC, compliance of which is imposed on
[PAGCOR] as, the withholding agent, and not upon its employees. Consequently,
[PAGCOR's] non-compliance with said obligation to withhold makes it personally
liable for the tax arising from the breach of its legal duty.7
PAGCOR filed a motion for reconsideration, dated 26 July 2011, of the 6 July 2011
Decision of the CTA 1st Division. The CIR filed a comment,8 and asked that
PAGCOR be ordered to pay P48,589,507.65 representing deficiency fringe benefits
tax for taxable year 2004 plus 25% surcharge and 20% delinquency interest from late
payment beyond 15 February 2008 until fully paid, pursuant to Sections 248 and 249
of the National Internal Revenue Code (NIRC) of 1997.
In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011. 9 The letter
stated that PAGCOR should be subjected to the issuance of a Warrant of Distraint
and/or Levy and a Warrant of Garnishment because of its failure to pay its
outstanding delinquent account in the amount of P46,589,507.65, which included
surcharge and interest. Settlement of the tax liability is necessary to obviate the
issuance of a Warrant of Distraint and/or Levy and a Warrant of Garnishment.
Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an order
be issued directing respondents to hold in abeyance the execution of the Warrant of
Distraint and/or Levy and the Warrant of Garnishment, as well as to suspend the
collection of tax insofar as the 2004 assessment is concerned. PAGCOR also asked
for exemption from filing a bond or depositing the amount claimed by respondents. 10
PAGCOR filed a petition for review with urgent motion to suspend tax
collection11 with the CTA En Banc on 23 November 2011.
The CTA En Banc's Ruling
The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA
1st Division's Decision and Resolution. The CTA En Banc ruled that the protest filed
before the RD is a valid protest; hence, it was superfluous for PAGCOR to raise the
protest before the CIR. When PAGCOR filed its administrative protest on 24 January
2008, the CIR or her duly authorized representative had 180 days or until 22 July
2008 to act on the protest. After the expiration of the 180 days, PAGCOR had 30
days or until 21 August 2008 to assail before the CTA the non-determination of its
protest.
Moreover, Section 223 of the NIRC merely suspends the period within which the
BIR can make assessments on a certain taxpayer. A taxpayer's request for
reinvestigation only happens upon the BIR's issuance of an assessment within the
three-year prescriptive period. The reinvestigation of the assessment suspends the
prescriptive period for either a revised assessment or a retained assessment.
PAGCOR filed its Motion for Reconsideration on 22 March 2013, while respondents
filed their Comment/Opposition on 3 June 2013.
The CTA En Banc denied PAGCOR's motion in a Resolution12 dated 23 July 2013.
PAGCOR filed the present petition for review on 14 October 2013. Respondents
filed their comment through the Office of the Solicitor General on 20 March 2014.
On 23 April 2014, this Court required PAGCOR to file a reply to the comment
within 10 days from notice. This period expired on 26 June 2014. On 15 September
2014, this Court issued another resolution denying PAGCOR's petition for failure to
comply with its lawful order without any valid cause. On 31 October 2014,
PAGCOR filed a motion for reconsideration of the Court's 15 September 2014
Resolution. We granted PAGCOR's motion in a Resolution dated 10 December
2014.
The Issues
PAGCOR presented the following issues in its petition:
1. Whether or not the CTA En Banc gravely erred in affirming the CTA 1st
Division's Decision dismissing the Petition for Review for having been filed
out of time.
2. Whether or not the CTA En Banc seriously erred when it affirmed the
CTA 1st Division's failure to decide the case on substantive matters, i.e., the
full import of PAGCOR's tax exemption under its charter which necessarily
includes its exemption from the fringe benefits tax (FBT).
2.1 Assuming that PAGCOR is not exempt from the FBT, whether
or not the car plan extended to its officers inured to its benefit and
it is required or necessary in the conduct of its business.
2.2 Assuming that PAGCOR is subject to the alleged deficiency
FBT, whether or not it is only liable for the basic tax, i.e.,
excluding surcharge and interest.13
In their Comment,14 respondents argue that the CTA properly dismissed PAGCOR's
petition because it was filed beyond the periods provided by law.
The Court's Ruling
The petition has no merit. The CTA En Banc and 1st Division were correct in
dismissing PAGCOR's petition. However, as we shall explain below, the dismissal
should be on the ground of premature, rather than late, filing.
Timeliness of PAGCOR's Petition before the CTA
The CTA 1st Division and CTA En Banc both established that PAGCOR received a
FAN on 17 January 2008, filed its protest to the FAN addressed to RD Misajon on
24 January 2008, filed yet another protest addressed to the CIR on 14 August 2008,
24
and then filed a petition before the CTA on 11 March 2009. There was no action on
PAGCOR's protests filed on 24 January 2008 and 14 August 2008. PAGCOR would
like this Court to rule that its protest before the CIR starts a new period from which
to determine the last day to file its petition before the CTA.
The CIR, on the other hand, denied PAGCOR's claims of exemption with the
issuance of its 18 July 2011 letter. The letter asked PAGCOR to settle its obligation
of P46,589,507.65, which consisted of tax, surcharge and interest. PAGCOR's failure
to settle its obligation would result in the issuance of a Warrant of Distraint and/or
Levy and a Warrant of Garnishment.
The relevant portions of Section 228 of the NIRC of 1997 provide:
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: x x x.
xxxx
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 been submitted; otherwise, the assessment shall 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 thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty (180)-
day period; otherwise, the decision shall become final, executory and demandable.
Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above,
provides:
3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative
may protest administratively against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof.xx x.
xxxx
If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the assessment
shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days from the date of receipt of
the said decision, otherwise, the assessment shall become final, executory and
demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his
duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals
within thirty (30) days from date of receipt of the said decision, otherwise, the
assessment shall become final executory and demandable: Provided, however, that if
the taxpayer elevates his protest to the Commissioner within thirty (30) days from
date of receipt of the final decision of the Commissioner's duly authorized
representative, the latter's decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within one hundred eighty (180) days from date of submission, by
the taxpayer, of the required documents in support of his protest, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said
180-day period, otherwise the assessment shall become final, executory and
demandable.
Following the verba legis doctrine, the law must be applied exactly as worded since
it is clear, plain, and unequivocal.15 A textual reading of Section 3.1.5 gives a
protesting taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days
from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days from
receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest
within 180 days from submission of the required supporting documents,
then the taxpayer may appeal to the CTA within 30 days from the lapse of
the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's authorized
representative may be appealed to the CIR or the CTA. A whole or partial denial by
the CIR may be appealed to the CTA. The CIR or the CIR's authorized
representative's failure to act may be appealed to the CTA. There is no mention of an
appeal to the CIR from the failure to act by the CIR's authorized representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR
made separate and successive filings before the RD and the CIR before it filed its
petition with the CTA. We shall illustrate below how PAGCOR failed to follow the
clear directive of Section 228 and Section 3.1.5.
PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day period
prescribed in Section 228 and Section 3.1.5. The RD did not release any decision on
PAGCOR's protest; thus, PAGCOR was unable to make use of the first option as
described above to justify an appeal to the CTA. The effect of the lack of decision
from the RD is the same, whether we consider PAGCOR's April 2008 submission of
documents16 or not.
Under the third option described above, even if we grant leeway to PAGCOR and
consider its unspecified April 2008 submission, PAGCOR still should have waited
for the RD's decision until 27 October 2008, or 180 days from 30 April 2008.
PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008, to
25
file its petition before the CTA. PAGCOR, however, did not make use of the third
option. PAGCOR did not file a petition before the CTA on or before 26 November
2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or
partial denial of its protest before it filed an appeal before the CIR. PAGCOR
rendered the second option moot when it formulated its own rule and chose to ignore
the clear text of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on 13
August 2008 without any decision from the RD, then filed a petition before the CTA
on 11 March 2009. A textual reading of Section 228 and Section 3 .1.5 will readily
show that neither Section 228 nor Section 3 .1.5 provides for the remedy of an appeal
to the CIR in case of the RD's failure to act. The third option states that the remedy
for failure to act by the CIR or his authorized representative is to file an appeal to the
CTA within 30 days after the lapse of 180 days from the submission of the required
supporting documents. PAGCOR clearly failed to do this.1âwphi1
If we consider, for the sake of argument, PAGCOR's submission before the CIR as a
separate protest and not as an appeal, then such protest should be denied for having
been filed out of time. PAGCOR only had 30 days from 17 January 2008 within
which to file its protest. This period ended on 16 February 2008. PAGCOR filed its
submission before the CIR on 13 August 2008.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to
make use of any of the three options described above. A petition before the CTA
may only be made after a whole or partial denial of the protest by the CIR or
the CIR's authorized representative. When PAGCOR filed its petition before the
CTA on 11 March 2009, there was still no denial of PAGCOR's protest by either the
RD or the CIR. Therefore, under the first option, PAGCOR's petition before the CTA
had no cause of action because it was prematurely filed. The CIR made an
unequivocal denial of PAGCOR's protest only on 18 July 2011, when the CIR sought
to collect from PAGCOR the amount of P46,589,507.65. The CIR's denial further
puts PAGCOR in a bind, because it can no longer amend its petition before the
CTA.17
It thus follows that a complaint whose cause of action has not yet accrued cannot be
cured or remedied by an amended or supplemental pleading alleging the existence or
accrual of a cause of action while the case is pending. Such an action is prematurely
brought and is, therefore, a groundless suit, which should be dismissed by the court
upon proper motion seasonably filed by the defendant. The underlying reason for this
rule is that a person should not be summoned before the public tribunals to answer
for complaints which are [premature]. As this Court eloquently said in Surigao Mine
Exploration Co., Inc. v. Harris:
It is a rule of law to which there is, perhaps, no exception, either at law or in equity,
that to recover at all there must be some cause of action at the commencement of the
suit. As observed by counsel for appellees, there are reasons of public policy why
there should be no needless haste in bringing up litigation, and why people who are
in no default and against whom there is yet no cause of action should not be
summoned before the public tribunals to answer complaints which are groundless.
We say groundless because if the action is [premature], it should not be entertained,
and an action prematurely brought is a groundless suit.
It is true that an amended complaint and the answer thereto take the place of the
originals which are thereby regarded as abandoned (Reynes vs. Compañia General
de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916],
34 Phil. 428) and that "the complaint and answer having been superseded by the
amended complaint and answer thereto, and the answer to the original complaint not
having been presented in evidence as an exhibit, the trial court was not authorized to
take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil. 188.) But in none of
these cases or in any other case have we held that if a right of action did not exist
when the original complaint was filed, one could be created by filing an amended
complaint. In some jurisdictions in the United States what was termed an "imperfect
cause of action" could be perfected by suitable amendment (Brown vs. Galena
Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221)
and this is virtually permitted in Banzon and Rosaura vs. Sellner ([1933], 58 Phil.
453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil. 683); and recently
in Ramos vs. Gibbon (38 Off. Gaz. 241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental pleading be converted into a
cause of action: Nihil de re accrescit ei qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and
subsisting cause of action at the time his action is commenced, the defect cannot be
cured or remedied by the acquisition or accrual of one while the action is pending,
and a supplemental complaint or an amendment setting up such after-accrued cause
of action is not permissible. (Italics ours)18
PAGCOR has clearly failed to comply with the requisites in disputing an assessment
as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in
procedure have made the BIR's assessment final, executory and demandable, thus
obviating the need to further discuss the issue of the propriety of imposition of fringe
benefits tax.
WHEREFORE, we DENY the petition. The Decision promulgated on 18 February
2013 and the Resolution promulgated on 23 July 2013 by the Court of Tax Appeals -
En Banc in CTA EB No. 844 are AFFIRMED with the MODIFICATION that the
denial of Philippine Amusement and Gaming Corporation's petition is due to lack of
jurisdiction because of premature filing. We REMAND the case to the Court of Tax
Appeals for the determination of the final amount to be paid by PAGCOR after the
imposition of surcharge and delinquency interest.
SO ORDERED.
26
FIRST DIVISION Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice
of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year
FISHWEALTH CANNING G.R. No. 179343 1999,[4] which assessment petitioner contested by letter of September 23, 2003. [5]
CORPORATION,
Petitioner, Present: Respondent thereafter issued a Final Decision on Disputed Assessment dated
August 2, 2005, which petitioner received on August 4, 2005, denying its letter of
PUNO, C.J., Chairperson, protest, apprising it of its income tax and VAT liabilities in the amounts
CARPIO MORALES, of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year
LEONARDO-DE CASTRO, 1999,[6] and requesting the immediate payment thereof, inclusive of penalties incident
- versus - BERSAMIN, and to delinquency. Respondent added that if petitioner disagreed, it may appeal to the
VILLARAMA, JR., JJ. Court of Tax Appeals (CTA) within thirty (30) days from date of receipt hereof,
otherwise our said deficiency income and value-added taxes assessments shall
become final, executory, and demandable.[7]
Promulgated:
COMMISSIONER OF INTERNAL January 21, 2010 Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a
REVENUE, Letter of Reconsideration dated August 31, 2005.[8]
Respondent.
x--------------------------------------------------x By a Preliminary Collection Letter dated September 6, 2005, respondent
demanded payment of petitioners tax liabilities,[9] drawing petitioner to file
on October 20, 2005 a Petition for Review[10] before the CTA.

