CTA Case No. 3641 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THE MANILA YACHT CLUB, INC., Petit ioner, - versus: - C.T.A. CASE NO. 3641 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - ---------X DEC I S I 0 N In its pe' tition for re:view filed with this Court on May 2~, 1983, petitioner The Manila Yacht Club, Inc., alleges that: 1. Petitioner is a domestic corpo- ration duly organized and existing under Philippine laws, with principal office at Rox.as Boulevard, Manila . Petitioner is a non- profit and non-stock corporation primarily organized to promote: yachting in the Philippines~ 2. Respondent is the Commissi oner of the Bureau of Internal Revenue with office at the BIR National .Building, Diliman, Quezon City where he may be served with summons and othe�r court pro- ce� ss.e~ s ~ 3 . On June 2, 1981, petitioner received from respondent a notice of assessment dated May 13, 198 1 assessing the former for deficiency ca t erers and perc entage tax for the years 1977 and 1978 in the amount of ~374.26 and �<76:1 , 1~8 . 05 respect i vely. A copy of said no t ice is hereto attached and made an integral part of this petition as Annex: "A"~ � 4. On July 6, 198 1 , petitioner through its external auditor filed a pro test lette r dated June 22 , 19 81 contesting the assessment made by 36

?� DECISION - CTA CASE NO. 36.4:1 - 2- respondent on the ground that Section 19 1-A upon which the as:ses:s:ment was made i s non-existent as deelared in the case of Manila Golf and Country Club vs. Commissioner of the BIR (C.T.A. Case No . 2630, March 30 , 1977) and there- fore without legal foundation. � A copy of said letter, is hereto attached and made an inte,g ral part of this: petition as Annexes "B" to "B-2" ~ 5. On April 25, 1983, petitioner received a letter from respondent denying the former 's protest letter and upholding the existence and validity of Section 191-A of the NIRC. Respondent likewise demanded f rom petitioner the payment of the defi- ciency cate:rer's and percentage tax.es: including surcharges and interest in t he total amount of ~1 , 057 , 898.44. A eopy of said letter and the lists: of the defi- ciency as:s,es:smen t are hereto at tac:hed and made an integral part of this petition as: Annex.es "C" to "C-6"; 6. The sole issue invc:il:Jed in this: case is whether or not the deficiency caterer's and percentage tax: assessment i s wi th legal basis; 7 . The above-mentioned deficiency catere:r ' s and percentage tax a s sessment is not only patently erronebus but is: without any legal basis as pointed out in the preceeding paragraph 4 of this petition and as fou nd by this: Honorable Court of Tax Appeals in the Manila Golf & Country Club case (C.T . A. Case No. 2630) of which this Honorable Court may take j udicial notice on the ground t hat Seetion 191-A is: non-existent as declared in the above-ci te:d case deeided by this Honor able Court . WHEREFORE, premises cons.idered and after due hearing, petitioner respect- fully prays of this Honorable Court that jud~ment be rendered ordering respondent to cancel t he above-mentioned deficieney caterer's tax: and percentage tax: assess- ment referred to on paragraph 3 hereof . 37

DECISION - CTA CASE NO. 3641 - 3- Petitioner further prays for such other reliefs and remedies just and equitable in the premises. Instead of answering the petition for review of pet i tioner, responden t Commissioner of Internal Revenue filed a Motion to Dismiss dated September 5, 1983: , on the ground that this Court has no jurisdiction to take cognizance of the appe:al. The reason advanced is : (pp . 28-30, CTA records.) The law conferring jur i sdiction on the � Cour t of Tax Appeals is found in Section 7 of Republic Act No. 1125, the pertinent part of which states : "SEC . 7 . Jurisdiction.- .The Cour t of Tax Appeals s hall exercise ex.clusive appellate jurisdic t ion to rev iew by appeal as herein provided - "(1) Decisions of the Commis- sioner of 'Internal Revenue in cases involving d i sputed assessments , refunds of internal revenue taxes, fees or other charges, penalties imposed i n relation thereto, or other matters ar i sing ~nder the National Internal Revenue Code or other law or part of law adminis- tered by the Bureau of Internal Revenue . 11 The word "dec ision 11 i n parag r aph 1, Sec t i on 7 of Republic Act 1125 , quoted. abov~ , ha s been i nterpreted to mean the decision of t he Commissioner of Internal Revenue on the p r otest of the taxpaye�r against t he assess - ment itself (Commissioner of Internal Rev�enue vs . Villa and Court of Tax Appeals, G. R. No. L-23988 1 Jan . 2, 1968, 22 SCRA 3)~ Here, in letter dated April 25 , 1983 , respondent asse:ssed and demanded from peti- . t i oner payment of the amount of ~1 , 057 , 894.44 38 '

DECISION - CTA CASE NO. 3641 - 4- as deficiency fixed tax as caterer and contractor, caterer's and contr actor 's percentage tax and graduated fixed tax for the years 1977 and 1978 1 (An nex 11 C-2 11 1 Petition}. On May 25, 1983, or exactly 30 days fi om the issuance of the assess- ment demand le:tter, petitioner filed the present petition for review with this Honorable Court praying, among others, that judgment be rendered ordering res-. pendent to cancel the above assessment. Petitioner failed to protest or contest the assessment/demand letter dated April 2~, 1983, pursuant to the provisions of Section 7 and 11 of Republic Act No. 1125 but instead filed the instant petition for review directly to this Honorable Court. In order that this ~curt may acquire jurisdiction, it is indispensable that the assessment be protested by petitioner and a decision rendered by respondent. (Candyman Incorporated vs. Commi ssioner of Internal Revenue, CTA Case No. 1872 , Jan � 2 0 , 19 7 0} �. Since the assessment/demand letter issued on April 25, 1983 was not contested nor protested, there is no decision appeal- able to this Honorable Court (Dionisio Lanti n vs. Commissioner of internal Revenue, CTA Case No. 1951, April 10, 1969). 11 WHE RE a taxpayer questions an assessment and asks the Collec- tor (Commissione r} to reconsider or cancel the same �because he (the taxpayer) believes he is not liable therefore; the assessment becomes a 'd isputed assessment' that the Collector (Commissioner) must decide, and the taxpayer can appeal to the � Court o f Tax Appeals only upon receipt of the decision of the xn. Collector {Commissioner) on the(St. disputed assessment X X Stephen's Associat iOn et al., vs. Collector of Internal Revenue, 104 Phil. 314, 317) ~ 39 j

DECISION - CTA CASE NO . 3641 - 5- Section 11 of Republic Act 1125, states: "SEC. 11. Who may appeal, effect of Apreal.- . Any person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs or any provincial or City Board of Assessment Appeals may file an appeal in t he Court of Tax Appeals within. thirty days after the receipt of such decision or ruling." (Emphasis supplied) We agree with this conclusion. Indeed, the issue he re is not of first impression. In Commissioner of Internal Revenue vs. Leonardo S. Villa and the Court of Tax Appeals, L-21988, Janua!y 2, 1968, 22 SCRA 3, ~here the factual setting is similar to that in the case at bar, the Supreme Court unequivocally ruled that if an assessment is not formally protested or contested administratively by fi ling a request for reconsideration or reinvestigation, the t axpayer has no right to appeal to the Court of Tax Appeals . The decision on the request for reconsideration or reinvestigation is the decision on the disputed assessment which is appealable. (See also St. Stephen'~ Association vs . Collector of Internal Revenue, 104 Phil. 314; Baguio Country Club vs . Collector of Internal Revenue, 105 Phil. 1269; Roman Catholic Arch- bishop of Cebu vs. Collector of Internal Revenue, L-16683, Jan . 31 , 1962, 4 SCRA 279; Commissioner of Internal Reve- nue vs. Lilia Yusay Gonzales, L- 19495 , Nov~ 24 , 1966, 18 SCRA 757 . ) 40

DECISION - CTA CASE NO. 3G4.! - G- Petitione-r h oweve:r argues : (pp . 34- ~ , CTA r ecords.) On June 2 , 1981, petitioner received a letter dated May 13 , 1 98 1 (attached to the pe�tition as Annex " A" ) _from respondent informing t he former that its "internal revenue case for the years 1977 and 1978 has been refer red to the Prosecution Divi- sion for e valuation of t he cri minal aspe,cts. thereof". The same letter also warned peti- tioner to refute t he findings of the BIR , otherwise, the c ase -will be recommended for cr iminal prose:cu ti o n against i ts responsible officers . A demand letter of this nature necessitates urgent consideration and action. It is str ange and unusual, however, for a taxpa yer in a proposed assessme nt wh ich re spondent c:laims to be, ,to re:cei ve such a strong ly worded demand letter with a warning against possible criminal prosecution . It is usual pr actice and standard p r ocedur e for the tax authority in a proposed assess- ment to me r ely invite the taxpayer to an informa l conference to enable t he latter to ventilate his position and presen t evidence, if nece ssary to controvert the findings of t he BIR examiner s o n the proposed assessment. Thus, wh en petit i oner in the instant case received the said demand letter, it regar ded the same not just a propose<;] assessment but a final one . With e xpediency, therefore , the same l ette r was referred to petitioner's external auditor who, in turn, filed a pro~ t est l etter dated June 22, 1981 on behalf of petitioner contesting and assailing the fi ndings of respondent. In brief, peti- . tione r argued tha t the assessment of respon ~ den t i s devoid of legal basis on the ground that Section 191-A of the Tax Code is non- existent. The argument of petitioner is anchored on the fact that whe n the "Omnibus Tax Bill" was p re sented to the President �of the Philippines for approval, the provision of law in dispute was expressly vetoed . The posture of petitioner was later affirmed when thi s Honorable Court in t he case of Manila Golf Clu b vs . Comn\is.sioner of the BIR (C TA Case No . 2630 , March 30 , 1 9 77) categori- cally declared Section 191-A as non~~xistent. j

