CTA Case No. 4394 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE BANK OF COMMUNICATIONS, Petit i onet", - Vet"SUS - C.T.A. CASE NO. 4394 COMMISSIONER OF INTERNAL MAY 1119(!; REVENUE, )( - - - - Respondent. D E C: X S X 0 N This is an assessment case for alleged deficiency expanded withholding tax assessment amouTJting to P1,222,944.55. On January 1988, Petitionet" a commet"cial banking corporation received the Respondent's Ass~ssment Notice No. FAS-I-84-88-000221 dated January 20, 1988 demanding pay~ent of the amount of P1,222,944.55 as alleged deficiency withholding tax computed as follows: 1984 Deficiency Expanded Withholding Tax lncoae Paytent A1ount Rate Tax Due Rent P1013651479.28 .05 p 518,273.95 Security and 6,370,334.35 .0045 28,666.50 Messengerial services 1,139,485.23 .10 113.948.52 Professional fees 757

DECISION - C.T.A. CASE NO. 4394 ..:-:,. Total expanded withholding p &60,888.97 tax due 1&5,222.24 Add: 25~ surcharge 3%,533.38 Interest fro� 1/20/85 to 1/20/88 300.00 Co1pro1ise penalty lOlA.. A!UmT DUE AND COLLECTIBLE P1,222,944.55 <Annex A, Petition) On February 23, 1988, Petitioner filed a written protest refuting the above assessment "attaching herewith a copy of the t"epot"t we have submitted to youl"' good office showing all the payments made by the Bank which at"e subject to expanded withholding tax, and which may have been inadvet"tently not taken into full considel"'ation by youl"' examiner." <Exh. N> 1989 the Respondent infot"med the On Januat"Y e., Petitioner that "a per�.1sal of the attached schedule showed that they were the same documents pt"eviously submitted to this Office and which wel"'e already tak.en into account". <Exh. O> But still, Respondent invited the Petitionet" "for an informal conference with the Chief, Banks, Financing and Insurance Division not latet" than January 17, 1989... in ordet" that this matter COllld be discussed thoroughly. ~1 (ibid.) In accordance with the Respondent's letter-dil"'ective, Petitioner confet"t"ed with the concet"ned BI R exam i net", Mrs. Adelaida M. Rozal, and explained to her Petitioner's position on the alleged tax liability. Mrs. Rozal then 758

DECISION - C.T.A. CASE NO. 4394 3 allegedly pt~omised to make the necessat~y cot~t"'ections and would advice Petitioner accordingly. All the while, Petitionet~ tho1..1ght that the assessment could be withdrawn when, Sl..tddenly, on Septembet" 14, 1989, two Warrants of Distraint on Personal Property and Levy on Real Pt"'opet~ty were set"ved on the Petitionet" d1..1e to non- payment of alleged deficiency expanded withholding tax <Exhs. P and Q). On October 10, 1989, Petitioner informed the Respondent that "thtn~e was a pending prot est st i 11 unreso 1 ved. Having been served with indecent haste, he was requested to withdraw the two Wat~t~ants he issued" <Exh. R>. Respondent ne i thet~ r1..1led on f:�et it ionet"' s wr-itten protest nor withdrawn the Warrants. Hence, this appeal. The sole issue in this case is .whether or not Petitioner is liable to pay the alleged deficiency expanded withholding tax assessed by the Respondent. We answer in the negative. Dm~ing the hearing of this case, the Respondent was given more than enough opportunity to justify her assessment as it was, pt"ecisely, contested by the Petitionet". In fact, on October 31, 1990, the Petitioner requested for a Subpoena Ad Testificandum and Duces Tecum, which this Court issued on November 9, 1990 against the BIR examiner, Mrs. A.M. Rozal for her to bring "all the documents t"elative to the figl..n"'es 759

DECISION - C.T.A. CASE NO. 4394 - 4- and computation made and appearing on Assessment Notice No. FAS-I-84-88-000221 dated 20 Januat~y 1988" <CTA Recot"ds, p. 95). On Decembet~ 4, 1990, Mrs. Rozal indeed appeared in this Cout~t but, surpt~isingly, did not bring with her the documents relative to the subject assessment. subsequent hearings scheduled by this Court were also postponed because of the failure of Mrs. Rozal to appear or even submit a.recomputation of the alleged tax due. When it was the Respondent's turn to present her evidence, her counsel acknowledged the mistakes in the assessment and the need to submit a t~ecomputat ion. Until the last hearing, Respondent failed to submit the recomp�.\tat ion because "the BIR t~ecot~ds do not have the official receipts nor copy thereof and the BIR examiner and her gt~oup supet"visor~s have ah~eady retit~ed" (see Remar~ks of the Executive �clet~k of Col\l�~t I, CTA Records, p. 544>. In fine, the Respondent, simply, cannot substantiate her assessment and submitted this case for decision based on the pleadings and r~ecot~ds sans the submission of a memor~andum. With the Respondent's admission that there were indeed m.. i: st~kes iR the assf:!.ssment, thet~eby, was a need to submit a recomputation whi6h *h~ failed do, is enough ground to cancel said assessment. The BIR cannot jt\St indiscriminately issue tax assessments against innocent taxpayet~s without substantiating the same, however~ noble 760

