REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

PRODUCERS BANK OF THE

PHILIPPINES
Petitioner,

-versus- C.T.A. CASE NO. 4819

COMMISSIONER OF INTERNAL Promulgated:

REVENUE,
Respondent.
NOV 14 1997%,

x-----------------------------------------------x
DECISION

This is a petition seeking to annul the alleged deficiency expanded

withholding tax assessments for 1982 issued by the respondent against the

petitioner for P387,726.87 (FAS-5-82-87-005030) and/or P412,992.42 (FAS-1-4-

82-90-003637) and to discharge the surety bond posted by the petitioner for the

lifting and cancellation of the warrant of distraint and levy on. petitioner's deposits

with the Bangko Sentral ng Pilipinas.

The antecedent facts of the case are as follows.

Petitioner is a commercial banking corporation duly organized and existing

under and by virtue of the laws of the Philippines.

On August 7, 1987, petitioner received an assessment letter, dated July 30,

1987 (Annex "A", Petition for Review), enclosing therewith, among others,

Assessment Notice No. FAS-5-82-87-005030 (Annex "A-1", Petition for Review)

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- DECISION
CTA CASE NO. 4819

for alleged deficiency expanded withholding tax for 1982 amounting to

P387,726.87.

Petitioner protested said assessment through a letter, dated August 28,

1987 (Annex 11 8", Petition for Review), stating that said assessment was erroneous

for including taxes assessed on rental income and professional fees paid to

general professional partnerships which are exempt from expanded withholding

tax.

On January 8, 1991, petitioner again received an undated assessment

Jetter (Annex "C", Petition for Review) with Assessment Notice No. FAS-1-4-82-

90-003637 (Annex "C-1", Petition for Review) for alleged deficiency expanded

withholding tax for 1982, this time in the amount of P412,992.42.

In reply, petitioner sent a letter, dated January 28, 1991 (Annex "0'1,

informing the respondent that it reiterates its position in its protest letter filed on

August 31, 1987 with respect to respondent's earlier assessment.

On July 23, 1991, petitioner received a letter, dated July 8, 1991 (Annex

"E", Petition for Review) from respondent, offering a compromise settlement of the

said alleged tax liability.

Petitioner through a Jetter, dated September 6, 1991 (Annex ..F", Petition for

Review), offered to pay only 30% of the claimed basic tax of P144,909.62 on the

ground of petitioner's distressed financial condition and clear incapacity to pay in

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DECISION
CTA CASE NO. 4819

full the claimed deficiency tax. Respondent through a letter, dated October 23,
1991 (Annex "G", Petition for Review), denied the aforesaid offer.

In a letter dated, October 28, 1991 (Annex "H", Petition for Review),

petitioner requested for a reconsideration of the said denial and absent any reply

from the respondent, another letter, dated December 24, 1991 (Annex "I", Petition

for Review), was sent by the petitioner to the respondent increasing the offer of

compromise from 30% to 50% of the basic tax. This was followed by another
letter, dated January 8, 1992 (Annex "J", Petition for Review), detailing the

distressed financial condition of the petitioner which forced it to remain under

conservatorship.

Subsequently, on May 18, 1992, petitioner, through its then counsel, was

informed of the denial of the increased offer of compromise and was furnished a

copy of BIR Form 2309)dated February 4, 1992 (Annex "K", Petition for Review) J

wherein it was reiterated that the denial was based on the ground that there is no

clear showing of petitioner's incapacity to pay.

Thereafter, petitioner learned through the Central Bank of the Philippines

that a warrant of distraint and/or levy had been issued by the Bureau of Internal

Revenue against its deposit with the Central Bank for the enforcement of the

collection of the 1982 expanded withholding tax deficiency. Hence, on June 10,

1992, petitioner filed a Petition for Review with this Court questioning the legality
DECISION
CTA CASE NO. 4819

of the assessment and the right of the respondent to issue the aforesaid warrant

on the ground that it was untimely.

On July 16, 1992, petitioner filed a motion to suspend the collection of the

tax or lift the warrant of distraint and/or levy already issued by the respondent.
The Court resolved to grant this motion on November 4, 1992 (pp. 45-48, CTA

recs.) on the ground that:

"x x x the petitioner has been under conservatorship since

January 24, 1992 up to the present and therefore being
rehabilitated. The distraint served on its deposit with the Central
Bank, will definitely disrupt the effort of the government to
rehabilitate the bank. Furthermore, during the hearing of said
motion respondent posed no objection thereto, provided petitioner
post a bond that will guarantee the payment of the alleged deficiency
expanded withholding tax."

In her answer, respondent sets forth the following Special and Affirmative

Defenses, to wit:

5. The Honorable Court has no jurisdiction to take

cognizance of the instant case as there is yet no final decision of the
respondent that is appealable to it;

6. Per investigation conducted by the Revenue

Enforcement Officer of the respondent of petitioner's 1982 return, it
was ascertained that there were discrepancies on the rental
payments made in the amount of P2,604,806.05; Management and
other Professional fees of P276,554.34; and, Director/Committee
member fees of P224,423.40. These rental payments, professional
and management fees and director and committee member fees are
subject to expanded withholding tax pursuant to Section 53 of the
Tax Code, as amended;

7. On the aforestated rental payments, petitioner failed to

withhold under the expanded withholding tax system the 5%
withholding tax due thereon of P130,240.31, and on the fees above-
mentioned petitioner failed to withhold 10% withholding tax due

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DECISION
CTA CASE NO. 4819

thereon in the total amount of P40,097.77. Hence, petitioner wa~

assessed of P412,992.42 inclusive of interest and surcharges
.increments incident to delinquency;

8. Subject deficiency expanded withholding tax

assessment No. FAS-5-82-87-005030 dated July 30, 1987 and
FAS-1-4-87-90-003637 were issued in accordance with law and
pertinent BIR implementing rules and regulations;

9. The issuance of Warrants of Distraint and Levy and

service therefore to the Central Bank was made in accordance with
Section 302 (now 205) in relation to Section 304 and 305 (now 207)
of the 1977 Tax Code, as amended;

10. Subject expanded withholding tax assessment for

taxable year 1982 has not yet prescribed;

11. Section 318 of the Tax Code, provides:

"Section 318. Period of limitation upon

assessment and collection. - Except as provided in
the succeeding section, internal revenue taxes shall be
assessed within five years after the return was filed
and no proceeding in Court without assessment for the
collection of such taxes shall begin after the expiration
of such period. For the purposes of this Section, a
return filed before the last day prescribed for the filing
thereof shall be considered as filed on such last day:
Provided, That this limitation shall not apply to cases
already investigaled prior to the approval of this Code."
(Underscoring supplied);

12. Pursuant to Section 54(d) of the 1977 Tax Code the

law applicable in the instant case, petitioner was required to file an
annual return for creditable withholding tax not later than March 1, of
the year following the year for which annual report is submitted,
which is on March 1, 1983. The subject expanded withholding tax
assessment was issued on July 30, 1987 for taxable year 1982.
Accordingly, the subject deficiency expanded withholding tax
assessment was well within the five-year prescriptive period to
assess as provided for under Section 318 as aforecited;
DECISION
CTA CASE NO. 4819

·a
13. Section 268 of the Tax Code, as amended is not
applicable in the instant case. The cited section 268 is applicable
and/or effective commencing from taxable year 1984 and not the
period covered under review;

14. All presumptions are in favor of the correctness of the

tax assessment (Provincial Autobus Co., Inc. vs. Commissioner of
Internal Revenue, G.R. No. L-1775, July 31, 1963, 8 SCRA 527),
and the burden of proof to prove otherwise is upon petitioner.

From the following defenses, the following issues are raised before Us:

1. Whether or not this Court has jurisdiction to take cognizance

of the instant case as there is yet no final decision of the
respondent that is appealable to it;

2. Whether or not the assessment of respondent is valid;

3. Whether or not the right of respondent to assess and collect

the alleged deficiency tax has prescribed; and

4. Whether or not the petitioner has the obligation to withhold

taxes on machinery rentals;

5. Whether or not the petitioner has the obligation to withhold

taxes on professional fees paid to general professional
partnership;

6. Whether or not respondent can issue a warrant of distraint

and/or levy pending resolution on the protest filed by
petitioner.

After a thorough examination of the BIR records, evidence and pleadings of

the parties, this Court found that a discussion of each of the arguments raised by

both parties would be useless until the question of jurisdiction is foremost settled.

Determination of the case on the merits would be futile if this Court finds that We

lack the jurisdiction to entertain and take cognizance of the instant case.

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DECISION
CTA CASE N0•. 4819

We find it erroneous for the respondent to assert that this Court Jacks

jurisdiction on the ground that there is as yet no final decision appealable to Us.

In the case of Commissioner of Internal Revenue vs. Algue, Inc., 158 SCRA 9,

February 11, 1988, the Supreme Court held that:

"It_ is true that as a rule, the warrant of distraint and levy is

·proof of the finality of the assessmenf and ·renders hopeless a
request for reconsideration', being 'tantamount to·an outright denial
thereof and makes the said request deemed rejected'."
(underscoring supplied)

In the case at bar, when the Commissioner of Internal Revenue, without

categorically deciding the request for an increased offer of compromise

settlement, proceeded with the issuance of a Warrant of Garnishment (as

admitted by the respondent in her Jetter addressed to the Bangko Sentral ng

Pilipinas- p. 586, BIR records), such action may be deemed an implied denial, or

the equivalent thereof, and the taxpayer's remedy is to appeal to the Court of Tax

Appeals within 30 days from the date that he is notified thereof.

However, a close scrutiny of the Warrant of Garnishment issued by the

respondent on December 26, 1990 (BIR Recs., p. 463) revealed that it was

received by the petitioner on August 28, 1991 and counting 30 days from that

date, petitioner had until September 27, 1991 to appeal to this Court. Apparently,

the instant petition for review was belatedly filed before Us on June 10, 1992 or

more than the 30-day reglementary period to appeal.

1189
DECISION
CTA CASE NO. 4819

The pertinent provision of the Tax Code relevant to the issue at hand is

Section 229 which is quoted hereunder:

"Sec. 229. Protesting of assessment. - When the

Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings, within a period to be
prescribed by implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond,
the Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing

a request for reconsideration or reinvestigation in such form and
manner as may be prescribed by implementing regulations within
thirty (30) days from receipt of the assessment, otherwise, the
assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual,

association or corporation adversely affected by the decision on the
protest may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision. otherwise. the decision shall
become final. executory and demandable."(underscoring supplied)

And implementing the last paragraph of the foregoing provisions, Revenue

Regulations No. 12-85, November 27, 1985, provides:

"Sec. 10. Appeals of decision of Commissioner or

Regional Director to the Court of Tax Appeals - Final decision
issued by the Commissioner or Regional Director may be appealed
to the Court of Tax Appeals within thirty (30) days from receipt
thereof. otherwise the same shall become final and executory."
(underscoring supplied)

The aforementioned law and regulations clearly mandates that the

petitioner had thirty (30) days from receipt of the final decision (Warrant of

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DECISION
CTA CASE NO. 4819

Garnishment, in this case) of the respondent to appeal to this Court, otherwise, the

decision shall become final and executory.

In the case of Surigao Electric Co., Inc. vs. Court of Tax Appeals, 57

SCRA 523, the Honorable Supreme Court, held:

"The thirty-day period prescribed by Section 11 of Republic

Act 1125 •. as amended, within which a taxpayer adversely affected
by a decision of the Commissioner of Internal Revenue should file
his appeal with the tax court, is a jurisdictional requirement, and the
failure of a taxpayer to lodge his appeal within the prescribed period
bars his appeal and renders the questioned decision final and
executory.

Jurisdiction over the subject matter is fundamental for a court

to acton a given controversy. It is conferred by law, not by consent
of the parties. It can be challenged at any stage of the proceedings
and for lack of it, a court can dismiss a case ex mero motu
(Commissioner of Internal Revenue vs. Villa, 22 SCRA 3)."

In the case of Sembrano vs. Ramirez, 166 SCRA 30, the Supreme Court

ruled:

"The perfection of an appeal within the statutory or

reglementary period is mandatory and jurisdictional and the failure
thereof renders final and executory the questioned decision and
deprives the appellate court of jurisdiction to entertain the appeal."

The decision of the Commissioner of Internal Revenue having become

final, executory and demandable due to the failure of the petitioner to appeal

before this Court within the 30-day period required by law, this Court has no

jurisdiction to entertain the petition for review.

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DECISION·
CTA CASE NO. 4819

10

WHEREFORE, in view of all the foregoing, the petition of Producers Bank

of the Philippines is hereby DISMISSED for lack of jurisdiction. No

pronouncements as to costs.

SO ORDERED.
I
rtN-' tJ.)I
·RAMON 0. DE VEV:
Associate Judg

WE CONCUR:
(
~lQ.~
ERNESTO D. ACOSTA
Presiding Judge

CERTIFICATION

I hereby certify that the above decision was reached after due consultation

with the members of the Court of Tax Appeals in accordance with Section 13,

Article VIII of the Constitution.

~-Q~~
ERNESTO D. ACOSTA
Presiding Judge

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