CTA Case No. 4269 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON C~TY ARNOLDUS WOODWORKS INTERNATIONAL~ INC.~ Petitioner, - versus - C.T.A. CASE NO. 4269 THE COMMISSIONER OF INTERNAL REVENUE BIENVENIDO TAN~ DEPUTY COMMISSIONER OF INTERNAL REVENUE VICTOR A. DEOFERIO~ JR .~ ASST . COMMISSIONER FOR COLLECTION PEDRO C. AGUILLON~ Respondents. X- - - - - - - - - - - - - - - - - - - - - - - - - X DECISION The petitioner herein seeks to set aside tlle assessments issued by tlle respondent finding the petitioner liable for deficiency income and percentage taxes for the year 1981. Petitioner is a domestic corporation principally engaged in the business of manufacturing and exporting wooden products v?ith its business address located at Dona Magdalena Hemady St., Quezon City. Petitioner is also engaged in the business as service contractor for repairs and mechanical devices. (Exh. 8, p. 10 1, Folder 1, BIR record.) Petitioner's Articles of Incorporation was duly registered v?itll t11e Securities and Exchange Commission on January 10, 1980. The 18.1

DECISIOB- C.I.A . CASE HO. 4269 -2- principal place of business is located at Christ The King Compound, E. Rodriguez Ave., Quezon City. (Exhs. t J-1 and J-2 .) On July 31, 19&6, the respondent sent Assessment Notices FAN -1-81-36-00&482 (Exh. 3-a) and FAN-1-81-86-00848 3 (Exh. 3- b), dated July 28, 1986, at the petitioner's plant in Marilao. Bulacan assessing it for deficiency income and percentage taxes for the year 198 1 in the total amount of P709, 140.60, computed as follows: (Exh. 3. pp. 124-127, Folder 1, BIR record.) Deficiency Income Tax Net income per investigation p 95,006.00 Add : Disauo~Nances 944.686.00 Donations to educational p 1.0 )Q,692.00 * institutions - lack of merit Net income per review Tax due thereon p 457,861.40 Less: Tax paid per return Deficiency income tax 33.252 .00 * 20% interest from 4-16-82 p 424,609.40 to 4- 15-85 (max.) Total amount due and collectible 254.765.64 p 679,.375.04 * As corrected. Deficiency Percentage Tax Gross receipt per investigation p )00. )4 3.00 Tax due thereon p 9,010.29 75% surcharge 6,757 .71 20% interest from 2-2 1-82 to 13.Q97.57 7-28-86 p 29,765.57 Total amount due and collectible �

DECISIOB- C_T_A_CASE BO_ 4269 -3- On October 27, 1936, petitioner filed it's Tax Amnesty Return {Exh. G), dated October 24, 1936, pursuant to the provisions of Executive Order No. 41, dated August 22, 1936, for the years 1931- 1985. The Tax Amnesty Return showed petitioner's address as "Christ the King Seminary Compound, E. Rodriguez Sr. Blvd., Quezon City_. M.M." (Exh. G-1). The amnesty tax amounting to P39,612 .00 was paid i:mder BIR Payment Order No. B 9 133997, dated October 27, 1936 (Exh. G-2) and CB Confirmation Receipt No. B 997312 5, dated October 27, 1936 (Exh. G-3). The petitioner filed a request for reconsideration of the said deficiency assessments on September 4, 1937, alleging that it received a copy thereof only on August 31. 19&7. (Exh. 9, p. 139, Folder 1, BIR record.) On May 12, 1938, the petitioner received a letter, dated April 11, 1933, from the respondent denying its request for reconsideration on the ground �that it was filed beyond the thirty (30) day reglementary period provided for under Section 270 of the Tax Code ( 1986), and hence, had already attained the status of finality . (EYJl. 10, p. 154, Folder 1, BIR record.) - Warrants of Distraint of Personal Property (EYJL D) and Levy on Real Property (Exh. C), both dated April 4, 1938, were issued and served against the properties of petitioner on May 19, 1988. Copies of said vvarrants was received by Mr. Purito F. 1vlopas, Manager of petitioner in its office in Lambakin, Marilao, Bulacan (Exhs. D-2 and C-2). Likewise, Notice of Tax Lien was served to the Registered of Deeds and Provincial Assessor of Malolos, Bulacan on May 30, 1933 (p. 176, Folder 1, BIR record).

