Spouses Carmen Tongson and Jose Tongson Vs.
Emergency Pawnshop Bula, Inc. et al.
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or -controlled corporations shall be determined either under Section 24(A) or under this Subsection, at the option of the taxpayer; x x x
COMMISSIONER OF INTERNAL REVENUE v. JULIETA ARIETE,
G.R. No. 164152 January 21, 2010
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review to reverse the Court of Appeals’ (CA) Decision dated 14 June 2004 in CA-G.R. SP No. 70693. In the assailed decision, the CA affirmed the Court of Tax Appeals’ (CTA) Decision and Resolution dated 15 January 2002 and 3 May 2002, respectively. The CTA cancelled the assessments issued against Julieta Ariete (respondent) for deficiency income taxes of P191,463.04 for the years 1993, 1994, 1995, and 1996.
Ruling of the Court of Appeals
The CA explained that the persons who may avail of the VAP are those who are “liable to pay any of the above-cited internal revenue taxes for the above specified period who due to inadvertence or otherwise, has underdeclared his internal revenue tax liabilities or has not filed the required tax returns.” The CA rationalized that the BIR used a broad language to define the persons qualified to avail of the VAP because the BIR intended to reach as many taxpayers as possible subject only to the exclusion of those cases specially enumerated.
The CA ruled that in applying the rules of statutory construction, the exceptions enumerated in paragraph 3 of RMO No. 59-97, as well as those added in RMO No. 63-97, should be strictly construed and all doubts should be resolved in favor of the general provision stated under paragraph 2 rather than the said exceptions.
The CA affirmed the CTA’s findings of facts and ruled that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. The CA disagreed with petitioner’s contention that the recording in the Official Registry Book of the BIR is merely a procedural requirement which can be dispensed with for the purpose of determining who are excluded from the coverage of RMO No. 59-97.
The CA explained that it is clear from the wordings of RMO No. 59-97 that the recording in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer-applicant under the VAP may be excluded from its coverage as this requirement was preceded by the word “and.” The use of the conjunction “and” in subparagraph 3.4 of RMO No. 59-97 must be understood in its usual and common meaning for the purpose of determining who are disqualified from availing of the benefits under the VAP. This interpretation is more in faithful compliance with the mandate of the RMOs.
Issue
Petitioner submits this sole issue for our consideration: whether the CA erred in holding that the recording in the Official Registry Book of the BIR of the information filed by the informer under Section 281 of the Tax Code is a mandatory requirement before a taxpayer-applicant may be excluded from the coverage of the VAP.
Ruling of the Court
Petitioner contends that the VAP, being in the nature of a tax amnesty, must be strictly construed against the taxpayer-applicant such that petitioner’s failure to record the information in the Official Registry Book of the BIR does not affect respondent’s disqualification from availment of the benefits under the VAP. Petitioner argues that taxpayers who are under investigation for non-filing of income tax returns before their availment of the VAP are not covered by the program and are not entitiled to its benefits. Petitioner alleges that the underlying reason for the disqualification is that availment of the VAP by such taxpayer is no longer voluntary. Petitioner asserts that voluntariness is the very essence of the Voluntary Assessment Program.
Respondent claims that where the terms of a statute are clear and unambiguous, no interpretation is called for, and the law is applied as written, for application is the first duty of the court, and interpretation, only where literal application is impossible or inadequate.
Verba Legis
It is well-settled that where the language of the law is clear and unequivocal, it must be given its literal application and applied without interpretation. The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication. A careful reading of the RMOs pertaining to the VAP shows that the recording of the information in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer may be excluded from the coverage of the VAP.
On 27 October 1997, the CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final opportunity to come up with a clean slate. Any person liable to pay income tax on business and compensation income, value-added tax and other percentage taxes under Titles II, IV and V, respectively, of the Tax Code for the taxable years 1993 to 1996, who due to inadvertence or otherwise, has not filed the required tax return may avail of the benefits under the VAP. RMO No. 59-97 also enumerates the persons or cases that are excluded from the coverage of the VAP.
3. Persons/Cases not covered
The following shall be excluded from the coverage of the VAP under this Order:
x x x
3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under the VAP; x x x (Boldfacing supplied)
On 30 October 1997, the CIR issued RMO No. 60-97 which supplements RMO No. 59-97 and amended Item No. 3.4 to read as:
3. Persons/Cases not covered
The following shall be excluded from the coverage of the VAP under this Order:
x x x
3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; (Boldfacing supplied)
On 27 November 1997, the CIR issued RMO No. 63-97 and clarified issues related to the implementation of the VAP. RMO No. 63-97 provides:
3. Persons/cases not covered:
x x x
3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under the VAP; (Underscoring in the original, boldfacing supplied)
It is evident from these RMOs that the CIR was consistent in using the word “and” and has even underscored the word in RMO No. 63-97. This denotes that in addition to the filing of the verified information, the same should also be duly recorded in the Official Registry Book of the BIR. The conjunctive word “and” is not without legal significance. It means “in addition to.” The word “and,” whether it is used to connect words, phrases or full sentences, must be accepted as binding together and as relating to one another. “And” in statutory construction implies conjunction or union.
It is sufficiently clear that for a person to be excluded from the coverage of the VAP, the verified information must not only be filed under Section 281 of the Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP. This interpretation of Item 3.4 of RMO Nos. 59-97, 60-97, and 63-97 is further bolstered by the fact that on 12 October 2005, the BIR issued Revenue Regulations (RR) No. 18-2005 and reiterated the same provision in the implementation of the Enhanced Voluntary Assessment Program (EVAP). RR No. 18-2005 reads:
SECTION 1. COVERAGE. – x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for the above specified period/s who, due to inadvertence or otherwise, erroneously paid his/its internal revenue tax liabilities or failed to file tax returns/pay taxes, may avail of the EVAP, except those falling under any of the following instances:
x x x
b. Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC, duly processed and recorded in the BIR Official Registry Book on or before the effectivity of these regulations. (Boldfacing supplied)
When a tax provision speaks unequivocally, it is not the province of a Court to scan its wisdom or its policy. The more correct course of dealing with a question of construction is to take the words to mean exactly what they say. Where a provision of law expressly limits its application to certain transactions, it cannot be extended to other transactions by interpretation.
Findings of Fact
Generally, the findings of fact of the CTA, a court exercising expertise on the subject of tax, are regarded as final, binding, and conclusive upon this Court, especially if these are similar to the findings of the Court of Appeals which is normally the final arbiter of questions of fact.
In this case, the CA affirmed the CTA’s findings of fact which states:
We will start with the question as to whether or not the respondent was already under investigation for violation of the Tax Code provisions at the time she applied under VAP on December 2, 1997. The records show that she was indeed under investigation. Albeit, the Letter of Authority was issued only on 28 July 1998, there is no question that on 23 May 1997, a Mission Order No. 118-97 had already been issued by the Chief of Special Investigation Division of the BIR, Revenue Region No. 19 to Intelligence Officer Eustaquio M. Valdez authorizing the conduct of monitoring and surveillance activities on the respondent. This investigation was preceded by the filing of a verified information by a certain George Mercado alleging respondent’s failure to pay her income taxes for the years 1994 to 1996.
x x x
We now proceed to the question as to whether or not the requirement of recording in the Official Registry Book of the BIR is present in the respondent’s case. At this juncture, we affirm CTA’s finding that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. Petitioner claims that this was merely a procedural omission which does not affect respondent’s exclusion from the coverage of the VAP.
Petitioner’s failure to effect compliance with the requirement of recording the verified information or investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can avail of the benefits of the VAP. Consequently, respondent is relieved from any criminal or civil liability incident to the non-filing of a return.
AFFIRM the Court of Appeals’ Decision
TAMBUNTING PAWNSHOP, INC.,v. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 179085 January 21, 2010
Section 228:
x x x x
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.
SECTION 108. Value-added Tax on Sale
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person;
(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines
The term “gross receipts” means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.
x x x x
FISHWEALTH CANNING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 179343 January 21, 2010
The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000, 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.
The petition is bereft of merit.
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 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, petitioner’s 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 respondent’s 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 petitioner’s 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, the same fails. For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
DUMAGUETE CATHEDRAL CREDIT v. COOPERATIVE COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 182722 January 22, 2010
The clashing interests of the State and the taxpayers are again pitted against each other. Two basic principles, the State’s inherent power of taxation and its declared policy of fostering the creation and growth of cooperatives come into play. However, the one that embodies the spirit of the law and the true intent of the legislature prevails.
