CTA Case No. 4827 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EDUARDO K. LIKCANGCOr Petitioner, - versus - C.T.A. CASE NO. 4827 THE COKKISSIONER OF INTERNAL REVENUEr Respondent. X- - - - -- - - - -X DEC I I 0 N Acting on petitioner's "Motion �or Judgment on the Pleadings" �iled on Nov embe r 10, 1992 <CTA Records, pp. 33-35) which was again mani�ested in open court on January 12, 1993 <TSN, Id., pp. 38-48), and having ~esolved in the said hearing the material objection or opposition thereto on the part o� the respondent (Ibid. ) , the motion prayed �or is GRANTED. It is provided in Section 1, Rule 19 o� the Rules o� Court that: "Judgment on the pleading. Where an answer �ails to tender an issue, or � otherwise admits the material allegations o� the adverse party's pleadings, the court may, on motion o� that party, direct judgment on such pleading. But in actions �or annulment o� marriage or �or legal separation the material �acts

DECISION - C.T.A. CASE HO. 4827 - 2- alleged in the complaint shall always be proved. " This rule authorizes rendering o� judgment on the pleadings when proper. In the case at bar, the opposition or objection o� respondent to petitioner's motion has already been resolved and respondent's answer admitted the material allegations in petitioner's pleadings. In ruling upon a motion �or judgment on the pleadings the court should consider the whole record and give judgment for the party who, on the whole, appears to be entitled to judgment. The judgment on the pleadings may be based upon the pleadings and exhibits attac hed thereto and subsequently introduced in evidence <1 Martin, Rules of Court, p. 555). � The only legal issue presented to Us in this petition for review is whether or not availment by petitioner o� the tax amnesty under Executive Order No. 41 dated August 22, 1986 bar an action �or recovery o� deficiency income tax assessed on or before August 21, 1986. There is no dispute as to the relevant material facts. Petitioner is a Filipino citizen with residence and postal address at 214 Venice Street, 135

DECISION - C.T.A. CASE NO. 4827 - 3- BF International Village, Las Pinas, Metro Manila. An Assessment Notice dated November 8, 1985 was issued by respondent against petitioner �or its 1981 alleged de�iciency income tax in the total amount o� P177,512.00 <BIR Records, p. 12). Receipt o� said assessment notice was denied by petitioner in the Petition �or Review <CTA Records, p. 2) but subsequently admitted in hearing o� this case (January 12, 1993, TSN, p. 10, CTA Records, p. 47). Pursuant to Executive Order No. 41 <Declaring A One-Time Tax Amnesty Covering Unpaid Income Taxes For the Years 1981 to 1985 >, petitioner �iled on November 3, 1986 1 a Tax Amne sty Return with ~he BIR Revenue District No. 32A West Makati <CTA Records, p. 10). Warrant of Distraint of Personal Property and Warrant of Levy on Real Property both dated November 19, 1987 were received by petitioner on January 10, 1991 <BIR Records, p. 45 and p. 4�3 respectively>. An of�er to settle the assessment of Pl77,512.00 by way of compromise payment of 30% o� the basic tax or P33, 283. 30 was made to the Commissioner o� Internal Revenue in a letter dated 1Last Day of Avail~~ent - October 31, 1986 !Friday! but was declared a non- working special public holiday by Proclaaation Ro. 39 dated October 27, 1986. 13C

