FSM Cinema Inc

FSM Cinema Inc. vs.
CIR
FACTS: On August 22, 2002, respondent received BIR Form No. 1920 (Audit
Notice) dated August 2, 2002, with OCN 9AN0000004800, issued by Makati
Revenue Regional Office,
authorizing the examination of its books of account and accounting records for
all internal revenue taxes for the period January 1 to December 31, 2000.
On January 3, 2006, respondent received the Formal Assessment Notices

(FANs) Nos. IT -4800-00-05-0452,3 2 VT -4800-00-05-0452 ,4 WE-4800-00-
05-0452 ‘ 5 WF-4800-00- 05-04526 , all dated December 23, 2005 at its
business address at the 4th level, Festival Supermall, Inc. Filinvest Corporate
City, Alabang, City of Muntinlupa, indicating that it has deficiency income tax,
value added tax, expanded and final withholding tax in the total amount of
P66,882,432. 937. On January 23, 2006, respondent filed a protest / against
such assessments. On October 2, 2006, respondent filed with the Court in
Division a Petition for Review8 grounded on alleged inaction on the part of
petitioner and praying for the cancellation and termination of the assessments
issued by petitioner for deficiency IT, VAT, EWT and FWT, in the total amount
of P66,952,432.93 for taxable year ending December 2000, docketed as CTA
Case No. 7525.
On December 12, 2005, petitioner filed her Answer9 with special and
affirmative defenses. On August 13, 2008, respondent filed a Motion to
Declare the Alleged Deficiency Income Tax and Value-Added Tax
Assessments Extinguished under Republic Act (R.A.) No. 948010 , due to its
alleged availment of the benefits under the Tax Amnesty Law, otherwise
known as R.A. No. 9480.In the Resolutions dated October 9, 200811 and
January 26, 200912, the Court treated the incident as a motion to withdraw
the Petition for Review insofar as the assessments covered by the tax
amnesty. On May 25, 2012, the Court in Division dismissed the Petition for
Review for lack of jurisdiction13. Aggrieved, respondent timely moved for
partial reconsideration 14, which was granted in the assailed Amended
Decision15 of July 4, 2013.
ISSUES:
A.) WON THE ALLEGED DEFICIENCY INCOME TAX HAS PRESCRIBED.
B.) WON THE DIVIDENDS ISSUED ON ANOTHER DOMESTIC

CORPORATION IS EXEMPT FROM TAX.
HELD:
A.) YES. A review of the record reveals that petitioner received the FAN No.
WE-4800-00-05-0452 dated December 23, 2005 on January 2, 2006. Hence,
the assessment for deficiency expanded withholding tax was made beyond
the 3-year prescriptive period provided by law, therefore, it is void. However,
to justify its belated assessment petitioner argues that respondent’s expanded
withholding tax returns filed for the period January to December 31, 2000
were false returns, hence, the 10-year prescriptive period under Section 222
(a) of the NIRC of 1997 applies. The Court En Bane is not persuaded. As
observed by the Court in Division, petitioner raised the issue of the
applicability of the 10-year prescriptive period due to petitioner’s alleged filing
of a false return only in her Motion for Reconsideration to the Amended
Decision of July 4, 2013.
Well-settled is the rule that issues not raised during trial cannot be raised for
the first time on appeal, more especially in a motion for reconsideration. The
Supreme Court, in cases more than one, had consistently ruled that no
question will be entertained on
appeal unless it has been raised in the proceedings below. Points of law,
theories, issues and arguments not brought to the attention of the lower court,
administrative agency or
quasi-judicial body, need not be considered by the viewing court, as they

cannot be raised for the first time at that late stage. Basic considerations of
fairness and due process impel this rule. Any issue raised for the first time on
appeal is barred by estoppel. “
B.) YES. Anent the deficiency assessment for final withholding tax issued by
petitioner against respondent, again, the Court En Bane agrees with the
findings of the Court in Division that the cash dividends issued by respondent
to another domestic corporation is exempt from payment of tax as provided
under Section 27(0)(4) of the NIRC of 1997.
The purpose of the dividend exclusion is that it is a device for reducing extra
or
double taxation of distributed earnings. Since a corporation cannot deduct

from its gross
income the amount of dividends distributed to its shareholders during the

taxable year,
any distributed earnings are necessarily taxed twice, initially, at the corporate
level
when they are included in the corporation’s taxable income, and again, at the
corporation-shareholder level when they are received as dividend. Thus,
without
exclusion, the successive taxation of the dividend as it passes from

corporation to
corporation would result in repeated taxation of the same income and would
leave very
little for the ultimate shareholder. Thus, subjecting petitioner to deficiency final
withholding tax will defeat the purpose of Section 27 (D) ( 4) of the National
Internal

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FSM Cinema Inc. vs.

On January 3, 2006, respondent received the Formal Assessment Notices

B.) WON THE DIVIDENDS ISSUED ON ANOTHER DOMESTIC

quasi-judicial body, need not be considered by the viewing court, as they

double taxation of distributed earnings. Since a corporation cannot deduct

income the amount of dividends distributed to its shareholders during the

exclusion, the successive taxation of the dividend as it passes from

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