THIRD DIVISION

[G.R. Nos. 118498 & 124377. October 12, 1999]

FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner vs. COURT

OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.

SYNOPSIS

Filipinas Synthetic Fiber Corporation received from the Commissioner of Internal

Revenue a deficiency withholding tax assessment consisting of interest and
compromise penalties for alleged late payment of withholding taxes due on interest
loan, royalties and guarantee fees paid by the petitioner to non-resident corporations.
The petitioner, through its auditor, SGV and Company, seasonably protested the
assessment. Petitioner brought a Petition for Review before the Court of Appeals. The
said court came out with its decision ruling that petitioner should pay respondent the
deficiency withholding tax plus surcharge and interest. With the denial of its motion
for reconsideration, petitioner appealed the CTA disposition to the Court of Appeals,
which affirmed in toto the appealed decision. Dissatisfied therewith, petitioner found
its way to this Court via the present petition. The pivot of inquiry here is whether the
liability to withhold tax at source on income payments to non-resident foreign
corporations arises upon remittance of the amounts due to the foreign creditors or
upon accrual thereof.

The Supreme Court ruled that after a careful examination of pertinent records, the
Court concurred in the findings of the Court of Appeals. Petitioner cannot claim that
there was no duty to withhold and remit income taxes because the loan contract was
not yet due and demandable. Having written-off the amounts as business expense in
its books, it had taken advantage of the benefits provided in the law allowing for the
deductions from gross income. The decision of the Court of Appeals was affirmed in
toto.

SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; INCOME TAX; WITHHOLDING TAX AT
SOURCE; NATURE THEREOF.- The method of withholding tax at source is a procedure of collecting
income tax sanctioned by the National Internal Revenue Code. Section 53 (c) of which, provides: Return and
Payment - Every person required to deduct and withhold any tax under this section shall make return thereof, x
x x for the payment of the tax, shall pay the amount withheld to the officer of the Government of the
Philippines authorized to receive it. Every such person is made personally liable for such tax, and is
indemnified against the claims and demands of any person for the amount of any payments made in accordance
with the provision of this section. In the aforecited provision of law, the withholding agent is explicitly made
personally liable for the income tax withheld under Section 54. In Phil. Guaranty Co., Inc. vs. Commissioner
of Internal Revenue, (15 SCRA 1) the Court, has ratiocinated: The law sets no condition for the personal
liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax
under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof
is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is
constituted the agent both the government and the taxpayer. With respect to the collection and/or withholding
of the tax, he is the Governments agent. In regard to the filing of the necessary income tax return and the
payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no
ordinary government agent especially because under Section 53(c) he is held personally liable for the tax he is
duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable
to law.

2. ID.; ID.; ID.; INCLUSION/EXCLUSION FROM GROSS INCOME; ACCRUAL METHOD OF

ACCOUNTING, CONSTRUED. - On the other hand, under the accrual basis method of accounting, income
is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the
amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual
receipt, that determines when to include the amount in gross income. Gleanable from this notion are the
following requisites of accrual method of accounting, to wit: (1) that the right to receive the amount must be
valid, unconditional and enforceable, i.e., not contingent upon future time; (2) the amount must be reasonably
susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount will be paid in
due course.

DECISION

PURISIMA, J.:

Before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of
the Revised Rules of Court seeking to set aside the Decisions of the Court of Appeals in CA-GR.
SP Nos. 32922[1] and 32022.[2]

In G.R. No. 118498, the Court of Appeals culled the antecedent facts that matter as follows:

The basic operative facts are not in dispute, to wit: Filipinas Synthetic Fiber
Corporation , a domestic corporation received on December 27, 1979 a letter of
demand ... from the Commissioner of Internal Revenue ... assessing it for deficiency
withholding tax at source in the total amount of P829,748.77, inclusive of interest and
compromise penalties, for the period from the fourth quarter of 1974 to the fourth
quarter of 1975. The bulk of the deficiency withholding tax assessment, however,
consisted of interest and compromise penalties for alleged late payment of
withholding taxes due on interest loans, royalties and guarantee fees paid by the
petitioner to non-resident corporations. The assessment was seasonably protested by
the petitioner through its auditor, SGV and Company.Respondent denied the protest in
a letter dated 14 May 1985 ... on the following ground: For Philippine internal
revenue tax purposes, the liability to withhold and pay income tax withheld at source
from certain payments due to a foreign corporation is at the time of accrual and not at
the time of actual payment or remittance thereof, citing BIR Ruling No. 71-003 and
BIR Ruling No. 24-71-003-154-84 dated 12 September 1984 as well as the decision of
the Court of Tax Appeals ... in CTA Case No. 3307 entitled Construction Resources of
Asia, Inc., versus Commissioner of Internal Revenue. The aforementioned case held
that the liability of the taxpayer to withhold and pay the income tax withheld at source
from certain payments due to a non-resident foreign corporation attaches at the time
of accrual payment or remittance thereof and the withholding agent/corporation is
obliged to remit the tax to the government since it already and properly belongs to the
government. Since the taxpayer failed to pay the withholding tax on interest, royalties,
and guarantee fee at the time of their accrual and in the books of the corporation the
aforesaid assessment is therefore legal and proper.

On June 28, 1985, petitioner brought a Petition for Review [3] before the Court of Tax
Appeals, docketed as CTA Case No. 3951. On June 15, 1993, the said court came out with its
Decision, ruling thus:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering petitioner to

pay respondent the amount of P306,165.35 as deficiency withholding tax at source for
the fourth quarter of 1974 to the third quarter of 1975 plus 10% surcharge and 14%
annual interest from November 29, 1979 to July 31, 1980, plus 20% interest from
August 1, 1980 until fully paid but not to exceed that which corresponds to a period of
three (3) years pursuant to P.D. No. 1705.

SO ORDERED.

With the denial of its motion for reconsideration, petitioner appealed the CTA disposition to
the Court of Appeals, which affirmed in toto the appealed decision.
 Dissatisfied therewith, petitioner found its way to this Court via the present Petition;
contending that:

THE CA ERRED IN HOLDING THAT FILSYNS LIABILITY TO WITHHOLD

THE INCOME TAX FOR INTEREST, ROYALTIES AND DIVIDENDS, WHICH
WERE PAYABLE TO NON-RESIDENT FOREIGN CORPORATIONS, ATTACHED
UPON SETTING-UP OR ACCRUAL OF THESE AMOUNTS RATHER THAN
WHEN SAID AMOUNTS BECOME DUE AND DEMANDABLE UNDER THE
APPLICABLE CONTRACTS.

In G.R. No. 124377, what is being questioned by petitioner is the assessed deficiency
withholding tax at source for the period from the fourth quarter of 1975 to the fourth
quarter of 1976 amounting to P379,700.68.

The pivot of inquiry here is - whether the liability to withhold tax at source on income
payments to non-resident foreign corporations arises upon remittance of the amounts due to the
foreign creditors or upon accrual thereof.

It is petitioners submission that the withholding taxes on the said interest income and
royalties were paid to the government when the subject interest and royalties were actually
remitted abroad. Stated otherwise, whatever amount has accrued in the books, the withholding
tax due thereon is ultimately paid to the government upon remittance abroad of the amount
accrued.

Section 53 of the National Internal Revenue Code, in force at that time (1975), reads:

Withholding Tax at source ...

xxx

(b) Non-resident aliens and foreign corporations - Every individual, corporation,

partnership, or association, in whatever capacity acting, including a lessee or
mortgagor of real or personal property, trustee acting in any trust capacity, executor,
administrator, receiver, conservator, fiduciary, employer, and every officer or
employee of the Government of the Republic of the Philippines having the control,
receipt, custody, disposal, or payment of interest, dividends, rents, royalties, salaries,
wages, premiums, annuities, compensation, remunerations, emoluments, or other
fixed or determinable annual, periodical, or casual gains, profits, and income, and
capital gains, of any non-resident alien not engaged in trade or business within the
Philippines, shall (except in the case provided in sub-section (a) (1) of this Section)
deduct and withhold from the annual, periodical, or casual gains, profits, and income,
and capital gains, a tax equal to 30 per cent thereof.

xxx

(2) Non-resident foreign corporations - In the case of foreign corporations subject to

tax under this Title, not engaged in trade or business within the Philippines, there shall
be deducted and withheld at the source in the same manner and upon the same items
as is provided in subsection (b) (1) of this section, as well as on remunerations for
technical services or otherwise, a tax equal to thirty-five (35) per cent thereof. This tax
shall be returned and paid in and subject to the same conditions as provided in Section
54.

On the other hand, Section 54 of the same law, provides:

Returns and payments of taxes withheld at source -

(a) Quarterly return and payment of taxes withheld - Taxes deducted and withheld
under Section 53 shall be covered by a return and paid to the Commissioner of
Internal Revenue or his collection agent in the province, city, or municipality where
the withholding agent has his legal residence or principal place of business, or where
the withholding agent is a corporation, where the principal office is located. The taxes
deducted and withheld by the withholding agent shall be held as a special fund in trust
for the Government until paid to the collecting officers. The Commissioner of Internal
Revenue may, with the approval of the Secretary of Finance, require these
withholding agents to pay or deposit the taxes deducted and withheld at more frequent
intervals when necessary to protect the interest of the Government. The return shall be
filed and the payment made within 25 days from the close of each calendar quarter ...

The aforecited provisions of law are silent as to when does the duty to withhold the taxes
arise. And to determine the same, an inquiry as to the nature of accrual method of
accounting, the procedure used by the herein petitioner, and to the modus
vivendi of withholding tax at source come to the fore.

The method of withholding tax at source is a procedure of collecting income tax

sanctioned by the National Internal Revenue Code. Section 53 (c) of which, provides:
Return and Payment - Every person required to deduct and withhold any tax under
this section shall make return thereof, ... for the payment of the tax, shall pay the
amount withheld to the officer of the Government of the Philippines authorized to
receive it. Every such person is made personally liable for such tax, and is
indemnified against the claims and demands of any person for the amount of any
payments made in accordance with the provision of this section.

In the aforecited provision of law, the withholding agent is explicitly made personally liable
for the income tax withheld under Section 54. In Phil. Guaranty Co., Inc. vs. Commissioner of
Internal Revenue,[4] the Court, has ratiocinated:

The law sets no condition for the personal liability of the withholding agent to
attach. The reason is to compel the withholding agent to withhold the tax under all
circumstances. In effect, the responsibility for the collection of the tax as well as the
payment thereof is concentrated upon the person over whom the Government has
jurisdiction. Thus, the withholding agent is constituted the agent both the government
and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
Governments agent. In regard to the filing of the necessary income tax return and the
payment of the tax to the Government, he is the agent of the taxpayer. The
withholding agent, therefore, is no ordinary government agent especially because
under Section 53 (c) he is held personally liable for the tax he is duty bound to
withhold; whereas, the Commissioner of Internal Revenue and his deputies are not
made liable to law.

On the other hand, under the accrual basis method of accounting, income is reportable when
all the events have occurred that fix the taxpayers right to receive the income, and the amount
can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the
actual receipt, that determines when to include the amount in gross income.[5] Gleanable from
this notion are the following requisites of accrual method of accounting, to wit: (1) that the right
to receive the amount must be valid, unconditional and enforceable, i.e., not contingent upon
future time; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there
must be a reasonable expectation that the amount will be paid in due course.[6]

In the case at bar, after a careful examination of pertinent records, the Court concurred in the
finding by the Court of Appeals in CA GR. SP No. 32922 that there was a definite liability, a
clear and imminent certainty that at the maturity of the loan contracts, the foreign corporation
was going to earn income in an ascertained amount, so much so that petitioner already deducted
as business expense the said amount as interests due to the foreign corporation. This is allowed
under the law, petitioner having adopted the accrual method of accounting in reporting its
incomes.

All things studiedly considered, the Court is of the opinion, and holds, that the Court of
Appeals erred not in ruling that:

x x x Petitioner cannot now claim that there is no duty to withhold and remit income
taxes as yet because the loan contract was not yet due and demandable.Having
written-off the amounts as business expense in its books, it had taken advantage of the
benefit provided in the law allowing for deductions from gross income. Moreover, it
had represented to the BIR that the amounts so deducted were incurred as a business
expense in the form of interest and royalties paid to the foreign corporations. It is
estopped from claiming otherwise now.[7]

WHEREFORE, the decisions of the Court of Appeals in CA GR. SP Nos. 32922 and 32022
are hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.