DECISION - C.T.A. CASE NO. 4827 -4- February 14, 1991 <BIR Record s, p. 63). This was denied by the Assistant Commissioner Collection Service in a letter dated July 11, 1991 <BIR Records, p. 79 >. Petitioner, t hrough counsel wrote the Chief, Collection Enforcement Division on September 3, 1991 setting forth the contention that inasmuch as he has already availed of the Tax Amnesty under E.O. No. 41, the 1981 deficiency income tax assessment should no longer have been pursued but should have been cancelled as a matter of course <BIR Records, pp. 84-87 >. In a reply dated April 10, 1991 ( BIR Records, pp. 95- 97), the Commissioner of Internal Reve nue ruled that the availment by petitioner of the Tax Amnesty under Executive Order No. 41 did not result in the cancellation of the assessmen t issued on November 8, 1985 since only those assessments issued after August 21, 1986 can be cancelled as a result of the availment of the Tax Amnesty pursuant to Revenue J Memorandum Order No. 4-87. The reason for the cut-off date of August 21, 1986 is that the following day, August 22, 1986, Executive Order No. 41 took effect. Respondent contends that to hold that said tax amnesty includes those assessed on or before August 21, 1986 would result in the retroactive, instead of prospective application of 13.

DECISION - C.T.A. CASE NO. 4827 - 5- the law. Since the tax liabil i ty e xists only upon issuance of an assessment, availment of Executive Order No. 41 relieves a taxpayer only with respect to income tax liabilities assessed on or after August 22, 1986. From this final decision of the Commissioner of Internal Revenue, which was received by petitioner's counsel on June 8, 1992, petitioner appealed to this Court on July 3, 1992 <Petition for Review, CTA Records, pp. 1-6). The dispute was clearly due to respondent's impression as stated in Revenue Memorandum Order No. 4-87 that petitioner's availment of the tax amnesty under Executive Order No. 41, did not result in the cancellation of the assessments issued on November 8, 1985 since only those assessments issued after August 21, 1986 can be cancelled. This is not a case of first impression. The Court had occasion to rule on this controversy in the cases of R.O.H. AUTO PRODUCTS PHILIPPINES, INC. v. THE COI111ISSIONER OF INTERNAL REVENUE, C. T. A. Case No. 4318, August 20, 19902 and BAY FOODS SPECIALTIES, INC. v. THE COI111ISSIONER OF INTERNAL 2 Affirled by the Court of Appeals in Co issioner of Internal Revenue, Petitioner va. ROR Auto Products Phila. Inc. and C.T.A., CA-G.R. S.P. Ro. 22923, Dec. 11, 1992. 13~

DECISION - C.T.A. CASE NO. 4827 -6- REVENUE, C. T. A. Case No. 4246, August 7, 1991 3 � The pertinent portions of the decision in said cases read as follows: "The intent of the given / legislation, as always, is telling. A reading of this executive order giving amnesty shows the period covered January 1, 1981 to December 31, 1985 <Section 1, Section 6, Executive Order No. 41, as Amended>. An amnesty affords tqj;_~_.l:__p~~qg_n__,_cn;:. . _:f...9.r..g.!.Y..~Q.g~. �!. <3 Words and Phrases 480, citing cases>, as here promised by the order for !=IJ.),._____U..~P-~.!-~. !D.Q.Q.!!I~'-�-� . �-- ~~ t.~.:t:.~ .... . . . . _ . c;t�;HJ.9 :r. -~ .s ........ __.:t. Ci~g~ ----~nQ. ~.!!~_:i,_l1~~!? .....J:.<:i.~-~.!.":J.,_.._~_Q..c;t.. ~ .J:..l. . ...9J. Y.~_lt. _..Q!:.!.m!n.~!_~._ ~-c!.!!IJ!!.!.~.t :r..~.t:i. Y. ~......J._.:I.,~J~!_.).._;ttY. that have arisen from non - payment of taxes in the above given period. <Underscoring supplied> On the other hand, an assessment is a notice of tax due with a demand for payment <AJ.haMbra Cigar & Cigarette ":fg. Co. v. .) Co��ieeioner, 105 Phil. 1337 unreported>. An assessment can be abated or compromised on the administrative level <Section 295, National Internal Revenue Code, now Section 204 > while an amnesty is an act of spvereign grace which obliterates an offense <W ords and Phrases, supra> or as seen here, an act which relegates into oblivion all unpaid income, estate, donor's taxes and business taxes incurred during a given period. The impression created thus is that considering the nature of a tax assessment, its significance could not be more than that of an amnesty properly availed of. An assessment, even a deficiency assessment as in the instant case, cannot defeat the intended effects of the amnesty because precisely, it is the purpose of the latter to forgive the non-payment of the taxpayer of his tax liabilities. The respondent who seeks to recover taxes due cannot demand something 3Co..issioner of Internal Revenue vs. Bay Foods Specialties, Inc. and C.T.A., CA-G. R. lo. S.P. lo. 26424. 13 ~