Issue: Hence, the present recourse, where petitioner raises the issue of whether or not it is liable to pay the deficiency withholding taxes on interest from savings and time deposits of its members for the taxable years 1999 and 2000, as well as the delinquency interest of 20% per annum.
Petitioner argues that Section 24(B)(1) of the NIRC which reads in part, to wit:
SECTION 24. Income Tax Rates. —
(B) Rate of Tax on Certain Passive Income: —
(1) Interests, Royalties, Prizes, and Other Winnings. — A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; x x x applies only to banks and not to cooperatives, since the phrase “similar arrangements” is preceded by terms referring to banking transactions that have deposit peculiarities. Petitioner thus posits that the savings and time deposits of members of cooperatives are not included in the enumeration, and thus not subject to the 20% final tax. To bolster its position, petitioner cites BIR Ruling No. 551-888 and BIR Ruling [DA-591-2006] where the BIR ruled that interests from deposits maintained by members of cooperative are not subject to withholding tax under Section 24(B)(1) of the NIRC. Petitioner further contends that pursuant to Article XII, Section 15 of the Constitution and Article 2 of Republic Act No. 6938 (RA 6938) or the Cooperative Code of the Philippines, cooperatives enjoy a preferential tax treatment which exempts their members from the application of Section 24(B)(1) of the NIRC.
Members of cooperatives deserve a preferential tax treatment pursuant to RA 6938, as amended by RA 9520.
Given that petitioner is a credit cooperative duly registered with the Cooperative Development Authority (CDA), Section 24(B)(1) of the NIRC must be read together with RA 6938, as amended by RA 9520.
Under Article 2 of RA 6938, as amended by RA 9520, it is a declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. Thus, to encourage the formation of cooperatives and to create an atmosphere conducive to their growth and development, the State extends all forms of assistance to them, one of which is providing cooperatives a preferential tax treatment.
The legislative intent to give cooperatives a preferential tax treatment is apparent in Articles 61 and 62 of RA 6938, which read:
ART. 61. Tax Treatment of Cooperatives. — Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.
ART. 62. Tax and Other Exemptions. — Cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provision of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions; x x x.
This exemption extends to members of cooperatives. It must be emphasized that cooperatives exist for the benefit of their members. In fact, the primary objective of every cooperative is to provide goods and services to its members to enable them to attain increased income, savings, investments, and productivity. Therefore, limiting the application of the tax exemption to cooperatives would go against the very purpose of a credit cooperative. Extending the exemption to members of cooperatives, on the other hand, would be consistent with the intent of the legislature. Thus, although the tax exemption only mentions cooperatives, this should be construed to include the members, pursuant to Article 126 of RA 6938, which provides:
ART. 126. Interpretation and Construction. – In case of doubt as to the meaning of any provision of this Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the cooperatives and their members.
It is also worthy to note that the tax exemption in RA 6938 was retained in RA 9520. The only difference is that Article 61 of RA 9520 (formerly Section 62 of RA 6938) now expressly states that transactions of members with the cooperatives are not subject to any taxes and fees. Thus:
ART. 61. Tax and Other Exemptions. Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including but not limited to final taxes on members’ deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions:
This amendment in Article 61 of RA 9520, specifically providing that members of cooperatives are not subject to final taxes on their deposits, affirms the interpretation of the BIR that Section 24(B)(1) of the NIRC does not apply to cooperatives and confirms that such ruling carries out the legislative intent. Under the principle of legislative approval of administrative interpretation by reenactment, the reenactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction.
Moreover, no less than our Constitution guarantees the protection of cooperatives. Section 15, Article XII of the Constitution considers cooperatives as instruments for social justice and economic development. At the same time, Section 10 of Article II of the Constitution declares that it is a policy of the State to promote social justice in all phases of national development. In relation thereto, Section 2 of Article XIII of the Constitution states that the promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance. Bearing in mind the foregoing provisions, we find that an interpretation exempting the members of cooperatives from the imposition of the final tax under Section 24(B)(1) of the NIRC is more in keeping with the letter and spirit of our Constitution.
SEC. 15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development.
ART. 2. Declaration of Policy.- It is the declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.
Toward this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.
Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relative to cooperatives with government assistance where necessary. (Now amended by Republic Act No. 9520 or the Philippine Cooperative Code of 2008.)
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