DECISION
CARPIO MORALES, J.:
The Commissioner of Internal Revenue (respondent), by Letter of Authority
dated May 16, 2000,[1] ordered the examination of the internal revenue taxes for the
taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation
disclosed that petitioner was liable in the amount of P2,395,826.88 representing
income tax, value added tax (VAT), withholding tax deficiencies and other
miscellaneous deficiencies. Petitioner eventually settled these obligations on August
30, 2000.[2]
In his Answer,[11] respondent argued, among other things, that the petition
was filed out of time which argument the First Division of the CTA upheld and
accordingly dismissed the petition.[12]
Petitioner filed a Motion for Reconsideration[13] which was denied.[14] The
Resolution denying its motion for reconsideration was received by petitioner
on October 31, 2006.[15]
On November 21, 2006, petitioner filed a petition for review before the CTA
En Banc[16] which, by Decision[17] of July 5, 2007, held that the petition before the
First Division, as well as that before it, was filed out of time.

On August 25, 2000, respondent reinvestigated petitioners books of accounts and
other records of internal revenue taxes covering the same period for the purpose of
which it issued a subpoena duces tecum requiring petitioner to submit its records and
books of accounts. Petitioner requested the cancellation of the subpoena on the
ground that the same set of documents had previously been examined.
Hence, the present petition,[18] petitioner arguing that the CTA En Banc erred
in holding that the petition it filed before the CTA First Division as well as that filed
before it (CTA En Banc) was filed out of time.
The petition is bereft of merit.

As petitioner did not heed the subpoena, respondent thereafter filed a
criminal complaint against petitioner for violation of Sections 5 (c) and 266 of the
1997 Internal Revenue Code, which complaint was dismissed for insufficiency of
evidence.[3]
Section 228 of the 1997 Tax Code provides that an assessment
x x x 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

27
 prescribed by implementing rules and regulations. Within sixty
(60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the
assessment shall 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 thirty (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. (underscoring supplied)

In the case at bar, petitioners administrative protest was denied by Final

Decision on Disputed Assessment dated August 2, 2005 issued by respondent and
which petitioner received on August 4, 2005. Under the above-quoted Section 228 of
the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its protest
to the CTA.

Since petitioner received the denial of its administrative protest on August 4,

2005, it had until September 3, 2005 to file a petition for review before the CTA
Division. It filed one, however, on October 20, 2005, hence, it was filed out of
time. For a motion for reconsideration of the denial of the administrative protest does
not toll the 30-day period to appeal to the CTA.

On petitioners final contention that it has a meritorious case in view of the

dismissal of the above-mentioned criminal case filed against it for violation of the
1997 Internal Revenue Code,[19] the same fails. For the criminal complaint was
instituted not to demand payment, but to penalize the taxpayer for violation of the Tax
Code.[20]
WHEREFORE, the petition is DISMISSED.

Costs against petitioner.

SO ORDERED.