DECISION - C.T.A. CASE ' NO. 4827 - 7 -. which, although previously done, is now non-existent or has been obliterated as a consequence of sovereign grace. "xxx XXX XXX "Re spondent failed to present any case or law which proves that an assessment can withstand or negate the force and effects of a tax amnesty. This burden of proof on the petitioner was created by the clear and express terms of the executive order's intention qualified availers of the amnesty may pay an amnesty tax in lieu of said unpaid taxes which are forgiv e n <Section 2, Section 5, Executive Order No. 41, as amended). More specifically, the plain provisions in the statute granting tax amnesty for unpaid taxes for the period January 1, 1981 to December 31, 1985 shifted the burden of proof on respondent t o show h o.!f .. :t:. b~ ____;tl:1f..!=3_\:!.~.n9 E;."___g _f .__ . ~.!L...c:l s.~-~~-~.!'"-~!1 t !?.g.f9.X�'______t:he ___. 9 .a..t.~..-- .._9.;f___t.h.~.--. .P!:O.!"!!J.ga.J:..!.9JJ_ _Q;[ thg---~~.!?.qY._tJY.!L..____q_ t.:Q�'L___cm.1JJ.9................!L~Y!?.......... ...~ !:�'_a.~ Q.!L~.P-.J.:~----X-~:l..~.t .!. Q.Q_ !!_!_t._.!}____t. h.�'............9..Qie;.'..9 t i.Y.~ P�'.!':1_9._~-~----.9...! ___t..h.E?... __a..!!!D.~.~ t Y..r...- ..... E! o- -..-~..13..........t..9............!'!.~.B.~ pg.t.!.t_:,tgn~r . _ . .l?t.t.J.l_______<!.n.fi!~�'r...?..b_,J.~ .---:f.e>r..... ._ ~___t.~.~ !.:1..~.~ :,t.J.:.i. t. Y..........Jf..h !P~,...........J;h!:QY.9.h..... __t.h~ .. �--~-t~.t.!!.t.~'-- �h<?l,l.!_~L - h_a._y~ �-� � t;>g_�'.ll ..... .-~-L~..�.~_g __ ~J_1;_h____..~__...P_!:9..P�'!: ~.Y.a. !...! :m~D. t ..........I:J..:(____ t,!:l,E?______a..ll!It...e.?tY. <Underscoring supplied>. "Addit ionally, the exceptions enumerated in Section 4 of Executive No. 41, as amended, do not indicate any reference to an assessment or pending investigation aside from one arising from information furnished by an informer. 'Section 4. Exceptions The following taxpayers may not avail themselves of the amnesty herein granted: a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14~ 1 4()

DECISION - C.T.A. CASE NO. 4827 -8- b > Those with income tax cases already filed in the Court as of the effectivity hereof: c) Those with criminal cases invol ving violations of the income tax law already fil ed in court as of the effectivity hereof: d > Those that have withholding tax liabilities under the National Internal Revenue Code, as amended, insofar as the said liabilities are concerned: e> Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of information furnished under Section 316 of the National Internal Revenue Code, as amended : f > Those with pending cases involvi ng unexplained or unlawfully acquire d wealth before the Sandiganbayan; g > Those liable under Title Seven, Chapter Three <Frands, Illegal Exactions and Transactions> and Chapter Four <M alver sation of Publ ic Funds and Property ) of the Revised Penal Code, as amended. ' "Thus, we deem that the r/ ule in Revenue Memorandum No. 4 - 87 promulgating that only assessments issued after August 21, 1986 shall be abated by the amnesty is beyond the contemplation of Executive Order No. 41, as amended. To paraphrase the cited previous declarations of the Supreme Court which were likewise recalled in the Tayug Rural Bank Case supra, administrative rules and regulations promulgated to implement given � legislation should not be contradictory with the statute but conform to the standards which it prescribes <Director of Forestry v. ftunoz, L-24796, June 28, 1967, 23 SCRA 14 i