DECISION - C.T.A. CASE NO. 4394 - 5- the intention is (that is, fol"~ tax collection purposes). Such act cannot, of cout~se, be justified at the expense of the taxpayet~s. This Court cannot countenance this form of harassment and should put an end to this (mal>practice. Hence, We cannot do otherwise but rely on the Petitioner' s uncontt~ovet~t ed stand, very we 11 supported by documentary evidences, to wit: 1. A substantial portion of the P10,365,479.28 is not for rent but represents payments for Light and� Water which are not subject to withholding tax With t~espect to Rent, the two-page worksheet of BIR Examinet~ Ro:zal <Exhibit "VVVV"> shoW!6 how she art~ived at the amount of PlO, 365,479.28. On the first page, she scribbled the following: �1. Rent, Light and Wattr p 516,000 Per P &L <See Note 6) ~.263,505 ~31 000 X 12 = = P~, 7791 505.00 - 3,567,592.80 P1, 211,912.20 (COif>UTATION NO. 1l on the second page of the same worksheet - ' ~. �Rent, Light and Water per P/L P13,9331 072.00 Less: A1ount subjected to EWT ~.779,505.00 (See cotputation No. 1) p 9,153,567.00 (CIJIIIlUTATION NO. 2) 761

DECISION - C.T.A. CASE NO. 4394 - 6- Adding up P1,211,912.20 from Computation No. 1 and P9,153,567 tt~om Computation No. 2, the BlR Examiner got the sum of P10,365,479.28 which she claims to be rent payments still subject to EWT. The fi gl..n~e P10, 365, 479. 28 is wrong for the following r~easons: First, the BIR Examiner erroneously considered only the amount of P3,567,592.80 as the amount PBCom withheld and remitted for t~ental payments. Second, the BIR mistakenly consider~ed only the EWT withheld and remitted by PBCom' s Head Office. Thh~d, the BIR Examiner did not consider the EWT PBCom withheld and remitted through its several branches nat i on wide. F o u r"t h, the BI R Exam in e t~ know i t'l g 1 y included payments by PBCom for power~, light &Hid water of which, unc;ler Revenue Reg1..1lations No. G- 85, at~e not subject to withholding tax. Fifth, the BIR Examiner also included PBCom's rental payments for equipment which also included PBCom's t~ental payments for eq1..1ipment which are also not subject to withholding tax under the ~~me Revenue Regulations. And Sixth, the BIR Examiner"' did not even bother to check PBCom's records re�ulting in her failure to see the amounts already subjected too EWT. Correcting the BIR Examiner's Computation No. 1, the following amounts should be subtracted from the amount of P4, 779,505.00 which, as stated in her wot~ksheet, is the rent paid by PBCom for its Head Office and branches, based on Note 6 of PBCom's Auditor's Report: P3,781,629 Rent for Head Office, NCR p ~44,000 Branches and Iloilo Branch, ah~eady subjected to EWT, per Head Office BIR Form 1743B <Exhs. "A" to "A-11" > as explained by Mrs. Leticia Ignacio <Exh. "BBBB"> Rent for Oavao Branch already, subjected to EWT, pet" copy of BIR Davaa � Form 1743B <Exhs. "S" and "S-1") 762

DECISION - - 7- C.T.A. CASE NO. 4394 Rerit for Cebu Branch already, p 158,559 subjected to EWT, as recognized by the BIR Examiner in her worksheet <Exhibit "UUUU" > The figut~e P9, 153,567 in the BIR Examinen~' � Computation No. 2 is not subject to EWT because, as stated even in her wot~ksheet, it pertains to the payment for "Light and Water". St.1ch payments by PBCom for powet~, 1 i ght and wat et~, as we 11 as rent fot~ equipment, all of which C\re not sltb,ject to withholding tC\x <Revenue Regulations No. 6-85, as amended>, include the following: P1,G95,422 PBCom Head Office txpense5 for Pt2,076,293 �electric bills from Septembt:n~ P1,013,194 to Decem bet~ 1984, per 1 July P2,454,806 1993 Meralco certification (Exh. "CCCC" > p 105,783 p 48,136 PBCom Head Office Expenses for electric bills from January to December 1984, per 26 July 1993 Meralco certification <Exh. "EEEE" > and pC\rt 1 y, per manager's checks paid to Meralco <Exh. "FFFF" set~ies> PBCotn NCR Branche.s' Expenses for electric bills, pet~ i20 July 1993 Met"alco certification <Exh. "DODD") PBCom Expenses for rent of equipment, pet~ Head Office Sub-ledger, which were part of the account "Rent, Light .and Water" in the Auditor's RepCH"t erroneously included by the BIR in the disputed assessment <Exh. "OOQQ 1' > PBCom Iloilo Branch's Expenses for power, light and water, per Branch Sub-Ledger <Exh. II ~~�~KK II) PBCom Cagayan de Oro Branch's Expenses fot~ power, light and 763

