CTA Case No. 4508 (Decision)

A REPUBLIC OF THE PHILIPPI NES COURT OF TAX APPEALS QUEZON CITY CONSOLIDATED ORIENT LEASING and FINANCE CORPORATION , Petiti oner, - versus - C.T . A. CASE NO. 4 508 THE COMMIS SIONER or INTERNAL REVENUE , Resp ond en t . X- - - - - - - - - - ~ - - - X DE CI S I 0 N This case involves the fol lowing internal re ve nue tax assessmentsa Def i ciency Gros s Re ceipts Tax (G RT) as of September 30, 1981 ( As sessment No ti ce No . FAS-4 - 81-86 - 006 426 dat ed Marc h 31, 1986) Tax due P 16 ,87 3.~. .~. Sur charge 4 , 21 8 . �3-�-�6-- Compromi s e penalty To tal 300 . 00 -- �~ ---- --- P2 1, 29 1. .~.~. 641

DECISION CTA CASE NO . 4508 - 2- Penalties for late payment of GRT for the qua rter ended September 30, 1981 (Assessment Notice No . FAS-4-81 - 86-006427 dated March 31, 1986) Tax due on 10/20/81 but P637 ,067 . .:..~. paid on 11/20/81 S ur charge 25% 159,269. -~-:. Compromise pe nalty 300.00 Total a mount due P159,569 ..~..:. Penalties fo r late payment o f gross r e e eipt tax for the quarter ended S e pt e mb e r 3 0, 1982 (FAS - 4 - 82-86-007152 d a ted Ma y 2 3 , 1986) Tax due on October 10, 1982 P430, 280. -~---~-� bu p a i d on November 22, 198 2 25% surcharge 10 7, 570. -~---~-- Compromise penalty 30 0.00 l P107 ,870 � --~---~- Petitioner protested the above a s. s. essments through its External Auditor, SGV & CO . , in its lette r d ated Ap ril 30 , 1986 cover ing the 1981 642

DECISION CTA CASE NO. 4508 - 3- assessment and letter dated June 23, 1986 covering the 1982 assessment. Both protests were denied by the Re spon d ent with finality in a letter dated July 9, 1990 receive d by Petitioner on Oct ober 10, 1990. However, Petitioner, through SGV & Co., in its letters dated August 20, 1990 and October 16, 1990 offered to settle by compromise the above assessment by paying fifty percent (50%) of the 1981 GRT tax ass essment or 1?8,436 �.?.. ~. � Although the Chief of the Litigation Division accepted Petitioner's compromi se offer and allowed Petitioner to pay the said amount on March 20, 1991, the Respondent's Assistant Commissioner for Legal Services is of the opinion that "Petitioner's availment of Revenue Memorandum Order No. 29-90 and its payment of P8, 436 . .?.. ~. did not ipso facto cancel the incremental surcharge for late payment on the ground that said i nc remental assessment are separate and distinct from the basic gross receiptsr tax which was the one administratively settled. In .. other words, only the assessments for deficiency bas ic gross receipts is set tled pursuant to RMO 29-90 and those fo r the incremental assessments 643

DECISION CTA CASE NO. 4508 - 4- which no payment was made, subsist and remain enforceable. Petitioner believes, otherwise, and invoked that in line with the spirit and intent of RMO No. 1-88, as amended by RMO 29-90 a taxpayer who has paid 50% of bas ic tax liab ili ties for 1985 and 100% of basic tax for 1986 and 1987 should no longer be assessed for penaltie s a nd increments thereon. Petitioner believes that inasmuch as the basic taxes on t he incremental charges have already been paid voluntarily , it shoul d be treated in the same way s a taxpaye who ha s directly av ai led of the compromise settlement. Otherwise, this will give rise to a legal inequity wherein a taxpayer who has pai d the basic tax voluntarily, would be placed at a disadvantage agai nst a taxpayer who has not paid the basic tax at all but is allowed to pay only the compromise amount consisting of the basic tax assessed with the i ncide ntal surcharge and compromise penalty waived. Therefore , the iss ue raised for the resolution of this court is whether or not the availment of ., the Petitioner of RMO 29-90 by paying 50% of the basic tax assessed for 1981 and the voluntary -� 64�

DECISION CTA CASE NO. 4508 - 5- payment in November 1982 of the basic taxes due for the qu arter ended September 30, 1981 and September 30, 1982 extinguishes the incremental surcharge and penalty assessed. We find for the Re spondent . Revenue Memorandum Order No . 1-88 as amended by RHO 29 - 90 was issued pursuant to Section 204 of the Tax Code. A reading of the sa id RMO' s will show that only the surcharge and penalty for the deficiency gross receipt tax as of September 30, 1981 in the total amount of P21 ,291. .~...:. may qualify under the said compromise settlement. The assessment covering late payments will not be covered by the said memor and um order. Under paragraph ( 1) of RMO 1-88 the coverage of this order are taxpayers with del ique nt accounts for all taxable years on assessments issued on or bef ore December 31, 1986 which have become "final and executory" and under paragraph ( 3 ) these 1 taxpayers may settle their accounts through compromise by paying an amount equal to 50% of the :� basic tax assessed. Unde r the amendatory order RMO 29-90 the above paragraph (3) was amended by 645

DECISION CTA CASE NO. 4508 - 6- limiting the 50% payment of basic tax assessed to deliquent account covering taxable year 1985 and prior years and for taxable years 1986 and 1987 by paying 100% of the basic tax assessed. The offer to compromise may be accepted by the Commissioner of Internal Revenue or his duly authorized representatives on the following grounds, (par a graph 4 RMO 1-88) (a) A reasonable doubt as to validity of the claim against the taxpayer exists; (b) The financial position of the taxpayer demonstrates a clear inability to pay; (c) The tax or any portion thereof appears to be unjustly and excessively assessed. Clearly, under said memorandum order the following requisites must be present to obtain a valid administrative compromise settlement: (1) There must be a deliquent account covering assessment issued on or before 1 December 31, 1986; (2) The assessment is final and executory as 'I of January 4, 1988, the date of the issuance of RMO 1-88;

DECISION CTA CASE NO. 4 508 - 7- ( 3 ) Acce pt ance of t h e of fe r of comp ro mi se by the Co mm is si one r or hi s duly a uthori z ed represent ative based on the grounds enumerated on paragra ph ( 4 ) of t he RMo , ( 4) Payment of 50% or 10 0 % o f the b asi c tax assessed. If we will strictly apply t he aforemen t i oned requisites not one of t he three assessments issue d will qualify for a valid comprom ise settlement. The records will s how that Pet i tioner t hroug h i t s external auditor SGV & Co. , app l i ed fo r a compromise settlement c overing t he fi r st delique nt account only. Paid 50% of the bas i c tax of P16,873 . .~. ~ or P8 , 436 . ?...~. � The Chief of t he Litigation Division recommended i ts acceptance and the am o unt of P8,436 . ~~ was paid by the Petiti one r . Consequently~ th~ correspondin g surchar ge i n th e amount of P4, 2 18 . .~..~.. and comp romise p enalty of P300 . .~. ~. were likewise considered settled a s pa rt o ft the compromise settlement. Th e fact of accep ta n ce by the Respond e nt is likewise a d mitted in . .parag raph (7) of t he Answer. This settlement co mplie d wi th all the above requisites excep t that Respon dent i n 647

DECISION CTA CASE NO. 4508 - 8- accepting the offer failed to state the ground or basis. However, in view of the minimal amount involved , a fourth ground enumerated on paragraph (2)(b) of Section 204 of the Tax Code should apply. That is "The administration and collection costs involved do not justify the collection of the amount due". Although this ground is not stated in the Memorandum Order, nevertheless the same is a statutory provision which should be applied whenever applicable. The two other incremental assessments could not qualify because there was no acceptance of the offer to compromise. An esse ntial element for a compromise settlement. It will not qualify under any of the grounds stated in the RMO nor in the law .) itself before this court could state that the Commissioner abuses his discretion in not accepting the offer. In f ct, the contrary appears from the record. The taxpayer is clearly liable to the 1 incremental assessments. There is no showing of financial inability of the Pe titioner to pay its ., tax obligations, nor does it appear that the tax assessment is unjustly and excessively assessed.

DECI S I ON CTA CASE NO. 4508 - 9- Definitely the amount is not minimal so as not to jus tify t he collection cost which the Respondent ma y in c ur. Fai ling to comply with the above statutory require ments is fatal to the claim of Petitioner. WHEREFORE, in view of all the foregoing only t h e deficie n cy gros s recei p t tax a s of Septemb~r 30, 1981 in the to tal amoun t of P 2 1,291.!~ is cancelled. The penalty assessments f or late payment of GRT for the qua rter ended Se ptember 30, 1981 and Sept ember 30, 1982 in the total amount of P159, 569. -~--~- and p 107 . 87 0 . -~---~.. , respectively, is u p h eld. Wi tho ut pron ouncemen t as to cost. SO ORDERED. Quezon City, Metro Manila , July 6, 1993 . ~~Q_.. ~ ERNESTO D. ACOS TA Presidi ng J udge ..

-. DECISION CTA CASE NO. 4508 - 10 - . GRUBA Judge a J ! � RAA MO-N/ 0. DE V Associate Judg I (._., CERT I F I CAT I 0 N I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~o-GJ-,.,Jh- ERNEsTo D. ACOSTA Presiding Judge Court of Tax Appeals :�� C50 -