CTA Case No. 4395 (Decision)

/ , .~�. ��r: ~.- 'l:"'" "":rr ''~- � ro� h '~ ""1 -r�� / H(~p u bfic o f :;. �i ' i1111n REPUBLIC OF THE P H IL~~Afi'JfJ� 1 t.;,:~ 1-\P PE ALS COUR'f OF APPEALS ' Otu on r; �ty MANIL A '93 FEB -8 Pl2 :2 1 FORMER SPECIAL r."' r: ,.. -r:- r SIXTH DIVISION l 'h \.~!-~~~ COMM ISSIONER OF INTERNAL C?~~-YG. F'~. --'8Ptflt1~~6920 RE: V E: N UE~ M ~m be ns � =. Pet J't j_onet� ~ . - vet� f:5Us - � MAR I G01'1EN ~ VAILClCES, C:.Af':C I A~ J.ii.'!.. 6AVAO LIGHT & rU WER CO.~ PnJmul.ga.ted : I N C.~ and the CO URT OF I H\X A PPEALS ~ ___f_E.6_0..J....J99r_______ .A F:f.?s;p o n dent r:;. ~" i. {to- t. t...v ~,.; ' ''�" ~ ''\ ......... -- - -.. )'{ .,_.. l,r- - VAILOCES, J_.: PetitionP r seeks the annulment and setting a~ide b y th4 s cour t of the Resolution of the publi c respond&nt, the Court of Tax Appeals <CTA for shcvt hereinafter> da ted October 2~ 1991 iss~ed as an incident in CTA Ca~e No. 4395 that had been filed by t h e privat e respondent~ Da.vao Light and Power Co.~ Inc � .<l:>av a e> Light hancefc:wth~ �fot� bn?.vity> on October 16, 1989 in the CTA against the petitioner herein ~ the Commissioner o~ Internal Revenue <CIR h e n ce~orth~ for brevity>. Thr~ t hr 1m t of: t. he private rero pondr:>nt" s Petition ~or R ~ vie w in the CTA i s ~or the CTA to declare as null a nd void the assessment by the CIR upon Dav.;:w Lj. qld:. o-1= de �Fic:i~;?m: y :in1: Clme te:ut i.n the sum o~ ~26~8 5 9, 15 2 .54 <inclusive o~ interest and penalties) ~o r the ~ear 1987~ and of deficiency b u siness (~ran chie e) tax in the sum c+ ~965,414.0 2 (inclusive o~ interest and penalties) also for the yeat� 19E37.

... I CA-G.R. SP NO. 26 920 I2 �I Upon the filing by Davao Light of its petition for revie w, it a pp lied wi t h the CT A for the issuance o~ a wr it of preliminary inJunction as the CIR, on Oct ober 13, 1989 Ct~ree days before D;1vao Light �f t led its petition> had issued a War ra nt of Di s trai nt of Personal Property and Warrant o-f= L f::>v y on Real PnJper-ty, .as well as warr a n ts for th e garnishment of Davac Lig ht "m bank deposits. . The resp o ndent CTA acted favorably upon Davao Light 's petiti on for an inJunction in a Resolution ... dated January 23 , 1990: the CIR has been enjoined and r�esi:t�ained "�Ft�orn pt�oceerHng ~"ith t h e c:ollectinn ~ of the deficien ~y taxes involved herein through the . O::i'S .l HO warrants of garnish men t, distraint, and levy serve~ QO ..1 ~~ on petitioner , pending final adjudication of tha J CI)O m e J�- it ~~ c:l�f= t l�-, i.~.;; ca~;..::~. 11 Fo1~ put� posem� of- sai tl 5~ injunction Da vao Light wa s re quired by the CTA to ~ submit a surety bond in the a mo unt of- � Q) ~27,000,000.00 posted by a surety co mpany of good c) Or-f standing. 0 -~ ~ n.. ' ~��.t HO Subst:~quen t ly, Davao Light, as pt:?ti"timH::n-~ /J filed a motion for reconsideration on February 6~ 1990, pra y ing of the CTA - - 8 ,t ~ ~ " ~ II ,. ~:esolut ton o �F ~ this Hon o rable Court dated January 23~ H 1990 be modified by dispensing with the .. .l%i requireme nt of a surety bond in the H a mount o ~ ~27,000,000.00 as a condition \.,_. fer the lifting of the warrant s of 0 ., ganlishrm~ nt~ distr�aint and 1�~vy l.ssuf.o\'d ~ i by the Res pondent against the petitioner I ~ �j for the c ollection of the defi ciency .pI' income and franchise tax in t he total .ii a mount o �F fiQf.a ~ 859, 152. 54. " 1 '-{J, Eight (8 ) months later <October 2~ 1991> the CTA granted the petitioner "s motion for t�et:cmsi. denatj.o rLI tn a F�:ESOU.JTION <Pet.it.:ion~ (.'nnen: "A")~ the � di ~;;pos ttl.ve pcn� tion o �f ~~<Jhic:h t�eads as �FtJ 11 o ws = "IN VIEW OF THE FO~:EGOI N G, the motion f or reconsideration of petittoner is GRANl ED i nsofar as it seeks the modiftcatio n of the resolution of this court da ted January 23~ 1990 relative to t he requirement of the s urety bond Cin �I

" CA-G.R. SP NO. 26920 I3 t h E! amCJu.nt. . o�f ~<~"l,CH)O~~OOO .. (H)) <i.l.!:; ~. condition +or the issuance o+ a writ o+ injuncti nn against the respDndent Curnm :i. s;~:; :i. t 1nP t.. to r� E�~!':; t r� i.:\ :i. n t. ht:~ E-~ n�f<J ,... c f'~me nt o+ the warrants o+ garnishment, distraint and levy issued against the peti \ ion er , which surety bond <PJSC BOND NO. 6515~/G [16]) may be dispensed with and is h er eby ordered WITHDRAWN. II ~:;u CJF:DERED. II Petiti<Jner CIR 1s assailing this l:~:f:~!::;o 1 u. t ion upon the grouRd that the resp<Jndent dispensing with the injunction bond, has CT(.~, :i. n grave abuse o+ discretion. c:ommitt.-::::d The tax es involved in CTA Case No . 4395 that this case is a n of+shoot o+ are deficiency income and franchi.,se taxes +or the year 1987 . Assessment o+ a deficiency tax is necessarily based on a finding that the returns for the taxable ye<~.,.- ha. ve I:JE:�F� !-1 +.::\ 1 ~-5E', :i. nc omp 1 E!t. P, 01�- perhaps, even ~ra udulent. E�' ,.-r or-l!'�:~ou<:;, Under Section 223 of the National Internal Revenue Code, the deficienc y tax may be assessed at any time after the discovery o+ the +alsity, fraud 01�- om:i.~s~;iun. Public po licy spelled out in Section 219 of the , Natiunal I nt ernal Revenue Code is that no court ~5 he1 1 1 h<::\ Vt:? di.J t. ho r� :i. t :y- -1::. n ~J ,... .:,1 nt:. ,;�,1 n in j u r-~c: t :i. on t D restrain the c ol lection of dny nationdl internal revenue tax, f ee, Dr chdrqe <imposed by the N i"l. t: i o n ,;�,1_ 1 n I 1 -1::. ('? ,... i i c:1. F�: E;~ v.rf.! n u i::?! CCl cl (;:�' ) � � .. Under Sectioh 11 n+ Republic Ac:t 1125 hDIAJ(o~Vi!:~ ,... , t hf:! C'f (-) fllio~l Si l..l. <:;;p r::~ n cl t hf::~ C: CJ 11 fi:~C t. i CJ n D-f i nt t? ,.- na 1 ,.-~:::~Vf."~ 1"11...1.0:::' t. iol.:< (;!~~ :i. ll F ,:::\ !''i('~~:; CJ�f cl i !::;put e cl ~� I � br." assessments that have beeM appealed to :i.t, II an cJ r� E?q u. :i. ,.- E' t. hE? -!::. <::1. ;.; p .::{ YE:' r� Pith<.~~,... -!::. o deposit the amount cldimed or to +ile a surety bond for not more than double the c:.\fllCll...\ nt. ~'J i't. h t " t:. hE�f C:: C) I...\ t.. 11

. ' ""' ~-~'-�.,."-.:T.I ,_., '' �I CA-G.R. SP NO. 26920 I4 The CTA is given the discretion to suspend ot� not to suspen d, but j_t does nc:1t seem to have been given the di sc retion to dispense with the boncl requ i t�ement. Relying upo n i t!S own pt�ecedent.t; pncJ Llpon the decision o~ th e Supreme Court in Collector vs. Reyes~ 100 F'h :L:t . 822; the CTA, in the RESOLUTION sought to be annu lled and set _ aa~de dispensed with the surety bond requirement~ as it has ~ound that the petitioner exceeded the prescribed period wit~in which he c ould issue and en~orce collection by distraint or levy~ as pointed out to it by Davao Light. "Th :i.!::; untimelinesr:; in the i~::~suance o~ the w..,a rrants could only render them i lleg.:d ;;~ ncl so thei ,.. en�fon: eme nt may be enjoined by the court through a writ o~ injunctinn !-'Jithout a su t� ety tJond." ~�� The tim e constraints in the matter o~ ~- distraint speci ~ ied in Section 207 o~ the National Inter��� n<i.d R:even tw CCJdf~ (. � nDt ear� l ier� t hr.1n U�n-ee months nor la t e r than six months ~rom receipt o~ demand .>, which wer e inserted by RA 520 3 in 1968 have been r emoved by B.P. 700 in 1984 when an amendment was inse rted in Section 319 (Section 223 . now> to the e~~ ec t that '' (c:) {)n�r-' :i.ntr-:~ t� n al ~- r,?ve nu f.? t.a:-: wh:lc:h has b&an as sRs sed within the p e riod o~ 1 i mit <\;'\ t :1. on e:d:mvE;? p n�:?sc:~-- :i.t.Jl;) d [ t. he~ de~i cie n cy taxes subject of CTA Case No . 4 3 9~5 i:'~ n~ :1. n this c:: at ego r�y] , .lli..~Y.. QSi1. CQJ..l..�:..t;_:t_g_q ill!: Q.LgtJ::a i.IJt .9.1:. J..�l.Y..Y CJI" by a Q t� pr.: eed i nq in cour��t !dJ t t.1.to j;,.ht.. fi.g Yt'?af'"Ei -follow :1. n <;J t t1e assessment. o�f the t.;nc. " (LJnd~:wsc:or� :i.n~-~ suppliec:l). If the 6 - month period for the issuance o~ a wat� t�.;;\nt OTr.� d l' rf.;�l�:. r��<.!l:t�. nt. und~:~v� Section 207 o �f~ the National Inter nal Revenue Cede is still in ~crc:e. the run~ing . ~hereo~ was ne cessari ly interrup te d b~ Davao L:t.ght 's p rotest filed with the petitioner on April 4, 1989, eig hteen day s a~ter receipt by it on Man: h 17, 19E.l9 o+ t:t11?. demi::md to p<ay. When the protest w~s denie d on September 12, 1989. the six ~on~h _ per:t.o~ fo r the i ss u a nce �by the ~etitioner therea �f� tet� o~ a��� I'�' <:�HTa� nt. o �f c�ll' """" �t� �'-",~., �-1�- r1�t. th-~,'i'��� t1ac1 1Jf.:ll:'?rl interrupted began to run aq_.ain. 1�1-1'9-. .i SS~ Ui:H1Ce tJy

~. ' CA- G.R. SP NO. 2 6920 I5 the CIR o~ s~ id warrant on October 13, l. 'lf.l9 "'Jas :1. 62 d.:~ys there~ore st i ll very much within the leH: of thr~ 6 --<nc:> nth pet� iod. Thf.~ 3 ..- mcmt h pt� oh:lbitive pE~t� iod aftet� r�� e1eeipt by the taxpay er of the demand has bea~ meant to be an allowance fo r a p~atest against the assessment that the ta xpa yer might ~ile. The pendency for more than th re e months o~ th~ protest that the taxpayer has f iled will therefore have to be applied to th at 3- month preventive period~ and so~ if the prote st has been denied~ as in this case, the CIR ~hould not anymore be under further restraint by lett i ng the balance of the 3 - month period lapse f irst before issuance of the wa rr ant o �f: di.st.r�"ai nt. . The l egtslative policy~ according to our S up n?me'-! CoUI�" t ~ i r..:; t .o a 11 ow the CL1mnd. ss :i on f.'~ t.. o �f Internal Re venue mu c h latitude in the speedy a nd pt�ompt:. co ll r:~ c:LJ.o n o �f= ta>(E~s. <D r::lyr�� i t vs. Ct�uz, 1.6::5 SCRA 57:t). 'lllf-:! r��!.'~ason :i~s obv:iousr. t.m}:es an? the~ lifeblood o f the na tion through which the government operates and with whi c h the State ef~ects its f unction s for the welfare of it s constituent s. Ho , it :i.s> o�F utm<]!st impor�.. t.e:1nce th<at the modes p rovided. for by l a w to enfor ce the collection of ta xe s s hould be s ummary a nd inter~ered with as l i t t l e as possible. <Republi c v s . Lim Tian T e ng~ :t6 SCRA 590). a sses s ment s ma d e by tax pt� f.~~:. umed corr Pc t and made in good �f=aith. vs. Cn.1 ~: ~ ~;; up r� ;::t) � Needl es s to say~ the appeal that has been elevated by Lh e pri vate r es p6ndent to the CTA involves dela y, specially si n ce the deci s ion o~ the CTA can be app ea led yet to the Court o~ Appeal s and even to t h e S ~pre m e Court. It i s only ~air that the right o~ the go ve rnment b e protected by a bond , s o that~ in the event the disput e d assessment i s uphf.;) ld, t . he b o�ncl <::cHl r.:d~ one<::" h E"~ rnc::\d e to i:H1~H�JEH" �For� J the t ax liab ility in ques tion . Indee d t here :is jurisprudence that the bond is not nec essary if the mode of col lection (distra int) i s being carried out not in accordance with law. The c ase of Reyes~ howe v er, in 100 Phil. 822 i nvol ve s a n assess me nt foisted upon the t.r.o:payer - itlh f::'l1 t h E~ qovet� runf.~ nt , =-� ,... ight to clo s;o h i:':\c:l

I' CA-G.R. SP NO. 26920 I6 a lt�� ~~~~rJy p t" f.? !;;;c t .i. bt=~d. Such is not the situation in the c.:~!:.~? at b et t � Thus we f ind merit in the petitioner's contention th al the respondent CTA"s R~so lu tion (by t wo of its thr 0 e justices) dated October 2~ 1991 modi �fying it.!:5 inj unc:ttcm l.~s~'SUfad on ,Jam~t<:\\t'"'y 2:::., 1.990 holdin~:J that tf�,c:,� s ut�� ety bond t�e qL.I:i. r�ement pr� ovided for by Section 1 1 of RA 11. 25 may be dispensed with, and which ther ~ b y allowed the pri~ate respondent to withdraw the su r e t y bond <Pioneer Ins uranc e & S ur�e �t y Co. E{c:11 ,c1 No.. 6~7i:l. 5LU r::; < l tJ) ~5406) j_ n t. ht':' c'\mo�.Jr11: o+ ~�~ ~.2 '/ . �H)O ~OOO.OO t h .:d�. :i. t . h <:I(:J post.e>d, wale' t;:)l'" "" VE' a t:>LJ ~'if;! o-F f'i :i. �:;c ,... e t i. em � WHEREFORE .. t. h e pF.'t it :ion i. !:S tlet" Pby GRANTED . �r ht? r�: E S CJL.U'T 1 Ul\1 u f t-. hE'~ t" F..~~:; p<�' rt de::! tit. c �1() in CT{.' Ct;\s e No. 'l ::~lr~':'i !, di sp ('.-�r i�s tn q l>'Ji t. h Lhe po!;_,t :i. t'l(] by t" f.~~:;ponclf.-?nt [) E;\ v �:\() L. :i. q r�tt i::\ I I ( ., F'C)\IJE:�~ r� c:o tnp t"i:\ n 'l ('J�t= C:). r..; t.t ,... E.~t y b<:) n ct ~\ ~~ r�equ :i. n :! cl b y ;; ,.,:�c l:: ion :1.:1. o�F 1 <:(~ tl25 i s, ''" ~:; a. cunc.:,pquf~nce~, l�tr'! � ;.:~ l':ly ANNULLED ~.\I lei SET ASIDE . tti) E CU NC Uf': ~ I HEREB Y Al -rES T THAl THE DE CISION WAS REACHED AFTEf': DUE CCJI\I h i.JL.T{�H l CJI\I ?~MClNEi THE l"lr:J"IBI:: F�:l:i OF TH l !;:; DI 'VI H1 CJN IN P,t f..T HU>PtNCE I!J I TH TI-lE r-::�F<~OV I !:; I DNf:3 OF bECT I UN l :~:; (-~VI" :1 t. .I ..F: V 1 1 I UF' TI..IL C:CJ I\If::l"f I TUT I UN .. ,, A,~~~�- ALFRE6t~l MARIGOMEN {-)c:t. :1. r�tq Ch c":\ i t" f'}j':l v J �-5 i. nn Fermer Spec ial 5 4