28
 Republic of the Philippines Add: Surcharge 2,103,548.11 3,669,911.27
SUPREME COURT
Manila
8
FIRST DIVISION TOTAL P 10,517,740.57 P 18,349,556.33
G.R. No. 167134 March 18, 2015 =============== ===============
COMMISSIONER OF INTERNAL REVENUE, Petitioner, TRB Vice President Bayani R. Navarro (Navarro) wrote a letter dated January 7,
vs. 20009 protesting the foregoing assessments of the BIR on the following grounds:
TRADERS ROYAL BANK, Respondent. In response, we would like to point out that Special Savings Deposits being savings
DECISION deposit accounts are not subject to the documentary stamp tax. Likewise, Trust
LEONARDO-DE CASTRO, J.: Indenture Agreement[s] are not subject to documentary stamp tax for the reason that
Before this Court is a Petition for Review on Certiorari filed by petitioner relationship established between parties is that of the trustor and trustee, wherein the
Commissioner of Internal Revenue (CIR) assailing the Decision1 dated February 14, funds and/or properties of the trustor are given to the Trustee Bank not as a deposit
2005 of the Court of Tax: Appeals (CTA) en bane in C.T.A. EB No. 32, which but under a Common Trust Fund maintained and to be managed by the Trustee.
denied the CIR's appeal of the Decision2 dated April 28, 2004 and Resolution3 dated The same arguments are being invoked by other banks using similar instruments and
September 10, 2004 of the CT A Division in C.T.A. Case No. 6392. The CTA the imposition of the DST is considered as an industry problem and is being
Division cancelled the assessments issued by the CIR against respondent Traders contested by the entire banking community.
Royal Bank (TRB) for deficiency documentary stamp taxes (DST) on the latter's In his Decision dated December 20, 2001,10 the CIR denied the protest of TRB. The
Trust Indenture Agreements for taxable years 1996 and 1997, in the amounts of CIR adopted the position of the BIR examiners that the Special Savings Deposit
₱10,517,740.57and1!18,349,556.33, respectively. 4 should be deemed a time deposit account subject to DST under Section 180 of the
TRB is a domestic corporation duly registered with the Securities and Exchange Tax Code of 1977. The CIR reasoned:
Commission and authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in [T]his Office believes and so holds that the Special Savings Deposit and Time
commercial banking.5 On the strength of the Letter of Authority (L.A.) No. Deposit are just one and the same banking transaction. To evade payment of the
000018565 dated July 27, 1998, the Bureau of Internal Revenue (BIR) conducted an DST, efforts were made by banks to place a superficial distinction between the two
investigation concerning all national internal revenue tax liabilities of TRB for (2) deposit accounts by introducing an innovation using a regular passbook to
taxable years 1996-1997. Following the investigation, the BIR issued a Pre- document the Special Savings Deposit and by claiming that the said special deposit
Assessment Notice dated November 10, 1999 against TRB. Subsequently, the BIR has no specific maturity date. At first glance, the innovative scheme may have
issued a Formal Letter of Demand and Assessment Notice Nos. ST-DST-96-0234- accomplished in putting a semblance of difference between the aforesaid two (2)
996 and ST-DST-97-0233-99,7 all dated December 27, 1999, against TRB for deposit accounts, but an analytical look at the passbook issued clearly reveals that
deficiency DST for 1996 and 1997, in the total amount of ₱28,867,296.90, broken although it does not have the form of a certificate nor labelled as such, it has a fixed
down as follows: maturity date and for all intents and purposes, it has the same nature and substance as
DEFICIENCY DOCUMENTARY STAMP TAX a "certificate of deposit bearing interest." In fact, it could be said that the passbook is
Industry Issues on: 1996 1997 in itself a "certificate of deposit."11
As for the Trust Indenture Agreements, the CIR opined that they were but a form of
Special Savings Deposit ₱5,041,882,798.03 ₱9,579,733,184.65 deposit, likewise subject to DST. According to the CIR:
Trust Fund 567,500,927.00 55,783,860.92 In an earlier case involving the same industry issue, We ruled that the essential
features/characteristics of a Trust Agreement are as follows:
Mega Savings Deposit 77,911.32 150,872,997.87 A) The required minimum deposit is ₱50,000.00;
B) The shortest maturity date is 30 days;
C) It is not payable on sight or demand, in case of pretermination, prior
Total 5,609,461,636.35 9,786,390,043.44 written notice is required; D) It is automatically renewed in case the
Tax Rate .30/200 .30/200 depositor fails to withdraw the deposit at maturity date; E) The bank used
confirmation of participation to evidence the acceptance of the funds from
the trustor.
Basic 8,414,192.45 14,679,645.07
29
Based on the foregoing features, it is evident that the contention of the bank is
misplaced. Although the contract is termed as "trust agreement," it can be considered
as a misnomer because the relationship existing between the parties in the subject
contract is actually not a trustor-trustee relationship but that of a creditor-debtor
relationship, the same relationship governing deposits of money in banks.
xxxx
In the said contract of trust under the Civil Code, there is only an equitable transfer
of ownership by the trustor to the trustee, the trustor retains his legal title to the
subject property. On the other hand, in the bank’s "trust agreement," once the
specific funds or properties of the trustor are placed under the common trust fund,
there is a complete transfer of ownership from the trustor to the trustee-bank. It is
manifested by the fact that said funds or properties may be invested by the bank in
whatever manner it may deem necessary, the trustor has no control whatsoever over
his funds. Another point of distinction between the two contracts is that, in the
contract of trust every transaction involving the trust property must be entered into
by the trustee for the benefit of the trustor or his designated beneficiary; while in the
bank’s "trust agreement," all benefits from the transactions involving properties from
the common trust fund will be received solely by the trustee-bank, the trustor’s only
consolation is limited to receiving higher rate of interest from his property. In effect,
the subject "trust agreement" although termed as such is but a form of a deposit.
The fact that the subject trust agreement is evidenced by a "confirmation of
participation" and not by a certificate of deposit is immaterial. As discussed above,
what is important and controlling is the nature or meaning conveyed by the
document and not the particular label or nomenclature attached to it, inasmuch as its
substance is paramount than its form. Therefore, the examiners are correct in
imposing documentary stamp tax on the bank’s "trust agreements." 12
The CIR ruled in the end:
IN VIEW WHEREOF, this Office has resolved to DENY the protest of herein
protestant-bank. Assessment Notice Nos. ST-DST-96-0234-99 and ST-DST-97-
0233-99 demanding payment of the respective amounts of ₱10,517,740.57 and
₱18,349,556.33 as documentary stamp taxes for the taxable years 1996 and 1997 are
hereby AFFIRMED in all respects. Consequently, the protestant-bank is hereby
ordered to pay the above-stated amounts plus interest that may have accrued thereon
until actual payment, to the Collection Service, BIR National Office, Diliman,
Quezon City, within thirty (30) days from receipt hereof, otherwise, collection shall
be effected through the summary remedies provided by law.
This constitutes the final decision of this Office on the matter. 13
TRB filed a Petition for Review14 with the CTA, which was docketed as C.T.A. Case
No. 6392. The parties stipulated the following issues to be resolved by the CTA
Division:
A. Whether or not Special Saving Deposits and Mega Savings Deposits
[both are Special Savings Accounts (SSA)] are subject to documentary
stamp tax (DST) under Section 180 of the Tax Code.
B. Whether or not the ordinary saving account passbook issued by [TRB] x
x x can be considered a certificate of deposit subject to documentary stamp
tax (DST).
C. Whether or not the Trust Indenture Agreements are subject to
documentary stamp tax (DST) under Section 180 of the Tax Code. 15
On April 28, 2004, the CTA Division rendered a Decision, resolving the first two
issues in favor of the CIR and the last one in favor of TRB.
