CTA Case No. 232 (Decision)

,. ,_.~ FELICIDAD SAMSCN, C.T.A. CASE NO. 232 Pet 1t ioner1 .. veraas � COLl.ECTCR OF INTE �'AL REVENUE, Respondent. X� � � � � � ~ ~ � � � � X DEC I S I � This is an appeal fro a dec ision of the res- pondent C 1lect r of Internal evenue assessing against anci deananding fr m petitioner, Fclicidad S amson 1 the su f 1,370. 09 s deficienc y ~ m~ c arrier' perce~age tax and surcharge for the peri d fro~ January 1 , 1948 to ~arch 1, 195 , inclueive, plus the a ount of ~0. 00 as compromise penalty or a total of ~1 ,420. 09 . The undisputed facts of the case are as foil wss Petitioner is a duly enfranchised com- n carrier perator , perating ~n a Pas ig� Quiape line . Fro anuary l, 1948 to . .ugust 7, 1949, her carriers consisted of six (6) units of jeepneys. On August 8 , 1947 , said units were increased to seven (7) ith the addition of a baby bus. During the period in question, she kept a financial record of her operations in beoks of accounts required of common c arrier operat rs by law. On the basis of her finan - cial record, petitioner paid percentage taxes for .the period from Jan ary 1, 1948 to Marc h 31, 1953 in the total amount of 968 . 93. 212

D CISION - C.T .A. CASE NO . 232 - 2- On June 29, 1953, petitioner received from respondent Collector of Internal Revenue an assessment and demand (Exh . "5" , p. 8 , BIR r ec . ) for payment of the total amount of ~1 , 420.09 representing deficiency percentage tax (common carrier) for the period from January 1, 1948 to March 31, 1953 , inclusive , plus surcharge and compromise penalty computed as follows: 2% tax due on 103 , 200 . 00 ������ �2,064 . 00 Less: taxes paid ��������������� 968 . 93 Total deficiency tax ����������� Pl , 096 . 07 25% surcharge thereon ���������� 274. 02 TOTAL M~OUNT DUE ��������������� 1 , 370 . 09 Plus : Compromise penalty ������� 50 , 00 TOTAL .A"t10UNT DEIMlNDED , ��������� Fl,420 . 09 The deficiency percentage tax demanded of petitioner was arrived at in pursuance of an alleged office policy of assessing common ca r- rier operators on an es timated daily gross r - ceipts of �15, 00 realized by a jeepney and 30 . 00 realized by a bus and allowing ten (10) d ys a month for repairs and maintenance of a unit {T. S��l ,, pp . 40- 41) . Upon receipt of the foregoing as sessment, petitioner requested that the case be elevated to and heard by the Conference Staff of the Bureau of Internal evenue . Said r equest was granted . On April 26, 1954, respondent, acting on the recommendation of the Conference Staff {Exh . 2 , pp . 20- 22, BIR rec .), wrote petitioner n letter { xh . 3 , p . 24, BIR rec . ) , reiterating 213

D CISlO - C�T� � C SE NO. 232 - 3- the previous assessm nt and demand contained in Exhibit "5'u. ter a series of requests� for re- consideration and an offer of compromise by peti- tioner which vas rejected by respondent, the latter finall7 wrote petitioner a letter (Exh. "10", p . 34, BIRr c.), dated Dece ber 19, 1955, reiterating the demand for payment of the sum or �1 ,420.09. On January 31, 1956, petitioner filed the instant petition for review With the Court. At the outaet, respondent contest d th jurisdiction of the Court over this ca e on the ground that the present appeal was not seasonably filed. However, the Court, on October 27, 1956, issued a resolution uphold- ing its jurisdiction to hear and determine the same. At the hearing, counsel for petition r sub- mitted in evidence th books of accounts of petitioner and the testimony of petitioner, Felicidad Samson, to disprove the prim -facie presumption of correctness or respond nt's assessment against her. Petitioner testitied that her daily groas receipts as a co on car- rier oper tor for th p riod in question ave- raged � 12. 50 dail7; that she paid her drivers a commission of 30~ of the day's earnings; that she did not give them allowances for meals, but that they at at her uncle ' s hous �'

DECISION - C. T.A . C&S ~0. 232 - 4- thatI her jeepneys were not always operated the whole day through - sometimes two hours only, sometimes h lf-day; that if jeepney was taken out for two or tnree hours , t he driver gave her ~2 . 50 , 2.00 - something like that; that some- times her jeepney is taken out the whole day, (this is about 7 t o 8 hours a day) from seven in the morning to six in the afternoon, includ- ing a noonday break of two hours (12:00 to 2:00); that when her jeepney is taken out the whole day she receives ~12 . 00 or ~13 . 00 from the driver; that she pays for the gasoline consumed by the jeepneys - that gasoline consumption per j eepney is about 10 to 15 liters a day; tha t - she h s been submitting reports of her operations to the Public Service Commis sion and that the amounts reported thereto appear in her books; that as an operator, she is required by the Commission to issue tickets; that althpugh she has been issuing tickets, she did not keep the stub nor record in her books the numbers of the tickets issued, because her drivers found i t hard to compel passengers to get their tickets; that rather than base her gross re- ceipts on t he number of t ickets sold, she re- l ied on the honest y of her drivers because sometimes only a few tickets wer e actually is- sued by her driver s ; that she does not know ,. 2 1 5 J

DECISION - C. T.A. CASE NO. 232 - 5- how much was spent for the printing of tic- kets, much less how many tickets were printed for her. To explain the basis and justify the assessment in question, respondent presented Pricitivo Valencia, the revenue agent who in- vestigated petitioner in connection with this case. Valencia declared as follows: That pe- titioner was among the common carrier opera- tors he was assigned to investigate; that he investigated petitioner' s tax deficiencies for the period from January 1, 1948 to March 31, 1953; that petitioner was duly provided with the required books of accounts and had been paying on time the 2 tax on the gross re- ceipts reflected in her books; that because petitioner had no papers or documents, such as issued tickets, to support the entries in the books, he , upon instruction of his superiors, assessed the former in pursuance of an office policy of assessing common carrier operators similarly situated on an estimated daily gross receipt of 15.00 per jeepney and P30 . 00 per bus and allowing ten (10) days a month for re- pairs and maintenance of a unit; that such ins- truction was not covered by any revenue regu- lation; that h has investigated several drivers plying the �~akati - Quiapo" route and most, if -� 216

DECISION - C. T.A. CASE NO . 232 - 6- not all , of them admitted that they were operat- ing on the "boundar y system" , with the drivers paying a fixed amount as rental per day, and after deducting the expenses for the oil and gasoline used, poclteting for themselves t he balance of th daily receipt; thnt peti t i oner knew that th witness was a Bin agent invest- igating the case; that petitioner admitted she was renting h r jeep under tho boundary system at �10 . 00 or r8 . 00 a day, depending upon the condition and appe ranee of the jeep and with the driver paying the expenses for gasoline and oil; that petitioner was operating on a temporary permit which was lat r m de permanent by the YUblic Serv~ce Co~is sion some time i n July of 1956 . On cross-examination, Revenue agent Valencia s t ated: t at it took him around a week to inves- tigate the tax deficiency case of petitioner which covered the period fro~ January 1 , 1948 to March, 1953; that he did not ask the names of the drivers he investigated, nor did he know whether or not they were drivers of petitioner; that he does not know the plate numbers of pe- titioner ' s jeepneys; that he examined drivers plying the "Makati-Quiapo�� route ; that some drivers were boastful and others timid; that �' 217 .213

DECISION - C. T.A. CASE NO. 232 - 7- he included all the facts and details of his investigation in his investigation report; that he vas directed in another letter (E � "H"), dated October 8, 195?, to gather additional evi- dence necessary to support this case; that his assessment vas an estimate based on the accepted s? "" policy set by his office since 1953 when the campaign against common carrier operators was intensified- of assessing %15 .00 and 30.00 as average daily gross receipts for jeepneys and trucks, respectively, and giving an allowance of ten (10) days per month for maintenance and repairs. t this juncture, it should be observed that respondent concedes "that he erred in computing the deficiency 2~ tax and surcharge assessed and demanded from the petitioner in the sense that the correct amount is 1,3o8.8~, instead of 1,370.0911 , as assessed (Respondent's Memo , p. 2). From the foregoing facts, the issues in- volved are:- (1) Whether or not petitioner is liable for payment of deficiency common carrier's percentage tax and surcharge in the amount of �1 ,368.84, for the period from January 1, 1948 to March 31, 1953, inclusive, and (2) In the affirmative, whether or not the petitioner may be compelled to pay the compromise penalty .. 218

DLCISI O.I - C. T.A. CASE NO . 232 - 8- sought to be imposed . The main issue in the case at bar is pur ely one of f act which arose out of respondent Col- lector's belief that peti tione>r< did not m ke a t rue and correct report or her gross receipts a s a c~on car rier operator for t he period covered by the assessment under review . .fuen there is reason to b lieve that any report re- quired by law a s a basis for the a s sessment of any national internal-revenue tax is false , in- complete, or erroneous, the Collector of Interna] Revenue sh 11 a ssess the proper tax on tho best \ evidence obtainabl e (Sec. 15, par. 1 , Tax Code) . On t he supJosition that petitioner in t he ins- tant case did not ake a true and correct re- port of her gross receipts, nd that there is no direct evidence est ablishing her tax liability, the first question that confronts us is - Did the Collector b se the sscss ent in question on the bea t eviden~ e availabl~ ~e are constrained to ~~swer 1n the negative . fhe t estimony of respondent ' s only witness, BI agent Primitive V lencia , the exami er as signed to investigate petit ioner and upon \'lhoso recommendation t he instant assessment �was issued , clearly s ows that the aid s ses sment was based upon a pre- 1 sumption devoid of tactual found ation. ~19 w/

DEC I SION - C. T.A. CASE NO . 232 - 9- Agent Valencia would like the Court to be- lieve that the afor esaid assessment was arrived at only after an exhaustive factual investiga- tion, t he details of wnich investigation were incorporated in his report, Exhibit "tt" . How- ever, even a brief and cursor1 examination of said report at once reveals the glaring fact t hat no such detailed inve tigation was ever made . Even granting for the sake or argument that gent Valencia made an exhaustive inves- tigation, the Court is not convinced that he used the best evidence available to formulate a fair and reasonable assessoent against peti- tioner. In the fir st place , according to gent Valencia, h interviewed jeepney drivers plying t ho " 'fakati- niapo" line . It should be noted that petitioner w s operating on the 11Pasig- ui apou line . I n the abs ence of any showing that operators on these two aistinctive lines derived more or less the same daily gross re- ceipts from t h ir operations, the findings of Agent Valenc1 upon which the assessment in question is based should be disregarded . In the second place, :f gent V ~encia did not l~ow nor even ask the names of the drivers he allegedly inter viewed, how could it be con- cluded that said drivers were petitioner ' s drivers . In default of any showing that ,� 220

DECISIOt: - C. T. A. CASE NO . 232 - 10 - petit ioner ' s drivers operated their j eepneys in the same manner and under t he same condition as those intervi ewed drivers , the conclusion that he derived from the interviews deserves , if at all, l ittle w ight . In the third place, the drivers he interviewe were allegedly either ''too boastful11 or "too timid.. . In either case, their declarations cannot be taken a9 a fair or accurat e gauge of their own operations, much less, of petitioner ' s . Lastly, the drivers al- legedly intervi wed spoko of conditions obtain- ing at the time or interview, that is, sometime in 1953. The ass ssment in question covers the period fr om anuar y 1 , 1948 to l-1arch 31 , 1953 , inclusive. ]To evidence was in traduced to show that operating conditions in 1953 were exactly the same as those obtaining during the per iod in question . Consequently, we cannot consider the conditions existing in 1953 as pres~~ably similar to those obtaining durin the period for which petitioner is sought to be taxfd . For the foregoing reas o~, we believe that the instant assessment wus ~ot based on the best evidence available . I It is however argued by respondent , that the determin tion or assessment of the Collector of Internal Revenue is pr esumptively correct and the burden of proving its incorrectness 1s 22 1

DECISIO!! - C. T. A. CASE NO . 232 - 11 - shouldered by the taxpayer . Whil it is true that tax assessments are presumed correct, it is equally true that such presucption is merely prim facio, hcnco disputable . Th same may be rebutted and overcome by other competent evidence . In the case at bar, petitioner has successfully shown through her books of accounts and her own uniz::- peached testimony that she could not have ob- tained the estimated daily gross receipts attri- buted to her by respondent . Moreover, the assessment in question is primarily and entirely based on a presumption not supported by facts . Ra ther , it is based upon a. presUP.lption created by an alleged "office policy" of the Bureau of Internal Revenue , which presumption in turn is rounded upon the presump- tions that operationo on the "1akati- uia.po 11 and "Pasig-Qniapo" lines yield the same daily gross receipts; that the interv iewed drivers and peti- tioner ' s drivers operated their jeeps in the same manner and under the s e condition; and that the operating conditions in 1953 were si- cila.r to those existing during the period from 1948 to 1953 . As we have already r uled in an earlier case , the presumption of correctness of t he assessment nust be predicated uron facts a..'1d ClL"l not be made t o res o another presump- tion. ;' 222

-- DECISION - C. T. A. CASE NO . 232 - 12 - We quote: "It is to be noted that the t ax as- sessment which is the subject of the ins- tant appeal is based solely and entirely on the prEsumption that during the period under review, for every three (3) dult customers who patronized the theater, only one (1) child was admitted and paid the tax free 20-centavo admission fee . This presumed ratio was derived from the ratio of adults and children who were admitted to the same theater during the period from 1949 to 1951. There is however, not an iota of direct proof that petitioner herein h�d in fact sold and issued t o dulta who souaht admission to the Lucena Theater two (2) 20-centavo tax- exempt children's tickets instead of the usual 40- centavo ticket ~1ich is taxable. xam- 1ner de Guia, who was called to the wit- ness stand could not even categorically state instances when the theater employees issued children ' s tickets to the adults nor recall the persons concerned to whom said �children ' s tickets were issued . l.for eover, the taxpayer herein, in open court, vehemently denied the lleged il- legal practice Which v s imputed to hi � o our mind , the appealed decision has no factual basis and must be reversed. An ssessment fixes and determines the tax liability of a taxpayer. s soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed ana demanded. Hence , assessments should not be based on ere presumptions no matter how rea- sonable or logical said presumptions ay be. ssuming arguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (19 52 to 19)3) . The fact that almost the same ratio existed during the month of July, 1955, does not provide suf fi cient inference on the conditions in 1952 and 19;3 . Ther has been no finding or show- i ng by the r espondent that the circums- tances and conditions have remained the same during the years in question. In order to stand the test of judicial scrutiny, the assessment must b based on actual facts. The presumption of correct- 223

DECISION - C. T.A. CASE NO . 232 - 13 - ness of assess~ent being a mere presump- tion can not be made to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July , 1955. In the case under consider- ation , there are no substantial facts to support the assessment in question. While an assessment in the absence of direct evidence , may be based upon the best evidence available in order to clearly reflect the true liability of the taxpayer (see Section 15, National Internal Revenue Codei see also Mindanao Bus Co . v . Collect- or, c.T .A. Case No. 312, August 26, 1957), however the presumption of the correctness of the assessment must be predicated on facts and the same must be obtaining at the time for which the assessment is sought to be enforced . We are not mindful of the danger to the revenues of the govern- ment, if we were to permit taxpayers to re- sort to unscrupulous methods to evade taxes such as would be possible in a situation similar to the instant case. However, When the Collector, by reason or such ab- sence of direct evidence, has reason to believe that the taxpayer's returns are false or erroneous, he may resort to the employment of the best evidence obtain- able such as ratio and like statistical data to arrive at a determination of a tax to the extent that the same may be approximately correct in the premises if not perfectly accurate. This, we believe, is the intendment of Section 15 of the Tax Code 1n order to avoid sanctioning of eva- sion of taxes. But, as already observed, the ratios and the like statistical date must be the outcome of facts existing dur- ing the period for which the tax liability is sought to be enforced. Respondent contends that the determin- ation or assessment of the Collector of In- ternal Revenue is presumptively correct and the taxpayer has the burden of proving its incorrectness. It is true that all pre- sumptions are in favor of the correctness of tax assessments . However , such presump- tion is proper only if the a ssessment is based on actual facts but does not arise if it is based merely on mere inferences. More- over, this presumption is disputable and may be contradicted and overcome by other evi- dence . Jn the oaae �t h�~, ~ !t�o~er h~ s 224

c.1'I..S. I�OCit.� o. 232 .. 14 - tb � . o. c ould b4t ot olicy" or tbe :! vbich �� n qu .... tion is eatir 11 y ny , t t1st1ca o ~ n eimplt) expl tion to b so ble, 1t ot or ct, 9Gt1 t or &ro c 1pta ob 1 d by r 1 re. ny 'f'1tal nd r levant u d to t to deter 1n ch ''e ti pp to eti t or cross c 1pta r co on arr 1 r on n- v �t1 tiona co � c in o c!pality, oity or ro ,or 1t sult or 1 Y � 1 ntio 1 ole rchip 1 o? the 1v r tty r conditio 1 lit1 n to con 1 er t lon I ueh e - tt n en t houl4 it b appl1 ? ' that such ot'.f1c policy" or t � ur u 1 tt 225

DEClSIOO � C. T.A. CASE NO. 232 - 15 - correct estimat e of the average gross receipts of c o~on carriers throughout the Philippine s � from the end of .orld iar II up to thP. present 1 the Court is hesitant t o apply said estimate t o petitioner her in. hile we find that respondent's de termina- t ion of petitioner's alleged ross receipts is based on an estimate without a reasonable basis , we c annot agree w~th t he proposition to ca,cel entirely the as sess ~ent . For on the other hand , we c annot disregard petitioner ' s oNn admissi n in r egard thereto. In fact , petitioner had presPnted to respondent the ffidavit of ~~r rlrivers (Exhi- bit l t p. 16, BIR rec . ) who admit that the average income of petitioner ' s nits was at ~12.50 a day. Again oy another similar ad:n1ssion , petitioner , through her accountant , adt:lits that the average income is " 12.50 for fPU ' s jeepnevs) and 21.00 for one a y bus~ {see Exhibit 4, Motion; pp . 25- 26 , BID re � ; see also �xhiLit 2, A1otio.1 , pp. 20- 22 , BIR rec. and pp . 17-18, BIR rec.). These ad- missions by ~ct.t_oner ~re binding upon her and may oe used as the asis of determining her tax liability as follows: 6 T. P.U. Units on an avcr3gA work.:.ng day of 20 days a ount of 1 days a month frv~ Ja~� uary 19~0 to Marc h 1953 or a working period of 660 days at an average gross inco~e of 12. ~0 or � ���� � �� �������������� ~49 , 500.00 22 6

DECISIOO � C.T. A. CASE NO. 232 16 - 1 Uni t pic kup t ruc k on an 13, 860. 00 aver age of 660 orking days from 1950 t o March 19~ at an average gross income of 21 . 00 o~ ���������� Total gross income � � � ���� � Zv percentage tax thereon � � � � F 1 , 267.20 Less a ount of percentage tax alreaay paid as per attached Exhibit "B" fro January 1950 to arch, 1953 �� 639. 9 Amount of tax still due ������ ~ 627.23 25 urcharge t eceon � � �� �� .� 156. 81 784. 04 TOTAL AMOUNT OF T X -..~T L.L. ut:. � �� ���� , � ������� � � HE EFO E , the decision of respondent Coll ctoc of Internal evenuc should b , as ~ i her ~v . o- di icd. Petitioner Feliciaad ~amson is ord~red to pay respondent the su f 84 . as deficiency per- centage \ c~mmon carrier's) tax for the period from January 1 , 1:1� 8 to arch 1 , 19~3 , incll�ding 2~, pen- alty for late paymen~. , with costs against pet~tioner. ;::,0 0 ill u:D . anila , Philippines, June 30, 1:158. -- Assoc ia te Judge .'1A1 t � U. \AL d~d not take part � .\ 227 3