CTA Case No. 4812 (Decision)

- I RCPUBLIC OF THE PHILIPPINES CO URT OF TAX APPEALS QUEZON CITY P HI LIPPIN E INVESTM E NT MANAGEM E NT CON S ULTANT S , INC. , P e ti t.Lor t c ,. - VC I' f; 1.1 '> . C.T.A. CA SE NO. 4812 COMMIS S ION E R OF INTERNAL REV E NUE, Re s por tde rr t:. X- - - - - - - - - - - - - - - - X DECISION I n Lhi ::; s ui.L, p �! tltiorr er� d if; put cs the assessme nt for def i cie n cy va lu e - r:tdcl e d tax (VAT) fo r 19 88 i ss u e d by 1� ~) ,,; p o n d c n L o t" d e t' 1 n g l t: t o p a y t h c s u Ill o f P 1 , 1 6 5 , 7 0 0 � 4 2 , i n c lusi ve of incre me n t s. -I I I P e t.itior ter is a cJorn est ic co rporation dul y orga ni ze d .Jnd c>< .i �::. tiny Utld C t ' t il e o f t h e Philippin es with ' Bldg., 1 66 Sa l ce do St ., pt� incipal of fi ce at PHHH1A L e CJ d s p .i \/ L 1 1. a g o , 111,,, f, d t L , 111u 1: t � o I~ a n l l a . I n L h e c o u I' s CJ u f i t s b u s i n e s s o p e r a t i o n d u r i n g t h e � 1�. i Ill e rn a t CJ t' .L.-t .l t o t It i s a c t l o 11 , p e t l t i o ri e t" e n t e r� e d 1 n t o ntanage iTt e n t co n t _t.. acl wit h Uni ted P ulp a nd P a p er Co., Inc., (UPPC) a tt d Ri .t c:t l Ce me nt Co mp u n y (R CC ) t o 111 i'.llli:t g e t h e b u s .in ess <1!~ l,..u.:d l ac r e nd e r technical se rvic es a nd othe r t' e 1 a t e d 111 u 1: t c t � s t o (3 rt .i. d e n t .i t i e s � 583

DECISION - C.T.A. Ca s e No. 4812 - 2- Un uc t' t l1 c s a i d a g t' e e 111 e n t , p e t i t i o n e r� i s s u p p o s e d t o !J e p a id annu!3l i n ce ntive bo1tu s eq uival e nt to a certai n p e r�ce nt a ye of income b af,P (J o n UPPC and RCC ' s audited fin a n cia 1 s t a t e n1 e n t s f o t� 1 9 8 7 . T h (:~ c o n L r� a c t s we t' e c o mp 1 e t e d by p e t i t i o n e r b e f o r e Dec e ru!J e t� 31 , 1987 but paym e nts we r e made t hereafter. Petitiot1e1� bl .l.l erl lJPPC a nd RCC fot� ma n ageme nt bonus in c lud~nsJ tl % co ntr acto r� s t ax on fYlar c h 1988 based on the 1987 audited ~; tRtc m P ttL s o f sa.i. d e ntit les. 011 J uly 2 0, 1 988, p e titioner paid co ntr acto t� ' s tax o n the h.':lsi �: of s a id bi ll i tty s to UPPC a nd RCC. In a letter� of t� e~>po ttd e nt, dated June 19, 1991, wl1ich was n::cr~lve d by p e tiUoner on June 26 , 1991, the f o r m e t� a s s e s s e d a n u d e rn a n d e d f t� o rn t h e 1 a t t e r t h e a 111 o u n t of Pl,1 65,7 00.42 AS deficiency VAT for th e first se mester o f 1988, comput e rl as f o ll o ws: Total taxa bl e s a l es /rec eip t s p e t� fil e u a udit P10,588,853.00 1,055,855.30 10 ~> T ax du e th ereo n 474,144.73 581,740.60 Le s s: T ax Alr ea dy Paid 145,435.15 4 28,52 4 . 67 De f.ic.i nnc y T ax Due 10,000.00 25% S u r c h a t�gc du n t h c t�co n P l , 1 6 5....J....O 0 � ll ~ l 11 te r r� � t ( 1) nIJ.l f' 0 f' I i '�' (' p (' t I <.i 1 i Y cH I cJ 1 , t e Jl<' y1.1. t,' , i lt'\l. OlJ I,!T DU r l. 'T TI3L E 584