DECISION - CTA CASE NO . 3641 - .7 - On April 25, 1983 , however, petitioner received respondent's: letter dated Apri l 20, 1983 denying petitioner's protest letter on the ground that Section 191-A of the Tax Code is existent and therefore: binding on petitioner . It further stated that the case of Manila Golf & Country Club vs . Corn- missioner of the BIR could not be invoked as the law on the case because it is on appeal to t he Supreme Court. Because o~ the tenor of respondent's letter dated June 2, 1981 , we hold and consider that respondent's letter dated April 20 , 1983 denying petitioner'~ protest l etter, was . a final disputed assessment in fact and in law which therefore entitl es petitioner to appeal to the Court of Tax Appeals by way of petition for review. The use of the word "proposed assessment" in respondent ' s den i al letter is rather a misnomer if we c:on- s.ider and weigh the foreg_oing circumstances. Section 319-A of the National In terna.l Revenue Code, as inserted by Presidential Decree No. 1773, January 14, 1981 , provides: Sec . 319-A . Protesting of Assess- . rnen t .- When the Commissioner of Internal Rev enue o r hi s d u ly author i zed represent- ati ve f i nds that proper taxes should be assessed , he shall first notify the t ax- payer of his findings . vHthin a period to be prescr ibed by implementing regulations, the taxpayer shall be required to respond \ to said notice. If t he taxpayer fails to respond, the Commissioner shall issue an 1 assessment based on his findings . I Such assessment may be protested administratively by filing a request for reconsideration or reinvest igation iri such fo r m and manne r as may be prescribed by implementing regulations within thirty (30) days from receipt of the a ssessment; otherwise, the assessment shall become !inal and unappealable. (Emphasis supplied) If the protest is d~nied in whole or in part , the individual, association or corporation adversely affected by t he

.. DECIS I ON - CTA CASE NO. 3641 -8 - decision o n the protest may appeal to the Cour t of Tax Appeals within thirty (3 0) days from r eceipt of the said decision ; otherwise, the decision shal l become final,executory and demandable. (As inserted by PD 17 7 3. ). On the assumption that the letter of r espondent dated May 13, 1 981 (Annex "A", Petition for Revi e w; Exh . "1" , p. 62, BIR records) ~ which was received by petitioner The Man ila Yacht Club on June 2, 1981 as al leged by it (par . 3 , Pet iti on for Review)~ is n ot a Eroposed assessment but an a s sessment , which should "be protested administratively by filing a request for reconsideration or reinvestigation x x x within thi rty (30) ftays from receip t of the assessment ; other- wise, the assessment shall become final and unappeal- ab le", we no te that the protest letter dated June 22, 1981 of petitioner contesting and assailing the find ingB of respo nden t (Annex "B" , Petition for Review; Exh. "2", pp . 66-~9 & pp . 70-73, BIR r ecords )~ or the request for reconsideration or reinvestigation as contemplated i n Section 319-A , was filed, as c learly and plainly indi- cate�d therein, with the Prosecution Div is ion of respon- dent on July 6, 1981 . Count ing from June 2, 1981 to July 6, 1981, thirty-four (34) days have already e lapsed. It i s thus beyond controversy that the t hirty-day period specified in paragraph 2 of Section 319-A , supra , within I which petitioner may protest administratively the letter of res p ondent dated May 13, 1~81 , which ~etiti oner c on sider s J

'. DECISION - CTA CASE NO. 3641 - 9- an 11 assessment 11 , had already expired. Consequentl y, the "assessment .. had become final and unappealable under Section 319-A of the Tax Code . It follows that this Court sti ll lacks jurisdiction to entertain the instant appeal. WHEREFORE, the petition for review is.hereby dismissed at petitioner's costs. SO ORDERED. Quezon City, MetLo Manila, February 15, 1984. a~~""'~- AMANTE Presidi WE CONCUR :