CTA Case No. 4340 (Decision)

~epublic of t he Ph i lippine . COURT OF TAX APPEALS Glue zo n City EDWARD T. MARCELO, C.T.A. CASE NO. 4340 Petitioner., versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X ---------------------- X This petition for review prays for the rendition of judgment "declaring that petitioner is not liable for any deficiency income taxes for the years 1982 to 1985 and ordering the respondent to withdraw hi s assessments against petitioner." Petitioner., Edward T. Marcelo, is a former Director of the Philippine Amusement and Gaming Corporation <PAGCDR>., a government - owned-and- controllP.d corporation . He i s also former President a nd Director of the Philippine Casino Operators Corporation <PCDC> arid the Provident International Resources Corporation <PIRC>. PCOC is the grantee of a concession to manage, administer and supervise the operations of PAGCOR, while PIRC is the owner of several buildings and equipment leased by PAGCOR an d used by it in t h e:, conduct of its operations.

- DE C I S I 0 N- C.T.A. Ca s e No. 4340 - 2- On July 1., 1986., a confidential report was r e c eived by the Bureau of Internal Revenue <BIR> from an unidentified informa nt, to the effect that petitioner and the corporations which he headed., i. e � ., PCOC and PIRC, had not been paying ' the correct am o unt of income t a xes. Upon receipt of .I said report, the BIR conducted an investigation of the fin a nc ia l reco r d s of P COC, PIRC and petitioner. The re s ult s of said in v e s tiga tion we r e summarized in a re po r t d a ted Marc h 10, 1 9 8 7 p re p are d by S upervi s ing Revenue Enforcement Officer Aur eleano G. Si s on Jr. The pertinent portions of said report a re quoted below as follow s : Mr. Marc elo' s copies of the income tax returns he a ll egedly fi l ed s ho wed co mpensation inco me received fro m the PnG COR a n d from the PCOC. I t a l so s how e d interest income received . He i s the majority stoc kh older of PIF~C . <Encl. XIII> He owns dit~ectly ot~ indirectly more tha n fift y ( 50 ~) p erce n t of its s hares of stock . Th e PIRC made clean loa n s fro m certain lo ca l banks amount i ng t o t hirty million and ni n ety mi l lion pesos i n 1983 and in 1984 , respective l y. <See financia l sta t e ments of P IR C >

- DE C I S I 0 N ~ C. T.A. Case No. 4340 - 3- Mr . Ma r c elo own s two piece s of re a l p r opertie s . A hou s e and lot a t 22 Coo lidg e St., Greenhill s Subdivi s ion , S a n Juan , and another hou s e and l ot at 10 Madrigal Cir c le , Corinthia n Garde n, 0 tH? z o n C i t y � <En c l � XI I I > There were eight v a n s a nd c ar s a t th e latte r p l ac e of res idence, including o ne Me rc e des Ben z 4 5 0 S L. Owner s hip c ould n o t be verifi e d at the LTC s inc e re gi s tra tio n index a re <sic) b ase d on p l<:~te nu m be t~ s. ><><X XXX X>< >< Th e i n teres t i n co me reported b y 1~11-~ � Mat' c e 1 o b e t we e n t h P y e at' s l. '::3 8 3 a 11 d 1 985 a mo un te d fr o m mor e t h a n 2 million to mor e th a n t h ree mi llion . With in t er e s t rate ra nging fr om a high of ni ne p et' Ce ll t ( '::3'1- > on st."w ing s a c c ount to e i ghte e n pet' ce n t <1 8'1- > o n time depo s it s , t h e c on servative ratP o f te n pe rc ent <1 0'1- ) wi ll ref l ect a n inv es tment of twe nty mi llio n p es o s . The PIRC o b t ai ned c le a n loans fro m l ocal b a nk s a mounting t o t h irty mill i on p esos in 19 8 3 an d nin ety million pe s o s in 19 8 4 , th ese c ould only h a ve be e n obt ai n e d wi th b a nk d e p osi ts a s guarant ee or co ll ate r a l on a on e t o on e b as i s or eye n high er . On a one to one b as i s , t h e h t'l n I< d f�~ p n "I i L 'I \-1n 1..1 1 d t � f ' .~1 c t l o'\ t; o t ;:~ 1 n f 11o t 1 e �; ~; t h <1n o n t? h u n d t '' e d t wt? n t y mi 1 l i o n p esos <f:t H~O, 0 00 , 000. 00). S ince , as me n t ion e d h eretn fo re , Mr. Marce lo d i t' e c t 1 y cw in d i t' e c t 1 y o WTH~ d m ot~ e t h a 11 fifty percent ( 5 0'1-) o f the shares of s t o d< o f t h �~ P If~ C , <E n c l s . XI I I> wh i c h obt a in ed the lo an, th e d e po s it s u sed as ' c 1 e a n c o 1 1 a t e t' c:.d ' a t' �~ c o n s i d e t' e d , f Clt' t<.1x pu y� p ose~; , a!; b t? longing t o him. X>< X XX>< XXX 955

