CTA Case No. 4249 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY TIRSO B. SAVELLANO, Pet it iar.er, versus C.T.A. CASE NO. 4249 THE COMMISSIONER OF INTERNAL REVENUE, PHILIPPINE NATIONAL OIL CO. and PHILIPPINE NATIONAL BANK, Respondents. X- - - - - - - - - - - - - X D E C::: a CJ N The origi n of this case goes back to June 23, 1 '386, wher� pet it i onet' the But'e au of Internal Revenue (hereinafter r eferred to as BIR>, of the alleged violations by respondent Philippine Nation al Bank (hereinafter referred to a s PNB> and the Philippine National Oil Company (hereinafter referred to as PNOC > of Presidential Decree <P.D.) Nc�. . 193 1 of June 11, 1 '384 which withdrew all exemptions taxe s of gove rnment-owned Ctl""" controlled corporation s and their subsidiaries. Ir, a lettet' dated. August 8, 1986, the BIR had requested PNOC to settle its tax liability for �' withholding taxes on the� interests earned by PNOC's mor1ey mat' ket placemer.ts with the PNB <Exh. "L"; Exh. " 3" Exh . "'+" , PNOC, CTA Rec. >. PNOC, in 382

,I DECISION CTA CASE NO. 4 2 49 - 2- answer to said letter wrote to the BIR on September 25, 1986, received on October 2, 1986, proposing an amicable settlement of it s tax liability which PNOC had estimated at the time to be P304,419,396.83 for the pet~iod ~lugust 1, 1984 to:� July 31, 1986. It requested that it be assessed ar1d t~equit~e d to pay set-off its liability against the tax refund/credit claims of the National Power Corporation. On Octc�bet�' B, 1986, the BIR ser1t a letter c�f demand t c� PNB, as withholding agent, fot~ the payment of P376,301, 133.33 as final deficiency money placements by PNOC with the PNB covering the 15, pet~iod Octobet~ 1984 to Octobet~ 15, 1986 <Exh. "B", p. 2L~9, CTA Rec. ) . On even date, the BIR had also ser1t a lettet~ to PNOC informing it of the letter of demand sent tc� PNB <Exh. "B"). PNOC t~epl ied on October 14, 1986 by reiterating its proposal to settle the tax liability being de manded from PNB through the offsettir1g against PNOC's liability of a per1dir1g claim for refund/credit of the National Pc�wer In response to PNOC's letter the BIR noted in its lettet~ dated Novembet~ 1.1, 1986 that proposal fot~ off -set t i r1g is at the t i roe ) pt~e matm~ e and so PNOC wa s t��equested_ to settle its 0') 8 J-

DECISION CTA CASE NO. 4249 - 3- tax liability in the amount of P385,961,580.82, made up o f P303,343,765.32 as withholding final tax, plus intet~est computed until Novembe t~ 15, 1986 in the amount of P82,617,81 5.50. Subsequently tax payments arising out of a compromise agreement were received from PNB by the BIR ar1d petitior.et~, ptwsuant teo Section 281 of the National Internal Revenue Code <NIRC>, was paid by the BIR in four <4> in s tallments <the last on Decem bet~ 1' 1987) ' the amount P14, 093, 321. 89 P93,955,479. 12, broken down as follow s : P91, 003, 129. 89 payment made by PNB under + 3,'352 ,249.23 June 22, 1987 tax compro- mi se agreement with BIR pursuant to E.O.No. 44 advance payment made by PNB P93 , 955, '09. 12 total payment made by PNB ============== t ht~ ough his 1ega 1 co::otmse 1, pt~c�mpt 1y wt~c.t e the B I R � demanding payment of the balance of his informer's reward, computed as foll o ws: P385,961,580.82 BIR deficiency withholding tax assessmer.t X __!.1.5 stat ut c�t~y '1- total tax informer's p 57,894,237.12 rewat~d due payment received by 11~, 093, 321. 89 petitioner to date outstanding balance p 43, 800,915.25 <Exh . "V", CTA Rec.)

DECISION CTA CASE NO. 4249 - 4- Cornm iss i onet~ Tan, t ht~o ugh hi s 1 et t et~ of Mar~c h a, 1'3aa, r~eplied by pointing out that the t~eward due has been fully paid as he had "accepted the offer of the taxpayer to pay a compromise of 30~ of the deficiency basic tax of P303,343,766. 2 '3 plus the initial payment of P2,'352,34'3.23 during the tax irwestigatic�n c�f the case, or~ P'31,003, 12'3.a'3". The acceptance of the compt~omise was said to be "in line with the provisions of Executive Order No. 44, RMO No. 3'3- aE., and RMO No. 4-a7. II Pet i t i or.et~ sought the reconsideration of this aforesaid action of Commissioner Tan through letter dated March 24, 1 gaa. Or. Apt~il a, 1'38a even as the afot~ esaid motion was the BI R, petitioner filed a Petition for Review ad cautela~ with the Court of Tax Appeals in pursuance of his -� claim that "the Comroissio:�net~ o:�f Intet~ r.al Rever.ue acted with abuse of d i sct~ et i or� and/ot~ whirosical exet~ cise of jtwisdict ior�" and ur.c�:�r.scionable dimir11.ttion" of his er.titlemer.t

DECISION CTA CASE NO. 4249 - :5 - the -=t'-'o=-t-=-=-a;..;:l=------'tc..:a:;:.x:...:..-_1 i a b i 1 i t y_ collected. An Artswet~ with Cotmt et' C 1 a i rn was f i 1ed by the Ceormo iss i c�rtet' of I nt et'na 1 Rever.ue or, J �.me 15, 1988 refuting the allegations in the Petition for Review on the main ground that there is no cause of action against him, and that pet it i ortet' has beert sufficiently if not more than paid for what is due him. The petit i or, was a 11 eged to be base 1ess artd malicious so that the Commissioner of Internal Revenue claimed exemplary damages aga i r.st pet i t i ortet~. Subsequertt ly, a Motion for Leave to Admit Amended Petition for Review was filed by petitioner impleading PNB PNOC, as r.ecessat~y i rtd i sper.sab 1 e pat' t i es, fot' bei rtg part of the compromise agreement. Or, Septerr1bet' 23, 1988 .:md Septembet~ 30, 1988, PNB artd PNOC, t~espect ively, filed sepat'ate mot ions to dismiss the case on similar allegations of lack _, of jurisdiction by the Com~t teo decide the case, P NB arguing that the authority of the Commissioner into compromise agreements is purely discretionary and cannot be interfered with by the courts; and PNOC that this case does not fall within the provision of Republic Act No. 1125 outli~ing the sc ope of jurisdiction of the Co urt of

DECISION CTA CASE NO. 4249 - 6- Tax Appeals. PNB al s o argued that pet i tioner cannot assail the legality or validity o f the tax compt~ c�rr1 i se. PNOC alleged also that petitioner ha s rrc� cause of action agairrst it abs ent the factual showing that it active 1 y pat~ t ic i pated i rr, arrd lot~ had duly influenced the execution of the compromise agreement. �' Answer to the Amended Petition f o r Review was submitted by the Cc�mrni ss ioner orr Novembet~ 18, 1'388 substantially reiterating his position agains t the claim of petitioner. Up c�rr the other harrd, in reply t c� the mot ions of PNB arrd PNOC to di s miss the ca s e, petitiorret~ invoked the principle agains t multiplicity of suits and press ed hi s case agains t the alleged arbitrary exercise by the Commi s sioner of his power to I rr i. t s Heso 1 uti orr o f Nc�vember 2 8, 1 '388 the Court o f Tax Appeals r esolved that the question of lack of jm~isdictiorr and/ot~ cause of acticorr which are the bases for respondents PNB and PNOC's motions to dismiss do not appear to be indubitable. Consequently, PNOC filed its Answer on February 14, 198'3 arrd PNB on Apt~ i 1 5, 1 '38'3. Resporrderrt PNOC substantially contends that: a> Petitioner Savellano has no cau s e of action ag a ins t it; . 0 �,:

DECISION CTA CASE NO. 4249 - 7- b) It has Y"IO t� elat ior� pt' i vi t y with petitioner, an alleged tax informer; c ) The exet�cise by the Commissioner of its discretion to compromise the tax liability of PNOC at 30% of the deficiency basic tax h as legal basis ur.det' Executive Ot� det' No. 4'+, ar1d Rl'r10 Nos. 3'3-86 ar�d 4 - 87; d) It cannc�t be at� gued that the compt�omise was Y"1ot fait' ar.d t� at ion a 1 to the Goverr.ment, s i nee respor.der�t PNOC is a who:�ll y :..o wr.ed and cont t'C�ll ed . govet� r.mer.t cot�pot�at ion ar.d the compt'om i se payrner.t met�ely involved a tt' ansfet' of public ftmds ft'orn PNOC to the BIR (citing Millares v. Orti z, G.R. No. L- 4'3561, June 15, 1'37'3>; e> The alleged t�i ght C�f petitionet' to the infor mer's reward does not arise from the annulment of the compt�omise agt� eernent but t'athet' ft�om the fact of actual payment by the taxpayer ; and f) The of Tax Appeals has Y'1C1 jurisdiction to settle or resolve the case as against PNOC. For respondent PNB, it substantially contends that: a> The Cotwt ha s no aut hot�i t y t C� t t' Y and decide the Petit ior� Heview fot' war.t of j u t ' i sd i ct i c�r�; 380

DECISION CTA CASE NO. 4 2 49 - 8- b) In instances in which the Commissioner is vested with autho:�t~ity to cornpt~ ornise, such powet~ i s reviewed or interfered with by the courts; and c> The petit i o:�n review sho:�uld be dismissed on the ground of prescription. Subsequently, PNB and PNOC filed thei t~ respective Amended Answe~ incorporating an opinion of the Commissior-1 o:�f Audit that "payrner.t of the Savellano canr.ot be allowed in audit." Evider.ce of the pat~ t ies were ot~ det~ed to be submitted to be followed by the it~ t~espect i ve memf.:n~ andur.l, a .ftet~ which the case wi 11 be deemed submitted for decision <See Minutes of the Session, Apt~ i 1 20, 1990, p. 253 Rec. ) � I Y1 the mear.t i me, pet i t i o:�net~ filed a Mar�i fest at ion with Mot ioY� fot~ Suspension of Proceeding adverting to his pending motion for reconsideration with the Commissioner that may soon be t~ eso 1 ved, and so the r.eed f ot~ the Comrn iss i or.er to b~ given time to act on said unresolved motion. Opposition to the Manifestatior. of petitic�Y�et~ was ) submitted by PNOC and PNB. On February 22, 1991' petitioner filed an Or.1nibus mov i r.g withdraw the moti o n f ot~ the sus pens ion of 0., o'.. ~...~J~

DECISION CTA CASE NO. 4249 - 9- proceeding for the reason that the cause for suspension has become functus officio with the resolution by the Comroissi�:�net~ c�f the pt~eviously by way of supplemer.tal offet~ of evidence the a) letter of the Commissioner of Internal Revenue PNB, as withholding agent, the payment of the balance of respondent taxpayer PNOC's deficiency tax in the sum of P2'34, '358, 450. 73; b > the 1et t et�� dated Febt~uat~y 13, 1'3'31 i Y1formi r.g pet it i or.er� Savellano of the Commissioner's action on the motion for recorisideration. PNB and PNOC filed the it~ t~ espect i ve Oppositior., PNOC adopting the positior. of PNB that the move of petit i onet~ is cor.t t~at~y to Section 35, Hule 132 of the Rules of Court. Pet it i m...er cotu...tet~ed that the act ion of the Commissi�::oner is subject to judicial r.otice ar.d the submissic�Y� ar1d mark ing of the supplementary evidence was made speedily di spose C�f the case. The -� Scol ici tot~ as COIJY1Sel fot' Commissioner, manifested that the Commissioner's stance, as pet~ its lettet~ to the Office Solicitor General dated March 11, 1'3'31' considering this recent development, was stated in thi s wi s e: 0' )

DEC I SI ON CTA CASE NO. 4 2 49 - 10 - "The issue po s ed befot~ e the Tax Court for resolution in the aforesaid case i s whether the availment under E.O. No. 44 of the (compt~omi se o f the) withholding taxes of P385,961,580.82 assessment on the interest earnings on the mor.ey mat~ ket placement of PNOC with PNB is in accordance with law. This Bureau has arrived at the conclusion that such availment i s without legal basis which decision was relayed to PNB in a letter dated January 15, 1991 (Ar.nex "A") demal"�d i Y�g fot~ payment of P2 94, 958,450.93 (balance) withholding taxes. As the Omnibus Motion, containing a s it does a prayer in accord with the posttn~ e of this But~ eau, i . e . , immediate payrnent of withholding taxes, we ,I therefore interpose no o bjection thet~ eto." The , Ol"l May .�:.::.>. 1991' acting motion to withdraw the motion for suspension and to admit the supplementary evidence being offered for admissiOl"l. On May 29, 1991, petitionet~ Savellano filed a memoranda of the parties are already with the the case submitted fot~ decisiC!I� as_ of Jtme_!�_,__1991. Or� June 1'+, 1991, PNB filed Motion to Susper�d Prc�ceediY�g fot~ the t~easor� that it has "elevated the matter of the new assessment dated January 15, 1991 c�f__t_he Cor!)mis"=?ionet~ of IY.terr.al Revey.ue ~inst it .::.i.:n..;:._--=t.. h e

DECI S ION CTA CASE NO. 4249 - 11 - ,I a c_,� DOJ) put~suant to the pt~ov is i or.s of P. D. No. 242 prescribing the procedure for the administrative settlement of disputes between government offices, agencies instrumentalities i r.c 1 ud i r.g govet~nment - owned cc�r�t ro 11 ed corpt::ot~at ions." Pet i t i onet~ 2 8, 1'3'31 si grli fied his oppc�sition or� the motion c�f PNB to:� susper.d the proceedings citing the principle that jurisdiction once acquired remains with the Court until the case is finally tet'roir,ated; ar�d not i r.g that PNB's Petition fot' Review filed with the DfJJ. amo�.mts to / fot' �.trn-� shoppi r.g. Or, July 4, 1'3'31, a Motion fot' Reconsidet' ation <Re: Ot' det~ dated Jtme 3 , 1'3'31 s u bmittir�g the case fot' decision a s c�f J�.me L~, 1'3'31) was filed by PNB pt~aying that the Cout' t h cold the deci s ion ir� this case in view of the Petition fc�t~ Review it ha s filed with the DOJ. or, July 17, 1 r:3'31 PNB filed a Motion to Suspend Collection of Tax representing that the respondent Commissioner had sent a letter of dema nd to it for the amount of P2'34,'358,450.73 represer.t i ng withholding tax due and collectible; that despite a t'equest fot' reconsideration, the Cc�r�lmiss i or.et' t' eitet' ated the demand tht' ough lettet�� t'eceived May 1'+, 1'3'31 and noted it a s hi s fir.al d ec i s ion o n th e -.�

DECISION CTA CASE NO. 4249 - 12 - matter; and that the Commissioner is s et to issue a warrant of distraint and/or levy against PNB's deposits with the Central Bank; and that the levy will cause great and irreparable prejudice not only to the g�::.vet~nmer-. t-controlled PNB, but also to thf? Government itself. PNB to suspend proceedings, PNB replied on July 18, 1991 by citing Secretary of J ustice Opinion No. 113 dated June 30, 1990 that ever-� appea 1 s from the i l'"IVO l Vi Y"1g a government -owned cc�rpc�rat ior-1 car-1 be taken co:�gr-d zar-.ce of by the DO.T �' under P.D. No. 242. The principal issue according to PNB involves the determination of the tax due to the Government on the interest income of PNOC but this should be decided only �by the DOJ and not this Court as provided by P.D. 242. In the heat~ ir-.g of July 19, 1992, the Cotwt ordered the parties to submit their respective PNB's Mot ior-1 to Suspend The Com missioner of Internal Revenue in his memorandum on the question of suspension of among that

DECISION CTA CASE NO. 4249 - 13 - ) Petitioner in his Memorandum expressed his belief that this case is not between or among government entities corporations inter se. He r.otes the fact that the petitior. fot~ review was ir.it iated by a pt~ ivate litigar.t as petitioner as against t ht~ ee govet~ r;rnent offices s . t~espondent He argues among others that the Petition for Review filed by PNB with the DOJ pt~ eser.ts fot~ adjudicat ior� the vet~y same rnattet~s/ issues which are sub judice before this Court, and PNB would only war�.t tc� abot~t the Cout~t' s exet~cise of its tax jurisdiction which had attached upon the filing of the instant petition. Furthermore, since the Court has acquired jurisdiction over the case, it should cor.tinue to exet~cise such .jtwisdiction until complete remedy is granted. PNB argues in its memorandum that its Petition fot~ Heview befot~e the DOJ pt~esents a prejudicial

DECIS ION CTA CASE NO. 4249 - 14 - question to the petitiorret~ 's claim fot~ infot~ met~ ' , s reward; and that the Court of Tax Appeals has _, jurisdiction on the claim for informer's reward but not over the matter of its tax liability. Fot~ its part, respondent PNOC ess�ntially maintains that the issuance of the assessment against PNB has given rise to a controversy purely between a agerrcy arrd a govermner.t controlled corporation. A Rejo:dr.det~ by _petitionet~ to PNB' s Reply of July 18, 1'3'31 was filed ar.d contends that P. D. 242 is not applicable in this case. Dr� Septembet~ 20, 1'3'31 another Omrribus Motic�r� was f i 1 ed by petit i c�r�et~ ca 11 i rtg at t .ent i c�r� to the fact that a warrant of garnishment against PNB has been issued by the Commissi oner of Internal Revenue or. Augu s t 2 , 1 '3'31 addt~essed to the Gove-r~r.ot~ of the Central Bank of the Philippines and received by the same on August 1'3'31; that or� the same date August 23, 1'3'31, a debit advice was issued agair�st the demand depo sit account of PNB for the amount of P2'34,'358,450.73 and such amount was transferred to demand deposit in trust for the Bu r ~au of Internal Revenue; that the motion to suspend proceedings of PNB h as artd academic with the er.fot~cemer.t the final ar.d tmappealable assessme nt through the issuance of a wr it o f

DECISION CTA CASE NO. 424 9 - 1~ - garr.i shment. Petitioner thus moved for the denial of the said moti.:�Y"� to suspend proceedir.gs ar1d fot' the Bm�ea u of Intet'nal Revenue to be t'equit�ed to deposit with the Court of Tax Appeals the amount of still dtle. On Oct obet' '3, 1 '3'31 PNOC f i 1 ed a Mar� i fest at ion which, aside ft'C�m t'e itet'atir�g its theeot'Y that the cc�ntt'ove r�sy falls tmdet' the jtwisdictic�Y"� c�f the~ DOJ, stated that the DOJ has the of I nt et�na 1 Revenue to susper.c:l collection of the assailed tax delinquency in the amount of P2'34,~58,450.73 and to file his answer to the Petition withil'"� a pet�iod of tel'"� (10) days �ft�om t'ece i pt het�'eof. PNB's petitioner's Omr� i bus Mot i ol'"1 fo 11 o wed on Oct c�ber 10, 1 '3'31 at'g u i r .g that in view of the a fo t'equot ed DOJ suspending t h e collection of the tax, there is no basis for petitioner's motion as the same is premi sed on the erroneous assumption that the �' disputed tax has beer. collected. Ar.d, with the Motion to Dismiss and requiring him to answer, the DOJ has unequivocably assumed jurisdiction over PNB's Petition; and that this Court must first suspend the proceedings in the instant case to give 396

DECISION CTA CASE NO. 4249 - 16 - the DOJ the opportunity to finally decide the val id ity ar�d propriety of � the tax assessrner.t aga i r.st PNB. We have these issues 1. Whethet~ the Co�.wt c�f Tax Appeals has jut~isdictior� ovet~ the case, ar.d i f so , the extent of its jurisdiction; .....�::. Whether the validity of the assailed compromise agreement can be s ustained; 3. Whether, unde~ the facts of the case, �' that he will b~ allowed to collect the o utstanding balance on the 15~ tax informer's rew ard . This case was brought by petiti o ner Savellano against the Commissioner of Interna l Revenue e x ab und anti cautelam, wat~ y onl y of the start c�f the to:�lling of the thit~ty (30> day pet~iod fm~ filing Petition for Review when there is a pending motion with the Commissioner. Respor�der.t PNIJC belatedly tried ir� its mer.K�t~andu m to allege prescription against petitioner. The facts show, however, that the Commissioner's letter of Mat~ch 8, 1':388 was t~ece i ved Mat~ch 11, 1':388 a rod the same on Mat~c h 25 , 1':388 effectively stayir.g the (30 ) day prescript ion peri od to appeal.

DECISION CTA CASE NO. 4249 - 17 - Still, the Petiticorr fot~ Revie w wa s filed orr Apt~il 8, 1'388 c�t~ within thit~ty (30> day s ft~mn March 11 , 1 '388. Notably, t~es porrderrt PNOC did r rot t~ aise the issue C�f preset~ i pt i orr i rr i t s Arr s wet~ arrd is therefore deemed teo have waived such defense, corrsistent with Section 10, Rule '3, and Sectiorr 8, Rule 26, Rules of Court. The Petition for Review was amended to i mplead PNB arrd PNOC as respc�rrdent s fot~ they at�e t~ i ght 1 y parties in interest irr this case. Urrder the st andat~d of det errr1 i rr i rrg t~ eal parties i rr i nt et~es t , which i s that pet~scorr who has the right to cc�rrtt~o 1 arrd receive the ft~r.tits of the act ic�rr <PLDT v. Commissioner of Internal Revenue, C. T. A. Case No. 4375, Januat~y 7, 1 '3'32) ' the said qualify as parties in interest. They have ,:\ substantial stake in the action a s they may potentially be benefited or prejudiced by the result of this action; they have interests adverse t�:- the petitioner, as they stand fot~ the validity of the compt~omise agt~ ee merrt ; a rrd t hei t' participation in this case, beirrg pat~ties to such agt�eernerrt, is rrecessat~y fc�r a complete detet�rr1 ination of the que stiorrs irrvc�lved. Havirrg beerr impleaded as pat�ties irr this case arrd having filed their Answer to the Petition for Review, PNB and PNOC necessat~ily submitted themselves to t h e ,I

DECISION CTA CASE NO. 4249 - 18 - jurisdi c ti o n o f this Court and should therefore be prepared to be bound by the Court's ruling. Petitioner seeks to invalidate the c ompromise The powet~ to c o mpromise 1. c� .~ d i sct~et i onat~ y is \ r.at~ i 1y ot~d i interference from the courts. arbitrat~y capt~ i c i c:o us exet~c i s e by the Commissioner or if the proceedings were fatally defective, the compromi s e can be attacked and reversed through the judicial process <Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812, p. 812 [1982); Sarah E. Ramsay et. al. v. U.S. 21 Ct. Cl. 443, aff' d 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S. 32 F Supp. 135>. Is it ther� this Cc�tn~ t that ha s the powet~ teo t~eview the ceornpromi s e agreement in this contreoversy? We are well aware that the rule o n compromise set t 1emer.t s cl�:�sely the law C�f contracts, as a ceompreomise of taxes i s a ceontract . It alseo folleows that contracts are subject to construction by a court as teo it s meaning and validity <Mertens, Law o~ Federal Income Taxation, Vol. 9, 1977, Chapter. 52. 19, p. 33 citing Big Diamond Mills Co. v. U.S. 21 F2d 721 ar�d cothet~ cases>. A mistake of law may also suffice to a destt~c�y compt~ornise agt~eerner.t <Cloister Printing v. U.S. , 100 F 2d 355 ) . 399

DECISION CTA CASE NO. 4 2 49 - 19 - requires, int e r ali a, parties capable of making and authorized to make the contract, a subject matter, and a consideration. T h e Civi 1 Code pt~ovide s that "A cornpt~r:::�rnise has upor-1 the pat~t ies the effect ar.d authr:::�ri ty r:::�f res ) j ud i cat a" <At~t icle 2037). Res judicat a applied to cc� rnpt~om i se set t 1 er�ler.t s gives t h e accord reached, t h erefore, the force a n d effect of a definitive and f ina 1 judgment. Stated in another way, compromise con notes judgment, or decisions, the last two words being synonymous. Thi s t~e lat ion just defir.ed is t~elevant, for ir� outlir. i r�g the jurisdictior� of the Cotu�~t of Tax Appeals, i t s chat~tet~, Republic Act (R.A. ) 1125 ir-1 Sect icn... 7 thet~e of speaks of "decisior.s" of the Cc�mm iss i onet~ of Re v er.ue on "di sp uted assessments" c�t~ "o::othet~ roattet~ s at~ising ur.der the Nationa l Internal Revenue Code that roay be reviewed on appea l" . It has been prev i ously interpreted that a "disputed assessmer.t" a t~i ses a taxpayer ques t ion s an as ses s me n t a n d asks fo t~ car.ce 11 a t i or� C�f the same (Commissioner of Internal Revenue v. Vill a, 2 2 SCRA 3, 6 [1 ':368]) � I t may s ee m that the a ssessments issued by the Commission er agai n st PNOC and PNB were not disputed as PNOC offet~ed to co m p t~ o mise th e tax l i a b i l i t y

DECISION CTA CASE NO. 4249 - 20 - soo:�n aftet~ t~ eceipt of the demand fot~ the tax. But a compt~ oro:i.se implies a dispute. in a tax controversy are to settle or to litigate i rt those cases i r. which there doubtful questions which neither side is willing to yield on completely. Sett lemer.t is "simply the ernploymer.t i ~"� the fie 1d of tax adm in i st t~at i or. of' sotmd ar��d valuable businesslike method s for the adjustment of disputes" <Met~ t er.s, supra, Chapter 5�::: . 01, p. 2) . A compromise then necessarily involves its own method o:�f adjudicat ior� of the case. To s ay that compt~ortlise is r e s j ud icata mear.s that it is ar� adjudication ori the merits. In case Seem~ i t i e s v. Savellar.o, s upra > with t~ esemblir�g cit~ cwostar.ces as the case ort hartd, ar, had givem confidential denunciations ir� the hope of beir�g t~ew.:n~d ed or� the tax co:�11 ect ed. The Cormois s ior.er failed to determine any assessible tax against the o:�bject of the der��-tr.ciatiorts artd the info:�rmant did not agree wit h this ruling. He sought the issuan6e of an assessment and collection of the tax against �' the party inv6lved but erroneously went to the then Cc�twt of' Fit~st Ir.stance fot~ relief. Urt det~ t he!:ie conditions, the Supreme Court ruled that the court of First Instance has no jurisdiction over the case artd also fourtd occasion to elucidate on the 401

DECISION CTA CASE NO. 4249 - 21 - jurisdiction of the Court of Tax Appeals, analyzing that: "The quest i or� whethet~ ot~ r.ot t o impose a deficiency tax assessment on Meralco Securities Corp. undoubtedly com~s within the purview of the words "disputed assessment s " ot~ c�f "othet~ matters arising under the National I r.t et~na 1 � Rever.ue Cc� de. " Of cotn~se, the cited case does n c�t involve a compromise agreement. But it may not also be incorrect to say, drawing a parallel ft~om the inference of the Supreme Court in said case, that the question on the validity of a compromise into by the Commissioner of I r.t et~na 1 Revenue is with i r� the cc�r�t ext of "disputed assessmer.ts" o:w c�f a "othet~ mattet~s at~isir.g ur.det~ the Nat ior.al Ir.tet~r.al Revenue Code". Fot~ i f !_n 1 ~.!;@Jj_t y C� f As well i r� the Meralco Securities Corp. Case, had pet~cei ved of the possibility that t~i ghts may be the subject of adjudicat ic�r� by this C�:�urt. speaking through then Justice Claudi o Teehankee opi r.ed: "Thus e ven a ss uming arg ue ndo that the t~ight gr a nted the taxpaye rs affect e d 402

DECISION CTA CASE NO. 4 249 - 22 - to que stior� ar1d appeal disputed assessments, under Section 7 of R.A. � 11. 25 , may be availed of by stt~ar.get~s or informers like the late Maniago, the most that he co uld have done was to appeal to the Cotwt of Ta>< Appeals the ruling c�f the Commissior.et~ of Intet~r.al Rever.ue within thirty days from receipt pursuant to Section 11 of Republic Act No. 11 2 5. In Sect i or� 11 of R. A. 11 25 , t het~efot~e, t~ef erer.ce to a r.y pet~son, ad vet~ se 1 y affected by a dec i s i or� c�r ruling of the Commissioner who may file an appeal t�:� this Court may be ir.tet~preted to ir.clude ar. infon11et~ advet~ sely affected by a decision c�f the Commissioner of Internal Revenue. Out�� belief that it is this Cotn~t that has jurisdiction over this case has been r einforced by the finding that the resolution of the validity or illegality of the compromise agreement necess itates the application of tax pt~ir.ciples, this case beir�g pervaded with tax connotations. It is not too much to say that with the recogn ized expertise of this in tax cases , it is most competent to adjudicate the se issues. Thi~ Court h olds that it exercises exclusive appellate jurisdiction over the case at bat~, to the exc lusion c�f the DOJ such jurisdiction extends not only to a determination of the validity of the com prc�mi se a g reemer1t in quest ior., but also up to the pt~iot~ity and legality c�f the issuance of an assessment ag ai I'"ISt the concerned taxpayer /s.

DECISION CTA CASE NO. 4249 - 23 - The questior. of jut~isdictic:�r� settled, we al s o beli eve that of Justice canno t ir.tet~ vene ir� this case a r.d dept~ive t hi s Cotwt eof The jurisd ictic:�r� of the cc:�tn~ t once c:�f the 1 it l9.at i c:�n ot~ �.mt_i 1 the _f:aSe is f ina 1 ~ <Lat v. Philippine Long Distance Telephone Company, Inc., E. 7 SCRA 4 c:5 , 434 [1 '37:.5J citing cases; Evangelista v. Court of Agrarian Relations , 10'3 Phi 1 '357, C1'3GOJ>. As ear lier pro nounced by the Supreme Court in a case : "Jtn~isdict ion co v et~ t~emedi e s o f t h e sa r11e r.atut~ e at~i si ng ft~ om the sa me ca u s e o f acti eori is ir.divi s ible. It is the p ol i cy eof the cout~t s to dete r mi n e the er.t i t~ e cor.t t~ ove t~s y bet weer. 1 it i g a r.t s. Accord i ngly, juri sdictieon car ries with it the power to hear and determine every issue or question properly arising in the cas e, to do a ny and all things with t~ efet~e nce t h e t~ et o aut hot~ i z ed b y 1 aw , and to gran t full and c o mpl ete relief (l buran v. Labes, 87 P hil. 2 34, 238 [1'35 0] c it ing 21 C.J.S., 135, 136). �' This case h as evolved from one orgina l l y between an i nf or mer , who is a pri vate per s on, and a government b ureau a nd government-owned or betweer. the sa me pt~ ivate litigar.t a s plai ntiff �and PNB ar1 d PNOC as t hc�se t~ ema i ni ng on the defe r. s e. Preside ntial De cree <P.D . ) No. 2 4 2 meant to subject

DECISION CTA CASE NO. 4249 - 24 - ,!nj._ti~t~Q__R_y__a pt~ivate litj,_gant ar.d up to:� i t s �' 1 i ab i 1 it y _f�!_st_i mat_,e:..d!=-___.:a:,_t Dist i r.ct i ve 1y, the Development Bank of the Phi Is. case s tarted a s one solely between a g c� v e-r~ nrnent a goverr.rner.t H e t~e , ever. i f t h e BIR subsequer.tly a-r~ rived at the conclusi o n that th e a v a ilrnent o f E .O. No . 44 by the PNOC was without lega l basis ar.d it h a s t�:� change i t s ot~igir-.al stance, the s am e will rllet~ ely forrn part of the incid~nts 6f this case a nd may not deprive this Court of jurisdiction if one has legally been acquired in the first place. This is but compatible with the a gainst multiplicity of s uits which looks to a final determination in a s ingle action o f t he wh o le c o nt-r~ ovet~s y <Se ct ir.:or� 5 and 7, Ru l e 3 , S ect ion 1 4 , 4U5

DECISION CTA CASE NO. 4249 - 2:5 - Rule 6 ir1 t~ elatieon to:� Sectior1 2, Rule 1, Rules of Cc�urt) � Respondents PNB and PNOC do not deny that this Cot.wt . has acquit~ed j1.1t~isdiction cov er the subject rnattet~ ar1d eovet~ the pet~seor1s of PNB and PNOC. Ir1 theit~ rt1em ot~ar1da, aftet~ the case has been deemed submitted fot~ decisio:�n o::�r1 .Tune 4, 1'3'3 1, i t appea t~s that PNB and PNOC has bowed teo the jurisdiction eof this Co:ot.wt to adjudicate the question in this petit ion. In their oral arguments counsels for PNB and PNOC also maintained that this Co:�urt has ) jurisdicti on over the petition filed by Save llano, thus: II .JUDGE RO~lQU IN W.b. i!!L._LJ>_~Li~v-~_i.?_t hat eor1ce__~_'2l!.r.i �\J;_9...'L~.!'~ e ~.....i'=.\ t~ i_gg:l_!._~_.tj. or.!.,____!1�'~~...n.... Y"1�:;~_.J:.~ e_!_~y se.. t h .~.:L__t_..Jr.!l...es..s w.�'._ k l'"l.f:!.~-Y h-~~--~e _g eo !:"'..!-=' t.___h a V.�'. J.!-l_l"_:_:!_2_9_:i._�_t i �:;!.!l_ OVet.:..__ib..!L_I!la t t er:..~--~L.J.n r:_ tb.i.2._....P..?J"~ t _i_<;_u :1;. a c a? e i t seem s.--.ih a t _ we �~...!.tL_.!J.~. Y-~---.J~~n:..i_.2.d i st i o::�r1.!.... ATTY. MAGLAYAN Ye �_,___y o:� 1.1!::.__ _ Hc~It.f!!:__..f?.!�'..a s e. By c ~. at~ i f i .~a �L:!_g_r~'--~~--g_,;::_.__r.!..pt _quest i o::�r1 t he J.~::\.!~ i s_fl_~ ct i or1 .f~f t h i _2___Hor1..QTa b 1 e_ Co_t_...!.rt_ over: :!!.!:Li2.._�~.2-~!--. Th.J_s_..�.~2.�?_f i 1 e .Q_I;!y_Q_~.tJ. t i one t~ i2_......�L_cas�'_ fo-c._j;_h e t~eceovet~y eof i nfeorrnet~' !�. t~e~ a_r_d__� _ _!;?s:� t h a~ i s ��� JUDGE ROAQUIN T _ tJ.~.:\! _:!_2___R 1.1t_:�!_.l_Y_.___i_r.!_!;_i d ent_~)___"!;..eo t he !:!:!..~...!~.!? t:,__.___.!!..b..e_t____i_?.___.__gn_l y i r1c i Q..!?..I!..L~l.!'_ .r ..LUr1 9 e s 1;!2..t~ i ~'"..!!L.!!!.:i...r'..~l XXX XXX XXX 4uo

DECI S ION CTA CASE NO. 4249 - 26 - JUDGE Rmmu IN The 15'1- shc�uld be based r.:.r, the r1ew ruling of the BIR. JUDGE ACO STA ::r h c:\_!;____i�.__I1!Jy__b_l?__j. s_t.t.~Y i n g t o t~ a i s e tb._~_:t.__j,_~.?-'o':..~-1!..~ f qr.::.~_..!.b.J_.~__c o_~l_rt___Q_g_c;_~~~ s .e t he .! s sue g J wh qi_!..�__!; h .!?_ X i.Jlh t f t\..L_!_e lL.:tbE.i_! s gu_g_ft~�;::.r,, _j;he _ cornQ..e.niJ=!s..! S�::.___L _tb._!_n.!i_ the !:~. Ul.b.li..!:-l..L_ t h i_r.!.g__t_hat you ( shc�u 1 d > have ggr'~?.___ i f vc�u de� r1o;ot agree wi ttl_ th~ ~_llegat ioy1 �::.f_i.b_~_t~ ~.�..RC�ndent ,__yo1.1 _<E_?.hc�ul..fl_ h a v~___f i 1g.Q..._yf�u .~lY.... ot~ a r ' s wer__!;_Q...._j;_h e it~ g_er,ia_!.!... ATTY. MAGLAYAN We pt~ot est ed JUDGE ACOSTA Befot~e t h i s cc�tn~t, r 1ot befc�t~e the Department. of Justice. JUDGE ROAQUIN :r.Q u -�--h �'...Q_____j~J1 ~---wr_p r1 g ____':{_~fJ..'::L~L__yo q Ql"~.�~S.~-~d ed___\.-i.i t h________:ttl_?_:_ _wror:!.Q_____f _ot.:.'::!..m.!!._ i!JJ::!.9.!? t~ s �p t~ i.n..9......Wi n.~L XXX XXX XXX JUDGE ACOSTA �Q..n..._ _t_l}~ i s ?.2~.!.g__�2..f...--.i..!:!!:....:!..? d if:t _!_or1..'L_ whE.i _is_ yo'~U:.._ __Rosi.t_j.c�r, which is being g u e s "t!....! C:OD..~_cLJ~y_�~.�1.1. XXX XXX XXX ATTY. MAALIHAN ~-~-Ji!9.J.n.t._~j~-IJ.~j;_ _t _b._t�. court t1a '-?. i'.7!!~ i.�.QJ.�~U OX)_C� !:~..l:___.t...b_~.-....P_gt i t .!�1.!..L of _t.h~ Say_~anq_whj__!;h is between Savellar,o ar!.Q. PNJ;b._ XXX XXX XXX ,I

DECISION CTA CASE NO. 4249 - 27 - } ATTY. DAVID \t!~___!!l~. i nt~ i rr_ __�!1Jla t ,__ _Qg..Q.� t~ "tJ~le r,:rt c.. f J '~\.2J.J. c~___b_~~9_ _J}~;�t'e__j u t' i sd i ct i �:�rr.,__ Yc� '-~ __ tl.~::;~~~~r:_,__ ~~!::r...._t he _ g t' c� u rr d t h at t h i s ! .I!.c i d er�i t!_. b. S\_~___1;!_~-~-Q!!:!�._f..tDE... XXX XXX XXX. II And yet apparently, after having submitted theit' cause, when PNB and PNOC sensed of an impending adverse decision on the merits, they make a deli bet'ate effot�t tc� evade the jurisdict iorr of this Court by going to the Secretary of Justice for This is not permissible for in the leading case of Tejam v. Sibonghanoy (23 SCRA 29)' t'eitet' ated in Phil. National Bank v. IAC (143 ACRf~ 299 ) and Meram v. Edrali n <154 SCRA 238>, the Supreme Court ruled: "xxx a pat'ty carrrrot irrvc�ke the jurisdiction of a court to secure affirmative t' elief .agairrst hi s opponerrt and, after obtaining or failing to obtain such t' elief, t' epudiate Ot' questiorr that same jut' isdictic�n. 11 In the t'ecent case of Tejones v. Gironella ( 153 SCRA 100, 104 [1988] ) , the Supreme Cot..wt he 1d that wh en a party had vc�lt..mtat'ily submitted himself to the jurisdiction of the Court, he is estopped from later on assailing its jurisdiction. ' petition.�'t' that if this cas.!= is transfert'ed to thE! ) 408

DECISION CTA CASE NO. 4249 - 28 - the l _i.g_Qt of the tax CO:O!"!.l.Q.romise , will be taken f.~n~ �' s uit ~.� This belief is suppor ted by the Supt~e nl e Cc�m~t dec is i or, i r , Ramos v. Central Bank of the Philippines (41 SCRA 572, 583 [1 '371J citir,g People v. P~garum) sayin g : 11 the jurisdictior' of a co:�tn�~ t depends upon the s tate of facts existing at the time it t s ir,vc:�ked, ar,d is the juri s dictio:on once attaches to the person and the s ubject matter of the litigation, the___?...!~Lt?_s e __ rut~.nL .JJ.~P...Q.f?I!.! r, g c� f . ___g_ygr,t s J_ ~ .!..t IJ.o '~\.Y.b__t he_y_ _~-c_g_...-9 f such a chat~ act e r~ as w c:~!:.\..UL_t.L~Y e___.Q.t::.~y:g_r, t_ed_j m~ i ~d i c.t.i9...!..L.Jt"'..Qffi @.Jj;.E-_<;l:U:..!::!!L.ir.:t__.t h_?._ ..f i t~ st;__ i r.st ar,ce._,._~ i 1 L_npt;_ �~f?..C�~ g ___!;_g_ _s�u_p t ___J. u r~ i sd i ct i or' a 1 t~e ad_y_ ~~-t;-~h.!E.fl.� " <Undet~s cm~i r1g Ours) M c�t~e, the ev i 1s at t er1d i r 1g sp 1 it juri sd i ct i or's have long been t�' ecogni z e d in Bay View Hotel, Inc. v. Manila Hotel Workers' Union (18 SCRA 946, 953 >, and ir, the Ramos Case th e Supreme Cour~t s poke thj s teachir1g agair1: 11 T�:� draw a t er11.1ous jut~ i sd i ct i ona 1 l i r1e is to tmdet~mir�e stab i l ity in litigations. A piece meal resv::n~ t to o:me Court and another gi ves ri s e to multiplicity of s uits The time to be lost, effort was ted, anxiety augmented, additior,al expense ir,curred these at~ e considerations which weigh heavily agai n st split jurisdiction. Indeed it is rnot~e ir, keepj. r,g with o t~ det~ ly administt~ation of justice that a l l the c a uses of actio n her~e be cogrli za b 1 e ar1d heat~d by or1l y one Ceourt �� � 11 � 40 .J

DECISION CTA CASE NO. 4249 - 29 - t_l]~ thus st~e-r� ding th~---� co:ollec:t;ion of the assailed tax f :1. le his. ar. swe t~ w ith i ~'"� 1 o__days is t het~efore of ~:lco u btftll validity._ Going the the pt~esent Commissio::or.et~ of Internal Revenue, in the middle of these proceedings had changed its stance by the posit ior. of his predecessor on the ground that the availment of the compromise under E.O. No. 44 was without legal basis. the case ar.d seeks relief i t s� fulfillment on the basis of mistake of law. Ir-1 its lettet~ to:� PNB der.1andir1g payr.1er.t of the amount of P294, 958,450.93, the Cc�mmissior.et~ laid its reascons why it is avoiding the contract, thus: "xxx XXX XXX After a circumspect study of the case, this Office has arrived at the conclusion that the compromise settlement is without legal basis considet~ir�g th""t E.O . 4L~ cor.templates disputed ot~ delinquent taxes. The wit h holding taxes are actually not tax but penalty for your failm~e to withho:::tld the sa me ft~ c� m PNOC (National Development Corp. vs. Co mrn. of Inten"�al Revenue, G. R. N�::�. 539 5 11, June 30, 1987). Moreovet~, the oblig a tic�n teo withhold the tax i s your personal 41 0

DECI S ION CTA CASE NO. 4249 - 30 - liabili t y a s withholdirrg agerrt <Cormo. c�f Internal Revenue v s . Malayan Insurance Co., G.R. Nr:�. L- 21'313, Nr:ov. 18, l.'31S7.) Such liabil i ty i s imposed tmdet~ Sectiorr 51(e) of the Tax Co de. Accordingly, there is still due from yo u the amount of P2'34,'358,450.'33 arrived at as follows: Withholding tax plus P385,'31S1,580.82 interes t under letter of demarrd dated Nov. 11, 1'381S Less: Amount paid '31,003, 12'3.8'3 tmder~ E. 0. 44 Amount s till due and -P-2-'3-4-,-'3-5-8-,-4-5-0-.7--3 cr:�llect i ble xxx" XXX XXX <page 451S, CTA Rec. The law per~tairrirrg tr:� cr:�mpr~omises per~mits the voiding of the contract of compromise where consent is given through mist a ke <Articles 2038 in relation to Ar~ t. 1 33 0 o f the Civil Co de). the Civil Cod e furth e r provides that ''In order that mistake may invalidate c r:�rrserrt it s hould r~efer to the substance of the thing which is the object of the cc�nt t~act, or to those conditions which have principally moved one or both parties to enter into the cc�r�rt r~act. " Mistake of la w like mistake of fact shr:�uld t~efet~ to the substarrce c�f the contt~ act t r:� invalidate consent. It has beerr r~uled irr an Amer~ican case that roistak.e of law as to whethet~ the subjec t matter of the a sse ssment is itself pro perly 411

DECIS I ON CTA CASE NO. 4 2 49 - 31 - taxable may invalidate the compromise agreement (Clcristet~ Pt~ir-rt ir-rg Cot~ p. v. U.S., supra). In that case the mistake of law was confirmed by a decision used as basis f c�t~ the In our cas e, therefore, it must be �' shc�wr-r that the Commissic�net~ had committed mistake of law in relying on E.O. No. 44 for the compromise set t 1emer-rt. We find that the consent of the parties to the compromise agreement is vitiated by mistake of law. It is also a requirement in contracts that the parties who enter into contracts contract. The circumstances of this c ase show that ways acted the SCC�pe his authority through the i ss uance c�f imp 1 emer-rt i ng t~ules that vi�=� lated the ir-rter-rt of the basic law, E.O. No. 44, and the arbitrary accommodation of the case of pt~ivate respor-rdents which is r-rot c�r-re of those cases within the contemplation of said basic law. The cc�m pt~c�rn i se is chiefly the pt~oduct c�f t~ eliar-rce by the � pat~ties C�Y"r Executive Ot~det~ No:�. 44 titled "Authori z i r-rg the But~ eau c�f 4 1~

DECISION CTA ~ASE NO. 4249 - 32 - s upplied). ( Undet' SCO t' i ., ,!;:1 the In t u t'YI , t'.l.9..t.=<;.b__ ..~ 1.._,____.!_~:3_{3..?. <Undet' 1 in i ng s upp l :i ec:l) � Wot��se , thi s "was pa id i y�,!:;t a 11 roer-rt :; " completed much later. Compl�'.:::orni r,:; e~:; a t'~~,:;~. st;3.t utory mr~ttet' and have theit' l ega l con~:;equences by virtue o f t h e stat ute which ct'PMtec:l them. The r��egul a t' machinery for compromising a ta~ spec ified in Sectio n 246 0f th.:=:! 1\lat ior-,al Ir-,tet' l'"tal Revenue Code considers only two conrlition s where the power to compromi s e may be exercised: When - "a ) A y�ea.sonable doubt as to the v .:-.\1 :ic:l :i.ty of lhf.? c laim agair-tst ,:;~. t a xpayer' E~>< i s t s; t::.�,.-" b> Thf? f i. l"tc>.ncial posi tion of the t a>< p aye 1��� demonst t' at es a c 1eat' i nab :i 1 i t y to pay the assessed tax."" '+ ExPcutive Ur de r No . Ll.lf, i n SPct i. on t het' eof , 413

) DECISION CTA CASE NO. 4249 - 33 - of i t s e f f e c t i v i t y thu ~> giving the Commissionet~ the powet~ to compl�~o mis e , subjec t onl y t o t h e pt~ ovisions and irYten t of E. 0 . No. 4'+. Section 1 of E. 0. No. "SECTION 1. The Commis sione t~ of Inte r� r�,a l F~e venu e ot" his duly a uth o t~ize d t~ e r:n~ e se nt at i v e s way �:.~2.fi!..Q.t:�;~!!.l..i.:..s.�______ 2\DY- Q..i.?..Q~.,.\.:!L�?.9. -.~~ s ~.r'!..~!~1~t::t:L~:=n:::_.Q~tr..!ill~_r.:,_t.__~r,::_!; c�.llr,i __ ~.?...._~;~.f R!?...~!?.!.f_l_q_~_t:_._;;!_!_,___J. .':.313_~ , u port t he paym e n t of an a mount eq ual to this by ( 30~) pet~ce nt o f the basic t i':l. X a ssessed . In s uch cases, the C o mmiss:ior,et~ o f Ir.tet~ n a l Rev enue or his duly authorized repr~sentatives s hall condone .t he cot~ t~esp o rtd i r.g i rtt et~est s a nd perta 1 t ie s . " (Commiss i oner v. Armando L. Abad , �:::3 SCR A 113�::: , :L 1 ItO , [ 1958]) � An offet" to co:�rtlpt~o mi se may have b een made btJ t j f the offet~ i~:; not accepted, the t~ e i s no com pt~o mi~;e (Commiss i oner v. Abad, supra>. A 1. c.- p e rfec ted by mere consent ; and CO l''tSel'tt .::> i s manifested by the meeti ng of the o f fet~ artd acceptance up o n the thin g a n d th e ca1..1se wh ich are to con st i tute t he contl�~ ac t <~h~ ts. 1 3 15, 1.319 Ci vi 1 Cc�de ) � The acce ptance o f ' the cortlpt~o mi s e pay mer,ts th at will to the co mpromise mu st therefore be made on or before Mat~c h 3 1., 1'387 as f:lectio n 1 states q ui te plail"tly t hat the Commi ss ion et~ "r.1a y co rtlpt~omi se >< XX uport the payrn er,t of a n a rn otmt e q u a 1 t �::� t hi t" t y pet"ce nt ( 30';1.. ) " ot~, ta ld. rtg i t ft" �: �m the Title of th e law, "accept co rnpt"om i s e pa y rner.t ~:; " o n 1 y unt i 1 su ch date . I f E. D. N o. 41.~, fot~ i t s c:luJ�"�"' t ior., contempl ates l es s tha n

DECISION CTA CASE NO. 4249 - 34 - acceptance of payments or perfection of comprom ise a g r�eeme nt , mear-ri n[.;t appli c ations for~ compr-�o m i se, i t co ul d have easily stated so by pr~ov i s i or-rs i n the 1 aw or�� co ttl d have r��efer~red t o "offer~s i n compr~o mi se " i n i t s pt~eovisior-r s . As it is, thE'? u s e of the wor~ds "may compr~omise xxx upo:�r-r the payment of ar-r amo r_mt eq ua 1 to t hi t~t y pet~cer-rt (30'1-) '' and ''accept corrlpr~ o:�rrlise paymer-rts'' pt'esup_Q.�~Se�. Revenue Memorandum Order <RMO> No. 39 - 86 dated _, November' 18, c~... that: '' 2 . t'�!.'~j_,_:~.Q_o;~t..... E...Y. �J:.J.J.r.1.~r..r...t - fj_}_if!.!L.~;�f �J?..P-.L! ..~?_tA.f!!.:'............_fg.t~-.... ........c::..�;~.r.~'.I~.!~f~!!!i.��........._...� ..~i.t.J...!~E~.~.r.!.'t !:.!.r:r..c.J..~.r.:_......t.J:lg __..?_9..i .9.___j ..~..I:"!--2JJ..9.L!._g_~---....~f.f!?J;;..'ti..Y..�' . ~~r:r.Jy.__:"m~~-U _J:.L9.!-:...C::: h._ __:~. Ls._._1_~�F. Ap p l i cat i ons filed eon or�� befor' e this date ~s hall be valid even if th e payment or payment s of the compromi se a mount shal l be made after the said date, subject, however~, to the provi s ions of Ex ecutive Order No. 44 and i t s implerr1er-r ting F~ever-rue Regulatic:�r-rs Nc:�. 17---86." <Undet'lining ou t~s. ) the intent of E .O. No. 44 by unduly expanding its scope tht'ough the pt~ovisiorr that "acceptance o:�f compt~orrl i se payments" rr1ay wean accept arrce of applications until Mat-�ch 31, 1987 and paymerrts eve�n beyor-rd said per~ i od. I t ha s always b e en the r~ ul e that implementin g rul es ot~det~s s hould 415

DECISION CTA CASE NO. 4249 - 3:5 - confined only to what the main body of law intends. Rules that conflict with the main law are discarded eventually fc:�t' being Y'1ull ar-1d vc:oid <Tayug Rural Bank v. Central Bank of the Philippines 146 SCRA 120 [1986]' In this aspect, paragraph No. 2 of RMO No. 39-86 is manifestly beyond the confines of E.O. No. 44 and is not binding as we consider it void. An equally important point in the light of the c i t'cu mst ar-.ces this case is whet het' the app 1 i cat i or-1 fot' co:ompt'om i se fa 11 s with i y-, the scc:�pe C:�f E.O. No.'+'+ and its implemer-,tir-�g t'egulations, ReveY'1Ue Regulations No. 17-86 (Octc:�bet' 8, 1986) 7 as far as the limitatio:on in the law to make it applicable to:� disputed assess mer-.ts Ot' deli r-,quer-.t E. 0. No. 44 and Sections 2 and 3 of Revenue Regulatic�r-�s No. 17-86). Disputed assessment under Revenue Regulations No. g:\Ssessmey-,t d i s_put e _d Ot' pt'C:�t est ed eon o:�t' befc:�re Or-, the othet' hand, clel i nquer-1t account refers to the amount of tax due on o:or applicable ir-1 O:�Ut' case, "a deficier-.cy assessrner-,t At the very least, therefore, the Revenue Regulat ioY'1 speaks of a _, 4lb

DECISION CTA CASE NO. 4249 - 36 - g_eficiency assessmer.t that has become final a r .d_ ~xec �.,Ltc� t~s of that date. The fact2 of this cas~ shc�w, h�:�wevet~,_ that fpt~ PNB...1. 1 et t et~ _ cof demar1d fo:�t~ Exh. "3" PNB, Exh. "4" PNOC>, while the BIR ser.t a lette;>t~ to PNOC ir.fm~ming i t � c�f i t s tax l i a b i l i t y The Commissioner si mply acted beyond the scope of hi s authority under E.O. Rev er� �-te Regulatic�r��s 1\lc�. 17 - 86 ir� acc o rnrn c�datir�g the case of PNB aY..d PNOC fot~ a compt~ c�m i se set t 1 emer.t where their as sessments have not been issued as of Decem b e t~ 31, 1 '385 and d c� not f i t the t~ eq u i t~emer.t s of the implementing regulations. We see a lso:� an abuse of disct~e tion cc�rnrni t t ed by the pt'ev i ous Cc�mmi ssi or.et~ of I nt err.a 1 Rever. ~_te i Y"l ar.othet' side of this case. The pt' esent Cornrnissior.et~ of Ir.tet~r.al Revenue, Jo se U. Or.g, i s Cof the Co pir.iOY"I that 11 XXX the COmpt'omise settlement is without leg al basi s considerin g t~at E.O. No . 44 cc�r�t emp 1 at es disputed ot~ de 1 i r.quent taxes". We agree with this finding of the present Commissioner of Internal Revenue. It is not enough argument for PNOC to say that the compromise agreement mu s t be upheld because i t merely involved trans fer of funds

DECISION CTA CASE NO. 4249 - 37 - As stated 1931 the imposition of taxes on government-owned or has si grd ficant put~pcoses t~ever.ue and the of These intentions as enumerated in the whereas clauses i r.vok.ed by PNOC. We see that what is _, ur.sanct i cor.ab 1e with the act the Commissioner of Internal Revenue Bienvenido A. Tan, Jr. is that PNOC ccould r1cot ar1d should r.ot have been allowed to avai 1 cof E. 0. Nco. 44 ar1d RMO Nco. 39-86 since the case against PNOC and PNB involved withholding tax assessment which is actually not a tax but a Pf!?r�alty <National Development Corp. v. Commissioner, 151 SCRA 47i.::: , '+80 [1987J>. E. 0. No. 44 contemplates the accept ar.ce Cof de 1 i nquer1t acccour.ts and disputed assessmer.ts ir. refet~er.ce teo taxes due as stt~ictly distir.guished Per.a 1 t i es ccou 1 d r1cot thet~efot~e be the subject cof ccompt~ornise agreements based on E.O. No. 44. Moreover, the law h olds the withholding agent "pet~sor.ally liable" fot~ the payment of withholdir.g taxes. The significance of this personal liability was e><plair.ed ir� the case cof Philippine Guaranty d~ .1 0~

) DECISION CTA CASE NO. 4 2 49 - 38 - Co. v. Commi s sion er of I nterna l Revenue, (15 SCRA 1, 4, [1965]). "The law sets 1'"1.:< cor,ditior, fc�t' the personal liability o:.f the withholding agent to attach. The reason is to compel the withholding agent to withdraw the tax tmdet' all cit�cumstar,ces. Ir1 effect, the responsibility for the collection of the tax as � well as th e paymer1t thet'ec�f is cc�r,cer,t t'at ed upc�n the pet'SC�l'"l c�ver whc�rn the Gc�vet' l'"lrl1ent has jut'isdictior,." In the 1 ight of the 1.mequivc�cal withdt'awal of tax exempt i or1s of gc�vet�r,mer,t -c�wr,ed cont t'O 11 ed / <July 30, 1977), ar1d latet' Pt�esider,t ial Decree No. 1931 <.Tune 11, 1984>, except upc�r1 its restc�t'atior, by the Fiscal I ncer1t i ves Review Board, . the liability of PNB is established. To further exemplify the st ringency of the standard set in the Phili~pine Guaranty Case, an honest belief that the income paid may not be subject to withholding does not ex e mpt a withholding agent fr o m liab i lity. Thus, in the fc�t'egoi ng case the Supt'eme Cc�twt set thi s t' ule: "Ir1 case of doubt, a withhc�lding agent may always protect himself by withholding t h e tax due, and pro mptly ca u si ng a que t'Y to be addressed to the Commissioner of Int erna l Revenue for the determination of whether or n6t the income paid t o an individual is n ot subject to withholding. In case the .J Corllrllissic�r,et' of Intet' nal Rever1ue decide s that the income pai d to an individual is not su bject to withholding the withholding agen t may thereupon re mit the amount of tax withheld." <Sectior, 200, Income Tax Regulations, also ci ted in 419

DECISION CTA CASE NO. 4249 - 39 - Nat i or�a 1 Deve 1opmer.t Cc�mpany v. Commissioner of Internal Rever.ue, supra) In accommodating PNOC through E.O. No. 44 and effect, made an undue �mend ment of the authority to -� c.:.mpt~c�mise by the expansior, .:.f the authot~ity. As also said �in the Tayug Rural Bank Case, supra: "A public c�ff icial n'iust lc�cate ir1 the stat ute relied upon a grant of p.:.wer befot~e he car, exet~ c i se i t . Departrner.t zeal ma y r.ot be pet~mitted tc� outt~ un the a�.tt h.:.t~ i t y cor, fet~t~ed by statute. " In fine, the c.:.mpromise agreement entered int.:. by the pat~ties is r. ot c�r� ly penoeated with mistake or, the substar.tive aspects of the cc�ntt~ act but, law characterizing the actions of the previous Commissi.:.ner of Internal Revenue. exist therefore to justify the invalidation of the compromise agreement. It is the t~ule that the Government is not estopped from correcting the mistakes and errors of its agents <British Trader's Insurance Co., Ltd. v. Commissioner of Internal Revenue, 13 SCRA, 719, 725 cit i r.g Hi lado v. Collector of Internal Revenue, 52 0. G. 2481 and othet~ cases>. So is the Commissioner not bound by the erroneous ruling of his predecessor as he has the power to rectify the error <Phil . Guaranty Co., Inc. v. Commissioner of Internal Revenue, supra> .

DECISION CTA CASE NO. 4249 - 40 - been invalidated, judg ment may be rendered ordering the Co mm iss i ortet' to issue assessro1ent i f assessmer.t ha s yet been made. It may b e c�pined that the case has become moot and academic with the change of stance by the Commissic�rtet' against PNB a nd PNOC. But w~ should y-,ot sto p here, lest, as alt�eady sa id, we split jtwi s dictior,s; artd equally already issued the a ssessment, we may leave hanging the ques tion of the validity of the assessment in th e mid s t of ci t�cumstartces as t'elated below which compel a ruling on the asses s ment . We wi J.l t' ule on whether the assessment s hould be upheld in view of �' the conditio n s pt� evailing in this ca s e. This h a: s upport in the wo rd s of Jus tice Robert o Concepcion, in t h is wi se : �~L_Ta>i__8pp_~..?-.!.�. " <Gancayco v. Collector of Internal Revenue, 1 SCRA 980, 885 [1961]). The recot' d s h ows that lettet' of demar,d dated Jar,uat'Y 16, 1991. fot' t h e amo tmt of P 2 94, 958, 450. 73 was received by PNB on February 6, 1991. The Corl1rt1i ss i o net' alleges that Y"��=� pt'C�test ft'C� rn PNB was 42 1

DECISION CTA CASE NO. 4249 - 41 - filed o r received within the followi ng t hirty (30) days tha t C.\ taxpayet' i s permitted t�:� do so undet' ttle l aw . A l e tter' dated Apt� il 11 , 1991 set�ving as a protest was r ecei ved only on April 12, 1991, more th a n thit�ty ( ~30 ) days ft'Oftl receipt of assessment and beyond the t'e g 1ement a t'Y pet' i od. The Commissioner thus concludes that the a s sess ment has' already become final and executory. Agairtst this, PNB could on l y argue that the tax notice was impt'opet'ly sen t, all.e!}edly havirtg been t'eceived by th e Ba nk's general mailing services ins tead of its Financ ial Management Depa rtment. Nonetheless, PNB would also depend on it s theot'y that since it is t tl e DOJ whi ch h as juri s diction over thi s �case , th Rre is no thirty (30) d~y period to be reckon ed with as P.D. 242 tlas no such rule . I,.Je thin''� the.t PNB ha s committed a fa te1 l pt'Ot!o-"?St ing the case on time. otice o f t ~P a5seseme nt wns � valid 1 ~ade whe r e it is the PNB ' s general mailing servi ces t hat received i �I;. pt�ocess mi"\ de by t h e Comrn :iss i one1�� subst anti ally complies with the o:;t.;;o.nd2.rd sP.t i n V'lla Rey Transit, Inc. et. al. v .� Far East Motot<> Corporat io n Ca.se� t"'1at "se1�''Vice� rnust �- - rn t:\C:1~! ' t~ : Th a name

DECI S I ON CTA CASE NO. 4249 - 42 - of the PNB office that received the assessment speaks for our purpose. And so when a warrant of garnishment was is~ued against PNB addressed to the Governor of the Centr-al Bank of the Philippir,es, the Commissioner� was mer-ely enfor�cing cc�llectic�r� of an assessment which has become final artd unappealable. fot' the ot�det' t�:� suspend collect ion by the DOJ, collection would h ave already been effected since a debit advice h ad already been issued by the Central Bank against the demand deposit account of PNB for the amc�unt P2'3Lf, '358, 450. 73 such amount tr�an s fet't'ed i y-, � tt�ust for the But�eau of Intet�r,al Revenue. The actior� by the Central Bard~. is but consistent with Section 208 C�f the Nat ic�nal Internal Revenue Code on the mode of procedure for collect ion. The National Internal Revenue Code is definite ' in imposing the obligation upon the Commissioner to �' pay a specific sum to informants giving information leading to the discovery of frauds or violations of any of its provisions. The right of the petitioner to his pt'C�pet' shat'e c�r� the rever.ue C�t"' per,alty he seeks to be collected i s an essential issue presented from the very start of thi s case. Sir,ce We have fc�tmd fot' petitiorter, artd cc�nsistent with the duty of this Court to grant fJll and complete

DECISION CTA CASE NO. 4249 - 43 - relief, payment of pet itioner's reward should be in order from whatever additional taxes are collected from the taxp ayers .in this case. WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue, on the ona hand, and tha Philippine National Oil Cornpany and PhilippiY�e National Bank on the other, as WITHOUT FOR~E AND EFFECT1 The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against Philippine National Bank which has become final and unappealable by collecting from Philippine National Bank the deficiency withholding tax, plus interest totalling P294,938,430.73; Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his I entitlerneY�t to informer's reward based on ' fifteeY� percey,t ( 15~) of the deficiency withholding total tax collected in this case or P44,243,767.00 subject to existing rules and regulations governing _, payment of reward to informers. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, Ma y 28, 1992. ~ ROAQUIN Jttdge

DECISION CTA CASE NO. 4249 - 44 - WE CONCUR: ct~&.Q~ ERNESTO D. ACOSTA Pt~esidir�g Judge ~ ~ DADIVAS-FARRALE g Assc�ciate JudQ:!J -� CERTIFICATION � I hereby certify that this decision was ~eached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~~QQ~ . ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals