CTA Case No. 4514 (Decision)

.. .) AEPUBLXC OF THE PHXLXPPXNEB COURT OF TAX APPEALS QUEZON CXTV PROTECTORS SERVICES, INC., Petit i one~', - VfH'S I.I S - C. T.A. CASE NO. 4514 COMMISSIONER OF INTERNAL REVENUE, . Res pond ent .. X- - - - -- - ----)( D E C I s :r 0 N This case invol ves assessments case for deficiency percentage taxes in the amounts of P50 3 , 5GL�. 59, P831,464 . 30 and P1,514,047.86 for the ye.:n�s 1983, 1984 and 1':385, respectively. Petitioner, a corporation duly organized and existing under the laws of the Philippines is "engagf:d in, among ot he~' things, t�e crt.liting secttrit y gt.tat~ds fot' its cu s tomers . " <Petition for Review , P� U i nc::ome and Petitioner was inve~tiga\te d fo business taxes fot' the years 1983, 1984 and 1985. On the basis of the findings of the investigat ion, assessments fo~� deficiency pet'Ce ntag e tax incl�Jding 't � 7U-,

- -- -----�� .........,.. . '. DECISION - C.T.A. CASE NO. 4514. - 2- surcha rge s , penalties and interests thereon were .) issued to petitioner as follo ws : 8.mount_ Demand No. 1'383 p 503, 5>4. 59 18-452-83B-87-B2 <Exh.2, p. 510, BIR Recs.> 1984 p 831,464.30 18-451 -848- 87-82 <Exh . 3, p. 50'3, ibid.) 1'385 P1,514,047 . 86 18-450-85B-87-B2 <Exh.4, p. 508, id.> The a ssessment letters, all dated December 2, 1'387 were simultan eously s ent by reg i st e red mail to petitionet~ o n Decembet~ 7, 1'387 <see E xh s. I, I-A and I -B ; T.S.N. Heal'� ing of Feb. 11, 1'3'32>. Petitioner alleg ed that it only r ece ived on Decembet' 10, 198 7 Demand Letter- No . 18-452-83B-87 -B2 <Annex A> fat' taxable yeat' 1983 and Demand Lett er No. 18-45 1-84B- 87-B2 <Annex B) for taxable year 1'384. Petitio ne-r' denied r'ecei vi ng an y notice of demand or assess ment for the all e ged defi ci ency pe rcentage taxes for 1985. On Janua ry 12, 1988 respo ndent receiv ed a lette t' dated Januat'Y 2, 1988 from th e pe titi oner prote sting against the 1983 and 1984 assessments but without re fe t'e nc e to the 1985 ass essment <see Exh. C> � Without acti ng form ally on the petitioner's pt�ot e st s of the 1'383 and 1984 assess ments, t�espon dent se nt a tracet' letter dat ed J u ly 12 , 1988 'l which d emanded payment for the t ot a l amount of ',i' P2 , 851,805. 16 fot' deficiency business taxes 70 '7

.' DECISION - C.T.A. CASE NO. 4514. - 3- including P2,025.00 for the documentary stamp tax on capitalization for the years 1983 and 1984 and P703.41 for the deficiency expanded withholding tax (see Anne>< D) � On July 21' 1988, petitioner paid the documentat�y stamp ta>< and the deficiency e><panded withholding tax demanded by respondent in its tracer letter (see Confirmation Receipts, Annex Hand 1). In a lettet� dated July 22, 1988 <Annex E), petitionet� pt�otested again t�espondent's assessment of deficiency ta><es fot~ 1983 and 1984 and fot~ the fit�st time, included taxable yeat� 1985. On Novembet� 9, 1990, pet i tioner t�eceived the lettet� of Deputy Commissionet� Eufracio Santos denying with finality petitionet�'s pt~otests against the subject assessments saying: "Tha t the salat� ies paid to the seclwity guards form part of your taxable gross t� eceipts in the detet�mination of the 3 '1- and 4'1- contractor's tax imposed under Section 19:1. of the Tax Code prior to its a mendment by the provision of Executive Ot�det� No. ~-::73. Considet�ing that the security guards at�e actually yout� employees and not that of yout� clients, the salar~es cot�t�e s ponding to the set�vices rendered by yout� employees fot� m pat�t of yot.w taxable receipts. This contention find support in the case of Avecilla Building Corporation .'[ vet�sus Commissioner, et al., G. R. L-42395, 1 17 January 1985 and Resty Arbon Singh vet��; u s Commissionet� , CTA Case No. 1901, 5 Decembet� 1970". (See E><h. G> 7 ' '�;... 'C.'

