SUNNYVALE DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SUNNYVALE DEVELOPMEN~ C.T. A. CASE NO . 5730 CORPORATION, Petit ioner, - vers us - COMMISSION~~ Or INTERNAL Promulgat ed: REV'ENO'E; JAN 04 2001 ~- Re spondent. X- ---$ ~ X &, - - - - - - - - - - - - - - - - - - _, DE CISION ' ,. Th is c a se inv olves assessments of deficiency inco~e, donor's a nd wi thholding taxes in the amounts of P465, 042.78, P320, 623.09 and P8, 179.12, respectively or in a total amount of P793,844.99 for the fiscal year ended June 30, 1994. Petitioner is a domest ic corporation organized to - .,\ . promote, form, acq uire, deve~pp , or establish businesses ��' and all forms of industrial, commercial, manufacturing, construction and agricultural enterprises, domestic or foreign, that_ have growth and development potent ial. On April 16, . 1998, Petitioner re ceived three formal assessment notices and demand letters , all dated April 7, 1998, from the Bureau of Internal Revenue for deficiency income, donor's and withholding taxes for the fiscal year

( DECISION - C.T.A. CASE NO. 5730 -2- ended June 3 01 1994 in the aggregate amount of P793,844.99, excluding increments, broken down as follows: (paragraph 3, Joint Stipulation of Facts) Exhibits Income Tax P465,042.78 A, B Donor's Tax 320,623.09 Withholding Tax 8,179.12 A-1, B-1 A-2, B-2 The alleged deficiency income tax assessment of P465,042.78 for the fiscal year ending June 30, 1994 arose from the disallowance of the following expenses: ' a) Real property taxes and motor vehicle registration fees - P1,081,333.14; b) Depreciation - P84,148.96; c) Association Dues - P253,286.46; d) Miscellaneous expenses such as management service fees , dues and subscription P289, 620.11 ~?Clr . � 4, Joint Stipulation of Facts) . . The deficiency 4ono~ : ~ t a x assessment of P320 1 623.o~ :: ' arose when Pet~tiope~ � a l le g~ dl yf � waived its ri~ht t6 ,;t � ; collect interest on lnterea�t ~t~~et.. loans to its affiliated -i~~- �,:l I .-~ ~~_) � : ' .' ./ � � company, the Alabang S u pe r m:?�-....J:� :kett� , �. ~ Corp�. orati on (par . 6; . ~~ ' l �� Joint Stipulation of Facts) . The deficiency withholding tax assessment of P8,179.12 for fiscal year ending June 30, 1994 arose from the alleged failure of the Petitioner to withhold a 1% contractor's tax on transportation equipment in the

DECISION - C.T.A. CASE NO. 5730 - 3- amount of Pe17, 9l~ .oo (par. 5, Joint St ipulation of Facts) , ()n May 15, 1998, Petitioner, through its external auditor 1 sycip , Gbrres Velayo and Company, filed with the Bureau of Internal Revenue (B IR ) an administrative protest agaihst the aoove deficiency income, donor ' s and withholding tax assessments for fiscal year ending June -' 30, 1994 (par. 7, Joint Stipulation of Facts) On July 14, 1998, Petitioner, through � its external auditor, filed wittt� the BIR a supplemental protest reiterating its disagreement to the subject deficiency tax assessments and transmitting therewith the following documents to support its position against the merit of the subject tax assessments: (par . 8, Joint Stipulation of Facts) a. Copies of the ' ofiici~ l � receipts evide ncing the payment of ~eal property (Exhs. F to F-20) and motor vehicle registration fees; b. Copies of the Certificate of Registration and official :):'eceipts for the renewal of registration of motor vehicles owned by the Petitioner and used by its officers; c. Copfe~ of the official receipts evidencing the payment of association dues (Exhs. H to H-18); d. Copies of the official receipts evidencing payment of management fees, subscriptions and other miscellaneous expenses (Exhs. I to I-10); 34

DECISION - C.T.A. CASE NO. 5730 -4- e. A copy of the Deed 0f Assignment executed by the Petitioner and Alabang Supermarket Corporation on February 16, 1995 wherein the cash advances secured by the latter from the Petitioner were converted into equity per Resolution of Petitioner's Board of Directors (Exh. K-1). Alleging inaction on the part of the Respondent on the said administrative protest filed by herein Petitioner, the latter appealed to this Court on February 5, 1999 pursuant to Section 228 of the Tax Code, as _, amended, wherein it is provided that: "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 said decision, or from the lapse of the one eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." No evidence was submitted by the Respondent in refutation of Petition~r 1 $ fl~~ everp tions. In fact, on .. �. .} . .)"': -:~ July 18, 2000, Respondent wa s decl~ i ed to have waived his right to present evidenc e due to his failure to appear on said hearing date (p. 221, CTA rec.) The parties in this case stipulated that the . following issues � �are to 'be determined by this Court, to wit: 1. Whether or not the right of the BIR to assess Petitioner for alleged deficiency income, withholding and donor's taxes for 35

DECISION - C.T.A. CASE NO. 5730 - 5 ,_ fiscal year ended June 30, 1 994 has already prescr ibed; 2 . Wh e the r or not the deficiency income, donor 's and withholding tax assessments i s sued against Petitioner for fiscal year endi ng J une 30, 1994 are void for failure t o state the law and the facts on which the a s sessment s we re made; 3. Whe t her o r not the following expenses are auffia i ently supported as valid de ductions f:t:�om Petitione r 's gross income for fisca l year ended June 30, 1994: _, a. Real property taxes and mo tor vehic le registration fee s P1,081,333 , 14; b. Depre c-i'ation - P84, 148. 96; c. Association Dues - P253,286. 46 ; d. Miscellaneous expenses repr e sent- ing management service fees, dues and subscriptions - P289,620.11; ~. Whether or not ' i nterest in the a mount of P3,206,220.87 � ~llb gedly waived by Petitioner on ~ int er~~ t-free .cash advances granted to i ,tE( �:a tfil iat ed company shoul d be considere4 .. a .' d,ona'~� ion ��;H n fa v or of the latter and he n ce ; �� stJ,bj e ct '' to donor's tax ; and �� 5. Whether or not Petitioner is liable to a 1% withholdin~ tax on transportation equipment amounting to P817,912.00 for the fis~al year ended June 30, 1994. In resolvin�g �the fi r st issue, We quote the pertinent provision of the law, viz: SEC. 203. Period of Limitation Upon Assessment and Collection . - Ex cept as provided in the succeeding section, inter nal revenue ~:'"""�

DECISION - C.T . A . CASE NO. 5730 - 6- taxes shall be assessed within three years after the last day pres_cribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall .be b egun after the expiration of such period: Provided, That in a case where a return i s filed beyond the period prescribed py law, the three-ye ar period shall be counted frQI11 the deY . the return was filed. For the purposes of this section , a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day. (Underscoring supplied). Th~s, it is quite clear from the above proviso that Respondent had three years to assess Petitioner commencing from the _9?Y Petitioner filed its tax return. Relative thereto, Article 13 of the New Civil Code provides that a year shall be understood to consist of 365 days. As disclosed by the records in this case, Petitioner f iled its annual income . re turn, for ta~ . ' the fiscal year . . �,� �~ ~ -':. . . ended J une 30, . '... (Exh. E-2} . 1994on Oc t- ober �. ~. ' , . 1 7, 1994 ; ~' ' ..:- . �' Respondent therefore h~d unttl : OC.t.ober 16, 1997 (1996 being a leap year) within which to assess Petitioner for deficiency income tax. However, Respondent issued the assessment nqtice (Exhibit A) and demand letter (Exh. B) only on April 7,. .1998 which Petitioner allegedly received on April 16 , 1998. It is then obvious that the

DECISION - C.T.A. CASE NO. 5730 -7 - assessment for deficiency income tax against herein Petitioner was issued beyond the period allowed by law. As regards the withholding tax, the l as t day for the filing of the monthly remittance return is on the lOth day of the following month of withholding or on July 10, 1994. Petitioner filed its monthly remittance return for June 1994 on July 11, 1994 (Exh. L-5). Based on Section _, 203 above-cited, Respondent had three years therefrom within which to assess Petitioner of deficiency 1 withholding taxes o :l!" until July 10, 1997 (1996 being a leap year) . But records will reveal that t he assessment for deficiency withholding tax was issued only on April 7, 1998 and allegedly received by Petitioner on April 16, 1998. Like the assessment for deficiency income tax, it was issued out of time. Finally, for the do .n o r 1 s tax, there was no return ~ filed by Petitioner for the reason that Petitioner vehemently denies tha ~ a donation wa s ever made. Granting for the sake of argument, that there was a donation but� no return wa s :p. led by the donor allows ':Responde~t� ten years f rom the discove r � (' :' su ~�: �:. '� omission within which to assess Petitioner. But it i required that 11 the taxpayers shall be informed in writing 3K -

DECISION - C . T.A. CASE NO. 5730 - 8- of the law and the facts on w~ich the assessment is made, otherwise , the assessment shall be void" (Sec. 228) . It is evident from the records in this case , that the aesessment notice issued by the Respondent against Petitioner for deficiency donor's tax did not indicate how the tax base of P3,206,230.87 was arrive d at and why it was being subjected to donor's tax (see Exhibit "A- iII) ' The accompanying demand letter also fa iled to state the law and the facts on which the asse ssment was based ... (see Exhibit "B-1 11 )'"'. Hence, the same is void in accordance with Section 228 of the Tax Code, as amended. It bears stressing that not only the assessment for deficiency donor's tax is found to be void but the assessments for deficiency income and withholding taxes as well. For the income tax assessment, the assessment notice did not indicate the :):'easons for disallowing the amounts of deductions pe:rta .i~~ng t o taxes and licenses, . ... � . . depreciation, associat i on dues and miscellaneous expense. ~' 1~ � For the withholdi ng tax ~s ses s ment, the ass essment notice . did not indicate how ~pe t ax base of P817,912.00 was computed. The �� concomitani demand letters of said assessment notices did not state the law and the facts on which the assessments were based. As We have discussed

DECISION - C.T.A. CASE NO. 5730 - 9- earlier, no evidence was presented by the Respondent to controvert Petitioner�s allegations because he was declared to have waived his right to present evidence. In other words, aside from the assessments issued beyond the prescriptive period, they were also void pursuant to Section 228 of the Tax Code, as amended. Verily, finding that the questioned assessments were -� void and issued beyond the three-year period allowed by law to assess Petitioner, We find it no longer necessary K to resolve the remaining issues. WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED. Accordingly, the assessments issued by the Respondent against the Petitioner for the fiscal year ended June 30, 1994, particularly Assessment Notice No. 85326 for deficiency income tax of P465, 042.78, Assessment Notice No. 85326 for deficiency donor �s tax in the amount of P320, 623.09 and Assessment Notice No. 85326 for deficiency withholding tax in the ; \-.: .~ amount of P8,179.12, are C~CELLED and WITHDRAWN.� . � f' SO ORDERED. 40 ,~ .

DECISION - - 10 - C.T.A. CASE NO. 5730 WE CONCUR: CERTIFICATION I hereby certi~~ that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VI !I of the Constitution. LQ-~ ERNESTO D. ACOSTA Presiding Judge 41