The CTA Division agreed with the CIR that the Special Savings Deposits and Time
Deposits were akin to each other in that the bank would acknowledge the receipt of
money on deposit which the bank promised to pay to the depositor, bearer, or to the
order of the bearer after a specified period of time. In both cases, the deposits could
be withdrawn anytime but the depositor would earn a lower rate of interest. The only
difference was the evidence of the deposits: a passbook for Special Savings Deposits
and a certificate of deposit for Time Deposits. Considering that the passbook and the
certificate of time deposit were evidence of transactions, then both should be subject
to DST, an excise tax on transactions.
The CTA Division, however, concurred with TRB that the Trust Indenture
Agreements were different from the certificate of deposit, thus:
A Trust Indenture Agreement has a different feature and concept from a certificate of
deposit. When a depositor enters into a trust agreement, what is created is a trustor-
trustee relationship. The money deposited is placed in trust to a common fund and
then invested by the Trust Department into a profitable venture. The yield or return
of investment is higher and varies depending on the actual profit earned. In some
trust agreements, a depositor may even get a negative return of investment. The fact
that there is an "expected rate of return" does not necessarily convert a trust
agreement into a time deposit. Under Section X407 of the Manual of Regulations for
Banks it is provided that "the basic characteristic of trust, other fiduciary and
investment management relationship is the absolute non-existence of a debtor-
creditor relationship, thus, there is no obligation on the part of the trustee, fiduciary
or investment manager to guarantee returns on the funds or properties regardless of
the results of the investment."16
The CTA Division ultimately decreed:
WHEREFORE, the assessments for deficiency documentary stamp taxes on trust
fund against [TRB] for taxable years 1996 and 1997 are hereby CANCELLED.
However, the assessments for deficiency documentary stamp taxes on special
savings deposit and mega savings deposit for same taxable years 1996 and 1997 are
hereby AFFIRMED.
ACCORDINGLY, [TRB] is ORDERED TO PAY the [CIR] the deficiency
documentary stamp taxes for the years 1996 and 1997 in the respective amounts of
₱9,453,676.33 and ₱18,244,886.69 (all inclusive of 25% surcharge) totaling
₱27,698,562.92 x x x.
xxxx
30
In addition, [TRB] is ORDERED TO PAY the [CIR] 20% delinquency interest on
₱27,698,562.92 computed from February 14, 2002 until fully paid pursuant to
Section 249 of the Tax Code, as amended.17
The parties each filed motions relative to the aforementioned judgment of the CTA
Division, to wit:
1. "Omnibus Motion for Substitution of Parties and Motion for
Reconsideration (Re: Decision dated April 28, 2004)"filed on May 28, 2004
by [TRB] seeking for the:
a. Substitution of parties from Traders Royal Bank to Bank of
Commerce;
b. Reconsideration and reversal of this court’s Decision
promulgated on April 28, 2004 finding [TRB] liable for deficiency
documentary stamp taxes for the taxable years 1996 and 1997 in
the amounts of ₱9,453,676.33 and ₱18,244,886.69, respectively
(all inclusive of the 25% surcharge), plus 20% delinquency interest
computed from February 14, 2002 until fully paid; and c.
Cancellation of the subject deficiency tax assessments.
2. "Motion for Partial Reconsideration" filed on May 24, 2004 by [CIR]
seeking for a partial reversal of this court’s Decision promulgated on April
28, 2004 with regard to the cancellation by this court of [CIR’s] assessment
for deficiency documentary stamp taxes on the trust fund against [TRB] for
the taxable years 1996 and 1997.18
The CTA Division issued a Resolution dated September 10, 2004 denying the
motions of the parties:
Based on the allegations of [TRB], the Purchase and Sale Agreement [between TRB
and the Bank of Commerce (BOC)] was executed on November 9, 2001. Upon the
execution of the said agreement, the BOC assumed the deposit liabilities of [TRB]
for the taxable years covering 1996 and 1997. However, it is noteworthy to
emphasize that the Petition for Review was filed by [TRB] only on February 15,
2002 after the alleged transfer of right happened. To adopt the view of [TRB] and
pursuant to the quoted Section 19,Rule 3 of the 1997 Rules of Court, it should have
been the BOC that should have filed the Petition for Review instead of [TRB]. Yet,
this was not the case. The petition was filed by petitioner Traders Royal Bank,
notwithstanding the alleged transfer of rights to Bank of Commerce prior to the
commencement of the action. Failure of[TRB] to show justifiable reasons for such
negligence and blunder, this court cannot then allow the substitution of parties.
xxxx
There being no other new issues raised by [TRB] which this court has not yet passed
upon in its Decision of April 28, 2004, this court hereby RESOLVES to
DENY[TRB’s] motion.
xxxx
Finding that the issue raised by the [CIR] had been thoroughly discussed in the
Decision of April 28, 2004, this court finds no compelling reason to modify or alter
the same and thereby RESOLVES to DENY [CIR’s] Motion for Partial
Reconsideration.
WHEREFORE, both motions are hereby DENIED for lack of merit. Accordingly,
this court’s Decision promulgated on April 28, 2004 is AFFIRMED in all respects. 19
The CIR and TRB filed with the CTA en banc separate Petitions for Review,
docketed as C.T.A. EB Nos. 32 and 34, respectively, partially appealing the Decision
dated April 28, 2004 and Resolution dated September 10, 2004 of the CTA Division.
The CTA en banc promulgated its Decision in C.T.A. EB No. 32 on February 14,
2005, dismissing the Petition of the CIR and affirming the cancellation by the CTA
Division of the assessments against TRB for DST on its Trust Indenture Agreements
for 1996 to 1997. According to the CTA en banc:
[A]n examination of the Petition for Review revealed that the issues raised therein by
the [CIR] have been discussed at length and directly ruled upon in the assailed
Decision and in the subsequent Resolution. The Court is not convinced by [CIR’s]
arguments on the assigned errors to justify a reversal of the questioned Decision.
The Manual for Regulations of Banks issued by the Central Bank of the Philippines
has defined the trust business as "xx x any activity resulting from a trustor-trustee
relationship (trusteeship) involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or properties of the trustor by the
trustee for use, benefit or advantage of the trustor or others called beneficiaries
(Sec.X403 [a])."
As correctly explained in the questioned Decision, "When a depositor enters into a
trust agreement, what is created is a trustor-trustee relationship. The money
deposited is placed in trust to a common fund and then invested by the Trust
Department into a profitable venture". [CIR’s] contention that there is a complete
transfer of ownership from the trustor to the trustee bank because the funds may be
invested by the bank in whatever manner it may deem necessary and the trustor
having no control whatsoever over his funds runs counter to[CIR’s] allegation in the
Petition that "A contract of trust under the Civil Code is defined as the legal
relationship between one person having an equitable ownership in property and
another person owning [the] legal title to such property, the equitable ownership of
the former entitling him to the performance of duties and the exercise of certain
powers by the latter." (citing Commentaries and Jurisprudence on the Civil Code of
the Philippines, Arturo Tolentino, Volume 4, p. 669). The [CIR], in effect, admits
that the trustee bank holds legal title over the funds (i.e., has legal ownership of the
funds), and is entitled to exercise certain powers such as the investment of the funds
in behalf of the trustor (which is the essence of the trust business).
[TRB] likewise correctly pointed out that the trust funds managed by its Trust
Department cannot be appropriately alleged as time deposits, because the acceptance
of deposits is beyond the realm of the business of the trust department of banks as
implied under Section X407 of the Manual of Regulations for Banks inasmuch as no
debtor-creditor relationship exists between the parties in the trust agreement.
The trust placement not being a time deposit, it cannot therefore be subject to
documentary stamp tax as a certificate of deposit.20
31
Hence, the dispositive portion of the Decision dated February 14, 2005 of the CTA
en banc in C.T.A. EB No. 32 reads:
WHEREFORE, finding that the Petition for Review is patently without merit, the
same is denied due course. Accordingly, the same is DISMISSED. 21
The CTA en banc, in a Decision dated April 26, 2005 in C.T.A. EB No.
34,22 similarly dismissed the Petition of TRB and upheld the ruling of the CTA
Division that TRB was liable for DST on its Special Savings Deposits for 1996 to
1997, plus surcharge and delinquency interest. The CTA en banc concluded:
For all intents and purposes, [TRB’s] Special Savings and Mega Savings Deposit are
deemed to be of the same nature and substance as a certificate of deposit bearing
interest. Therefore, We hold that said Special Savings and Mega Savings passbooks
are in themselves certificates of deposit, subject to documentary stamp tax in
accordance with Section 180, National Internal Revenue Code of 1993, as amended.
While the DST is levied on the document itself, it is not intended to be a tax on the
document alone. Rather, the DST is levied on the exercise of a privilege of
conducting a particular business or transaction through the execution of specific
instruments or documents (Phil. Home Assurance Corp. vs. Court of Appeals, 301
SCRA 435). Lastly, there is likewise no merit to [TRB’s] contention that the
Division erred in denying the "Motion for Substitution of Parties".
Generally, there is no need of a substitution or joinder of the transferee as a party-
litigant for after all even if the action is continued by or against the original party, the
judgment is binding on all the parties (original party, adverse party and transferee)
(Oria Hnos. v. Gutierrez Hnos., 52 Phil. 156; Correa v. Pascual, 99 Phil.
696;Bustamante v. Azarcon, L-8939, May 28, 1957). This is a settled rule in this
jurisdiction. Indeed, We may say that the transferee is a proper (or necessary) party,
but not an indispensable party to the original case (Fetalino v. Sanz, 44 Phil. 69).
xxxx
Accordingly, no error was committed by the Division when it denied the "Motion for
Substitution of Parties."23
Consequently, in its Decision dated April 26, 2005 in C.T.A. EB No. 34, the CTA en
banc adjudged:
All the foregoing considered, We see no reason to reverse the assailed Decision and
Resolution of the Division of this Court.
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE
COURSE, and accordingly, DISMISSED for lack of merit. 24
TRB filed a Motion for Reconsideration of the foregoing Decision, but said Motion
was denied by the CTA en banc in a Resolution dated June 10, 2005.
The CIR filed a Petition for Review before the Court, docketed as G.R. No. 167134,
assailing the Decision dated February 14, 2005 of the CTA en banc in C.T.A. EB
No. 32.
TRB initially filed a Motion for Extension of Time to File Petition for Review,
requesting an extension of 30 days (i.e., until August 1, 2005) within which to appeal
the Decision dated April 26, 2005 and Resolution dated June 10, 2005 of the CTA en
banc in C.T.A. EB No. 34. The Motion of TRB was docketed as G.R. No. 168491.
In a Resolution dated August 3, 2005, the Court consolidated the Petitions in G.R.
Nos. 167134 and 168491 considering that they "assail the same decision of the Court
of Tax Appeals, involve the same parties, and raise interrelated issues."
Eventually, the Court issued a Resolution dated June26, 2006, in which it resolved as
follows:
It appearing that [TRB] in G.R. No. 168491 failed to file a petition for review on
certiorari within the extended period which expired on August 1, 2005, the Court
further resolves to CONSIDER G.R. No. 168491 CLOSED and TERMINATED. 25
The Resolution dated June 26, 2006 of the Court in G.R. No. 168491 became final
and executory and Entry of Judgment was made in said case on August 24, 2006.
Presently pending resolution by the Court is the Petition for Review of the CIR in
G.R. No. 167134 which appealed the Decision dated February 14, 2005 of the CTA
en banc in C.T.A. EB No. 32 based on the lone assignment of error, viz:
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT A
TRUST INDENTURE AGREEMENT IS NOT A CERTIFICATE OF DEPOSIT,
HENCE, NOT SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION
180 OF THE TAX CODE.26
Section 180 of the National Internal Revenue Code (NIRC) of 1977, as amended by
Republic Act No. 7660 – in force in1996 and 1997 – imposed DST on the following
documents:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest and others not payable on
sight or demand. – On all loan agreements signed abroad wherein the object of the
contract is located or used in the Philippines; bills of exchange (between points
within the Philippines), drafts, instruments and securities issued by the Government
or any of its instrumentalities or certificates of deposits drawing interest, or orders
for the payment of any sum of money otherwise than at sight or on demand, or on all
promissory notes, whether negotiable or nonnegotiable, except bank notes issued for
circulation, and on each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or
fractional part thereof, of the face value of any such agreement, bill of exchange,
draft, certificate of deposit, or note: Provided, That only one documentary stamp tax
shall be imposed on either loan agreement, or promissory notes issued to secure such
loan, whichever will yield a higher tax: Provided, however, That loan agreements or
promissory notes the aggregate of which does not exceed Two hundred fifty
thousand pesos (₱250,000) executed by an individual for his purchase on installment
for his personal use or that of his family and not for business, resale, barter or hire of
a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment
of the documentary stamp tax provided under this section.
The CIR maintains that the relationship between TRB and its clients under the Trust
Indenture Agreements was debtor-creditors and the said Agreements were actually
certificates of deposit drawing/bearing interest subject to DST under Section 180 of
the NIRC of 1977, as amended. The CIR points out that the only basis of the CTA en
32
banc in ruling that the relationship between TRB and its clients under the Trust
Indenture Agreements was that of trustee-trustors was Section X407 of the 1993
Manual of Regulations for Banks (MORB) issued by the BSP, which identified the
basic characteristics of a trust. The CIR argues, however, that the very same
provision, Section X407 of the 1993 MORB, identified exceptions, that is, instances
when the agreement or contract would not constitute a trust. A trust as defined in
Section X407 of the 1993 MORB would be in the nature of an exemption from the
payment of DST. Accordingly, TRB had the burden of proving the legal and factual
bases of its claim that its Trust Indenture Agreements fell under the definition of
"trust" and not among the exceptions in Section X407 of the 1993 MORB. TRB,
though, was unable to discharge such burden, failing to present evidence, whether
testimonial or documentary, to prove its entitlement to DST exemption. The CIR, for
its part, claims that the Trust Indenture Agreements were akin to certificates of
deposit because said Agreements also stated expected rates of return of the
investment or for the use of the amounts of deposits/trust funds for a certain period,
clearly falling under the exception to what constituted a "trust" in Section X407,
paragraph (d) of the 1993 MORB. The CIR also asserts that TRB should not be
permitted to escape/evade the payment of DST by simply labeling its certificates of
deposit drawing/bearing interests as "trust funds." In determining whether a certain
contract/agreement/document/instrument is subject to DST, substance should control
over form and labels.
In addition, the CIR insists that the Trust Indenture Agreements between TRB and its
clients were simple loans governed by Article 1980 of the Civil Code. 27 The trust
funds, being generic, could not be segregated from the other funds/deposits held by
TRB. While TRB had the obligation to return the equivalent amount deposited, it had
no obligation to return or deliver the same money deposited. Legal title to the trust
funds was vested/transmitted to TRB upon perfection of the trust agreement. It then
followed that TRB could make use of the funds/deposits for its banking operations,
such as to pay interest on deposits, to pay withdrawals and dispose of the amount