.' DECISION - C.T.A. Case No. 4812 - 3- T It e R 1 or� c sa id a c c, c s s 111 c 11 t '.J as 11 rot e s ted by p e t i t ion e t� in i t s J ett:c1�, cf;iLcd July ~25 , 1 991 , for lacl< of legal and On ~�l arc h 2 1 ' 1992, I" e s p o rt d e n t r e n d e r e d a final d c cl~;lon 011 t h e assess tn c nt which wa s receiv ed by p e Li t i o 11 8 1�� (1 n I~ p ,. i1 2 8 , 1 9 9 2 d e n y i n g t h e p r o t e s t o n t h e yt� ound, t l1 at t lt e optio n to pay t h e 4% contra cto r' s tax i1 1s teau of Lite 10% VAT o n c1 rn o un ts r eceived afte r� January 1 , 19 8 8 f o t� ui 11 i 11 g s o f s upp ose d 1 y finished co n t t� act as of Dece fllb er 31 , 1987 i s a pr�e fere nti a l tr� eatrnent. As petitiol te t� did tt ot obse t ' V(~ t h e co nd itions set fo rth under Sect ion 6(\:J) of neve nu e FU~ gulatio n No. 5-87, r es ponde n t r� e i t e t" a L ~~ d t h e de mu11d fo t' payment of the s um of P1,165,700.4 2. Hence, petitioner� inte1�po se d the i n stant a pp ea l to thi s Court on May 27, 1992 . Aft e I" Jue t it e case wa s s ubm itte d for d e c i s i o n u n l: 11 e b a s i s u r t II c p l e a d i n g s a n d t h e r e c o r� d s t h e r� eo f, wh e re p C t l t i 0 II C t ' filed its 111e rn or a nd u m w hi 1 e I'C~sponde nt cl.i.d I'IOL r i l e i'! ll j rnemol� a ndurn . By a nd l a rge, petition e r assails t h e decision of t c� s pond e nt ltolultt(j 11: liabl e for d eficie 11 cy VAT o n t he gr� ou rtd Lit d L; Lit e assc~ss m e n l: is er r�o n eo u s. r-lrstly, p c t: i t i o n e t' co ntc~ 11u s tit d l: co mplian ce wi til t h e 585

DECISION - � C.T.A. Case No. 4812 - 4- ad ml n i s t: r d l i ,; e ,. e qu i r� e rn e r1 t: r:; . l. c 11 ot: o nly impo s sib l ~ but 0 a l s o unt" ea s o tia bl e i r1 vi e w of th e s tipulation s in its c o n t: r� a c L(:, wi t l1 UP P C u 11 u RC C ""' h i c h we r� e c o m p 1 e t e d o n o r b e fore Dece lflb e r 3 1 ' 1 987 a nd payment of whi c h are r e c e i v a b 1 e o 11 o r� a f t e r� J a n u a r y 1 , 1 9 8 8 , s i n c e t h e f e e s p a yab l e to p e t i t .i o rr e r� c a nn ot b e determined pr io r" to ~1arch 1 9813. 3 e c u t 1d 1 y , l L s u IJ !3 t a n t .i.i:ll 1 y c o Ill p 1 i e d wi t h S e c t i o n 6 (g) o f Reve nu e Re gulatio 11 No . . 5 - 87 when i t paid 4% c o 11 t r� a c to r s t n x , o 11 i t s b i 11 i n g s to UP P C a n d R C C o n J u 1 y ,.. ~ 1.988. T h l r� d 1 y , a n y d e f l c i e n c y t a x , i f a n y , s h o u 1 d b e b ase u on i t t> gr� o ss r �cce .ipt ~; of PB,3 4 G,070.96 a nd n ot on P B , 6 93 , 053.92. Oil t h e o t 11e r� h a n d , r es p o nd ent in an s wer to t he petition f 0 ,. .J ild i3 5 s p ec i a l a n d a f f i r mative d e f e n ses , a ll e g e d, a mo rr g oth e r s , t h at: petitioner ' s \. c oll ec t io n in t h e s un 1 of 1'8 ,69 3 ,8 53.92 for t h e first se mes t e r" of 19 8 8 wa s not in c luded in the gro ss receipt s ub j e ct e d t o V1~T; i tH.l S illli Ch as p e titioner failed to comp ly ~.J ith th e c ondition s se t f o rt h in S e c . 6(g) of Revenue f\ e g u 1 a t .i o n s I~ o . 5 --B 7, i t is t h erefot"e liable for d e f i c i e n c y V(\ T r e p r� e s e n l i n g t h e d i f �f e r� e n c e b e t we e n t h e l 0 % \ (\ T a n r Ll1 e /I ':. c u ' 1t ' ,., c to t� s t c1 x f...' h i c h i t f a 11 e d t o p a y r , ;� , ��, :: i 1, I ' r. I ! �, t l1 ' 1 9fl8; t h (~ assess me nt for \If\ I in Lil ' d lll OIIIII nf i'l,lbS ,700.4 2 f or t h e year in 586

DECISION - C.T.A. Case No . 4812 - 5- qu e~~: Lio11 th e b u rd e n of proo f r�cs t s u pot! pe ti tio n e r� t o s ll o '..J ot h e r wi se; a nd , t h e a s s a i 1 e d d P c Ls 1 o 11 .i. s v u l j d b (3 l n g i n a c c o r� d a n c e ~.; i t h 1 a w a nd ev id e n ce o n r�eco r d . Th e iss u e p ose d fo r� r�eso lution of thi s Court boi l s 1) ~~ l1 et h e r� 0 , . II 0 L p et i t i o n e r i s l i a bl e f o r d (' f i c i (.;' It c y V AT in t il e D 111o u n L of P:l,1 65,7 00 . 1\ 2 f 0 ,. t il e fir s t se meste r o f 1 988; Cl l! d 2) as a cor oll a ry, ass u ming 9-.!:9..!::!_~_n d o t h at petitio n er is li a bl e f o r any d eficie n c y Vr\ T , wh et h e r� t h e sa me s h ould , b e b ase d o n i t s g ,. o s s r� e c e 1. p t c.: o f P 8 , 3 4 6 , 0 7 0 � 9 6 a n d n ot u t i P8 , 693,853.92 T il e go v e ~'~' ' i n g p 1� o v i sio n s of t h e Ta x Cod e , in p a rt p e rtin e n t t o tlli s co tl tr�ove r s y, prov i d es : "SEC . 1 0 2 � ~.a 1 u e - a d d e d t a x o n sa l e __g_f s e r�v J:..s.: e s. ( a ) B i:1 t;_~lJJJL_ b a s _Q.___Q_f t a >< � Th e r e s h a l l be l vvieJ, assesse d a n d co l l ec t e d , ~ v a 1 u e - a d J o_c_l _ t ,1 x _..Q.9JLl.Y a 1 e t1 t L o 1 0 % o f g r o s s r� e c e j p _!:;_�____g_~.E i v e.Q__jJ_y___a n v ___Q e r� s on e ng a qed in t h e � a l_s:____.Q.f____?~_:_y_j. c e ~~. T I r e p h r� a s e ' s a 1 e o f sc 1� vJces ' n1ea 11 S t h e p e r1' o 1�111 a n ce of a ll kind s of r s e r� v i c l' s f o 1� o t 11 c r s o 1� a f e e , ,. e rn u n o r� a t i o 11 u r c o 11 �s i d P r� t1 L i o r1 , >< >< >< r� c ~~ a 1� d l ess o f w h e tl 1o r o r n o L L:.l1c p er� f o 1� 111 .:.t i 1CP th c i� Po f cn J. l s f o r t h e eX(:> I ' C .i S C 0 I" U Se 0 f' ti l 0 p h y S j_ C 'd 0 I" fll e II t a J f ._; c u 1 L i c ~ : x >( x ; " ( lJ 11 d c 1� s c o I" l. n y U u r s ) X X>< XXX XXX a nd SPct .L ot l 6(g ) of tl1e Heve nu e Re gul a tio n s No. 5- 87 ' � rea d s : " S EC � 6 � C O..!!ll!ill.�1 L .i o n of o 11 t p u t tax o n ttc;_g_g �_a -U:!.._.9_f___,; u 111 c f: o d ~> il ' d b e r� v l. c e ~~ � 58 7

l. .. DECISION - C.T.A. Case No. 4812 6- ><X X XXX XXX (g) On sa le of s ervices: XXX XXX XXX Atnount r:; du e on contracts co mpl ete d o n or before Dece mb e r 3 1, 1987, pAyments of which are rec eiva tJl o on o r� a f t e t' J a n u a r y 1 , 1 9 8 8 , s h a 11 be CO II Si d e t� ed as accrued as of Dece mber 31, l 9 8 7 f o I' Lh e p u t' p o s; e o f t h e p a y me n t o f t h FJ contra ctor ' s tax subject to the following co n dition: (l) an i nf or matio r1 return sha ll be fi.l e d s ho\.Jing the n a me ( s) of the contractee ( s ) a nd t h e a mount( s ) o f the c o 11t t' a c t p r l c e o u t s t a n d i 11 g a s o f De c e mb e I' 31, .1987, and co n tai ning a declaration of tit e o b 1 i g a t i o n t o p n y t 11 e c o n t 1� a c t o I' ' s t a x du e; (ii) the co 11 tract l>i.llcd the unpaid amount not later titan December� 31, 19 87, and a co py of suc h l>illing i s attac h e d to th e in f o r� rna t j o 11 r� c t u n1 r e q u .L 1� e d in ( i ) h c I' eo f; (iii) the co ntr acto r ha s recorded in h i s b o o I<s o f c1 c c n u 11 t \3 f o r� t h e y e a r 1 9 8 7 the amo unt receivable; a nd ( 1v ) tIt e c o 11 t t� a c t o 1� f 11 e s n o t 1 a t e r thart Janu .1r y 20, 1988, a nd on or befo1�e t I t e 2 0 t h , : a y a f t e r� e a c h c a 1 e n d a r q u a r t e 1� , t h e r P g u 1 a r� c o 11 t 1� a c t o 1� ' s t a x r- e t u r n f o r� tlt e paynt c nts receiv e d in 1988. Failure to co mpl y wit h tile above stated con d ition s h a ll automatical ly s ubj ect t h e gross receipts to the v a lUF! - addecJ tax of 1.0 %. XXX f, j () I r o~' pet i ti o n er b e ing engage d 'd l. (' () �t '� (' I' I 1 l t o v e red by the for e going Like wise, i c:rl �.) c '' f ; ( ! I 'L \'� ') (~ I t: ~ 1 8 T d X 0 Jc . 588

DECISION - C.T.A. Case No. 4812 - 7- ther-e i s 11 0 qtribble b e tw ec 11 t il e p a r� tl e s t 11 at under- Sec tion 6 (g) o f Rev e nu e Re gulatio n s No. 5 - 87 a for- e quot e d, C.l rnount s due o n cu rJLt �dc:t co mpletr:-d on or- befor-e Dece mber- :.J 1, 1987, p ay me n t s o f ~~ilic ll ar-e r�e c e lvable on or- a fter- Janu a r-y 1, 1988, s il a.l.l be co n s ider-ed a s accr� u ed as of 0 e c e rn b e r� 3 1 , 1 9 8 7 f o t' t h e p u r� p o s e o f t h e p a y me n t o f t h e co ntr�acto r' s tax �r:, ubj ect to t l1 e ab ove -- ~; t ate d c o ndi t i on s , o t ~~ e n.~ l s e , t ir e g r� oss t'ece ipt s s h a l l automati ca lly be s u b j e c t t o t: l1 e VAT o f l 0 '!.; � T h " b u n f e r1 l j e f; o 11 t lr c p e t j t i o n e r� to s lr ow t h a t a 11 t 11 e p r e G c r� .L b c d ; e:~ q 11 i �:, i Lc ~,; h n v c b e c n c o mp .l L e d l..J i t h in o r� d e t' to CX t! I' Cif.(' i t s o pti o n u f p ayi ng only t h e 4 % (,~h .il f' p ct.L l:lo n e t� c l a ims t h at i t has s ub s tanti a lly co mplic cl w.L tlr Sec tion 6 (g) ' Reve nue Re gu lntior1 No. L p a i d t 11 e c o n t r� a c to r� ' s t a x o n its billing to UPPC .:t rt d RCC, we not e d, a nd i t was cJ d 111 i t t e J b y p e t i t .i o r�re r� i n i t s me nr o r- a n d u m, t h a t o n 1 y t h e fir- s t co ndition i n Sectio n n ( g ) had been co mpl ie d with. In o th e r� wor�d s, i t f ai l ed to pr� ove its a ll egation. It is a ba s ic pr-o ce d ur� a l l Etw t h a t: " eac h par-ty mu s t prov e his a f f i r� mi t i v c a .l .l C<Jrl t:.i o r1' ' . Ti re mux i m i s e i incu mbit J' i :. ; - 1 �_i_- (J __~jI_'L_t ( i( 1' 011 CJ.' I i Jl '. ( rl f whi c h means, h e who II 0 1 Ll P lllU'� L p r '' v e . ( p 1 s . see Vo l. 6 � 589

