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ABS-CBN
BROADCASTING CORPORATION,
G. R. No. L-52306
October 12, 1981
-versus-
COURT
OF TAX APPEALS
MELENCIO-HERRERA, J.:
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. 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:
On April 12,
1961, in implementation of the afore-quoted
provision, the Commissioner of Internal Revenue issued General Circular
No. V-334 reading, thus:
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:
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:
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:
Total amount
remitted
- P 511,059.48 1966 Total amount
remitted
- P373,492.24 1967 Total amount
remitted
- P601,160.65 1968 Total amount
remitted
- P881,816.92 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:
The issues
raised are two-fold:
Upon the facts and circumstances of the case, review is warranted. 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:
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. 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. 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]:
Republic Act
No. 3841 dated likewise on June 22,
1963, followed, after omitting the proviso and inserting some words
[also
in bold letters]:
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. WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned assessment set aside. No costs. SO ORDERED. Makasiar, Fernandez, Guerrero, and De Castro,[*] JJ., concur. _________________________________________
[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. |
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