... .' DECISION - C.T.A. CASE NO. 4514 . - 4- Petitionet� ' s conte n tion on the other han d, was that subject assessments are without leg al basis, i n fact or in law, on the fol l owing ground s: a> The assessments for� docu m entat~y stamp tax on capita l ization and stn~ chat~g e in the sum of P2,025.00 and the d eficien cy expanded withholding tax in the amount o f 1='703. 41 are withottt basis since said taxes, i nterest, surchat"ges an d p ena ltie s wet"e d1.1ly paid by PSI o 11 J�.tly 2 1, 1988, as evil':lenced by Confir mation Receipt No. 815521909, dated J�.tl y 22, 1988, f at" the sum of P2,025.00 (a copy of wh ich is attached het"eto as Ann ex "H"> and Confit�mation Receipt No . B13628228, da t ed Mat�ch 25, 1988 <a copy o f which is attached he~--eto as At'lnex "! "> for the sum of P703. 41. b> he peri od f or collect ion o f the percent~ _ a taxes for the year 1985 h ad prescribed s � nce PSI ne ve r receiv e d any n otice f ~~ �oms rn ent or de mand of said taxes with n th pr~$cripti on period of ttn"'ee <3> ytH:W'!I fro m the date of fi ling of the per�centage ti<\ >< ~~ettn~ns on Apri l 22 , J uly 22, and Octob t" 21 , 1985 a n d Janu at"Y ;::7, 1986. A co py of each of t he pet� centage tax rett..n�ns fol""' taxable ye at" 1985, d�.tly t"eceived b y the BIR, at�e attached hereto as Anne xes "J", "K", "L", and "M". c) Th~ period for co llect ion of pet'cent a g e t ax e s f ot' t h e f i r s t , s e c o n d a nd third quarters of 1984 had prescribed when PSI r�ece ived the Demand Letter No. 18-45<:::- 846-87-62 (Section 68 in t'E! Se ction 203, Nat ional Internal Reve n ue Cod e]. The per�centage tax t"'et�.tl''ns for the fir st , 1 second a nd third quarter s of 1984 were filed on Apt~il 23, Jul y 2 0, an d Oc t ober 19, 198L�. A copy of each of th e pet'centage tax t�e t �..n~ns filed for the fit'st, second and thh...d qua t'te rs of 1984, 't 1 duly receiv ed by the BIR, are att a ched het.. eto as Anne xes 11 N", "0", a n d " P ", t' e s p ect i v e l y. 70 .)

DEC I SION - C.T.A. CASE NO. 4 5 14. - 5- d) The assessment fo r~ the deficienc y perce n tage taxes for 1983, 1984 and 1985 at'e pa t ent 1 y en~oneous s i n ee the Respondent incl u ded in t h e de te t~mination of gross receipts Cas the bas i s fo r the 3% and 4% contractor's taxes> t h e sa l aries and remittances to Social Securit y System, the State Insurance Fund, and Medicare for s e c I.W i t y g u a r d s fur~ n i s h e d by P S I t o i t s customers, which are al l amounts earmarked b y 1a w s , t~ u 1 e s o r~ t~ e g u 1 at i o n s f o t" s o me _, pet~son other~ than PSI. The Supre me Cour~t .1,\ ' held in Q.Q..ffi.J!L.:!..?...~...LI;m e..r.._Q.f_l....'f1]...ernj;\ 1 Rev eJJ_Ue .Y'..!'....___t1�Jl.U...�.._ _J o9._k ~Y C 1 ul2_,_ I n�. ( 108 phi 1. 82.L> that 'gross t"eceipts' should not include any money which h as been f?Specia ll y eat~mat"ked by law or t'egulat ion for some person other than the proprietor. The sal.::n~ies fot~ sec u r~ity guat' ds recruited by PSI are clearly ear marked for persons other than PSI s:nce PSI receives ft'''m its c:ustomers said sc:de:n~ies �.mdet~ an implied tt�ust to pay the security guat"ds theit' wages. The Supreme Court held in ~-t~.QJ �'~.-'L.'!..___Q_~S:;.E.!.:S. ( 105 Phi 1 934) that ' a 11 the t" ight and intet'est that th e d etective <~qency had to salat"i es eat"ned by the r.the sec t.n-it y guat�dsJ was to receive the s ame fat' and on behalf of the [secur tty g,_tat�dsJ, in tt"t.tst fot" the latter~, subject to tt1e agency's t"ight to ded�.1ct ft�om sai.d sali:H'ies what cot"t~espo n ds to its set"V ices in sec uring the work for [t h e security gu<H' dsJ an implied tt~ust wou ld at~i se to pay [the secUt'ity guat~dsJ said su ms as the lattet"' s wages, in accot"dance with the pt'ovisions of Artic l e 1453 of the Civil Code tJf the Philippines." F lit' t h e t" mo t' e , S e c t i o n 1 , Ru 1 e XI I o f the Rules implementing Rep u blic Act No. 5487, a s amended provides as f o l lo ws: 'Compensation.- No watch- man, security guard or private detective shall be paid a salat'Y or compen sation less than that prescribed by existing laws, rules and re~ulations including 71 .J

--- DECISION - C.T.A. CASE NO. 4514. - 6- those that may be promulgated r-e l ative ther-eto . I.[le~moun j;_ m..:.~ s r;.r:.:UJg.fl_____t h ~..!:.~ i n_ _?..h.~.U b ~- ~.@J"'mar-ke d and set aside fo.r' the Q.htj_:Q.fl_s e a f o t' e s t at e d ; t h us t h e ?am.g_____ s~.!J h er'e�\ f t et' be �J?..Y.!"2!Ul..~'L~Q..._ _ _f r o m_ __!!.h!?_ __m._o n i e s r:.~.9 ~i v e Q______Q_y_llUL__a g en c y f r' o l!!__i.t.2.. �l.Lf1J'lt_~ as an amount t'e s er-v_ed for' th.Q.._. t'e mun e~-at ion of the g uat"d or g_tg.i_~_s:-t i _'t_g_. ' (amended por't ion undet"lined). (Petition for Review, pp. L~ -6) With the fi na lity of the respondent's denial of the petitionet"'s protest on Nove mber 9, 1990, the latter' filed this Petition for Review befo r-e this Cour-t on December' 5, 1990. The issues brought forth for resolution are the following: 1) Whethet' or not the assessments issued fot" taxable y eat'S 1983, 1984 and 1985 have already prescrib~d; 2 > Whether' or" not this Cour-t has jur-isdiction to act on the petition cons idet"i ng that, accordi ng to the respondent, the assessments are a h-eady final and unappealable; 3) Whethet' at" not salaries and remittances to t he Social Security System, the State Insurance Fund and Medicare for security guards furn ish ed by the petitioner to its customers formed part of the petitioner's taxable gross receipts for pu r poses of the 3~ or 4% c ont ractor's tax. As to the fit- st issue, petitioner contended that "the per" iod fat' collection of perce n tage tax ,I ' fat' 1983 and 1984 had prescr'i bed when PSI t"ece i ved 711

DECISION - C.T.A. CASE NO. 4514. - 7- on 10 December 1'387 the Demand Letter No. 18- 452- 83B-87-B < .~_t1oJ:tld _Q_e B2> and the Lettet~ No. 18-452 <shou ld be 451 )-84B-87-B-2. The last days for the filing of the t~etm~ n for the said yeat~s were 2 0 April, 20 July, 20 October 1'383, 20 January, 20 April, 20 July and 20 October 1984. All the periods between the sai d dates and 10 December 1987 are more than tht'ee (3) years. Because, no assessment was made befot'e the expit'at ion of the tht'ee ( 3 ) yeat~ the action, therefot~e, has pt~esct'ib ed. <Sec . 268 in t~elation to Sec. 162 , r~evenue Code pt~i Ot' t 0 25 Jul y 1987) . " <See Petition er's Memorandum, pp. 140-141, CTA recs. correction/underscorin g ours) We with the contention of the petitioner since under taxable year 1983 th e period of limitation fot' assessment of taxes was five <5> yeat' s aftel~ the date of the ret urn was due ot~ was filed , whichever is latet~ (see Sec. 318 of the 1983 Tax Code). Thus, the prescri ptive for asse ss ment will still be up to 1988. Accordingly, the assessment t'ece i v ed by t he petit i onet' on Decem bet' 1o, 1987 was well within the pres criptive pet'io d. " This is al sc> t t~ue i nsof <n... as taxable yea t' 1984 is co nc et' n ed alt ho ugh, the pet' i od of limitation for 71 2

DECISION - C.T.A. CASE NO. 4514. - 8- asses~; m~nt at~ collectio n of taxe s has been -r~educe d by Batas Pa mbansa Blg. 700 ft�om f ive (5) y ears to yet the assessments made on ot~ befot�e Apt� il 5, 1'384 (date of approval> covet� ing taxable yeat�s beginning Januat~y 1, 1984 was sti ll within the new three-year period. Accot~dingly, the assessmen t t"eceived by the petitioner on December" 10, 1'387 fOt" taxable year 1984 has not yet prescribed s ince presu mably it was filed on January 20, 1985. Hence, it was well within the pre scriptive pe ri od. It is a set tl ed rule that the coun�ti ng of the presct�iptive period of assessment commences fro m the day of the filing of final ret urn <Se ct io n 31 8, 1':3EVt Tax Code; Ce nt ral Azucaret�a de T a t� lac v. Collector, L-11761, Jt.tly 31' 1958 �; Commi ssi oner of Int ernal Revenue v. Ayala Securities Cot�p o t�at ion and The Com�t of Tax Appeals, L-229485, March 31, 1976). But whet h et'' the Sltbj ect assessments had pt� e SCI�' i bed or not, petitioner, st i 11 could not escape liability since said assessment h ad alr�eady S ection 270 of the 1986 Tax Code provides: Sec. 270. Prote st ing of assessment .- When the CommissionrH' of Intet~nal Reven�.1e 01�' his duly authot� ized representative fi nd s the proper taxes sho uld be as s e ss ed, he sha ll fit� st notify the taxpayer of hi s

DECISION - C.T.A. CASE NO. 4514. - 9- findings. Within a period to be prescribed by implementing regulations, the taxpayet~ shall be t~equit~ed to respond to said notice. If the taxpayer fails to t~ e s pond , t h e Co mmi s s i one t~ s h a 1 1 i s sue an assessment based on !:lis findings. Such assessment may be protested adm in i stt~at i ve 1 y by fi 1 i ng a t~equest fot~ reconsideration or reinvestigation in such fot~m and mannet~ as may be pt~ esct~i bed by implementing t~egulations within thit~ ty J;;;_Ql__g ~.Y.2__ft~ om t~ e c e_:ULL_g_f~_.;Ls s e s s men t ; ____ Q..t.h.~_ t::_~j_E..~----tb.ge~.?-~...?_?_IIJ.gJl.'t._ _s_h c;_\ :l,._!__b_~ c Q..!!L~ fj.JJ.~J and una_p_Qealable. <Underscot"ing supplied) If the pt~otest is denied in whole ot~ in part, the individual, association or cot~pot~ ation advet~sely affected by the decision on the pt~otest ma y appeal to the Com~ t of Tax Appeals within thirty q _Ql_ g..s_y_<;?___f_r:_g_.!fl r e c ~..J...Q:t.- o f t h e sa i d dec i s ~ OJll. Q..t.JJ-~.l: W is e, _t_h e___9__g_~ is ion__ sha 11 become f..!JJ_~_}__,__ ___ ex ecut ot~y and de mandab 1 e. <Underscorin~ supplied) Undet" the a f ot~eq uot ed pt~ ovision, the law clearly defined two instances when an a s sessment ..) becomes final, namely: � 1' \ 1) When i t is not pt~otested within ' thirty (30) days from receipt thereof from the Commissioner; and 2) When the adverse decision on the pt"otest is not appealed to the Court of Tax Appeals within thit~ty <30) days ft~om receipt of the said decision which must be complied with, othet~wise, no other t recourse is had to the taxpayer since it had already become final and unappealable. We do not attempt to make an intet~pt~etation on what is ah~eady clearly laid down by law. Thus, when petitioner~ pt"otested ....

DECISION - C.T. A. CASE NO. 4514. - 10 - the asses s me nt of the respondent only on January 12, 1988 ttH'OIJgh a letter dated Januat'Y 2, 1988 <Exhibit C>, thit' ty - tht' ee days had alt' eady lapsed ft'om the time it admittedly received the assessments on December 10, 1987. Cleat'ly, the assessments had alt'~a.Q_y__!?._ecome final and unc!f!Pealable. In a t' elated case of Commissionet' of Internal Revenue v. Western Pacific Corporation, L-18804, May 27, 1r:365, the High CoUt't t'Uled, thus: It wi 11 be noted that the assessment was received by the respondent corporation on 1"1at' ch 2, 1'359. It was only on June 29, 1959 , when s aid corporation formally a ss ailed the assessment on the ground of pt�e sct' ip t ion in making the a s sessment a nd the impropriety of the disallowance of the li s ted deduction s . Ft' om Marc h 3, to June 2 9, 1959, mtl:lnife s t l y more than thir�ty (30> da y s h a d lapsed and the assessment became fin a l, e xe c utory a nd d~mandable. <See al so t'~ l a t ed ca s e of Republic v. Albert, 3 SCRA 71'7> The 1985 as s e s sment which petitioner denied as having been received was negated when the respondent introduced documentary evidence <Exh. showing that it wa s mailed by registered mail <Exh. I-B> on Decem bet' 7, 1987 <Exh. I-A>. It was further buttt'essed by the testimony of witness Mr. At-nold C. Lat't'O za , Chief Admin i s tt-at i ve Branch Mailing Section, Re v. Region No. 48 - 1, Quezon City that the .. "�. 1983, 1984 nd 1985 a s sessments wer-e placed in one envelop <T.S.N. Heat' ing of F eb. 11, 1992 , pp. 10-11> 71

-- .. DECISION C.T.A. CASE NO. 4514. - 11 - when it was mailed by registered mail Heceipt No. 5'370>. Pl�~esumably, it was rece i ved in t h e t~ e g u 1at' co Ut' s e o f t h e ma i 1 <S e c . 5 ( v ) , Ru 1 e 1 3 1 , Hules of Court; v. Ys i p, 81 Phi 1. 2 18 ; Ent�iquez v. S un Life Ass lwance Co. of Canada, 41 Phi 1. 270 >� The facts to be proved to raise t his pt'estunption at'e (0'\) that the lettet~ was pt'operly addt~ e ssed with postage pt~epaid; and (b) that i t was maile d. Once these facts are proved, the pt'esumpti on is that the letter was t~eceived b y the addre ssee as soo n as it cou ld have been transmitted to h i m in the Ot'dinary cout~se of the mail s <Moran, Comments on the Rules of Com~ t, Vol. 5, 1'371, p. 55). S uch being the case, this Court cannot be made to believe that the 1'385 assessment which incident a lly has a substantially gt'eat et~ amount invo lved, was not by the pet iti oner. Hence, the sa me assessment is a lso considered final and unappealable fot' fail�.tt' e of the petitioner to protest the same within the reglementary period pt'o v id ed by law. This set tles th e second issue. Si.nce the issue of pres ct'iption has � already been resol ved against the petitionet' and all the assessments have already become final and 't unappe alable, the discussi on on the third i ss ue will just be purely academic. 71

DECISION - C.T.A. CASE NO. 4514. - 12 - WHEREFORE, ~n a11 the foregoing. th~a case ~a hereby DISIHSSED for 1ack of jurisdiction the subject assesswtents having becowte :fina.l and unappea1ab1e. SO ORDERED. Quezon City, Metro Manila, July 21, 1993. c.~Q..~ ERNESTO D. ACOSTA Presiding Judge WE CONCUR: GRUBA Judge ~/ P~.._l~ RAKON 0 . DE V A Ass ociat e Jud e CERTIFICATION I he reby 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. ~~~~ ERNESTO D. ACOSTA Presiding J udge Court o:f Tax Appeals 71 ?