CTA Case No. 3994 (Decision)

aJPUBLJC or TRI PRJLJPPJ.IB COURT OF TAX APPIALS QUIZO. CITY Tt1BC I NVE9Tt1ENT CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 3994 COI1t11 BSiotER CF INTERNAL REVENUE, - - )( - - - - - - Respondent. - -- )( D E C: :J: B :J: 0 N This has reference to petitioner�� � appeal to this Court from respondent's letter/decision dated November 1~, 1984 denying petitioner's protemt on I the assessment, thus, reiterating the latter's liability for deficiency income tax in the .amount of P3,934;1~6.49 and deficiency docum�ntary and �. science stamp taxes in the amount of P4,073.16 � for the year 1976, or in the total amount , ��of P3,941,229.65 (Exhibit "C" pp. 70-71, CTA rec.). In the tetter of respondent dated December 29, 1981 which was received by petitioner on October 7, 1992, the former assessed and demand�d -from th� dsf~ciency incom~ and documentary and science �tamp t~xes covering the taxable year 1976, (EX'hibit A, pp. 66-67; CTA rec.) computed as followsa

DECISION CTA CASE NO. 3994 - 2- Net Loss per return (P 230, 40:'l. 9CJ>) Less: Management fees (mere book entry to transfer the incc:rne of a compc.-my to a sister company which is operating at a loss) _,.J.. �.1<X?.~QOC>.~ QQ Net loss per investi.gati.cn (Pi ,b'!0,40:'l.99) Add: lhallOM::\ble d~ucticns: Interest e:<pe!nses allocable to Mani 1a Newta...n Dev. Corp. 9,!167,486.40 Wi thl-o 1ding ta>: dedur.: ted Lnder interest expense Net income per review Income tax dL~ thereon Add: 141. int. p.a. fr. 9/1~/76- 9/1 ~/79 (max iiTUITI) 1 ' 164, 511.07 'TUT"PL PMl.NT tx..E P4\ID O::U....ECTI ELE ~:!� 9.3.?_~ 1~~ Cbnfirmaticn of sale atbject to docLmentary & science stamp ta~1 Documentary stamp ta:�t: E�.~.9~..!~ X .04 p 1, 736.~ P200.00 Sc:ience stcnp ta:< (equ~l arra.nt) To t a 1 Adda Compromise penalties� For 'failure to affix doc:. stamps 300.00 For failure to affix science stamps__�----�~!.~ TOT~ r:x::o.J"ENTARY & OCIEKE ST~ TAX DEFICIEN:Y 'TUT"~ DEFICIEN:IEB Th11 aforesaid assessments were brought about in view of re-apond&nt � s disallowance of inter�st expenses claimed by petitioner, as well as from tha imposition of documentary and science stamp tl\xes on negotiable promissory notes (see paragraph 3, I petition, admitted by respondent in his Answer, pp. 2 and 28, CTA rec.)

DECISION CTA CASE NO. 3994 - 3- The above-quoted assessments were protested by petitioner in its lett~r dated October B, 1982 (Exhibit "B", pp. 68- 69 ~ CTA rec.) ~ on the ground that the assessments wer�e made after the prescription period, that is~ five years after the income tax return was filed pursuant to Section 318 of the National Internal Revenue Code. As regards the disallowed interest expense in the amount of P9,567,486.40, it arose from petitioner's existing obligation which was paid or accrued within the taxable year on indebtedness and therefore deductible pursuant to Section 30 of the Tax Code (Exh. B, pp. 68-69, CTA rec.). On November 15, 1984, respondent rendered its final decision on the aforesaid assessments which . were received by peti t1oner on September 24, 1985 denying petitioner ' s protest on the ground that petitioner executed a waive r o f presc ription on the assessment~~ and as regards the disallowed interest expense in the amount of P9,567,486.40 it represents the interest expemle of Manila Newtown Development Corporation, an affiliated company, and not that of the taxpayer, and reiterated his demand for the payment of the sum of P3,941,229.65 as deficiency income and documentary and science stamp

DECISION CTA CASE NO. 3994 - 4- taxes for the said year 1976 (Exhibit "C", pp. 70- 71, CTA rec.). In view of the said letter/decision of respondent, petitioner on October 23, 198!5 interposed its appeal to this Court. In the case at bar, the mathematical computation of respondent in his issued assessments in not disputed by petitioner. The issues posed for resolution of the Court are as follows: (1) Whether or not the right of respondent to assess petitioner has prescribed pursuant to Section 31B (prior to its amendment) of the Tax Code; (2) Whether or not the interest payment in the sum of P9, !567, 486.40 can be considered as deductible expense� and (3) Whether or not petitioner is liable for the payment of documentery ~nd science stamp taxes in the total amount of P3,941~229.6!5. As regards the first issue involving prescription, we believe that the right of respondent to assess petitioner on December 2B, 1981 has not prescribed although' issued b�yond th� / five-year period prescribed for in Section 318 of the Tax Code. Also, said Section has no application in the deficiency documentary stamp and science taxes for the reason that there is no law

DECISION CTA CASE NO. 3994 - 5- which provides for the period of filing the documentary and science tax return. It is worth noting that Section 318 relied upon by petitioner is the genera 1 1 aw as to the period of limitation of assessment and collection of ta>:es. The exception, however, is Section 319 which provides: "Section 319 (b). Where p_~.f.Q.r:.~.J; .h.e. ~.l:<...P..!.r:a .t i.JJI'L.P. f ___ j:...h.!L..!..!Jn.~_J.?.I:.~.!ilc;.r:...,._l:l ~l;f- in the preceding section for the as!Sessment of the tax, both the G..P..IJlm.t.?..!\ii..9.I:tE.?...t.... --~n~-���!:h~. !:.~.?5..P. ~~~r_b.~YEL.!;.PJ.1.~. g _r:t.t~~--i..11._t.. hfL.I:'IE .:i,J.i!::!S ._J;.Q .!.t.~~~~S?.J!l.er:ti.....~Lt_g_r.:.... ..!5.l!.c;;;..!J......J;.1.1Jl..�!. ~ the ta ~ may be assessed at any time prior to expiration period agreed upon. Th~ period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. (Underlining SLippl ied) Considering that in the case at bar, petitioner had executed a Waiver of the Statute of Limitations on March 10, 1981 (seep . 86, BIR re~.) prior to expiration of the five years to assess petitioner, the assessments issued by respondent has not prescribed, and the Court has jurisdiction on the instant case. As regards the second is�u� as to whether or not interest expense in the total amount of P9,,567,486.40 can be considered allowable deduction, petitioner contends that the int�rest

DECISION CTA CASE NO. 3994 - 6- expense claimed by it in the amount of P9,567,486.40 in the year 1976 arose out of its existing obligation and that under Section 30(b) of the Tax Code, the amount of interest paid or accrued within the taxable year on indebtedness are deductible (see paragraph 6 (b) ~ Petition for Review, p. 3~ CTA rec.). Respondent, on the other hand, raised the contention that the amount of P9,567,486.40 as interest expense was disallowed on the ground that it is an expense of Manila Newtown Development Corporation as a sister company (Respondent's memorandum~ p. 143, CTA rec.). It is further argued that Newtown Development Corporation is an aff i 1 iated company of the pe titioner, so that the provision of Section 44 of the Tax Code shall apply (see Memorandum of B. R. Madrasto dated August ~1, 1981, p. 115, BIR r ec; likewise, memorandum of Acting Commissioner of Internal Revenue, Ruben Ancheta to the Chief Section Audit Revenue Division dated November 18, 1981, p. 137, BIR rec.). ) We adhere with respondent's contention. It is an est.ablished rule in this jurisdiction � that the d, etermination of the Commissioner of In tarnal Revenue is presumed correct. It behooves the

DECISION CTA CASE NO. 3994 - 7- taxpayer to rebut such presumption (Tan Guan vs. Court o~ Tax Appeals and the Co��issioner o~ Internal Revenue, G. R. Ho. L- 23676, April 27, 1967, 19 SCRA 903; c itir19 Perez vs. Court o~ Tax Appeals,. et. al � .� L - 10507, l'tay 30, 1958; Collector o~ Internal Revenuf! vs. Bohol Land Transportation Co., L-13099 .� L - 134.2 .� April 29 .� 1960). Likewise, the Supreme Court said that as a logical outgrowth / of the presumption in favor of the validity of assessments, where such assessments are assai led, the burden of proof is upon the complaining party. It is incumbent upon the pr-operty owner to show clearly that the assessment was erroneous, in order to relieve hims elf from it (Interprovincial Autobus Co.,. Inc.,. vs. Collector o~ Internal Revenue, G. R. No. L-6741 .� January , .J1, 1956 .� 98 Phi I . 290) : A close scrutiny of the records of the c.a. se shows respondent merely submit ted his case on the basis of the pleadings and records of the instant case. The BIR records show that petitioner was incorporated and registered with the Security and Exchange Commission on January 31, 1969 while the Manila Newtown Development Corporation was incorporated and also registered with the Security I and Exchange Commission on March 20, 1970 (see 70

DECISION CTA CASE NO. 3994 - 8- Memorandum of B. R. Madrasto~ Sect i on Chief, Real Estate Section dated August 21, 1981, p. 115, BIR rec.) This Manila Newtown Development Corporation was set up by petitioner as a separate corporation by itself as the controlling stockholder owning 99% of the former's paid- up c a pi t al (ld.). The stocks of the petitioner c orpora tion Manila Newtown Development Corporation were acquired in exchange for real properties situate d in Barrio Sapang Palay, Sta. Maria~ Bul a c an, which properties were originally tra nsferred by the Puyat Group to petitioner, also in exchange for shares of stock in TMBC Investment Corporation sometime in 1969 (Id.). The record likewise shows that these corporations, on the other hand had advanced funds to their affiliated companies~ s o it is but proper that the latter compani e s wi ll have to share in the inter!st charges pursuant to Se c tion 44, of the Tax Code. (ld.). We cannot discard the fact that the BIR record is part of the evidence in connection with the instant case. Although respondent did not present witnesses in the hearing of the instant case, we believe that such findings on record (BIR rec.) are sufficient basis to assess petitioner for the r-- 7.1.

DECISION CTA CASE NO. 3994 - 9- aforesaid deficiencies~ considering that petitioner does not deny~ by any evidence documentary or tes H .mon ic!ill ~ or even during the hearing that said Manila Newtown Development is a sister Company of herein pet..i tioner and the former is an aff i 1ia te company of the latter and that the company is a family corporation. On the basi a of the findings in the BIR record as well as the fact that petitioner does not deny those findings on the record during the hearing of th~ case on October 3 ~ 1988 and April 13, 1988, and considering further, that proceedings in this Court shall not ba governed strictly by technical rules of evidence (Section 8~ Rep. Act No. 1125) , we find the evidence of P�" titioner not sufficient to overcome the presumption of correctness of respondent's assessments pursuant to the aforecited cases. Petitioner in its allegation in the petitioner for review (paragraph 7, p. 4, CTA rec.) as well as in its memorandum (p. 137, CTA rec.) merely alleged that it had properly paid the documentary and science stamp taxes on all documents issued that are subject to ten,, and could not be held liable for addi tiona 1 assessment which pertained to bank notes issued for circulation or to other 7?

DECISION CTA CASE NO. 3994 - 10 - instruments of indebtednesa which are not subject to any documentary and science stamp taxes. We find petitioner's contention without merit. As We have said, in this jurisdiction settled is the rule that responden t� s assessment is presumed correct and it is incLimbent on the part of the tcn:payer to rebut such presumption (Tan Guan vs. Int�rprovincial Autobus Co., Inc., vs. Coll�ctor o"f Internal R�v�nu�, 1-..!!..P..r.~- ' see also Inv�stor Finane� Corporation vs. Coaaissioner o"f Int�rnal R�v�nufl, CTA Casg Ho. 3482, June 29, 1990). A close scrutiny of the records of the instant case reveals t ha t pet .i tioner hC\s not established any iota of evidence either documentary or testi monial to rebut the presumption of correctness of respondent's assessment. Hence, the Court is constrained to hold petitioner l iable for the deficiency doc umentary stamp and science taxes pLtrsuC\nt to the above cited cases. As we have said, since the mathematical computation of the assessment is not being questioned by petitioner, We presume that said computation in the assessments is correct.

DECISION CTA CASE NO. 3994 - 11 - WHEREFORE, ~he decision appealed from is hereby AFFIRMED in ~o~o, and peti~ioner is ordered to pay responden~ the daficiency income taK in the amount of P3,937,1~6.49 as well as th� defici�ncy documentary stamp and science ~aK�s in ~h� amount of P4,073.17 or a total of P3,941,229.6S cov�ring SO ORDERED. Quezon City, Me tro Manil a , April 15, 1991. ~E~ Presiding Judge WE CONCU~ Judge VAS-FARR~S Judge CERTIPIC.ATION I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.