borrowed for any purpose such as investing the funds/deposits into a profitable
venture. Currently, the CIR avers, the Trust Indenture Agreements may be
considered as "loan agreements" or "debt instruments" subject to DST under
Sections 17328 and 17929 of the NIRC of 1997, as amended.
The Petition is meritorious.
Generally, the factual findings of the CTA, a special court exercising expertise on the
subject of tax, are regarded as final, binding and conclusive upon this
Court.30 However, there are well-recognized exceptions to this rule,31 such as when
the conclusion is grounded entirely on speculations, surmises, or conjectures, as well
as when the findings are conclusions without citation of specific evidence on which
they are based.
At the crux of the instant controversy are the Trust Indenture Agreements of TRB. At
issue is whether the said Trust Indenture Agreements constituted deposits or trusts.
The BIR posits that the Agreements were deposits subject to DST, while TRB
proffers that the Agreements were trusts exempt from DST.
Surprisingly, not a single copy of a Trust Indenture Agreement and/or the Certificate
of Participation (issued to the client as evidence of the trust) could be found in the
records of the case.
The conduct by banks, such as TRB, of trusts and other fiduciary business (in 1996
and 1997) was governed by the 1993 MORB, which enumerated the minimum
documentary requirements for trusts, including a written agreement or indenture and
a plan (i.e., written declaration of trust) for common trust funds (CTF). Relevant
provisions of the 1993 MORB are quoted in full below:
Sec. X409 Trust and Other Fiduciary Business. The conduct of trust and other
fiduciary business shall be subject to the following regulations.
§ X409.1 Minimum documentary requirements. Each trust or fiduciary account shall
be covered by a written document establishing such account, as follows:
a. In the case of accounts created by an order of the court or other
competent authority, the written order of said court or authority.
b. In the case of accounts created by corporations, business firms,
organizations or institutions, the voluntary written agreement or indenture
entered into by the parties, accompanied by a copy of the board resolution
or other evidence authorizing the establishment of, and designating the
signatories to, the trust or other fiduciary account.
c. In the case of accounts created by individuals, the voluntary written
agreement or indenture entered into by the parties.
The voluntary written agreement or indenture shall include the following minimum
provisions:
(1) Title or nature of contractual agreement in noticeable print;
(2) Legal capacities, in noticeable print, of parties sought to be covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of the arrangement;
(5) Distribution of the funds and/or properties;
(6) Duties and powers of trustee or fiduciary;
(7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual arrangement and, in appropriate cases,
provision for successor-trustee or fiduciary;
(10) The amount or rate of the compensation of trustee or fiduciary;
(11) A statement in noticeable print to the effect that trust and other
fiduciary business are not covered by the PDIC and that losses, if any, shall
be for the account of the client; and
(12) Disclosure requirements for transactions requiring prior authority
and/or specific written investment directive from the client, court of
competent jurisdiction or other competent authority. x x x x
Sec. X410 Common Trust Funds.(1) The administration of CTFs shall be
subject to the provisions of Subsecs. X409.1 up to X409.6 and to the following
regulations.
33
As an alternative compliance with the required prior authority and disclosure under
Subsecs. X409.2 and X409.3, a list which shall be updated quarterly of prospective
and/or outstanding investment outlets may be made available by the trustee for the
review of all CTF clients.
xxxx
(3) Minimum documentary requirements for common trust funds. In addition to the
trust agreement or indenture required under Subsec. X409.1, each CTF shall be
established, administered and maintained in accordance with a written declaration of
trust referred to as the plan, which shall be approved by the board of directors of the
trustee and a copy submitted to the appropriate supervising and examining
department of the BSP within thirty (30) banking days prior to its implementation.
The plan shall make provisions on the following matters:
a. Title of the plan;
b. Manner in which the plan is to be operated;
c. Investment powers of the trustee with respect to the plan, including the
character and kind of investments which may be purchased;
d. Allocation, apportionment, distribution dates of income, profit and losses;
e. Terms and conditions governing the admission or withdrawal as well as
expansion or contraction of participation in the plan including the minimum
initial placement and account balance to be maintained by the trustor;
f. Auditing and settlement of accounts of the trustee with respect to the
plan;
g. Detailed information on the basis, frequency, and method of valuing and
accounting of CTF assets and each participation in the fund;
h. Basis upon which the plan may be terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions which shall be uniformly applied to all
participants in a fund and which shall not be changed between valuation
dates; and
k. Such other matters as may be necessary or proper to define clearly the
rights of participants under the plan.
The legal capacity of the bank administering a CTF shall be indicated in the plan and
other related agreements or contracts as trustee of the fund and not in any other
capacity such as fund manager, financial manager, or like terms.
The provisions of the plan shall control all participations in the fund and the rights
and benefits of all parties in interest.
The plan may be amended by resolution of the board of directors of the trustee:
Provided, however, That participants in the fund shall be immediately notified of
such amendments and shall be allowed to withdraw their participation if they are not
in conformity with the amendments made: Provided, further, That amendments to the
plan shall be submitted to the appropriate supervising and examining department of
the BSP within ten (10) banking days from approval of the amendments by the board
of directors.
A copy of the plan shall be available at the principal office of the trustee during
regular office hours for inspection by any person having an interest in a trust whose
funds are invested in the plan or by his authorized representative. Upon request, a
copy of the plan shall be furnished such person.(Emphases supplied.)
The importance of the actual Trust Indenture Agreements cannot be gainsaid. The
only way the Court can determine the actual relationship between TRB and its clients
is through a scrutiny of the terms and conditions embodied in the said Agreements.
Article 1370 of the Civil Code provides:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.
In the interpretation of contracts, the ascertainment of the intention of the contracting
parties is to be discharged by looking to the words they used to project that intention
in their contract, all the words, not just a particular word or two, and words in
context, not words standing alone.32 In Bautista v. Court of Appeals,33 this Court
said:
The rule is that where the language of a contract is plain and unambiguous, its
meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that language
alone. x x x.
Following the rules on interpretation of contracts, Rule 130, Section 9 of the Revised
Rules of Court lays down the parol evidence rule:
Sec. 9. Evidence of written agreements.– When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of the
written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors
in interest after the execution of the written agreement.
The term "agreement" includes wills.
The burden fell upon TRB to produce the Trust Indenture Agreements, not only
because the said Agreements were in its possession, but more importantly, because
its protest against the DST assessments was entirely grounded on the allegation that
said Agreements were trusts. TRB was the petitioner before the CTA in C.T.A. Case
No. 6392 and it was among its affirmative allegations that the said Trust Indenture
Agreements were trusts, thus, TRB had the obligation of proving this fact. It is a
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basic rule of evidence that each party must prove its affirmative allegation.34 As Rule
131, Section 1 of the Revised Rules of Court states:
Section 1. Burden of proof. — Burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the
amount of evidence required by law.
TRB, in its Formal Offer of Evidence,35 submitted only one document, Exhibit "A,"
which was page 10 of the 1993 MORB containing Section X407 on Non-Trust, Non-
Fiduciary and/or Non-Investment Management Activities.
Section X407 of the 1993 MORB is reproduced hereunder:
Sec. X407Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities
The basic characteristic of trust, other fiduciary and investment management
relationship is the absolute non-existence of a debtor-creditor relationship, thus, there
is no obligation on the part of the trustee, fiduciary or investment manager to
guarantee returns on the funds or properties regardless of the results of the
investment. The trustee, fiduciary or investment manager is entitled to
fees/commissions which shall be stipulated and fixed in the contract or indenture and
the trustor or principal is entitled to all the funds or properties less fees/commissions,
losses and other charges. Any agreement/arrangement that does not conform to these
shall not be considered as trust, other fiduciary and/or investment management
relationship.
The following shall not constitute a trust, other fiduciary and/or investment
management relationship:
a. When there is a preponderance of purpose or of intent that the
arrangement creates or establishes a relationship other than a trust, fiduciary
and/or investment management;
b. When the agreement or contract is itself used as a certificate of
indebtedness in exchange for money placement from clients and/or as the
medium for confirming placements and investment thereof;
c. When the agreement or contract of an account is accepted under the
signature(s) of those other than the trust officer or subordinate officer of the
trust department or those authorized by the board of directors to represent
the trust officer;
d. Where there is a fixed rate or guaranty of interest, income or return in
favor of its client or beneficiary: Provided, however, That where funds are
placed in fixed income-generating investments, a quotation of income
expectation or like terms, shall neither be considered as arrangements with a
fixed rate nor a guaranty of interest, income or return when the agreement
or indenture categorically states in bold letters that the quoted income
expectation or like terms is neither assured nor guaranteed by the trustee or
fiduciary and it does not, therefore, entitle the client to a fixed interest or
return on his investments: Provided, further, that any of the following
practices or practices similar and/or tantamount thereto shall be construed
as fixing or guaranteeing the rate of interest, income or return:
(1) Issuance of certificates, side agreements, letters of undertaking,
or other similar documents providing for fixed rates or
guaranteeing interest, income or return;
(2) Paying trust earnings based on indicated or expected yield
regardless of the actual investment results;
(3) Increasing or reducing fees in order to meet a quoted or
expected yield;
(4) Entering into any arrangement, scheme or practice which
results in the payment of fixed rates or yield on trust investments
or in the payment of the indicated or expected yield regardless of
the actual investment results; and
e. Where the risk or responsibility is exclusively with the trustee, fiduciary
or investment manager in case of loss in the investment of trust, fiduciary or
investment management funds, when such loss is not due to the failure of
the trustee or fiduciary to exercise the skill, care, prudence and diligence
required by law.
Trust, other fiduciary and investment management activities involving any of the
foregoing which are accepted, renewed or extended after 16 October 1990 shall be
reported as deposit substitutes and shall be subject to the reserve requirement for
deposit substitutes from the time of inception, without prejudice to the imposition of
the applicable sanctions provided for in Sections 36 and 37 of R.A. No. 7653.
A reading of Section X407 of the 1993 MORB reveals that it merely explained the
basic characteristics of a trust or other fiduciary and investment management
relationship, and expressly identified the instances which would not constitute a
trust, fiduciary and/or investment management relationship. Simply put, Section
X407 of the MORB set the standards in determining whether a contract was one of
trust or some other agreement.
Therefore, it was still necessary for TRB to present the Trust Indenture Agreements
to test the terms and conditions thereof against the standards set by Section X407 of
the 1993 MORB. Without the actual Trust Indenture Agreements, there would be no
factual basis for concluding that the same were trusts under Section X407 of the
1993 MORB. TRB called Mr. Navarro, its Vice President, to the witness stand to
testify on the terms and conditions of the Trust Indenture Agreements. Mr. Navarro’s
testimony, though, cannot be accorded much weight and credence as it is in violation
of the parol evidence rule.
TRB made no attempt to explain why it did not present the Trust Indenture
Agreements, and it also did not take the effort to establish that any of the exceptional
circumstances under Rule 130, Section 9 of the Revised Rules of Court, allowing "a
party to modify, explain or add to the terms of written agreement," was extant in this
case. Moreover, Mr. Navarro’s testimony consisted essentially of conclusions of law
and general descriptions of trusts using the very same words and terms under Section
X407 of the 1993 MORB.
In contrast, records show that the BIR examiners conducted a thorough audit and
investigation of the books of account of TRB. Mr. Alexander D. Martinez, a BIR
35
Revenue Officer, testified that it took the BIR team of examiners more than one-year C.T.A. EB No. 32, affirming the Decision dated April 28, 2004 and Resolution dated
to conduct and complete the audit and examination of the documents of TRB, which September 10, 2004 of the CT A Division in C.T.A. Case No. 6392, is REVERSED
consisted of approximately 20,000 pages.36 The audit and investigation resulted in and SET ASIDE. Respondent Traders Royal Bank is ORDERED to pay the
the issuance of Assessment Notices against TRB for DST tax liabilities for 1996 and deficiency Documentary Stamp Taxes on its Trust Indenture Agreements for the
1997, which were duly received by TRB. The tax assessments against TRB are taxable years 1996 and 1997, in the amounts of Pl,064,064.38 and "1104, 595.00,
presumed valid. In Sy Po v. Court of Tax Appeals, 37 the Court pronounced: respectively, plus 20% delinquency interest from February 14, 2002 until full
Tax assessments by tax examiners are presumed correct and made in good faith. The payment thereof.
taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities SO ORDERED.
in the performance of duties, an assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments. (Citations omitted.)
In Marcos II v. Court of Appeals,38 the Court again had the occasion to rule:
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of Internal
Revenue, whose determinations and assessments are presumed correct and made in
good faith. The taxpayer has the duty of proving otherwise. In the absence of proof
of any irregularities in the performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the judicial
affirmance of said assessment. x x x. (Citations omitted.)
Given the failure of TRB to present proof of error in the tax assessments of the BIR,
the Court affirms the same.
The liabilities of TRB for deficiency DST on its Trust Indenture Agreements for
1996 and 1997 are computed as follows:
1996 1997
Trust Fund P 567,500,927.000 P 55,783,860.92
Tax Rate .30/200 .30/200

Basic Tax 851,251.50 83,676.00

Add: Surcharge 212,812.88 20,919.00

39
Total P 1,064,064.38 P 104,595.00

In addition, TRB is liable for 20%delinquency interest under Section 249 of the
NIRC of 199340
from February 14, 200241 until full payment of its foregoing tax liabilities.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
GRANTED. The assailed Decision dated February 14, 2005 of the CTA en bane in

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