,. DECISION - -8 C.T.A. CASE NO. 4394 water, per Branch Sub-Ledger p 32,58(1 <Exh. "LLLL") p 286,822 p 325, lt33 PBCom Davao Branch's Expenses light and water, p 36,730 fot~ powet~, Sub-Ledger <Exh. p 283,598 per Branch "MMMM" > PBCom Cebu Branch's Expenses for powet~, light and water, per Branch Sub-Ledger <Exh. "NNNN" > Head Office Expenses for light and water, paid through lessor Dominga, Inc. <Exh. "00">, detet~mined by subtt~acting the P517,500 annual rent from P842,933 face value of 10 manager's checks paid <Exhs. "GGGG" series> <excluding June and July 1984 payments> Head Office Expenses for light and water, paid through lessor Dominga, Inc. in July 1984, per copy . of debit ticket and bi 11 s <Exhs. "UUU" and "UUU- 1"> PBCom Head Offcice Expenses for watet~, paid direct to MWSS, per MWSS c~rtification <Exh. "HHHH" > 2. The figure used by the Commissionet~ as allegedly representing payments fot~ security, mess eng et~ i a 1 set~vices and janitorial not yet subject to EWT is wrong With t~espect to Secut~ity, Messenget~ial and Janitorial Set~vices, BIR Examinet~ Rozal, without looking fut~thet~ into the recot~ds, met~ely lifted the figlwe P6, 727,178 indicated in the Auditor's Report. The records of PBCom show that the 764

DECISION - C.T.A. CASE NO. 4394 - 9- following payments are for auch services and were already subjected to EWT earlier: P5,884,638 Payments by PBCom Head Office, NCR and La Union branches, p 201, 179 ah~eady subjected to EWT, per p 103,200 Head Office BIR Form 1743B p 153,560 <Exhs. R to A-11) as explained by Mt~s. Leticia Ignacio <Exh. PPP> Payments by PBCom Cebu Branch, already subjected to EWT, per BIR worksheet <Exh. "TTTT") Payments by PBCom Davao Branch subjected to EWT, per Davao -BIR Form 1743B <Exhs. "S" and "S-1" > Payments by I 1o i 1o Barnch subjected to EWT, I 1o i 1o BI R Form 1743B <Exhs. "JJ" and "JJ-1") 3. The figure used by the Commissioner as allegedly representing payments for professional fees is not the correct amount subject to EWT The deficiency withholdinng tax assessment on the Professional Fees paid by PBCom in the amount of P2,444,670 is also ert~oneous. Only i\ portion of this amo1..mt is s�.\bject to EWT at the rate of 10-. The others are either exempt from the EWT or are subject to a diffet~ent rate. In any event, PBCom withheld and remitted the EWT at the correct t~ate, except fot~ those exempt. To illustt~ate: PBCom payme!lt s to individual professional, already subjected to 10- EWT, per Head Office BIR Form 1743B <Exhs. A to A-11>, as explained by Mrs. Leticia Ignacio <Exhibit "QQQQ") 765

DECISION - C.T.A. CASE NO. 4394 - 1(1 - p 89,254 PBCom payments to corporations, already subjected to 5~ EWT, pet"' Head Office BIR Form 1743B <Exhs. "A" to "A-11">, as explained by Mt"'s. Leticia Ignacio <Exhibit "QQQQ") p 508,655 PBCom payments to professional partnerships, incll..tded by the Auditor's Report per Head Office Sub-Ledger <Exh. "RRRR">, which are exempt from EWT p 365,963 PBCom payments misbooked under professional fees (Exh. "RRRR">, but included by the 'Auditor's Report and already subjected to .0045 EWT, per Head Office BIR Fot"'m 1743 <Exhs. "A" to "A-11") p 912,000 PBCom payments for Central Bank supervision and examination <Exh. "SSSS">, which are exempt from EWT. <CTA Records pp. 563-568> WHEREFORE, in all the fot"'egoing, the Respondent is hereby ORDERED to CANCEL Assessment No. FAS-I-84-88-000221 dated Jant..tat"'Y 14, 1988 for being admittedly ert"'oneous and t..mjustifiable. SO ORDERED. / GRUBA Judge 766 ___ ........... - ____ ,;;..

DECISION - - 11 - C.T.A. CASE NO. 4394 WE CONCUR: n Leave> STO D. ACOSTA esiding Judg ~ ~ .......~ DE CER'TIFICATICJN I hereby certify that this decision was reached aft~r due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of he Constitution. 767