CTA Case No. 4233 (Decision)

.. REPUBLIC Of: THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PBP FINANCING AND C. T.A . C~S~ NO~ 42~3 LEASI NG CORPORATION, �- - - - - - - ~ X Peb i tioner, - versus = . COMMISSIONER OF INTERNAL REVENUE, Respondent . X- DEC:t51:DN This is an appeal from � the final deeision of the respond~nt denying petition~r's prat~st on the d~ficien~y tax assessments issu ed against it co vering taxabl ~ y~ars . 1981 and 1982 in the amount of P597,825e9G and P3,538,839.77, total am o unt of P4, 135,GE.4. 73, ipclusiv e of surcharge, interest and l comp~omise penalties. Petitioner is a corporat ion duly organi zed and ' �~ .omulo M. i �.� � ' '

DECISION - C.T.A. CASE NO. 4233 - 2- compromise penalties for the years 1981 and 1982 <Exhibit "B") : Deficiency Inco1r Tax p ~4,587.Z5 Deficiency Gross Rrcripts Tax 7,038.80 Deficiency Docu1rntary Sta1p Tax 5(,�,, 199.91 Deficiency Jnco1r Tax Pl,Ob5,334.21 ' Drficirncy Expandrd Withholding Tax 145, 4011. 00 Drficirncy Gross Rrcripts lax 212,190.25 _3,538,839. 77 Drficirncy Docu1rntary Sta1p Tax e4!J36!:66,. 73 2, us, 910.31 TOHl. In a letter dated October e1, 19BG and filed with respondent's office on October 22, 1986, petitioner through its auditor SGV and Company, duly protested said deficiency assessments and requested for the reconsideration thereof <Exhibit "C"). On January 29, 1988, petitioner's auditors received the � respondent's denial of petitioner's protest and reiterated the previous deficiency assessments in toto. In said letter, respondent advised that if petitioner is not agreeable therewith, petitioner "may go to the Court of Tax Appeals within thirty <30) . thereof, otherwise, the assessment shall become final and unappealable" <Exhibit "0"). The instant petition for review was filed with this Co urt on Fe uary 29, 1988.� �The 3 QtM tiay is F ebruar y 2 8, 19B8, a S un ay .

DECISION - C.T.A. CASE NO. 4233 - 3- The issues submitted for resolution are as follows: 1. Whether the petitioner is liable for deficiency income tax for taxable years 1981 and 1982. 2. Whether the petitioner is 1 i able fo r deficiency gross receipts tax. for ' 3. Whether the peti tioner is liable deficiency expanded withholding tax. 4. Whether petitioner is liable for documentary stamp tax. The assessments for deficieney ineame tax for 1981 and 1982 are allegedly without legal basi s "lnd void primarily for the reason that petitioner had availed itself of the income tax amnesty under Executi ve Order No. 41, as amended, covering the years 1981 to 1985. Petitioner's availment is evidenced by Tax Amnesty Return File No. 23-F-001247-4 <Exhibit "F"> with the attac h ed sworn Comparative Statement of Assets, Liabilities, Net Worth as of December 31, 1980 and December 31, 1985 and Central Bank Confirmation Receipt No. B10357402 and BIR Payment Order No. 909881b both dated November 3, with the amount of P10,000.00. Petitioner's cash voucher � �~ showing tax amnesty paymen' of P10,000.00 was likewise offered as evidence <Exhibit "E">. bLast d a y of availment - October 31, 198b (Fri day > but as declared a non-wor~ing special pu b lic h o id a y b Proclamatio n No ~ 39 dated Oct o ber 27 , l 98b

DECISION - C.T.A. CASE NO. 4233 - 4- The Supreme Court in the case of Republic of the Philippines vs. Inter�ediate Appellate Court and Spouses Antonio and Clara Pastor, 196 SCRA 335 <April 26, 1991) on the issue of whether or not tax amnesty payments bar an action for recovery of deficiency income taxes said: "Even assuming that the deficiency tax assessment xxx were cot~ rect, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes xxx, and were granted not merely 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 pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a r:-evenue or tax law, partakes of an absolute forgiveness or waiver by the Government of tts 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 become a part of the new society with a clean state <Co��issioner of Internal Revenue vs. Botelho Corp. and Shipping Co., Inc., 20 SCRA 487)." We have consistently ruled in a number of casese with similar facts and circumstances as the case at bat~ that a deficiency assessment cannot withstand or negate the force and effects of a proper availment of a tax eEduardo M. Limcangco vs. CIR, CTA Case No. 4827 <Mar. 4, 1"993); Bay Foods Specialties, Inc. vs. CI R, CTA Case No. 4246 <Aug. 7, 1991> ; R. 0. H. Products Phils., Inc. vs. CIR, CTA Case No. 4318 <Aug. 20, 1990>.

DECISION - C.T.A. CASE NO. 4233 - 5- amnesty. Accordingly, petitioner's deficiency income tax assessment for 1981 and 1982 in the amount of P24,587.25 and P1,065,334.21, respectively are hereby cancelled with the availment of petitioner of the tax amnesty under Executive Order No. 41, as amended. As to the assessment for deficiency gross receipts > tax, We note that in the protest letter ("Exhibit "C">, petitioner offered to pay the 1981 deficiency gross receipt tax of P7,038.80 under compromise pursuant to Executive Order No. 44. The records of the case however do not show that the offer was accepted. By failing to contest the validity of the assessment within the time provided by law, the same has become final and demandable <Section 319-A, 1981 Tax Code>. In assailing the. 1982 deficiency gross receipts tax assessment, petitioner alleged erroneous computation since it was based on gross revenues accrued rather than revenues actually received. It was not however shown by petitioner during the trial which portion of the gross revenues were accrued and which portion were received. No evidence was likew...i. se offered towards this end. the presumption of correctness of as-sessment has not therefore been overcome by petit. j ttner. In the accrual method of accounting, which petit i oner ad�itted to be using, revenues are recognized in ttt~ taxable year earned, though not yet received. The 104 1

DECISION - C.T.A. CASE NO. 4233 gross receipts ta~ as the term connotes is based on gross revenues. We cannot therefore find rhyme nor reason in petitioner's contention that its gross receipts ta~ should be computed based only on gross revenues actually received when it is using the accrual method of accounting. A fortiori, petitioner's assessment for deficiency gross receipts ta~ for 1981 and 1982 in the amount of P7,038.80and P212,190.25, respectively stand. The assessment for deficiency e~panded withholding ta~ is allegedly without basis on account that these were actually in consideration for the loan of personnel from Producers Bank of the Philippines and that they were paid to a bank and not a management consultant or agency whose principal business is to manage. Jurisprudence on the issue at hand is well-settled as this is not of first impression. Quoted hereunder are the pertinent portions of the decision of the Court of Appeals in the case of Anscor Container Corp. vs. CIR and CTA, CA- G.R. SP No. 22912 <March 21, 1991>: "We agree with the respondent that Revenue � �~� Memorandum Circular No. 51-79, dated June 25, 1979, and Revenue Regulations No. 6-79, dated June 4, 1979, amending Reven~e Regulations No. 13- 78, otherwise known as the E~panded Withholding Ta~ Regulations, provide for the withholding of creditable income, among other things, income . payments made to persons, natu~al or juridical, residing in the Philippines as professional or talent fees. Management fees paid to a general manager is

�I DECISION - C.T.A. CASE NO. 4233 - 7- income of the 1at t er, i.e. income payment to the manager for his professional services. � Management fees belong to and are of the same class or nature as professional, promotional and talent fees, which are income payment and which are subject to the expanded withholding tax <Section 1, pars. (a) and (b) of Revenue Regulations No �� 13-78>." X >O< XXX "The intendment of the law to include managerial fees as subject to the withholding tax is made more clear and evident when it specifically provided that fees paid to management and technical consultants are included among those subject to the withholdi~g tax;." "W�> are aware though of petitioner'~ claim that managers and consultants are not the same. Petitioner tried to explain to Us why these two terms are different particularly in the matter of functions. We find difficulty in seeing Our way clearly through petitioner's submission that while fees given to management and technical consultants are included among those subject to the withholding tax, professional f~es paid to managers should be excluded, merely because of exact literal term, nomenclature or position of general manager is not found among tho~e subject to withholding � tax. Besides, no reason has been advanced �by petitioner as to why fees paid to management consultants should be subject to the withholding tax, while those paid to persons who exercise managerial functions should not be. The explanation of why those two are d i f fer en t i s t o o t en u o us t o i n s pi r e be 1 i e f. On the other hand, on the basis of the above . �-� discussion, We are P!rsuasively drawn to the conclusion that a concatenation and syncretism of the above observations produce th�> incapabl�> r�>sult that . feps paid to g�>n�>ral managers for their prof�>ssional services as such ar�> subj�>ct to th�> withholding tax." X XX XXX

DECISION C.T.A. CASE NO. 4233 - a- Premises considered, petit i onet~' s assessment for deficien cy expanded withholding ta~ for 1982 in the amount of P145,404.00 is sustained. The assessm ents fo r documentary stamp tax we..-e claimed to be without basis for the reasons that non- negotiable promissory notes were not subject to DST prior to October 15, 1984 and that petitioner's sale s of securities which consisted of PNs of corporate borrowers are not certificates of obligation, there being no specific provision in the Tax Code imposing a DST on the sale tht>reof. Unde r the 1981 and � 1982 Tax Code, non- negotiable promissory notes are not subject to DST. Only nt>gotiable PNs are imposed the DST pursuant to Section 229 of th�> 1981 Tax Code. It was only when Presidt>ntial Decree No. 1959 took effect on Octobt>r 15, 1984 that . non- negotiable PNs became subjt>ct to DST. Since the herein case involve taxable years 1981 and 1982, no DST is due on non - negotiablE> PNs issued at that time. Re s pondt>nt's contention that non-negotiablE> PNs "certificates of indebtedness" and therefore liable to DST un ~~r Section 223 of the 1981 Tax Code is not tenable in li ght of its definition under Section 9 of Revenue Re ul at ions No. � 26 <Revised Documentary Stamp Tax

"' - DECISION - C.T.R. CASE NO. 4233 - 9- "Section 9- CE?rtificat�>5 of indE?btE?dnPss. The term " cet~t i ficate of indebtedness" includes only inst r uments having the general charac ter of investment securities as distinguished from instruments evidencing debts a r is i ng from ordinary transactions between individua l s . " American Jurisprudence, which has persuasive effect in this j1.wisdiction, is replete with casesd that hold that no n- negotiable promissory notes are not investment sectwitie5. , �~ P rom i ssory note s o f corporate borrowers cannot be equated wit h " cer~ t i ficate s of obligation" for the simple reason that while a promissory note has a specific definit i on ttndet~ Our law, " certificate of obligation" has not been defined in our Tax C6de. It cannot therefore be said that s ince the sales of "certif icate s of obligation" is subject to DST, the sales of PNs is likewise subject to DST. Well-settled� is the ru le that taxes, being burdens sh ould be cons trued liberally in favor of the When the language of a tax law is not clear, t he same shall be construed in taxpa yer's benefit. Had the legislature intended sal es of promissory of notes to be subject to DST , they. shoul d have said so in dU.S. vs. Leslie Salt Co., 350 US 383; Emisco Industries , Inc. vs. Pro's Inc., et. al., 543 F. 2d 38; United American Bank of Nashv ille vs . Gunter, &20 F. 2d 1108; Great Western Bank and Tn1st vs. Hotz , 532 F . 2 d 1252 ; Exchange National Bank .of Chic ago vs. Touche Ross and Co., 544 F. 2d 112&.

DECISION - C.T.A. CASE NO. 4233 - 10 - categol~ ical terms sine~ the term "promissory note" was also used in other sections of the documentary stamp tax 1 aw. Accol~ d i ng l y, We ,~ u] e that the petitioner's as s es s ments for deficiency documentary stamp tax in 1981 and 19 8 2 in th e amoun t of P555,199.91 and P2, 11 5 , 91 0.31, r espectively, lack merit. WHEREFORE, respondent's assessments for deficiency taxes against petitioner are hereby modified and computed as follows: 1981 Deficienc y Gross Receipts Tax: Gr oss receipts subject to tax Tax due <1,204,550.0~ x 5~) P1 , 204 , 550.00 Le ss: q uarte r ly payment s made Deficiency gross receipts tax p 60,227.50 Add: 2 5 " su rc har' ge CS ec.l '33(a)<3><i>J Total deficiency gross receipts tax 54 ,836.91 p 5 , 390.59 1,347.65 p 6,738.24* 1982 Defi c iency Expanded Withholding Tax : P1,440,000.00 Management fees Tax due <1,440 , 000. 00 x 5") P 72,ooo.oo Less: quarterly payments made Deficiency expanded withholding tax nil Add: additions to ta>< <Sec. 54(eJ) p 72, 000.00 25" surcharge 1'+" intet' e st 18,000.00 (ft~. 2-1 - Bl to 7 - 31-86> Total amount due and collectible 55,404. 00_ p . 145,404. 00 1982 Defi c iency Gr-oss Receipt s Tax: Gr-oss t' eceipts Rate Ta x Due 1=1396,463.88 P 7 , '32 9 , 277 . 59 5" 3,862.54 l i:::8, 75 1. 3 3 3" 42.36 4, 2 36. 00 1" 1=1400,368.78 230 ,616.58 Total 1=1169,752.20 Less: t ax payments made 42,438.05 Deficiency gross receipts tax P212, 190.25..... Add: 2 5 " su r char-ge (Sec. 193(a) (3) (i) J Total deficiency gross receipts tax P etit1oner is hereby ordered to immediate ly pay the total a mo u nt of P218,928 .49 , as deficiency gross receipts 1 046

---- ....... DEC I S I ON - C.T.A. CASE NO . 42 33 - 11 - t~ x fo r th e year s 1 9 81 and 1982 plus 20~ inter e st per annum fro m J u l y 31, 19 86 unt i l f u lly paid pursuant to Secti o n 193 <a> <3 > (i ) o f th e 1977 Tax Code and t he amoun t o f P 145 ,40 4. 00 as deficie ncy ex panded withho ld ing tax for 1982 , in c lusive of 25~ surc har ge a n d 14~ int ere st from Fe b t~ uary 1 , 1981 t o Jul y 31 , 1986 p ursuant to Sectio n 5 4 ( e) o f the same Cod e. SO ORDE RED . Pc~ ,..,.: I t{~ RAMON 0 . 0 Asso c i at e J u.d I /,. WE CONCUR : ~()_.~ / E RNES TO 0. ACOS TA . Presi ding Jud ge � GJ~UBA . �~ Judge

... --- DECISION - C.T .A. CASE NO. 4233 - 12 - CER -r IF I CAT I ON 1 he reby certi fy that this decision was reached after due consultation among the members of the Court of Ta~ Appeals i n accor dance with Sec tion 13 Articl~ Vlll of the Cons t1tut i on. ~--cz_ .. ~ ERNESTO D.. ACOSTA Presiding Judge , . .....