DECISIOB- C_T_A _CASE lfO _4269 -4- On May 23, 1988, petitioner filed a petition for review with a prayer for the issuance of a writ of preliminary injunction. Petitioner questions the finality of the assessments, the correctness and validit}r of tl1e income tax assessment and that the deficiency percentage (contractor's) assessment in the amount of P29,765.57 has already been paid evidenced by BIR Revenue Tax Receipt No. A 92960088 and CB Confirmation Receipt No. A 10177723, dated April 16, 1982 . HO\�'.Jever, contrary to the allegations of petitioner, the BIR Revenue Tax Receipt (No. A 92 960088) and CB Confirmation Receipt (No. A 10 17772 .3) refers to the payment of withholding taxes of P 12,500.00 for Director's Fee and P3,000.00 for Special !:)onus or a total of P 15500.00, instead of what it alleged to be payment of the alleged deficiency contractor's tax in the sum of P2 9,765.57 including increments thereto. (See Check Voucher No. 1465, dated April 15, 1982; pp. 75-76, Folder 1, BIR record.) Petitioner alleged that the deficiency assessments were received only on August 31, 1987. Respondent contended that petitioner could not have possibly received the subject assessments on August 31. 19&7 or more than one (1) year from the time they were sent by registered mail, considering that the same were presumably received in the "regular course of mail" under Section 5(v), Rule 13 1 of tl1e Revised Rules of Court To fresher buttress its claim that it is not liable for the payment of the assessment issued by the respondent, the petitioner alleged that it has applied for and was granted tax amnesty by the government for the years 1981 to 19&5 under Executive Order No. 41 (EO 41) which took effect on August 22, 1986. The respondent,

DECISIO.R- C.T.A. CASE 110. 4Z69 -5- on the otl1er hand, refuU>s this claim of petitioner, stating that under Revenue Memorandum Order No. 4-&7 (RMO 4-&7) daU>d February 9, 19&7, implementing EO 41, only those assessments issued afwr August 22, 19&6 can be covered by the tax amnesty. The issues to be resolved in this case are: 1. Whether or not the assessments issued by the respondent assessing the petitioner for deficiency income and percentage taxes in the sum of P709, 140.60 has already become final and unappealable; and 2. Whether or not the availment by tl1e petitioner of the tax amnesty under EO 41 cancelled the .said assessments and liability thereunder. Anent the first issue, Section .319-A (now Section 229) of the Tax Code (which was then tl1e prevailing provision of law during the period in question) or Section 270 of the 19&6 Tax Code provides for the period within which a taxpayer may file a request for reconsideration of an assessment issued by the Commissioner of Inwrnal Revenue, to wit: / �sec. 319-A. Protesting of assessment. - When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings . Within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing , I .� .1. ,J u

DECISIOB- C.T .A . CASE BO. 4269 -6- regulations within tl1irty (30) days from receipt of the assessment; otl1erwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by tl1e decision on the protest may appeal to the Court of Tax Appeals witllin tl1irty (30) days from receipt of the said decision; otherwise, the decision shall become final executory and demandable. (As inserted by PD 1773.)" Thus, if petitioner's allegation that it received the assessments only on August 3 t 19&7 is to be sustained, tl1e filing of it's request for reconsideration of t11e respondent's assessments on September 4, 19&7 may be considered as having been timely filed witl1in tl1e ttlirty (30) day period provided for by law. Altl1ougl1 the evidence pertaining to the case at bar reveals that tt1e assessment notices were sent by registered mail on July 3 t 19&6, in the plant of petitioner in Marilao, Bulacan tl1ere is a complete absence of proof to establish tt1at t11e p~titioner actually ' received tl1em. The respondent clings to the presumption of law tl1at "a letter duly directed and mailed was received in t11e regular course of the mail". [Sec. 3(v), Rule 131 of the Revised Rules of Court]. While it may be true that a letter would unlikely be received after more than one year from the time it was duly mailed, tl1e respondent failecl to realize that such contention is merely a disputable presumption. It is put on inference provided for by law to be conveniently used in appreciation of evidence. As such, it is subject to rebuttal which will shift the burden of proof to the party alleging the same. Petitioner herein denies tl1at it had received any l~H)

DECISIOB- C.I.A. CASE BO. 4269 -7- assessment notices prior to August 31, 1987. Neither did it received any assessment notices in its plant in Marilao, Bulacan. The Letter of Authority sent by respondent was not received in Marilao, Bulacan but in the prinCipal place of business of petitioner. From the time of incorporation up to the present petitioner maintains its office at Christ the King Seminary Compound, Dona Magdalena Hemady Street, Quezon City as testified by petitioner's �witnesses; Fr. Anthony J. Ranada, Finance Manager, and Mr. Rogelio Tampinco, Accountant- Bookkeeper. (TSN dated November 2CJ, 1989 and May 14, 1990.) This was in fact stipulated by both parties. (p. 8, TSN dated May 14, 1990.) In fact on rebuttal evidence, petitioner's witness Mr. Rogelio P. Tampinco testified that the Letter of Authority (No. 0034335 RR dated September 14, 1984) addressed to petitioner in its plant in Marilao, Bulacan, was actually received by him on October 22, 1984 in the Quezon City office of petitioner. (pp. 5-6, TSN dated November 16, 1992 .) In this connection, the Supreme Court had adopted this particular ruling: "Appellee contends that per Exhibit A, the notice was released and mailed to the appellant by the BIR on Aug. 4, 1955 under the signature of the Chief, Records Section, Office; that since the original thereof v1as not returned to tlle appellee, the presumption is that the appellant received tl1e mailed notice. This is correct, but this being merely a mere disputat>le presumption, the same is subject to con~oversion, and a direct denial of the receipt thereof shtfts the burden upon the party favored by the presumption to prove that the mailed letter was received by the addressee. The appellee, however, argues that si~ce notice was released and mailed and the fact of 1ts release was , admitted by the appellant the admission is proof that , J'.. L' 'f

DECISI01l- C.I .A. CASE 1l0. 1269 - a- he received the mailed notice of assessment. We do not tllink so. It is true the Court L'1 qll(J made such a finding of fact, but as pointed out by tlle appellant in its brief, and as borne out by the records, no such admission vras ever made by tlle appellant in the answer or in any other pleading, or in any declaration, oral or chx:umentary before the trial court. We note that the appellee has not met this challenge, and after a revie~N of t11e records, we find appellant's assertion well-taken ." "Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955. it can not be assumed that private respondent received said letter. x x x." (Republic of the Philippines v _ The Court of Appeals, and Nielson & Company Inc., , 146 SCRA 355, 356J The records reveal that the petitioner firmly stood pat on its claim that it receivecl tbe "Order of Payment", vrhicb is actually an assessment, only on August 3.1, 19&7. In other words, it did not receive it in the due course of mail. It likewise denied having received the other assessment notices sent to its plant site in r�.,.Iarilao, Bulacan. It was therefore incumbent upon the respondent to prove l)y contrary evidence t11at the petitioner indeed received t11e assessment in t11e due course of mail for Us to consicler tlw present action as having been filed out of time. T~e (JEllS p1"oA'1ndi was shifted to responden....t. Having failed to establish her c:laJm by preponderance of evidence, We cannot consider that the present action of the petitioner has prescrit>E~cl. This is especially true in t11e instant case where tl1e Corporate Income Tax Return under reviev; by the respondent clearly ,indicates tJ1at tlle taxpayer's principal . ..l J (J

DECISIOB- C.T.A. CASE BO_ 4269 -9- place of business is Christ the King lvHssion Seminary, E. Rodriquez Sr., Quezon City and not Marilao, Bulacan. � On the second issue of whetl1er or not the availment by tl1e petitioner of the tax amnesty under EO 41 cancelled tl1e said assessments and liability thereunder, the answer is in the affirmative. In the case of Commissioner of Internal Revenue v_ ROH Auto Products Phils., Inc_and the Court of Tax Appeals, CA- G_R_ s_p_No_ 22923, December 11, 1992, the Court. of Appeals held: -- "In t11e instant case, exammmg carefully the words used in Executive Order N. 41, as amended, we find notl1ing which justifies petitioner Commissioner's ground for denying respondent taxpayer's claim to the benefits of the amnesty law. Section 4 of the subject law enumerates, in no uncertain terms, taxpayers who may not avail of the amnesty granted, namely: 'a) Those falling under tlw provisions of Executive Order Nos. 1, 2 and 14; b) Those V�lith income tax cases already filed in Court as of the effectivity hereof; c) Those with criminal cases involving violations of tlle income tax law already filed in �court as of the effectivity hereof; d) Those that have withholding tax liabilities under tl1e National Internal Revenue Cocle, as amendecl, insofar as the said lial)ilities are concerned;

DECISIOH- C_T .A. CASE HO. 1269 - to - e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of information furnished under Section 316 of the National Internal Revenue Code, as amended; i) Those '1"11ith pending cases involving unexplained or unla"Wfully acquired wealth before t11e Sandigant>ayan; and, g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Ex-a.c:tions and Transactions) an Chapter Four (Malversation of Public Funds and Property) of the Revised Penal Code, as amended ." Admittedly, respondent taxpayer does not. fall under any of the above exceptions. The added exception urged by petitioner Commissioner based on Revenue Jv1emorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to t11e mandate of t11e law ~Nhi~~:h the regulation ought to irnplement. In Commissioner of Internal Revenue vs. Tikicraft Industries, Inc. and Court of Tax Appeals, CA-G.R. SP No. 24488, 26 August 1991, this Court had the occasion to rule on the nullity of the questioned administrative directive in this wise: 'In fine, the power of the Secretary of Finance to promulgate rules and regulations, upon the recommendation of the Commissioner of Internal Revenue, for the effective enforcement of internal revenue laws, is subject to the limit.ation that said rules and regulations should not be in conflict wit11 t11e terms and provisions of a pre-existing la'"''� 2uu

DECISIOR- C.I.A. CASE RO. 4269 - 11 - 'The interpretation forced upon us by tlw petitioner "Witll -respect to tile coverage of those ,..ltfo can avail of ttte tax amnesty under the provisions of E.O. 41 as amended is erroneous. Petitioner also insists that E.O. 41 as amended must be given only prospective application. 'Obviously tile title of E.O. 4 1 itself as amended t)y E.O. 64 - 'Declaring a One- Time Tax Amnesty covering Income Taxes. xxx and the Tax on Business under Chapt-r ICTitle V of the National Internal Revenue Code, as amended, for the years 1981- 1986' suggests that the tax amnesty has to be given retroactive effect so (as) to include in its coverage unpaid income and business taxes for the past years specifically mentioned_. namely, 19& 1 to 1985. �xxx As held by tile Supreme Court in ABS-CBN vs. Court of Tax Appeals 1oe) SCRA 142, 'A ruling or circular issued by tlle Comrnissioner of Internal Revenue has no retroactive effect if t) so apply them would adversely affect the taxpayer.' 'By analogy, tile aforecited rule may be applied to rules and regulations promulgated by the Secretary of Finance. Conversely, a rule or regulation, may be given retroactive application if the same ~"lOuld be beneficial to the taxpayer, as in the case at bar�. XXX 'It is well to stress that taxpayers vvllose tax assessments were issued prior 2Ul

DECISION- C.I.A. CASE HO_ 4269 - 12 - to August 22, 1936 are not among the exceptions. Under tlle rule of �expressio uniu.s est esclu.sio alterius.� 'where a statute enumerates the subjects or thins on which it is to operate, it is to be construed as excluding from its effects all those not expressly mentioned.� x x x Hence, since Section 4 of E.O. 41 specifically mentions the exceptions from the coverage of the tax amnesty, it necessarily follov.,rs that others not mentioned, such as taxpayers who were issued assessments �prior to August 21, 1936, are not included in the exceptions. XXX 'For the reasons aforecitecl, We find t11at the questioned Re��lenue Mernorandu.m Orders promulgated b)r the Secretary of Finance have the effect of expanding the provisions of Sec. 4 of E.O. 41 by including therein exceptions not contemplated by said lavv-, hence, the same are �held to be null and void.' V�Te sense no cogent reason to depart from tile above pronouncements. Lastly, by its very nature, "a tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax lav�l, partakes of an atlsolute forgiveness or waiver by t11e Government of its right to collect what other-wise would be due it, and in tllis sense, prejudicial tllereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society vv-ith a clean slate." (Republic v. Intermediate Appellate Court, 196 SCRA ~>3:>~ 340 (19901 citing Comrnissioner of Internal Revenue vs. Botelho Shipping Corp., 20 SCRA 457) To follow the restrictive application of Revenue .Memorandum Order No. 4-87 2 u:2

DECISIOH- C.T .A. CASE HO. 4269 - 13 - pressed by petitioner Commissioner would be to work against the raison d'etre of E.O. 41, as amended, i.e., to raise government revenue by encouraging taxpayers to declare their untaxed income and pay the tax due thereon. (E.O. 41, first paragraph)" The above-mentioned ruling together with Bay Foods Specialties, Inc. v_ The Commissioner of Internal Revenue, CTA Case No. 4246, August 7, 1991, were also cited in the recent case of Eduardo M . Limcangco v _ The Commissioner of Internal Revenue, CTA Case No. 4827, March 4, 1993.' WHEREFORE, premises .consid~red, judgment is hereby renderecl GRANTING the instant petition for revie~N. The Deficiency Income Tax and Percentage Tax Assessments for the year 198 1 in the sum of P709, 140.60 is hereby cancelled and set aside in view of petitioner's availment of the tax amnesty pursuant to Executive Order No . 41, as amended. The "~rlrit of preliminary injunction is hereby madt: permanent. Respondent is hereby ordered to desist from collecting the Deficiency Income and Percentage Tax Assessments issued against petitioner for the year 1981 in the sum of P709, 140.60. No pronouncement as to costs of suit. SO ORDERED. Quezon City, Metro Manila, lvlarch 18, 1994. Q~\Q,~ ERNESTO D. ACOSTA Presiding Judge 2U0

DECISIO.R- C.I .A. CASE .RO . 4269 - 14 - / L K_ GRUBA ~~t~~~ RAMON 0 _DE A Associate Judg CERTIFICATION I hereby certify that the decision v.ro.s reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 1.3, Article VIII of the Constitution. ~Q-~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals