CTA Case No. 4206 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, Petitioner, -� vers�.1s - C.T.A. CASE NO. 4206 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - ------ X DE C I s 0N Petitioner appeals the dec(sion of respondent year 1975 in the total amount of P491,626.72, inclusive of interest. is regl.stered with the Board of Investments <hereir.after referred tc� as BOI> and er.titled to avail C�f i r.cer.t i ves as er.t erpr i se provided for under Republic Ret <R.A. > No. 5186, as arner.ded, the deduct ior1 fot" reir.vestrner.t allowar.ce in Sectior� 7 (h) thereof. It applied for expansl.on reinvestment and the 1 '73

DECISION CTA CASE NO. 4206 -� 2 -� application was approved by the BOI on October 28, 1975 <Exh. "E", p. 54 C.T.A. Recm~d>. Thr.ts, when petitioner filed orr April 13, 1976 its Cc�t~pc�rate Income Tax Return for calendar year ended December 31' 1975, it claimed as a deduction from its taxable i I"ICC�me the amourrt P1, 143,000.00 reinvested for expansion. The decisiorr of resporrderrt relies chiefly on the poirrts uporr which the BOI had earlier decided the cc�r�rtrc�versy orr the availmerrt c�f petitioner of incentives under R.A. 5186, to wit= "a) Avai lmerrt of irrcent ives by BO I �-registered firms at~ e not covered by the Statute of limitations provided in Section 318 of the Tax Code; and b) Everr asst.trn i r.g wit hc�ut adm ].t t i rrg t t1at ava i 1meYrt s of i Yrcerrt ]. ves by BO I - re gist ered firm s are covered by the Statute of limitations provided in Section 318 of the Tax Code, the period of l.im]. tatir.ms r.tpoYr assessrnent arrd collection of th e abovementioned deficiency tax for 1975 from Mat 1 ing IYrdustrial Cot~porat iorr has not prescribed yet because the five (5) year peric�d was susperrded and started to r~u n on January 23, 1981 OY'rly, wherr the firm submitted its Yrotice c�f the date of ordering of the machinery and equipment s ubject of the application for expansion reirrvestrneY'rt allowarrce for 1975." Petitiorrer, on the other haY'rd, cc�rrterrds that the assessrneY'rt of responderrt havirrg beeY'r received 174

DECISION CTA CASE NO . 4 2 06 ... 3 -- years from date of filing of taxpayer's return on April 13, 1976 carmr.:�t be errfot�ced as it vir.:olates the five - year peri od of limitation provided for in Sect i r.:orr 318 of the Nat i r.:ona 1 I rrt err�r.'l l Reverfl.te Cr.:ode ( NI RC) � Sectir.:on 318 prr.:ovides: "Pet�ir.:�d c�f 1 irnitat ic�n upr.:on assessment and collectir.:on. - Exsept as pt'c�vided in the succeeding section, i nterrra 1 reverr �.te taxes shall be assessed within five years after the retr.wrr was filed r.:md no proceedi ng in court without assessment for the collection of such t a xes shall be begun aft~r the e><pi.rEi\t i.c�r�r of s r.tch peric�d. For the pr.tt' pose �:� f this sect i orr, a ret ut�r, filed before the last day preset' i bed by 1 aw sh a J. J. be considered as filed on such day; Provided that this limitati on shall not apply to cases already investigated prior to the approval ~�f this Code." pet it i r.:�ner ,\1\lterrrat ively co:::�nter,ds that respondent erred in assessing it of the the five (5) yeii!\r period started tc� t't..m orrly on J.:mr.1ary 21, 1981, the date it submitted rrr:::�tice of ordering of the machinery and equipment subject of the Ci\ppl icti\t ir.m e><parrsic�n rei r.ves t merrt ii!\llowance for 1975. Thi s contention is grounded on ,_, 1 ( i.)