DECISION - C.T.A. Case No. 4812 - 8- The best that petitioner c ould have done was to show by evidence that all its col le ctions for the first semester of 1988 were included in the gross receipts subjected to VAT. However, it failed to do so . At this juncture, it ma y be stated that petitioner has not also proven by any positive evidence that the assessment of resp o nd e nt wa s e rro n eo us. Thus, the presumption, of correctness of the assessme nt shou ld prevai 1. It is an established ru l e in this jurisdiction t hat t he determination of t h e Commissioner of Internal Revenue is presumed correct . It be hooves the taxpayer to rebut such presumption (Tan Guan vs. Court of Tax Appeals and the Commissioner of Internal Revenue, 19 SCRA 903; Collector of Interna 1 Revenue vs. Boho 1 Land Transportation Co . , 107 Phil. 965). Likewise, all presumption are -in favor of the correctness of the assessme nt made by the Commissioner of Internal Revenue, t h e taxpayer mu st prove t he contrary (Commissioner of Internal Revenue vs. Antonio Tua son , Inc . , 173 SCRA 397) Parenthetically, petitioner insists, assu ming I ar gu e nd o th n t it is li a b t e fo r any deficiency VAT, the sa me ::;houl d b e b ase d o n the gross rece ip ts of P8 , Jl,6,0 7 0.9 alld no l 011 P , 69 3,853.92 . This Court is \luwever. ui Ut e pt~l"Sllasion lhct t the latt e r amount should 58 0

DECISI ON - C.T.A. Case No. 481 2 - 9- be the proper basi s for the fallacy of petitioner ' s assertion is ev id e nt. A caref ul scrutiny of the records shows that petitioner merely co nc entrate d on the bonuses without '-'" mentioning the fixed , payment stip ul ated in the con tracts (S ee exhi bit s B-3 a nd C-3, pp. 84 and 90, CTA records ). On this point, we ar e ec h oi ng what the Supreme Court has said in the case of Bonifacia Sy Po vs. Court of Tax Appeals and Commissioner of Interna l Revenue, 16 4 SC RA 524. wit: "Where the taxpayer is appealing to the tax , co ur t on the ground that the Collec tor's as sess ment is err oneous, it is incu mbe n t upon him to prove there what i s the c orrect and just liabili ty by a full disclosure of a ll pertinent dat a iri hi s posse ss ion. Otherwise, if the taxpayer con� ines h imse 1f to proving that the ta x assessment is wrong, the tax court proceedings would settle nothing, and the way would be l e ft o pen for subsequent assessments and appeals in interminable succession. " ( Unders cori ng Ours). This Court is unable to find that petitioner has born e or di sc h a.rged its burden of proof, and therefore finds r es p ond e n ts d ec i s ion we ll founded ex ce pt for the i mpo s itio n o f c c ntJ rom ' se JJ e rta lty, whi c h presupposes a g r e e 111 e n t be t 11 e C-' !I t 1 e p a ,. r i e s . This Cou r t is powerless tn impose tltP compromise pen::1lt y in t h e a bsen c e of a ny show~ng t.hat p et riot'e1 rn-''>--.. <t d t h e r e to ( P ls. se e. Pl.. 1 . Int'l. F a�- 'S. Col1ec 1_� r . 4 SC ~~ 774; Eas t e r n 591

DECISION - C.T.A. Case No. 4812 - 10 - Extension f\u st r� alia a nd China T e legraph Co �� In c. vs. Commi ss ioner of Int e rn a 1 Revenue , CT A Case No . 1 81 7 , Ma y ~7 9 19 7) .. WHEREFORE , t h e p e titi o n for revi e w i s h e reby di s rni S(;;e d u i th co s t ~~ n gain s t petition er. Petitione r Philippin es I n ternati o n o l Ma n ,J geme nt Con s ult a nt s , Inc . is o 1� d e r�e d to p ay r� c ''� p o n d c n t Co mmi ss ion er of I nt e r� n a l Revenu e t h e a mount of P1,155,70 0 . 4 2 , repre se nting its 1 988 d e f.ic.Len c y va lu e -- a dd ed t ilx tnclu s ive of 20% a nnual i nt e r�est f t�o m July 19, 1 991 u n ti l fully p a id pur s u a nt to Sec. i'49 ( c )( 3 ) o f t h e T a>< Code. SO ORDERE D . July Qu ezo n City , Me tro MAnila, 2::19~ ~Gfll RAMON 0. DE E A Associate Jud WE CO NCUR : ~~\Q_'- ~ ERNESTO D. Pr� es"din g ~ K. GRUB<. ,__./ l'lf'SOC.l.. te ,JUd ge 592

DECISION - C.T.A. Case No. 4812 - 11 - CERT I F I CAT I 0 N { I h ereby certify that the decision was reached after du e . consu 1 La t ion a mong the me mbers of the Court of Tax Appeals in accordance \vith Section 13, Article VIII of the Constitution. ~~IQ,~~ ERNESIO D. ACOSTA Presiding Judge Court of Tax Appeals 593