- DEC I S I 0 N- C.T .A. Case No . 4340 .) The house and lot owned by Mr. Marcelo located at No. 22 Coolidge St., San Juan are covered by Real Property Tax Declarations Numbered B-02 1- 02860 <:mel B--021 -- 02861 <Enc 1 s. XI I I, pp. 1+ & 5). Said tax c.h~clat�ations s how that the b u i 1 d in g was dec 1 at' e d 1-Ji t h a fait' ma t'l< e t value of P466,000.00, while the lot was declared with a fair market value of 19633, 000. 00, ot~ a tot al of about � 191,000,000. 00. While this property is located within the Greenhills area which is considered a first - class neighborhood, we had granted the t a xpayer a con s ervative valuation of 36% above declared market value, of about f"t ., , ~-:; oo, ooo. no. We w~re informed tha t Mr. Mat~ c r! 1 o v c.~ c c.~t!>. d hi!; t~ !? t; id!?n c r->. c-::d ; Gr!>.nnhill<; , B iH l .J u '''"' ~; om r.~ t i mf.' ill 1 '38~::: a" d mo v �~ d t o 1\1 o. 10 Madrigal Circle , Corinthian Gardens, Quezon City, a high class residential- commercial ~omplex along E. de los S~nto s Avenue near Camp Aguinaldo. X X>< XX>< X><X In our visual in s pection of the sa id address, we noticed the c oncrete p er ime t er feQce and building improvements occupying not less than s i><ty percent of the lot areas, or approximately about 1,400 sq . m. In 19 82 , the contractor's construction price for high cost materials was about P 3 ,000.00 per square meter, making the improvement cost not less than 194,000,000.00. It is generally known in c onstruction business that interior paneling, decorat ions and fixture s cost a lot more than the superstructures upon which the s e are attached; because of t hi s , the total cost of the lot, improvements, interior fixtures as well as fu r ni s hings and app~iances would e as ily co s t a total of not, less than ten million pesos <PlO,OOO,OOO.OO> a very c onservative valuation. XX X ><XX XXX _,

- DE C I S I 0 N- C.T.A. Cas e No. 4 340 - 5- In o ur vi sit to the address a t No. 1 0 Ma d r ig a l Circle upon the service of a o f L.e tt et~ (-) u thot~ ity fot~ !Yi r~ . tvlat~ce lo, it was just before noon time and there wa s appare n t ly no socia l a c tiv ity going o n n or any v isito r s aroun d . We ob se rv e d a b out e ight ve h ic l es par k e d i nsid e the c omp o und cons i s t in g of vans an d cars , includ i n g a Merce d es Ben z 450 SL.. It is we ll k n own t h at brand new ve h icles co s t fr om more t han t wo hundred thous a nd to a lmo s t a ha l f a mi ll io n each , e s pec i a ll y th a t of th e Merce d es Ben z . The ei g ht ve hi c le s wou l d h ave co s t Mr . Ma rc elo not l ess t han two mi l l io n pe s os (f'I2 , 000 , 000.00). )(){ )( X XX ){ ){ ){ On October 29, 1986, petitioner filed his Tax Amnesty Return on his "accumulated increase in net worth from 1981 to 1985, inclusive, under the provisions of Executive Order No. 41 dated August 2 2 , 1986 and its impl e menting regulations." On October 30, 1986, petitioner paid the amount of P508,536.00 to the BIR a s amnesty ta x unde r the return, as evidenced by Confirmation Re c eipt No. B- 10126835 and BIR P a ym e nt Order No. B- 865057. Petitioner was not inc luded in t h e Presidenti a l Commission on Good Government's <PCGG's> "Freeze Order Compil e d List As of August 18, 1986", whi c h was the li s t in effec t in October, 1986 when petitioner filed his amne s ty T a x Retur n. 95

