CTA Case No. 4485 (Decision)

COURT OF TAX APPEALS DUll: ZaN C 1: TV FEAGLE CONSTRUCTION CORPORATION, Petitioner, versus - C.T.A. CASE NO. 448S COMMISSiotER OF INTERNAL REVENUE, Respor.deY�t. X- - - - - - - - - - - X D E C: :1: B :1: 0 N Before the Court, petitioner prays for the cancellation of the deficiency income tax assessment issued against it by respondent, in the amount of P51,684.35. The recor�ds of the case reveal the following background facts: 1. In March, 1979, petitioner, which is a duly organized and existing Philippine corporation, entered into a service contract with ZAMIL ALUMINUM CORPORATION <a Saudi Arabian corporation>, and two separate construction subcontracts with ARABIAN POLYFAB ALGOSAIBI-BISON LTD. (both Saudi Arabian corporations>, respectively. In all three contracts, petitioner bc�und itself to supply manpower to Saudi Arabia <Exhbits "B", "C" and "0", Offer of Evidence; C.T.A. Records, pp. 39 to 50>; 143

�' DECISION CTA CASE NO. 4485 - 2- 2. On Octobet" 23, 1979, the Board of Investments iSSI..ted petit ic�net"' s certificate of registt"ation as a service contractor "in the field of Managemer.t, Engineering and Constt"uct ion Set"V ices". <Exhibit "A", Offer of Evider.ce; C.T.A. Recot"ds, p. 37 > ; 3. On September 9, 1985, the petitioner <through its Finance � Manager, Marie R. Roque>, wrote a letter addressed to the Philippine Overseas Cor.struction Board, submittir.g to it petitior.er's Income Statement for the year ended Decembet" 31, 1984 "< i >n conr.ect ion with <its> application for tax incentives (50~ deduction from Net Taxable Income> " ; 4. In a letter dated August 16, 1987, respondent informed petitioner that: "<P> er review of the report of investigation covering <petitioner's> Income Tax for 1984, there has been found due from (petitioner> the total amount of P51,684.35 representing deficiency income tax, . including increments, details of which are shown below: 1984-Deficiency Income Tax Net 1oss per ret Ut"l"� �������� <P 13, 229. 00 > Add: Disallowed incentives under R.A. 6135 ������� 142,484.00 Net income pet" investigation ��������� P129,255.00 Income tax due thereon ����� 35,239.25 Add: 20~ interest p.a. to 8 - 16-87............. 16,445. 10 AMOUNT DUE AND COLLECTIBLE P 51,684.35 144

DECISION CTA CASE NO. 4485 - 3- In view thereof, it is reques ted th a t the said amo unt be paid within thirty (30) days from receipt hereof thru the Chief, Receivable Accounts Division, Rc�om 203, BIR National Office Bldg., Diliman, Quez o n City. " <BIR Assessment Letter; BIR Records, page 167). This assessment was timely protested by pet it i or.er tht~ough a letter of pt~otest dated September 1, 1987 and received . by t~es por.d er.t on September 8, 1987; 5. In a letter dated July 10, 1990 and received by petitioner on July 31' 1990, its protest to the August 16, 1987 deficiency tax assessment was finally ar1d wholly denied by the Deputy Commissioner of the Bureau of Internal Revenue. In the said decision denying the assessment, it is stated that: "The basis of the said assessmer.t is .. the disallowance of the claimed deduction of 50~ of your client's total export service fees pursuant to R. A. No. 6135 , as amended, amounting to P142,484.00 for the reasor� that it's <sic) application for approval of this i ncentive has not been approved then by the Philippine Overseas Construct icon Board, the ager.cy tasked with the power and duty of adrninisterir�g the availment of the tax incentives of overseas contractors under P.O. No. 1167, as amended by P.O. l\lo. 657. To date, (petitior.er> has not submitted ar.y evider.ce or proof of such approval. Accordingly, this Office finds no justifiable reason to reverse, al tet~ , disturb, or modify the di s puted 145

DECISION CTA CASE NO. 4485 - 4- assessment " <Anr.ex "A", Petit ion fot"' Review, page 4; C.T.A. Records, p. 4>; 6. On August 13, 19'?0 , petitioner filed its instant petition for review with this Court, praying for the rendition of a judgment: "1. Reversir.g the Decisior. (dated July 10, 1990) sought to be reviewed; 2. Cancelling the de ficiency income tax assessment in the amount of P51,684.35 against petitioner; and 3. Grant ir.g petitioner such othet"' reliefs as may be deemed just and equitable in the premises . II <Petition for Review, p. 3) ; and 7. A letter dated October 4, 1990 and addressed to petitioner was written by the Acting Board Secretary of the Ph ilippine Overseas Construction Board and reads as follows : "NOTICE OF BOARD ACTION Feagle Construction Corporation Rm. 322, Traders Royal Bank Bl d g. A. Sc�riano St. <Aduana) Intramuros, Manila Attention: Mr. Rene J. Aguila President Gentlemen: We wish to inform you that during the meeting held on 20 September 1990, the Board discussed your application for avai lment of a deduct ion frc�m your net taxable income for the period from January 1, 1984 to October 23, 1984 146