DECISION - C.T.A. CASE NO. 4827 -9- 1183 >. A rule would be binding on t he Courts if the scope is within the statute even if the courts are not in agreement with the policy therein or its innate wisdom <Victorias Killing Co. , Inc. v. Social Security Co��issi on, L- 16704, March 17, 1962, 4 SCRA 627>." Likewise, in the case of Tiki crafts Industries, Inc., v. Commissioner of Internal Revenue, C. T. A. Case No. 4233 4 i t has been ruled, to wit: "Moreover, Section 4 of EO No. 41 as expanded by EO No. 64, specifically enumerates those excepted from the coverage of the tax amnesty and clearly, tax assessments issued pr ior to August 22, 1986 are not among the exceptions. Under the rule of 'g>_~JJ..Z:.?!:1.$.J._9... .._...Y.!!:f:._!.!._f?.___~�_t. ~!!..t;;.l:..!!.�jg__ ____.~_.},_f:,_l?,r...J...Y.J�. ' , ' where a statute enumerates the subjects or things on which it is to operate, it is to be construed as excluding from its effects all those not � expressly me ntion ed '. <Dave's Place v. Liquor Control Cownwission, 269 N�. W. p. 594 >. Hence, since Section 4 of EO 41 expressly mentions the except i ons from . the intended coverag e of the tax a mn est y, it follows that others not mentione d such as assessme nts iss ued prior to August 21, 1986 are not included." The Supreme Court in the case of Republic of the Philippines v. I~termediate Appellate Court . and Spouses Antonio and Clara Pastor, G. R. No. 69344, April 26, 1991, 196 SCRA 335 on the issue of 4Affined by the Court of Appeals in Conissionl'T of lntl'Tnal Revenue vs. Tikicrafts Industries, Inc, et al., CA-G.R. lo. S.P. 24488, August 26, 1991. 14 2

DECISION - C.T.A. CASE HO . 4827 - 10 - whether or not tax amnesty payments bar an action :for recovery o� deficiency income taxes said: "Even assuming that the deficiency tax assessment xxx were correc t, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes xxx , and were granted not merel y an exemption , but an amnesty, for their past failings, the Government is estopped :from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. "A tax amnesty, being a general par don or intentional overlooking by the State of ita authority to impose penalties on persona otherwise guilty o� evasion or violation of a revenue or tax law, partakes o� an absolute :forgiveness or waiver by the Government o� its right to collect what otherwise, would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and hereby beco me a part of the new society with a clean state <Commissioner o� Internal Revenue v. Bote lho Corp. and Shipping Co�� Inc., 20 SCRA 487>." It appea ring that the case at bar is likened under similar :facts and circums tances obtaining to the cases of R.O.H. Auto Products Philippines, Inc. and Bay Food Specialties, Inc., with the eame principal question to contend with, We therefore adopt the aforesaid ruling. WHEREFORE, the respondent Commissioner o:f Internal Revenue is ordered to desist :from collecting the 1981 deficiency income taxes o� 14 0

DECISION - C.T.A. CASE NO. 4827 - 11 - P177,512.00 it had assessed against petitioner for the same are considered cancelled and withdrawn with the proper availment of petitioner of the amnesty under Executive Order No. 41, as amended. SO ORDERED Quezon City, Metro Manila, March 4, 1993. WE CONCUR: c&HE~- ~~~ Presiding Judge / Judge 'fJ~~ RAnON 0. DE VE Associate Jud I 14� ~

DECISION - C.T.A. CASE NO. 4827 - 12 - CERTIFICATION I hereby certify that this decision was reached afte r due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~- o~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals