ManilaFIRST
DIVISION
ABS-CBN
BROADCASTING CORPORATION,
Petitioner,
G. R. No. L-52306
October 12, 1981
-versus-
COURT
OF TAX APPEALS
and COMMISSIONER OF INTERNAL REVENUE,
Respondents.
R
E S O L U T I O N
MELENCIO-HERRERA, J.:
chanroblesvirtualawlibrary
This is a
Petition for Review on
Certiorari
of
the Decision of the Court of Tax Appeals in C.T.A. Case No. 2809 dated
November 29, 1979, which affirmed the assessment by the Commissioner of
Internal Revenue dated April 16, 1971, of a deficiency withholding
income
tax against petitioner ABS-CBN Broadcasting Corporation, for the years
1965, 1966, 1967 and 1968 in the respective amounts of P75,895.24,
P99,239.18,
P128,502.00 and P222, 260.64, or a total of P525,897.06.
During the period
pertinent to this case, petitioner
corporation was engaged in the business of telecasting local as well as
foreign films acquired from foreign corporations not engaged in trade
or
business within the Philippines for which petitioner paid rentals after
withholding income tax of 30% of one-half of the film rentals.cralaw:red
Insofar as the
income tax on non-resident corporations
is concerned, Section 24[b] of the National Internal Revenue Code, as
amended
by Republic Act No. 2343 dated June 20, 1959, used to provide:
[b] Tax on foreign corporations:
[1]
Non-resident corporations.- There shall be levied, collected,
and paid for each taxable year, in lieu of the tax imposed by the
preceding
paragraph, upon the amount received by every foreign corporation not
engaged
in trade or business within the Philippines, from any sources within
the
Philippines, as interest, dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income, a tax
equal
to thirty per centum of such amount. [Emphasis supplied].
On April 12,
1961, in implementation of the afore-quoted
provision, the Commissioner of Internal Revenue issued General Circular
No. V-334 reading, thus:
In connection with Section 24[b] of the
Tax
Code,
the amendment introduced by Republic Act No. 2343, under which an
income
tax equal to 30% is levied upon the amount received by every foreign
corporation
not engaged in trade or business within the Philippines from all
sources
within this country as interest, dividends, rents, salaries, wages,
premiums,
annuities, compensations, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income, it has
been
determined that the tax is still imposed on income derived from
capital,
or labor, or both combined, in accordance with the basic principle of
income
taxation [Sec. 39, Income Tax Regulations], and that a mere return of
capital
or investment is not income [Par. 5,06, 1 Merten's Law of Federal
'Taxation].
Since, according to the findings of the Special Team who inquired into
business of the non-resident foreign film distributors, the
distribution
or exhibition right on a film is invariably acquired for a
consideration,
either for a lump sum or a percentage of the film rentals, whether from
a parent company or an independent outside producer, apart from
the
receipts of a non-resident foreign film distributor derived from said
film
represents, therefore, a return of investment.
4. The local distributor should
withhold 30%
of one-half of the film rentals paid to the non-resident foreign film
distributor
and pay the same to this office in accordance with law unless the non-
resident foreign film distributor makes a prior settlement of its
income
tax liability. [Emphasis ours].
Pursuant to the
foregoing, petitioner dutifully withheld
and turned over to the Bureau of Internal Revenue the amount of 30% of
one-half of the film rentals paid by it to foreign corporations not
engaged
in trade or business within the Philippines. The last year that
petitioner
withheld taxes pursuant to the foregoing Circular was in 1968.
On June 27, 1968,
Republic Act No. 5431 amended
Section 24 [b] of the Tax Code increasing the tax rate from 30 % to 35
% and revising the tax basis from "such amount" referring to rents,
etc.
to "gross income," as follows:
[b] Tax on foreign corporations: [1]
Non-resident
corporations. - A foreign corporation not engaged in trade or
business
in the Philippines, including a foreign life insurance company not
engaged
in the life insurance business in the Philippines, shall pay a tax
equal
to thirty-five per cent of the gross income received during each
taxable
year from all sources within the Philippines, as interests, dividends,
rents, royalties, salaries, wages, premiums, annuities, compensations,
remunerations for technical services or otherwise, emoluments or other
fixed or determinable annual, periodical or casual gains, profits, and
income, and capital gains: Provided, however, That premiums
shall
not include reinsurance premiums. [Emphasis supplied]
On February 8,
1971, the Commissioner of Internal
Revenue issued Revenue Memorandum Circular No. 4-71 revoking General
Circular
No. V-334 and holding that the latter was "erroneous for lack of legal
basis," because "the tax therein prescribed should be based on gross
income
without deduction whatever," thus:
After a restudy and analysis of Section
24 [b]
of the National Internal Revenue Code, as amended by Republic Act No.
5431,
and guided by the interpretation given by tax authorities to a similar
provision in the Internal Revenue Code of the United States on which
the
aforementioned provision of our Tax Code was patterned, this Office has
come to the conclusion that the tax therein prescribed should be based
on gross income without t deduction whatever. Consequently, the ruling
in General Circular No. V-334 dated April 12, 1961, allowing the
deduction
of the proportionate cost of production or exhibition of motion picture
films from the rental income of non- resident foreign corporations, is
erroneous for lack of legal basis.
In view thereof, General Circular No.
V-334
dated
April 12, 1961, is hereby revoked and henceforth, local films
distributors
and exhibitors shall deduct and withhold 35% of the entire amount
payable
by them to non-resident foreign corporations, as film rental or
royalty,
or whatever such payment may be denominated, without any deduction
whatever,
pursuant to Section 24 [b] and pay the withheld taxes in accordance
with
Section 54 of the Tax Code, as amended.
All rulings inconsistent with this
Circular is
likewise revoked. [Emphasis ours].
On the basis of
this new Circular, respondent Commissioner
of Internal Revenue issued against petitioner a letter of assessment
and
demand dated April 15, 1971, but allegedly released by it and received
by petitioner on April 12, 1971, requiring them to pay deficiency
withholding
income tax on the remitted film rentals for the years 1965 through 1968
and film royalty as of the end of 1968 in the total amount of
P525,897.06
computed as follows:
1965
Total amount
remitted
- P 511,059.48
Withholding tax due
thereon
- 153,318.00
Less: Amount already
assessed
- 89,000.00
Balance
- P64,318.00
Add: 1/2% monthly interest
from
4-16-66 to
4-16-69
- 11,577.24
Total amount due &
collectible
- P 75,895.24
1966
Total amount
remitted
- P373,492.24
Withholding tax due
thereon
- 112,048.00
Less: Amount already
assessed
- 27,947.00
Balance
84,101.00
Add: 11/2% monthly interest
from
4-16-67 to
4-116-70
- 15,138.18
Total amount due &
collectible
- P99,239.18
1967
Total amount
remitted
- P601,160.65
Withholding tax due
thereon
- 180,348.00
Less: Amount already
assessed
- 71,448.00
Balance
- 108,900.00
Add: 1/2% monthly interest
from
4-16-68 to
4-16-71
- 19,602.00
Total amount due &
collectible
- P128,502.00
1968
Total amount
remitted
- P881,816.92
Withholding tax due
thereon
- 291,283.00
Less: Amount already
assessed
- 92,886.00
Balance
- P198,447.00
Add: 1/2% monthly interest
from
4-16-69
to
4-29-71
- 23,813.64
Total amount due &
collectible
- P222,260.44[1]
On May 5, 1971,
petitioner requested for a reconsideration
and withdrawal of the assessment. However, without acting thereon,
respondent,
on April 6, 1976, issued a warrant of distraint and levy over
petitioner's
personal as well as real properties. The petitioner then filed its
Petition
for Review with the Court of Tax Appeals whose Decision dated November
29, 1979, is, in turn, the subject of this review. The Tax Court held:
For the reasons given, the Court finds
the
assessment
issued by respondent on April 16, 1971 against petitioner in the
amounts
of P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or a total of
P525,897.06
as deficiency withholding income tax for the years 1965, 1966, 1967 and
1968, respectively, in accordance with law. As prayed for, the Petition
for Review filed in this case is dismissed, and petitioner ABS-CBN
Broadcasting
Corporation is hereby ordered to pay the sum of P525,897.06 to
respondent
Commissioner of Internal Revenue as deficiency withholding income tax
for
the taxable years 1965 thru 1968, plus the surcharge and interest which
have accrued thereon incident to delinquency pursuant to Section 51 [e]
of the National Internal Revenue Code, as amended.
WHEREFORE, the decision appealed from is
hereby
affirmed at petitioner's cost.
The issues
raised are two-fold:
I.chanrobles virtual law libraryWhether or not respondent can
apply
General
Circular No. 4-71 retroactively and issue a deficiency assessment
against
petitioner in the amount of P 525,897.06 as deficiency withholding
income
tax for the years 1965, 1966, 1967 and 1968.chanrobles virtual law libraryII.chanrobles virtual law libraryWhether or not the right of the
Commissioner
of Internal Revenue to assess the deficiency withholding income tax for
the year 1965 has prescribed.[3]
Upon the facts
and circumstances of the case,
review is warranted.cralaw:red
In point is Sec.
338-A [now Sec. 327] of the Tax
Code. As inserted by Republic Act No. 6110 on August 9, 1969, it
provides:
Sec. 338-A. Non-retroactivity of
rulings.
- Any revocation, modification, or reversal of the rules and
regulations
promulgated in accordance with the preceding section or any of the
rulings
or circulars promulgated by the Commissioner of Internal Revenue shall
not be given retroactive application if the revocation, modification,
or
reversal will be prejudicial to the taxpayers, except in the following
cases: [a] where the taxpayer deliberately mis-states or omits material
facts from his return or any document required of him by the Bureau of
Internal Revenue; [b] where the facts subsequently gathered by the
Bureau
of Internal Revenue are materially different from the facts on which
the
ruling is based; or [c] where the taxpayer acted in bad faith.
[Italics
for emphasis].
It is clear
from the foregoing that rulings or circulars
promulgated by the Commissioner of Internal Revenue have no retroactive
application where to so apply them would be prejudicial to taxpayers.
The
prejudice to petitioner of the retroactive application of Memorandum
Circular
No. 4-71 is beyond question. It was issued only in 1971, or three years
after 1968, the last year that petitioner had withheld taxes under
General
Circular No. V-334. The assessment and demand on petitioner to pay
deficiency
withholding income tax was also made three years after 1968 for a
period
of time commencing in 1965. Petitioner was no longer in a position to
withhold
taxes due from foreign corporations because it had already remitted all
film rentals and no longer had any control over them when the new
Circular
was issued. And insofar as the enumerated exceptions are concerned,
admittedly,
petitioner does not fall under any of them.
Respondent
claims, however, that the provision
on non-retroactivity is inapplicable in the present case in that
General
Circular No. V-334 is a nullity because in effect, it changed the law
on
the matter. The Court of Tax Appeals sustained this position holding
that:
"deductions are wholly and exclusively within the power of Congress or
the law-making body to grant, condition or deny; and where the statute
imposes a tax equal to a specified rate or percentage of the gross or
entire
amount received by the taxpayer, the authority of some administrative
officials
to modify or change, much less reduce, the basis or measure of the tax
should not be read into the law."[4]
Therefore, the Tax Court concluded, petitioner did not acquire any
vested
right thereunder as the same was a nullity.cralaw:red
The rationale
behind General Circular No. V-334
was clearly stated therein, however: "It ha[d] been determined that the
tax is still imposed on income derived from capital, or labor, or both
combined, in accordance with the basic principle of income taxation and
that a mere return of capital or investment is not income." "A part of
the receipts of a non-resident foreign film distributor derived from
said
film represents, therefore, a return of investment." The Circular thus,
fixed the return of capital at 50% to simplify the administrative chore
of determining the portion of the rentals covering the return of
capital."[5]
Were the "gross
income" base clear from Sec. 24
[b], perhaps the ratiocination of the Tax Court could be upheld. It
should
be noted, however, that said Section was not too plain and simple to
understand.
The fact that the issuance of the General Circular in question was
rendered
necessary leads to no other conclusion than that it was not easy of
comprehension
and could be subjected to different interpretations.cralaw:red
In fact, Republic
Act No. 2343 dated June 20,
1959, supra, which was the basis of General Circular No. V-334,
was just one in a series of enactments regarding Sec. 24 [b] of the Tax
Code. Republic Act No. 3825 came next on June 22, 1963 without changing
the basis but merely adding a proviso [in bold letters]:
[b] Tax on foreign corporation:
[1]
Non-resident corporations. - There shall be levied, collected
and paid for each taxable year, in lieu of the tax imposed by the
preceding
paragraph, upon the amount received by every foreign corporation not
engaged
in trade or business within the Philippines, from all sources within
the
Philippines, as interest, dividends, rents, salaries, wages, premiums
annuities,
compensations, remunerations, emoluments, or other fixed or
determinable
annual or periodical gains, profits, and income, a tax equal to thirty per
centum of such amount: PROVIDED, HOWEVER, THAT
PREMIUMS SHALL
NOT INCLUDE REINSURANCE PREMIUMS. [Double emphasis ours].
Republic Act
No. 3841 dated likewise on June 22,
1963, followed, after omitting the proviso and inserting some words
[also
in bold letters]:
[b] Tax on foreign corporations:
[1]
Non-resident corporations. - There shall be levied, collected and
paid
for each taxable year, in lieu of the tax imposed by the preceding
paragraph,
upon the amount received by every foreign corporation not engaged in
trade
or business within the Philippines, from all sources within the
Philippines,
as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations,
remunerations, emoluments, or other fixed or determinable annual or
periodical OR CASUAL gains, profits and income, AND CAPITAL
GAINS,
a
tax equal to thirty per centum of such amount.[6]
[Double emphasis supplied].
The principle
of legislative approval of administrative
interpretation by re-enactment clearly obtains in this case. It
provides
that "the re-enactment of a statute substantially unchanged is
persuasive
indication of the adoption by Congress of a prior executive
construction.[7]
Note should be taken of the fact that this case involves not a mere
opinion
of the Commissioner or ruling rendered on a mere query, but a Circular
formally issued to "all internal revenue officials" by the then
Commissioner
of Internal Revenue.
It was only on
June 27, 1968 under Republic Act
No. 5431, supra, which became the basis of Revenue Memorandum
Circular
No. 4-71, that Sec. 24[b] was amended to refer specifically to 35% of
the
"gross income."
This Court is not
unaware of the well-entrenched
principle that the Government is never estopped from collecting taxes
because
of mistakes or errors on the part of its agents.[8]
In fact, utmost caution should be taken in this regard.[9]
But, like other principles of law, this also admits of exceptions in
the
interest of justice and fairplay. The insertion of Sec. 338-A into the
National Internal Revenue Code, as held in the case of Tuason, Jr. vs.
Lingad,[10]
is indicative of legislative intention to support the principle of good
faith. In fact, in the United States from where Sec. 24 [b] was
patterned,
it has been held that the Commissioner of Collector is precluded from
adopting
a position inconsistent with one previously taken where injustice would
result therefrom,[11]
or where there has been a misrepresentation to the taxpayer.[12]
We have also
noted that in its Decision, the Court
of Tax Appeals further required the petitioner to pay interest and
surcharge
as provided for in Sec. 51[e] of the Tax Code in addition to the
deficiency
withholding tax of P 525,897.06. This additional requirement is much
less
called for because the petitioner relied in good faith and religiously
complied with no less than a Circular issued "to all internal revenue
officials"
by the highest official of the Bureau of Internal Revenue and approved
by the then Secretary of Finance.[13]
With the
foregoing conclusions arrived at, resolution
of the issue of prescription becomes unnecessary.cralaw:red
WHEREFORE, the
judgment of the Court of Tax Appeals
is hereby reversed, and the questioned assessment set aside. No costs.cralaw:red
SO ORDERED.cralaw:red
Makasiar,
Fernandez, Guerrero, and De Castro,[*]
JJ., concur.cralaw:red
_________________________________________
Endnotes
[1]
Comment of Respondents, Rollo, pp. 73-74.
[2]
Decision, Annex "A", Rollo, pp. 53-,54.
[3]
Memorandum of Petitioner, Rollo. p. 97.
[4]
Decision, Annex "A", Rollo, p. 41
[5]
Comment of Commissioner of Internal Revenue, p. 3.
[6]
The omission of the proviso "Provided, however, That premiums shall not
include reinsurance premiums" appears to be due to oversight as the
purpose
of the amendment was to include capital gains in gross income of
foreign
non-resident corporations. See [End]note 13, Filipinas Life Assurance
Co.
vs. Court of Tax Appeals, 21 SCRA 622 [1967].
[7]
Biddle vs. Commissioner, 302 U.S., 573 [1938]; Alexander Howden &
Co.,
Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 [1965].
[8]
Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue,
13
SCRA 357 [1965]; Zamora vs. Court of Tax Appeals, 36 SCRA 77 [1970];
Balmaceda
vs. Corominas & Co., Inc. 66 SCRA 555 [1975].
[9]
Senator James Couzens 11 BTA 1040 [1928], 48 Harvard Law Review 1281,
1300,
cited in 10A Metens Law of Federal Income Taxation, Sec. 60.13, p. 189.
[10]
58 SCRA 170 [1974].
[11]
Ford Motor Co..vs.U.S.,9 F.Supp.590 [1935].
[12]
J. W. Carter Music Co. vs. Bass, 20 F. 2d 390 [1927].
[13]
Tuason, Jr. vs. Lingad, 58 SCRA 170 [1974]; Connel Bros. Co. Phil. vs.
Collector of Internal Revenue, 10 SCRA 470 [1964].
[*]
Justice Pacifico P. de Castro was designated to sit in the First
Division,
Justice Claudio Teehankee being on official leave. |