DECISION CTA CASE NO. 4206 petiti..::mer's readir.g of Sectic�r� 7 <h> of R.A. No. 5195 which allegedly r.ei ther ir1dicates insinuates that the reckoning period, assuming that the five year period of 1 imitat ic�r� is s�.lsper.ded, is the date of the notice of ordering of equipment. Section 7 (h) of R.A. No. 5185 provides: "h) Dedu c tic�n fot' E><par.sior, Reinvestment. When a registered enterprise reinvests its undistributed profit or surplus , whet t1et' from registered c�pet' at i or.s or r�c�t, by actual trar.sfer thereof tc� the capital s tocH. c�f th e corporation for procurement of machine r y, equipment and spare part s previous ly approved by the Bc�ard ur.det' subsections "d" ar1d "e" hereof or for expansion of machi nery and equipment used in prcoduc tic�r� ot' fot' the cc�r�strl.lctior, of th e buildir.gs, imprc�vemer.ts ot' other facilities for the ir.sta.llatior. c�f the said ma c hir,et'Y and equipment , the amount so reir.vested, to the e><tent of 25'1- , 37 11 2 , 50Y. ir� case of r� C�r�- pior.eet' project s, and to the extent of 50'1-, 75'1-, 100'1- iY'I th e case c:�f pir.meet' projects, the appropriate percentage to be determined by the Board for each industry taking into account the relative risk, technology transfer and fall - out, export potenti al , incremental labor, use of l c�ca lly manufactured machinery and equipment and domestic raw materials, shall be allowed as a deduction from its taxable income in the year in which s uch reinvestment was mad e ; Provided, ( 1 > That prior approval of the E�c�ard of such t"eir.vestmer.t was o btained by the registered enterprise planning such 1 78

DECISION CTA CASE NO. 4206 ..... 5 .... reinvestment, and <2> That the registered enterprise does not reduce its ca pital s tock represented by the reir.vestmer.t within seven (7) years from the date such reinve�tment wa s made. In the event the registered . enterpt~ise dc�es r.ot ordet~ the r.1ach i r.et~ y ar�.d eq �.1i pr11er1t with i. r, two:� (2 ) years from the date the reivestment was made or reduces its capital stock represented by the reinvestment within a period C:�f sever, <7> years ft~c�m the date of reinvestment, a recomputation of the ir.cml1e tax 1 iabi 1 ity thet~ efm~e s hall be made fc:�t~ the peri c�d whem the deduction was made, and the proper taxes shall be assessed and paid with interest. The answer to the question of prescription of the assessment lies on the relative effect that may be d i scr.:.vered Sect i c�r� 7 <h) of R. A. No . 51 9G may have upon Section 319 of the NIRC. As this is a matter of interpre t a tion, Section 25 (c) �::tf R. A. No. 5196 wi. 11 set~ve c�t.n~ purpc�se as it provides: "Sec. 25. Applicability and Interpretat ion. In interpreting and applying the provisions of this Act, the followir��g shall . be observed: (c) Resctl.vi.r�g Doubts. All doubts cor.c errlir�~~ the ber.efit s and ir.cer�t ives grar,ted er.terprises ar1d 177

DECISION CTA CASE NU. 4~06 -� (i -� inve~tr.oY' s tt1 1 s Hct shall ~~ e s o .l v e c; :i. n t a v o 1' o f i n v e s t o t' s and reo i s t P.l' e d 1 n vest o t' s. Un the mann P.t' of the aoolication of the law pre!!lct'ibln rl a C)P.t' l.Od o f limitation fot' collection of intet'nal t' eYenue taxr>s. the cr.:~se <Reoublic v. 108 ~�n i J.. 11 (1 !:) . 1 1 (1(3' [1960]) cited bY petit i on~t' no t '?WO t't h v as the S um'e me quides u~ in thl!!> " l�he Jaw ot'e sct' i bi no a limitr.:~tion or act ions tot' the I co .llec::-tion ot tne income tax is benef'icla .l both to the Government and to its cit izens; to the 8oYet'nmr.nt t)eca�.1se tax officet'S would be oblioed to act r.:.womD tl)l 1n t he makino of assP5sm~nt. and to citizens beca�.1se a i�tet' ttH? laose of the oeriod of m-esct'iotion citizens wo~.l.ld have a feelj no of sectwitv aoainst unsrruoulous tax aoents who will alwa�s find an excuse to insoec�t the books of taxoavet's, not to detet'mine tne le\ttet' ' s t'eal l i r'l b i 1 i 1; v. b 1.1 t t o t a k e ad van t a o e o f everv oooortunitv to molest o e ace i"1.1 1 1 1 a w� . a b i d i no c i t i z en s � Withot.lt such a leoal .defense taxoavers would furthermore be un d ~ r ob!ination to always keeo theh' boo~<s and keeo them ooen for insoect1on subject to ha rA~s mpnt bY unscrupulous tax aoen ts . l'he law on _orescriotion beino a remedial me a,ure sho~ld b' . intet~ m-eted in a wav conclt.1sive to bt'inoi THt_.. about the b~neficient ouroose of affordlng o.t�otection to the taxpayet~ ~.ithin 1'78

DEC I SION CTA CASE NO . 4206 - 7 -- t tH? ... ~::r.:ont !"?mp 1.;'!\:t;J eorr o:::.f.. the. Co::;..rnrn iss i c�n t.nt:? . ... w~ttc.b ~�� ecr.:ornmer:r.c:led _ .. _c:\P.m~ o::oyal... P .f t; t1~ . J c:\W ~ .'' . ( Urrdet'St:�:�t' i r�rg r,;rJ pp l i. ed) � We do:� rrot see any statemeYrt in Secti. eon 7 (h) under R.A. Neo. 5186 is not covered by the period of limit<~tion i. rr Sectiorr 318 Clf the NIRC, n.:�r that the five (5) year pet�ic�d in Se cti�:�n 318 ;~s applied to to run only from the date the registered enterprise subrn i. t s of corder of eq '"' i. prnerrt. The sign i f i carrt pht'C:\Se i rr Sect i em 7 (h) t�eads -.. "I rr _._j; tH.:?. :tJt~......da:t e .t:. t:~e _r_e i .nv.f�!st.men:t; ....W.:\.? .... _... mC:\de ){)()(' paid with i.rrtet� est." This pt� esuppr.:� !r:l e s a case wtH"!'l ' e the tax incentive through a deduction for expa n s ion t'eirrvest ment is availed, which incerrtive wo::od(s ~rr "Wherr a t'e~}i~stered errtet� pr�i c;; e t' e invests its r.md i. st r i b r.1t ed profit c:or s�Jt' pl�Js, ><X>< by C:\ct r.tal tt'C:\Y'rsfet' thereof to the cC:\pit~l stock of the corporation for procurement of m~chinery, e quipme nt and ;,;pare parts xxx or for expansion o f 1'79

DECISION CTA CASE NO. 4 206 -� 8 ... m<.:\ct1 i net'Y a r1d eq u i pr11er1t >< x x t 11 ~ amount so reinves ted, xxx to the e><t smt c�f 5 0Y., 75'1., t OOY. i r, case r:rf pi r:meet' prc�j ect ;, x x >< sh a 11 be allowed as a deduction f r om it s taxable income in t he year in which such t'e i r.vest ment was made: >< ><><" S imply put therefore, when a deduction for e><par.sion t'einvestmer.t is c laime d ar1d allowed , t he r e gistered enterprise in t he case of procurement or ex par.s i or� c�f mach i. r�et'Y ar�d eq 1.1 i. pment i s ~J i ver. a maximum of two (2) years within which t o order t he mact1 i r.ery and Fa il. i r�g in this requirement, a recomput at ion of the income tax 1 i.abi.l ity fot' s�.tch pet'iod that the ded�.1 c t ic�r� was made shall be done and proper t axes s hall be assessed. Section 7 <h> s peaks o f asses sment, negating the first theory of respondent on the no n- applicability of Section 3 18 of the NIRC. Section 318 i s the ba s ic law Con the pet' i cod Crf lirnitati C�Y'I for assessment of int er nal revenue taxes and t h ~re is no provision in R.A. No. 5186 made to substitute t h i s t' 1.11 e � We see, t1 owever , ar� i r.t emt ic�n in R. A. No. 5186 to s uspend the application of the rule on limitati c�n c�f actior.s fot' collectior� pt'ovided in Sect ic�r� 318 of the NI RC. That is, the five <5> year period c�f 1 i mit a t i or� is s �.lsper.ded ar1d is r.o t 180

DECISION CTA CASE NO. 4206 - 9- applied fot' the two (2) yeat'S th a t the t' e~Ji s tet' e d enterprise is given to order the machinery and equi prnent and only aft et' said pet' i od wi 11 recomputation and assess ment of proper taxes be made. The suspension of the application of Section 318 of the NIRC for two years is but conducive to the O:�f R. A. No. 5185 pt' OV i d i Y"1g benefits and incentives to pioneer and non- pioneer enterprises under its scope. We car-.not discet'n ar-.y conternplat io::�n of R. A. No. 5185, aft et' pet' usal of its pt'ovisions, to suspend the application of Sect ior-1 318 of the NIRC for as long as the registered enterpri s e has not submitted notice of order of the mac h inery and equipment. does not the mach i net'Y and eq u i pmer-.t � Respc�r-,dent, ir-1 fut i 1 ity , has go:�ne as fat' as arg u ing that the duty belongs to the petitioner to recompute its tax liability ( p. 5 Respor-.dent' s Memc�t'andum, p. 8 1 CTA, Recot'd). The Co rnmissionet' cannot pas s on t h is duty for as h eld by the Supreme 181

DECISION CTA CASE NO. 4206 - 10 - ,� Cour~ t in a case '<British Traders' Insurance Co., Ltd. v. Commissioner of Interna l Revenue, 13 SCRA 719, 72G U9G5J > "xxx the e><ami n ation, ver~ifica tior. ar�d audit of petitioner~ 's ir.ceo r.l e tax r~etur~r. s af ter~ this filing (wh ich ) lawfully belor.g s to the Commissioner of Internal Revenue wh o has the r. ecessat~ y f ac i 1 i t i es and pet~s or.n e 1 to conduct the sa me". Mor eover , respondent in so arguing for t h is duty on petitionet~ h as t~ aise d fot~ the fi t~s t time the issue of fraud or fa l sity, a c:lefer.se r.ot pleaded previ ous ly in hi s Answer. Thi s de fe nse is Rule 9 of the Ru l es of Court , thu s should be deemed to have been waived by respondent. Thi s c h a r.ge i r� peos it i r:�r� by a l so goes against the princ iple enunciated in the case of Agui naldo Industries Corporation v. Commissioner of Internal Revenue (11 2 Sera 13G, 140 [1982J> , th a t on ap peal a pat~ ty ma y r.ot be p et~ m itted � to assume a diffet'ent than th at he had assumed the review, but determine and decide for the fir st time a questi on not raised in the a dmini strative forum. In this case, p et it i onet~ t~ ef l e cted the deduction of Pi , 143, 000. 00 reinvested for expan sion in it s Inco me Tax Retu r n for the calendar year 1975 182

DECISION CTA CASE NO. 4206 - 11 - filed o n Apt~ i 1 13, 1975. <Ex h . " ~) ") . Re s p o ndent, t h e r efore, reckoning the two ( 2 ) - yea r sus pens i o n p e t~ i od the fiv e ( 5 ) y ea t~ pet~ i o d of 1 i r11 i t a t i C� n , had u n t i 1 Apt~ i 1 1 5 , 1 9 8 3 t o make t he assessme n t . Si n ce the a ss ess me nt was ma de o nly o n Oct c�b e t~ l.5, 1985 <Exh. "B" >, i t i s bat~ t~e d by t h e pe t~i c� d c�f li mitatior-r i rnp o sed u n det~ Se c t i c�n 3 18 c�f t h e NIRC. WHEREFORE, judgment is rendered in favor of petitioner. The Commissioner of Internal Revenue is hereby ordered a> To WITHDRAW and CANCEL his assessment noted as SARD- IT 75/85 1928 issued against petitioner for being barred by the per i o d of limitation provided in Section 318 of the National Internal Revenue Code o f 1977. b) To cease and d e sist from enforcing the aforesaid assessment and collection the tax for the reason above stated. SO ORDERED. Qu ezo n C i ty, Metro Mani l a , Ma r c h 30, 1 992 . 'C. ROAQUIN J ud g e 183

DECISION CTA CASE NO. 4206 - 12 - I CONCUR~ ~~Q~~ ERNESTO D. ACOSTA Pt' fHd d i n g ...h \d q ., CE RT I F I CAT l 0 N I hereby c e r t ify t h a t th is decision was reach ed a ft er due con s ult a t i on betwe en the me �be rs of the Co m�' t of Ta x Appeals i n acc o rda n ce wi t h Secti on 13 , Art icle VIII of the ConRtitution. C ~RNE. STO ~ D. A, COST~ A Pre c; i d i. niJ .h� d q P. Co urt o f T ~x Appeal~ .. 184