142.CIR Vs FMF Development

Download as docx, pdf, or txt
Download as docx, pdf, or txt
You are on page 1of 8

[G.R. NO.

167765 : June 30, 2008]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. FMF


DEVELOPMENT CORPORATION, Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari is the Decision1 and Resolution2 dated


January 31, 2005 and April 14, 2005, respectively, of the Court of
Appeals in CA - G.R. SP No. 79675, which affirmed the
Decision3 dated March 20, 2003 of the Court of Tax Appeals (CTA) in
C.T.A. Case No. 6153. In effect, the Court of Appeals cancelled the
assessment notice issued by the Bureau of Internal Revenue (BIR)
for the deficiency income and withholding taxes for the taxable year
1995 of respondent FMF Development Corporation (FMF), a
domestic corporation organized and existing under Philippine laws.

The facts are as follows:

On April 15, 1996, FMF filed its Corporate Annual Income Tax
Return for taxable year 1995 and declared a loss of P3,348,932. On
May 8, 1996, however, it filed an amended return and declared a
loss of P2,826,541. The BIR then sent FMF pre-assessment notices,
all dated October 6, 1998, informing it of its alleged tax
liabilities.4 FMF filed a protest against these notices with the BIR and
requested for a reconsideration/reinvestigation.

On January 22, 1999, Revenue District Officer (RDO) Rogelio


Zambarrano informed FMF that the reinvestigation had been
referred to Revenue Officer Alberto Fortaleza. He also advised FMF
of the informal conference set on February 2, 1999 to allow it to
present evidence to dispute the BIR assessments.

On February 9, 1999, FMF President Enrique Fernandez executed a


waiver of the three-year prescriptive period for the BIR to assess
internal revenue taxes, hence extending the assessment period until
October 31, 1999. The waiver was accepted and signed by RDO
Zambarrano.
On October 18, 1999, FMF received amended pre-assessment
notices5 dated October 6, 1999 from the BIR. FMF immediately filed
a protest on November 3, 1999 but on the same day, it received
BIR's Demand Letter and Assessment Notice No. 33-1-00487-95
dated October 25, 1999 reflecting FMF's alleged deficiency taxes
and accrued interests, as follows:

Income Tax Assessment P1,608,015.50

Compromise Penalty on Income Tax


Assessment 20,000.00

Increments on Withholding Tax on


Compensation 184,132.26

Compromise Penalty on Increments on


Withholding Tax on Compensation 16,000.00

Increments on Withholding Tax on


Management Fees 209,550.49

Compromise Penalty on Increments on


Withholding Tax on Management Fees 16,000.00

TOTAL P2,053,698.256

On November 24, 1999, FMF filed a letter of protest on the


assessment invoking, inter alia,7 the defense of prescription by
reason of the invalidity of the waiver. In its reply, the BIR insisted
that the waiver is valid because it was signed by the RDO, a duly
authorized representative of petitioner. It also ordered FMF to
immediately settle its tax liabilities; otherwise, judicial action will be
taken. Treating this as BIR's final decision, FMF filed a Petition for
Review with the CTA challenging the validity of the assessment.

On March 20, 2003, the CTA granted the petition and cancelled
Assessment Notice No. 33-1-00487-95 because it was already time-
barred. The CTA ruled that the waiver did not extend the three-year
prescriptive period within which the BIR can make a valid
assessment because it did not comply with the procedures laid down
in Revenue Memorandum Order (RMO) No. 20-90.8 First, the waiver
did not state the dates of execution and acceptance of the waiver,
by the taxpayer and the BIR, respectively; thus, it cannot be
determined with certainty if the waiver was executed and accepted
within the prescribed period. Second, the CTA also found that FMF
was not furnished a copy of the waiver signed by RDO
Zambarrano. Third, the CTA pointed out that since the case involves
an amount of more than P1 million, and the period to assess is not
yet about to prescribe, the waiver should have been signed by the
Commissioner of Internal Revenue, and not a mere RDO.9 The
Commissioner of Internal Revenue filed a motion for
reconsideration, but it was denied.

On appeal to the Court of Appeals, the decision of the CTA was


affirmed. Sustaining the findings of the CTA, the Court of Appeals
held that the waiver did not strictly comply with RMO No. 20-90.
Thus, it nullified Assessment Notice No. 33-1-00487-95. The fallo  of
the Court of Appeals' decision reads:

WHEREFORE, finding the instant petition not impressed with merit,


the same is DENIED DUE COURSE and is hereby DISMISSED. No
costs.

SO ORDERED.10

The Commissioner of Internal Revenue sought reconsideration, but


it was denied.

Hence the instant petition, raising the following issues:

I.

WHETHER OR NOT RESPONDENT'S WAIVER OF THE STATUTE OF


LIMITATIONS WAS VALIDLY EXECUTED.

II.

WHETHER O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.

III.

WHETHER OR NOT THE COURT OF APPEALS CORRECTLY


DISREGARDED PETITIONER'S SUBSTANTIVE ARGUMENT.11
Essentially, the present controversy deals with the validity of the
waiver and whether it validly extended the original three-year
prescriptive period so as to make Assessment Notice No. 33-1-
00487-95 valid. The basic questions to be resolved therefore are:
(1) Is the waiver valid? and (2) Did the three-year period to assess
internal revenue taxes already prescribe? cralawred

Petitioner contends that the waiver was validly executed mainly


because it complied with Section 222 (b)12 of the National Internal
Revenue Code (NIRC). Petitioner points out that the waiver was in
writing, signed by the taxpayer and the Commissioner, and
executed within the three-year prescriptive period. Petitioner also
argues that the requirements in RMO No. 20-90 are merely
directory; thus, the indication of the dates of execution and
acceptance of the waiver, by the taxpayer and the BIR, respectively,
are not required by law. Petitioner adds that there is no provision in
RMO No. 20-90 stating that a waiver may be invalidated upon
failure of the BIR to furnish the taxpayer a copy of the waiver.
Further, it contends that respondent's execution of the waiver was a
renunciation of its right to invoke prescription. Petitioner also
argues that the government cannot be estopped by the mistakes
committed by its revenue officer in the enforcement of RMO No. 20-
90.

On the other hand, respondent counters that the waiver is void


because it did not comply with RMO No. 20-90. Respondent assails
the waiver because (1) it was not signed by the Commissioner
despite the fact that the assessment involves an amount of more
than P1 million; (2) there is no stated date of acceptance by the
Commissioner or his duly authorized representative; and (3) it was
not furnished a copy of the BIR-accepted waiver. Respondent also
cites Philippine Journalists, Inc. v. Commissioner of Internal
Revenue13 and contends that the procedures in RMO No. 20-90 are
mandatory in character, precisely to give full effect to Section 222
(b) of the NIRC. Moreover, a waiver of the statute of limitations is
not a waiver of the right to invoke the defense of prescription.14
After considering the issues and the submissions of the parties in
the light of the facts of this case, we are in agreement that the
petition lacks merit.

Under Section 20315 of the NIRC, internal revenue taxes must be


assessed within three years counted from the period fixed by law for
the filing of the tax return or the actual date of filing, whichever is
later. This mandate governs the question of prescription of the
government's right to assess internal revenue taxes primarily to
safeguard the interests of taxpayers from unreasonable
investigation. Accordingly, the government must assess internal
revenue taxes on time so as not to extend indefinitely the period of
assessment and deprive the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the
expiration of reasonable period of time.16

An exception to the three-year prescriptive period on the


assessment of taxes is Section 222 (b) of the NIRC, which provides:

xxx

(b) If before the expiration of the time prescribed in Section 203 for
the assessment of the tax, both the Commissioner and the taxpayer
have agreed in writing to its assessment after such time, the tax
may be assessed within the period agreed upon. The period so
agreed upon may be extended by subsequent written agreement
made before the expiration of the period previously agreed upon.

xxx

The above provision authorizes the extension of the original three-


year period by the execution of a valid waiver, where the taxpayer
and the BIR agreed in writing that the period to issue an
assessment and collect the taxes due is extended to an agreed upon
date. Under RMO No. 20-90, which implements Sections 203 and
222 (b), the following procedures should be followed:

1. The waiver must be in the form identified as Annex "A" hereof'.


2. The waiver shall be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner


of Internal Revenue or the revenue official authorized by him, as
hereinafter provided, shall sign the waiver indicating that the
Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated. Both the date
of execution by the taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of prescription
or before the lapse of the period agreed upon in case a subsequent
agreement is executed.

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office

xxx

3. Commissioner For tax cases involving more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still


pending investigation and the period to assess is about to prescribe
regardless of amount.

xxx

4. The waiver must be executed in three (3) copies, the


original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting
the waiver. The fact of receipt by the taxpayer of his/her file
copy shall be indicated in the original copy.

5. The foregoing procedures shall be strictly followed. Any


revenue official found not to have complied with this Order resulting
in prescription of the right to assess/collect shall be administratively
dealt with. (Emphasis supplied.)
Applying RMO No. 20-90, the waiver in question here was defective
and did not validly extend the original three-year prescriptive
period. Firstly, it was not proven that respondent was furnished a
copy of the BIR-accepted waiver. Secondly, the waiver was signed
only by a revenue district officer, when it should have been signed
by the Commissioner as mandated by the NIRC and RMO No. 20-90,
considering that the case involves an amount of more than P1
million, and the period to assess is not yet about to prescribe.
Lastly, it did not contain the date of acceptance by the
Commissioner of Internal Revenue, a requisite necessary to
determine whether the waiver was validly accepted before the
expiration of the original three-year period. Bear in mind that the
waiver in question is a bilateral agreement, thus necessitating the
very signatures of both the Commissioner and the taxpayer to give
birth to a valid agreement.17

Petitioner contends that the procedures in RMO No. 20-90 are


merely directory and that the execution of a waiver was a
renunciation of respondent's right to invoke prescription. We do not
agree. RMO No. 20-90 must be strictly followed. In Philippine
Journalists, Inc. v. Commissioner of Internal Revenue,18 we ruled
that a waiver of the statute of limitations under the NIRC, to a
certain extent being a derogation of the taxpayer's right to security
against prolonged and unscrupulous investigations, must be
carefully and strictly construed. The waiver of the statute of
limitations does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally, particularly where the language
of the document is equivocal.19 Notably, in this case, the waiver
became unlimited in time because it did not specify a definite date,
agreed upon between the BIR and respondent, within which the
former may assess and collect taxes. It also had no binding effect
on respondent because there was no consent by the Commissioner.
On this basis, no implied consent can be presumed, nor can it be
contended that the concurrence to such waiver is a mere
formality.20

Consequently, petitioner cannot rely on its invocation of the rule


that the government cannot be estopped by the mistakes of its
revenue officers in the enforcement of RMO No. 20-90 because the
law on prescription should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the
taxpayer within the contemplation of the Commission which
recommended the approval of the law. To the Government, its tax
officers are obliged to act promptly in the making of assessment so
that taxpayers, after the lapse of the period of prescription, would
have a feeling of security against unscrupulous tax agents who will
always try to find an excuse to inspect the books of taxpayers, not
to determine the latter's real liability, but to take advantage of a
possible opportunity to harass even law-abiding businessmen.
Without such legal defense, taxpayers would be open season to
harassment by unscrupulous tax agents.21

In fine, Assessment Notice No. 33-1-00487-95 dated October 25,


1999, was issued beyond the three-year prescriptive period. The
waiver was incomplete and defective and thus, the three-year
prescriptive period was not tolled nor extended and continued to run
until April 15, 1999. Even if the three-year period be counted from
May 8, 1996, the date of filing of the amended return, assuming the
amended return was substantially different from the original return,
a case which affects the reckoning point of the prescriptive
period,22 still, the subject assessment is definitely considered time-
barred.

WHEREFORE, the petition is DENIED for lack of merit. The


assailed Decision and Resolution dated January 31, 2005 and April
14, 2005, respectively, of the Court of Appeals in CA-G.R. SP No.
79675 are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

You might also like