Protector's Services v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Protector's Services, Inc. (PSI), a contractor recruiting security guards for clients, was assessed by the Bureau of Internal Revenue (BIR) for deficiency percentage taxes, surcharges, penalties, and interests for the years 1983, 1984, and 1985. The core of the dispute centers on whether the salaries of the security guards and the employer's contributions to SSS, SIF, and Medicare should be excluded from PSI's taxable gross receipts. PSI contended that these amounts were earmarked for other entities and did not represent its own benefit, thus should not be subject to percentage tax. Procedural History: The BIR sent demand letters for the assessed taxes in December 1987. PSI protested the 1983 and 1984 assessments in January 1988, arguing for the exclusion of guard salaries and contributions from taxable receipts. After the BIR issued a follow-up letter and PSI paid some additional taxes, it filed a second protest in July 1988, including its objection to the 1985 assessment. The BIR denied these protests in November 1990. PSI then filed a petition for review with the Court of Tax Appeals (CTA), raising several issues including jurisdiction, prescription of assessment and collection periods, and the correctness of the assessments. The CTA dismissed the petition for lack of jurisdiction, finding that PSI's protest was filed out of time. The Court of Appeals affirmed the CTA's decision. This led to the present petition before the Supreme Court. The Petition: PSI seeks review of the Court of Appeals' decision, raising issues concerning the jurisdiction of the CTA, whether the assessments and collection of taxes for 1983, 1984, and 1985 had prescribed, and the correctness of the tax assessments. PSI argues that the assessments became final only upon the Commissioner's denial of its protest, thus giving the CTA jurisdiction. It also contends that the prescriptive periods for assessment and collection had lapsed, particularly for the 1985 assessment due to alleged non-receipt of the notice. Furthermore, PSI maintains that the inclusion of security guard salaries and employer contributions in its taxable gross receipts was erroneous. The petition is filed under Rule 45 of the Rules of Court.
Issue(s)
Whether the Court of Tax Appeals had jurisdiction to act on the petition for review. Whether the assessments for deficiency percentage tax for taxable years 1983 and 1984 were made after the lapse of the prescriptive period. Whether the period for the collection of taxes for taxable years 1983, 1984, and 1985 had prescribed. Whether the assessments are correct.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, upholding the dismissal of the petition by the Court of Tax Appeals. The assessments were deemed final and unappealable.
Ratio Decidendi
On the jurisdiction of the CTA: The Court held that the CTA correctly dismissed the petition for lack of jurisdiction. Section 270 of the National Internal Revenue Code of 1977 mandates that an assessment becomes final and unappealable if the taxpayer fails to protest it within thirty (30) days from receipt. In this case, PSI received the assessment notices on December 10, 1987. Its protest letter dated January 2, 1988, was filed on January 12, 1988, which is thirty-three days after receipt of the assessment. This delay rendered the assessment final and unappealable, thus divesting the CTA of its jurisdiction to review the case. The BIR's denial of the protest on November 9, 1990, did not revive the CTA's jurisdiction, as the assessment was already final prior to this denial. On the prescription of assessment for 1983, 1984, and 1985: The Court found no merit in PSI's claim that the government's right to assess had prescribed. For the year 1983, the assessment made on December 10, 1987, was still covered by the five-year prescriptive period, as Batas Pambansa (BP) Blg. 700, which reduced the period to three years, applied to taxable years beginning January 1, 1984, and assessments made on or after April 5, 1984. The three-year period for 1984 assessments commenced from the filing of the final annual percentage tax return, not from quarterly payments, as per established jurisprudence. Regarding the 1985 assessment, the Court upheld the factual finding of the CTA that PSI received the assessment letter, as it was mailed together with the 1983 and 1984 notices in one envelope via registered mail. PSI's denial of receipt was thus negated by the presumption of receipt in the ordinary course of mail, and its failure to protest within the reglementary period made the assessment final. On the prescription of collection: The Court ruled that the government's right to collect the taxes had not prescribed. PSI's filing of a petition before the CTA and its subsequent appeal to the Supreme Court suspended the running of the statute of limitations for collection. As held in Republic of the Philippines v. Ker and Company, Ltd., the pendency of a taxpayer's appeal effectively stays the hands of the Commissioner of Internal Revenue from initiating collection proceedings, and this period of suspension, plus sixty days thereafter, does not count towards the prescriptive period for collection. On the correctness of the assessments: The Court affirmed the BIR's inclusion of security guard salaries and employer contributions in the taxable gross receipts. Citing Section 191 of the Tax Code (now renumbered) and BIR rulings, the Court explained that contractor's tax is imposed on the sale of services or labor, and "gross receipts" include all amounts received by the contractor, undiminished by payments to employees or contributions. The salaries paid to security guards are considered the liability of the agency, and the guards are their employees; thus, these salaries form part of the agency's taxable gross receipts. The Court gave weight to consistent BIR rulings and jurisprudence on this matter, finding no compelling reason to deviate.
Main Doctrine
The period for protesting an assessment under Section 270 of the National Internal Revenue Code of 1977 is strictly thirty (30) days from receipt of the assessment; failure to protest within this period renders the assessment final and unappealable, divesting the Court of Tax Appeals of jurisdiction. The three-year prescriptive period for assessment under Batas Pambansa Blg. 700 applies to taxable years beginning January 1, 1984, and for assessment made on or after April 5, 1984. The prescriptive period for collection is suspended during the pendency of appeals filed by the taxpayer.