April 2005 - Philippine Supreme Court Decisions/Resolutions

Philippine Supreme Court Jurisprudence

PNOC v. CA: 109976 : April 26, 2005 : J. Tinga : En Banc : Separate Opinion

EN BANC

[G.R. NO. 109976 : April 26, 2005]

PHILIPPINE NATIONAL OIL COMPANY, Petitioner, v. THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and TIRSO SAVELLANO, Respondents.

[G.R. NO. 112800 : April 26, 2005]

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANO and COMMISSIONER OF INTERNAL REVENUE, Respondents.

SEPARATE OPINION

TINGA, J.:

I agree with the ponencia that no valid compromise agreement had been entered into between the Philippine National Oil Company (PNOC) and the Bureau of Internal Revenue (BIR).

First, the coverage of the governing special compromise tax measure.

Executive Order No. 44, on which the compromise agreement was predicated, explicitly delineates the parameters within which the amnesty provided therein may be availed of. Section 1 thereof allows the compromise of disputed assessments or delinquent accounts pending as of 31 December 1985, viz.:

SECTION 1. The Commissioner of Internal Revenue or his duly authorized representatives may compromise any disputed assessment or delinquent account pending as of December 31, 1985, upon the payment of an amount equal to thirty percent (30%) of the basic tax assessed. In such cases, the Commissioner of Internal Revenue or his duly authorized representatives shall condone the corresponding interests and penalties. (Emphasis supplied)

The directive in Section 1 is reiterated in the first paragraph of Revenue Memorandum Circular No. 31-86¹, Sections 2 and 3 of Revenue Regulation No. 17-86², and Section 1 of Revenue Memorandum Order No. 39-86.³

Evidently, E.O. No. 44 applies only to 'disputed assessment or delinquent account pending as of December 31, 1985. This is not an executive issuance meant to give blanket authority on the Commissioner of Internal Revenue to compromise away tax liabilities. In fact, the 'cut-off period stipulated in the executive order refers to a date nine months prior to the date of the promulgation of the issuance, 4 September 1986.

The authority to compromise was delegated for a specific purpose, as stated in E.O. No. 44. Significantly in that regard, the Executive Order is not a mere executive issuance but a legislative edict in much the same fashion as an Act of Congress, issued as it was by then President Corazon C. Aquino in the exercise of her legislative powers under the Freedom Constitution. The perambulatory clauses of E.O. No. 44 state the need to clear the backlog of pending cases of disputed assessments and delinquent accounts⁴ in view of the fact that the records of Bureau of Internal Revenue show that over the past ten years, a great number of cases involving disputed assessments and delinquent accounts for internal revenue had accumulated.⁵ The interpretation of the provisions of E.O. No. 44 cannot be strained in order to cover taxes that accrued after 31 December 1985, since this would no longer be included in the 'backlog adverted to in the issuance. Parenthetically, the Executive Order is akin to a tax exemption statute which should be construed strictly against the taxpayer.

The taxes sought to be compromised in this case concern the final tax on interest income representing the earnings and/or yield from PNOC's money placements with the Philippine National Bank (PNB) for the period from 15 October 1984 to 15 October 1986. Evidently, a cursory glance reveals that the PNOC cannot invoke E.O. No. 44 with reference to its entire tax liability, as the period covered under the Executive Order was only up to 31 December 1985. The withholding taxes due for the period of 01 January 1986 to 16 October 1986 are neither disputed assessments nor delinquent accounts pending as of 31 December 1985.

Moreover, these are taxes that accrue from the yield of interest income of money market placements, and clearly not at the time such placements were made by the PNOC. Even if the money market placements were made in 1984 or 1985, it would not necessarily mean that the interest yields on these placements were paid out or credited during those years. It is unclear when exactly between 1984 to 1986 did such interest incomes had accrued, but admittedly this is a question of fact that need not be reviewed by this Court.

Nonetheless, I maintain that even without need of ascertaining when exactly such interest income accrued, the compromise agreement in question is null and void in its entirety for being contrary to E.O. No. 44.

While PNB failed to submit any application for compromise, PNOC submitted two offers - not applications for compromise settlement. PNOC's first proposal, contained in a letter dated 22 September 1986, offered to clear its basic⁶ tax liability through a set-off thereof against the claim for tax refund/credit of the National Power Corporation (NPC), which amount was also supposedly a receivable of PNOC from NPC. This proposal was reiterated in another letter dated 14 October 1986. The operative portions of the first letter read:

We would like to amicably settle this liability with the BIR. In this regard, we wish to invoke the authority vested by law in your office, particularly under Section 246 of the national Internal Revenue Code, as amended, and the spirit underlying Executive Order No. 44 dated September 4, 1986. Consequently, we hereby request for a compromise settlement and submit our offer for a compromise of the matter. xxx

(2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against the tax refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPC totaling P335,239,450.21, which tax refunds/credits are actually receivable accounts of our Company from NPC.⁷

Section 1 of E.O. No. 44 is explicit in declaring that the compromise of a disputed assessment or delinquent account is accomplished through payment of an amount equal to thirty percent (30%) of the basic tax assessed, a generous sum if I may add. Payment, as defined in this jurisdiction, means the delivery of money or the performance of an obligation⁸ . It institutes a totally different mode of extinguishment of an obligation from compensation and/or confusion or merger⁹ . PNOC invokes the concepts of compensation and/or confusion or merger as it seeks to have the NPC, which allegedly had outstanding payables due to PNOC, absorb PNOC's tax liabilities with its own outstanding tax credit due from the BIR.

However, as noted by the BIR in its initial response to PNOC's proposal, NPC's claim was still under process. Hence, at the time PNOC offered its terms for compromise to the BIR, no extinguishment of PNOC's tax liability could have taken place - whether by compensation, confusion or merger. There was no mutual creditor-debtor relationship between PNOC and the BIR - the existence of which is one of the requisites for compensation to take place.¹⁰ Also, neither was there an outstanding creditor-debtor relationship between the NPC and the BIR. Moreover, the 'credit which PNOC proposed to use for the purpose of offsetting emanated from a segregate obligation than that due the BIR from PNOC; hence, there could be no confusion or merger¹¹ which could lead to payment.

In short, there was no legal basis for the NPC then to offset PNOC's tax liabilities through its own 'tax credit, as the said 'tax credit had not, in the first place, yet ripened as an existing obligation.

For that reason, PNOC cannot be deemed as having made payment, or even a valid offer of payment through its first two letters, as there was no legal basis to effect its proposed mode of payment. In the meantime, the outstanding tax liability had accrued and eventually, the deadline set forth in RMO No. 39-86 passed.

So now, the prescribed period of availment and the effective duration of the special compromise tax measure.

RMO No. 39-86 pertains to 'Guidelines for Implementation of Executive Order No. 44 re compromise settlement of (1) delinquent tax accounts; or (2) disputed tax assessments as of December 31, 1985. Paragraph 2 thereof is explicit as to the period for availment of the compromise settlement:

2. Period for availment. 'Filing of application for compromise settlement under the said law shall be effective only until March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of the compromise amount shall be made after the said date, subject, however, to the provisions of Executive Order No. 44 and its implementing Revenue Regulations No. 17-86. (emphasis supplied)

The deadline was occasioned by Section 6 of E.O. No. 44, which itself provides for the term of effectivity of the period for compromise:

Section 6. This Executive Order shall take effect immediately and shall remain effective until March 31, 1987.

The plain meaning of paragraph (2), in relation to Section 6, E.O. No. 44, is that the deadline for the submission of an application for compromise settlement shall be effective only until 31 March 1987. As of that point, had PNOC submitted an application for compromise settlement within the contemplation of law?chanroblesvirtualawlibrary

Plainly, the two letters in 1986 of PNOC are not in the form of an 'application for compromise settlement. Though the Court need not be strict in demanding obeisance with the formal requisites, I would consider any valid form of an application for compromise should concede the liability for tax, and make a valid offer of payment. To require otherwise would render a mockery of the offer of tax compromise. Owing to the legal implausibility of the initial offer of PNOC to the BIR, I could not consider the first two letters as a valid application for compromise settlement. Moreover, the BIR expressly rejected this application, if it could be construed as such, as early as November of 1986. If there was indeed a bona fide intent on the part of PNOC to comply with E.O. No. 44 and its attendant revenue issuances, it should have exerted efforts to comply with this deadline set forth under RMO No. 39-86, in light of the BIR's rejection of its earlier offer. Instead, the 31 March 1987 deadline passed without a word or renewed offer from the PNOC.

Instead, on 09 June 1987, or two months after the deadline had elapsed, PNOC made a second, different offer, proposing by way of compromise to pay thirty (30%) of its basic tax liability, specifically invoking Section 1 of E.O. 44. This new offer was subsequently accepted by the BIR.

The contrary view argues that owing to the administrative power of the tax commissioner, such subsequent acceptance can be deemed as an effective extension of the deadline set forth under RMO No. 39-86. However, E.O. No. 44 is explicit in declaring that its effectivity subsists only until 31 March 1987, a fact which is similarly demonstrated by paragraph (2) of RMO No. 39-86.

The dissent relies on the fact that E.O. No. 44, issued in the exercise of legislative powers then vested in President Aquino, is a special law of more specific application in this case than the Tax Code. Yet the delegation of authority to the tax commissioner to effect compromises is limited by the confines of E.O. No. 44, which is explicit in stating that its effectivity runs only until 31 March 1987. Hence, contrary to the dissenting view, the BIR Commissioner had no authority to extend the effectivity of E.O. No. 44, or the deadline prescribed thereupon. RMO No. 39-86 properly recognizes such limitation, and assuming that the subsequent acts of the tax commissioner contravene the deadline set by law and regulation, those acts should be deemed as beyond the ambit of delegated power, and thus void. Under the circumstances, only Congress could have validly extended the effectivity of the special compromise tax measure.

Thus, the ponencia correctly concludes that the compromise agreement entered into on 22 June 1987 is void. It was entered into after the lapse of the authority of BIR Commissioner to effect such compromise agreement, owing to the prescribed effectivity of E.O. No. 44, from which such authority was derived. Needless to say, much trouble would have been saved had the PNOC been timely in seeking a compromise agreement with the BIR, and prudent enough in proposing one that had basis under law. It cannot rely upon its status as a component of the government as basis for relief.

We should not discount the damage inflicted by the void compromise agreement on the informer, Tirso Savellano. The financial remuneration to be obtained by the informer is designed to alleviate whatever socio-political stigma that may attach as a result of the information that is divulged. The informer's right is predicated on the amount actually paid, and if the amount paid is less than what is due as a result of an unauthorized compromise, then the informer indubitably has an interest to assail the said compromise.

Finally, the dissent raises the argument that prescription had run to bar the annulment of the compromise agreement. Notably, this issue was not raised before any of the fora involved, by the Court of Tax Appeals, the Court of Appeals, or this Court. Neither was it discussed in any of the assailed rulings.

The proper taxes due in this case have actually been paid to the government. Petitioners unfortunately seek the refund of what has been already collected, despite the fact that they have all along conceded, not denying at all, the basis for their tax liability. The Court should not be privy to the divestiture of the huge tax payment already remitted to the cash-strapped government if there is no unequivocal basis for the return thereof. More so, should it not be a party to the forfeiture of the informer's reward to which the private respondent has a vested right as a matter of law and equity.

I vote to DENY the petitions.

Endnotes:

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¹ Revenue Memorandum Circular No. 31-86, 12 September 1986: x x x [U]nder Executive Order No. 44, the Commissioner of Internal Revenue or his duly authorized representatives shall accept compromise payments by taxpayers with outstanding delinquent accounts and disputed assessments (except withholding taxes whether final or creditable) pending as of December 31, 1985.

² Revenue Regulation No. 17-86, 08 October1986:ςηαñrοblεš �νιr†υαl �lαω �lιbrαrÿ

SECTION 2. Definition of terms. 'In applying the provisions of these regulations the following terms shall have the meaning indicated below:

a) Delinquent account ' Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who failed to pay the same within the time prescribed for its payment arising from (1) a self assessed tax, whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has become final and executory.

Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such return was due, and in availing of the compromise, a tax return shall be filed as a basis for computing the amount of compromise to be paid. x x x

SECTION 3. Who may avail. 'Any person, natural or juridical, may settle thru a compromise, any delinquent account or disputed assessment which has been due as of December 31, 1985, by paying an amount equal to thirty (30%) per cent of the basic tax assessed.

³ Revenue Memorandum Order No. 39-86, 18 November 1986:ςηαñrοblεš �νιr†υαl �lαω �lιbrαrÿ

Par. 2. Period for availment. - Filing of application for compromise settlement under the said law shall be effective only until March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of the compromise amount shall be made after the said date, subject, however, to the provisions of Executive Order No. 44 and its implementing Revenue Regulations No. 17-86.

⁴ E.O. No. 44, s. 1986, second whereas clause.

⁵ E.O. No. 44, s. 1986, first whereas clause.

⁶ Excluding interest and surcharges as of 31 July 1986.

⁷ Rollo, p. 19.

⁸ Article 1232, Civil Code.

⁹ Article 1231, Civil Code.

¹⁰ See Article 1278, Civil Code.

¹¹ See Article 1275, Civil Code, in relation to 1231(5), Civil Code.

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