- DE C I S I 0 N- C.T.R. Case No. 4340 - 6- Tax assessment notices were issued by the BIR against p e t i tion e r on Mat~ch 1 5 , 1987, demanding payment of deficiency income taxes for the years 1982 to 19.85, inclusive, in the following a mounts: 1.982 p <7:, 7~i1' LIA9. ItO 1. r::30 3 1 '3f31� �V+ , 3 0'+, <:::GO. 00 1985 G0,83'3 , 8E9.00 TOTAL ;:~ 1. 2' E.88. 27 P108, 10'3, 267.37 Petitioner, through his counsel, filed on May 8, 1'387 a formal p r otest from the March 15, 1987 assessme nts contending that: <1> he had availed of tax amnesty for the period 1'381 to 1985 und er the p r ov is ions of Executive Order No. 41; <2 > under Presidential Decree No . 1399, the compensati on a nd/or other renumet~ at ion he received as Director of P RGCOR, PCOC and PIRC were tax-exempt; and (3) the assess ment had no legal a nd/or factual basis. On March 2, 1'388, Warrants of Distra int and Levy were issued aga inst petitioner. Simultaneously, tax liens issued against petitioner's properties were also se nt by th e BIR to th e Register of Deeds of Caloocan City and Malabon. 958

- DE C I S I 0 N- C.T.A. Case No. 4340 - 7- On January 3, 1989, respondent Commissioner of Internal Revenue rendered a decision modifying the questioned assessments by reducing the assessed amount from P108,109,267.37, to P9,320,383.70. On September 1, 1 989,, a Warrant of Garnishment was issued against petitioner, followed by notices of tax lien sent to the Register of Deeds of San Juan, Metro Manila and Quezon City, and Cebu City, and Warrants of �' Distraint and Levy, dated Se ptember 18, 1989. On February 7, 1989, petitioner requested reconsi deration of the decision of respondent Commissioner, dated January 1989. He reiterated his contention that he was absolved of any liability for deficiency income taxes by virtue of his availment of tax amnesty under the provisions of E. D. 41, and further claimed that respondent Commissioner had used the wrong method in computing hi s income tax liability. The instant petition was filed on February 25, 1 '389. Two issues are raised by petitioner for Us to resolve: whether his availment of tax amnesty under E.D. 41 was valid I and absolved him from liability.for any income tax deficiencies for 1981 to 1985; and, in case of a 95 8

- DE C I S I 0 N- C.T.A. Case No. 4340 - B- negative resolution on the first issue, whether respondent Commissioner erred in computing petitioner' s net worth used as basis for determining the questioned deficiency income tax assess ments against him. We shall first discuss the firs t issue. Petitioner contends that h is availment of amnesty under E.O. 41 was vali d for two reasons, namely, that: he complied with all th e conditions of amnesty under said law, and p a id the corresponding amnesty tax; and he was not ineligible for amnesty. Furt her to the second reason, petitioner c l aims that: "xxx ( a) he was not c ovet~ ed by the disqualification pt~ ovisio n of S ectioll '~ ( a) of E. 0. No. .lf 1 , as amended, i n .,..\ e 1 at ion to E ><�~c ut i v e Ot"' d e t' N () s . l , 2 .::\ nd 1'+; iQl_ t~ ~ not am9JJ..9. thg_ s u.Q._Qo ~;es.il .:t.. :tai nt e d p_~?T~>Q.!l2.. 1 isted_ Q_y_ the P t~ e s.J:s.ULI)_t i_~ 1_ Com mi ss i o_n. Q_Q �.Q..o d ) Go v et~ n..Jl.!�~nt . J.~E!;;;.I? G' in. i t s F t~ g_e z e Ot~_Q~ .l.i s t_ d "i:t..f?...<i .L!,i A'-!..9..!:' s t .!3111?.. illl9_ ~t0s h ~~ t h e �1-:.\.!.::.r..gJli. 1i.E.i. at t h e t i rn..g_ t he Q.!? t i t i o n e t~ f i ~_g_ h i...2_ t a >< a mn e s t y_ ; an d ( c) when the petitioner filed hi s ta >< a mnes t y r et urn an d paid t h e amn esty t a >< on 30 October 1986, the BIR read ily acce pted hi s app li catio n wit hout any que s tion .:.~bo u t his eli~-1ibil ity. In fact , the Co mmi ss ione r of Internal Revenue, i s sued a Cert ifica tion of Ava ilment of the tax 'mn esty dat e d .Ja nuat~y E:O , 1987 ><XX." ( M , emot~ andum F�ot~ The Petit i one t~ , p. 5; !3,Q_J:j_g_, p. C::1'~) <Under sc oring supplied> ' 96 J

