Case: 32. Philippine Journalists, Inc. vs. CIR, December 16, 2004, G.R. No.

162852
Topic: Requirements of a valid waiver

DOCTRINE:

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law
on prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.

ACTION SEQUENCE:

CTA found waiver void > CTA denied MR > CA reversed > CA denied MR > PetRevCert in SC

FACTS

 The case arose from the Annual Income Tax Return filed by Philippine Journalists, Inc.
(PJI) for the year 1994 which presented a net income of P30,877,387.00 and the tax due
of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of
P10,247,384.00.
 On August 10, 1995, Revenue District Office No. 33 of the BIR issued a Letter of Authority
for the Revenue Officer and Group Supervisor to examine PJI’s books of account and
other accounting records for internal revenue taxes for 1994. From the examination, the
petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and
compromise penalty totaling at P127,980,433.20.
 Revenue District Officer Jaime Concepcion invited PJI to send a representative to an
informal conference for an opportunity to object and present documentary evidence
relative to the proposed assessment. PJI’s Comptroller, Lorenza Tolentino, executed a
"Waiver of the Statute of Limitation Under the NIRC". The document waived the
running of the prescriptive period provided by Sections 223 and 224 and other relevant
provisions of the NIRC and consented to the assessment and collection of taxes which
may be found due after the examination at any time after the lapse of the period of
limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC,
until the completion of the investigation.
 Revenue Officer De Vera submitted his audit report recommending the issuance of an
assessment and finding that petitioner had deficiency taxes in the total amount of
P136,952,408.97. Thus, BIR Revenue Assessment Division/Billing Section, issued
Assessment/Demand No. 33-1-000757-947 stating the deficiency taxes, inclusive of
interest and compromise penalty.
 A Final Notice Before Seizure was issued by the same deputy commissioner giving the
petitioner 10 days from receipt to pay. PJI asked to be clarified how the tax liability of
P111,291,214.46 was reached and requested an extension of 30 days from receipt of the
clarification within which to reply.
 The BIR received a follow-up letter from the PJI asserting that its records do not show
receipt of Tax Assessment/Demand No. 33-1-000757-94. Petitioner also contested that
 the assessment had no factual and legal basis. A Warrant of Distraint and/or Levy
signed by Deputy Commissioner Romeo Panganiban for the BIR was received by the PJI
 Petitioner filed a Petition for Review with the CTA. PJI complained that: (a) that no
assessment or demand was received from the BIR; (b) that the assessment, having
been made beyond the 3-year prescriptive period, is null and void xxx
 CTA ruled that (1) the assessment notices were received by PJI, since respondent
presented a certification issued by the Post Master of the Central Post Office, Manila, and
that (2) the waiver was not binding. The waiver is an unlimited waiver. It does not contain
a definite expiration date. Under RMO No. 20-90, the phrase indicating the expiry date of
the period agreed upon to assess/collect the tax after the regular three-year period of
prescription should be filled up. Secondly, the waiver failed to state the date of acceptance
by the Bureau which under the aforequoted RMO should likewise be indicated. Finally,
petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-
90, the waiver must be executed in 3 copies, the second copy of which is for the taxpayer.
CTA denied the CIR's MR.
 CA reversed the CTA decision, stating that the requirements and procedures laid down in
the RMO are only formal in nature and did not invalidate the waiver that was signed even
if the requirements were not strictly observed.

ISSUE/S

Whether the requirements of a valid waiver under RMO No. 20-90 must be strictly followed.

RULING

YES. RMO No. 20-90 explicitly states that the requirements must be observed.

The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment
and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation.20 Unreasonable investigation contemplates cases where the period
for assessment extends indefinitely because this deprives the taxpayer of the assurance that it
will no longer be subjected to further investigation for taxes after the expiration of a reasonable
period of time.

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for
the assessment and collection of taxes. A cursory reading of the Order supports petitioner’s
argument that the RMO must be strictly followed, thus:

 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
 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
  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.

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore
be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the
right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is 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. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the exceptions to the law on
prescription should perforce be strictly construed.

As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on
September 22, 1997 is not valid and binding because it does not conform with the provisions of
RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within
which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became
unlimited in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a revenue
district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver
is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties
to extend the period to a date certain. The conformity of the BIR must be made by either the
Commissioner or the Revenue District Officer.

DISPOSITIVE PORTION

Petition GRANTED

Digest by Tirol

----------------------------------------------------------------------