DECISION CTA CASE NO. 4485 - 5- equivalent to 50~ of your foreign exchange remittances derived from your overseas service contracts which the Board granted your company authority to undertake, pursuant to Subsection Cd> of Section 4 of PD 1167 as amended and noted the repot"t of the BIR-POBC Workirrg Committee regat"ding the mattet". In view of the findings and recommendation cc�ntai ned therein, the Board on rnot ion duly made and seconded adopted the following resolution: "RESOLVED that the appl icat ic�n of Feagle Construction Corpora-tion for availment of a deductiorr from its net taxable income for the period from January 1, 1984 to October 23, 1984 from the following overseas projects/ manpower service contracts: Project Deduction <a> Zamil Aluminum P4,165,464.30 Cb> Arabian Polyfab 7,066,053.69 <c> Algosaibi Bison, 6,029,070.85 Ltd. in the total amount of SEVENTEEN MILLION TWO HUNDRED SIXTY THOUSAND FIVE HUNDRED EIGHTY EIGHT PESOS AND EIGHTY FOUR CENTAVOS ONLY <P17,260,588.84) which is equivalent to 50~ of its foreign exchange remittances <net of disallowed remittances> from the above overseas projects/ manpower se~vice contracts during the same period be, as it is hereby, APPROVED." <Res. No. 133-12> Very truly yours, CSGD> SISENANDO M. BARRETTO, JR. Acting Board Secretary 147

DECISION CTA CASE NO. 4485 - 6- 4 October 1990 cc: Internation Tax Affair Division Bureau of Internal Revenue" <Annex "A", Request for admission; C.T.A. Records, p. 24; Exhibit "G", Offer of Evidence, C.T.A. Records, p. 79). The sole issue brought before this Court in the instant case is whether or not the questioned assessment against petitioner dated August 16, 1987 is c c�rrect. The however, firtds it unr.eccessat~ y to address this controversy at the present time, by reason of the following additional facts evirtced by a perusal of the BIR Records, which facts have rendered the instant case moot and academic: 1. Separate Warrants of . Garnishment, both dated October 17, 1990 and signed in behalf of respondent, and respectively addressed to the President, Manager, Treasurer and/or Cashier of the United Coconut Planters Bank and the Asian Savings Bank were issued, both distraining and garnishing: "x x x so much of bank deposit and such other property, tangible or irttangible, of <petitioner> now in your possession or under control as may be available and sufficient to cover the above- mentioned tax obligatio n o f (petitionet~ ). x x x " <BIR Recot~ ds, pp. 192- 195 and 197-198>; Apparently, the petitioner did not seek to have such warrants lifted; and 148

DECISION CTA CASE NO. 4485 - 7- 2 . In a letter dated January 4, 1991, the Assistant Vice President of the United Co conut Planters Bank wrote thus: "DIR. THEMISTOCLES R. MONTALBAN Revenue Director II Collection Service SUBJECT: CASE NO. N-A- 4579-90 FEAGLE CONSTRUCTION CORP. P51,684.35 Sir: Enclosed herewith is our manager's checks No. 034744 in your favor for P51, 684. 35 representing settlement of above case. Kindly acknowledge receipt thereof. Very truly yours, <sgd> <BIR Records, ROBERTO GAERLAN Assistant Vice President" page 201 >. The payment of such amo�.mt to respondent by the United Coconut Planters Bank, for and in behalf of petitioner, is evidenced and covered by Confirmation Receipt No. B- 21411793, dated January 9, 1991 <BIR Records, p. 204>. Therefot"e, the deficier-.cy tax assessment amounting to P51,684.35 issued against petitioner by respondent has already been fully paid and satisfied. Wt�REFOREt by virtue of th� pay-nt of th� ��-�..nt d�fici�ncy incOM� taac of petitioner for 149

- . .. I� DECISION CTA CASE NO. 4485 - 8- the year 19841 the Court ' d i - i � - the in~~tant petit ion f'or review �f'or bel ng IIOOt and aead-ie. No pronounc-nt as to costs. SO ORDERED;, Quezon City, Metro 23, 1992. I CDNCUR1 't~C2..~ ERNESTO D. ACOSTA Presiding. Judge ..... I hereby certify that this decision was .I �.r ��.r... eached after due eonsultation between the members I ,' ' .._ _ of ._ the Court of Ta>< Appeals in accordance with .... .. _. '~ Section 13, Article VIII of the Constitution. <t: I,-;::-, Q ~ ERNESTO D. ACOSTA Presiding Judge Court of Ta>< Appeals 150