�"!"-- -~- - DE C I S I 0 N- C.T.A. Case No. 4340 - 9- On the other hand, respondent Commissioner contend s that: 11 As pt' e vi o us 1 y e >< p 1a in e d in respon dent's letter-dec ision cited earlier, petitioner' s name appears among th ose in the updated PCGG Freeze Order li s t as of May_ 31, 1987. It is of no moment that at the time petition er avail ed of the tax amnesty undet' E.O. # Lt1 on Octobet' 31, 1986 h is name was not in the PCGG Freeze Or d er lis t. Neithe r can it be co n sidered error on the part of the implementors of E.O # 41 in respondent's Bureau that the petitioner's eligibility to avail of the benefits thereof was not first verifi ed by them considering the urgency to r aise as well as the need for more revenues of the gov ern ment a t that time whose coffers the previous administration virtually de p leted and the enormity of its foreign debt s which it had to a ddt�ess and settle. 11 We find for petitioner. It is not disputed that when petitioner filed hi s Tax Amnesty Return under E.O. No. 41 and paid hi s amnesty tax thereon, on October 29 and , 30, 1986, respectively, he had no disqualification inasmuch a~ his alleged disqualification occurred seven months later when his name was among those 1 i st ed in the PCGG's freeze order dated May 31, 1987. Petitioner has thus validly availed of the E.O. No. 41 amnesty and the sa~e could no longer be adversely affected by his subsequent disqualification. 86

-- J) r_-:-~ C r~ f I t� I c . -, . n. L~ "" s ,.,. no . f � ,:;; " ~=~ tn -- 1-L~ './ 1 11 q f I (I 1. \lll t I l ;-\1: f' E' t i t - u ll p l ' v '""' I j rJ 1 y i:IVi'\i l E'cl of ta.>< am n ~=?sty 1 1nde l"~ E.D. Nn. r'Jl, WE' f i n d no need t:u d j s c �.1 s s t; t 1 e i s s 1_1e t~ e g a,~ d i r 1 g �t It e co I" t - e c t ; n e s s o f .?. moun!.; of' \; a.)( deficiency r.~. ssesserl a.qa �� n s t Jlf >t; i t f)l)f>l ' - According 1 y., 1; I 1e in s t �=" TI t pet; i t ion i s GRANTED- P P �; 1 111 r 111 .., 11 I. L: n m m i �-; r; i 1.1 1 1 !' , ., i !:t lt Pl ' f'I_J y Ill" < I .., 1 � r ll to the d ef i c i e n cy in orne triH assess men ts, 1 5 , t�::H37, c:\ !=lajrt s t p e t i t; ioner c n 'IP Y' i nq tlliO! yP. c:n � s 19B 2 to l ':JB: ~;, i n c l u s i v e . SO ORDERED- Q1_1e;:nn City , Netro t>1 a n i l a ., Septe'T!ber lO, 199 3 . �' l.JE CONCUR: ~~- Q~ -STO D. ACOSTA .Judg e 96 2

-- ~--- - -� D L L (' l (J IJ ' t1 I ll el� eby �tltat tlr j s decisjon li'las r t r t �� C?rlCh ed E1 P.t- du e CIJ rl s u I t -:::~t i u II 2 ffi0 11 9 thE' '"em bet-s 0 ti l <:? Court of Ta x f-)ppe a I s in according ~ith Sec t i on 1 3 ~ (h- t � c 1 e V I l I o f' t h e Cons t it u t i on. ~Q..~ ERNESTO D. ACOSTA Pr-� e s i d i 11 g Judge Co ut- I; of' Ta>< Appeals