Edison v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Edison (Bataan) Cogeneration Corporation (EBCC) was assessed by the Commissioner of Internal Revenue (CIR) for deficiency income tax, Value Added Tax (VAT), withholding tax on compensation, Expanded Withholding Tax (EWT), and Final Withholding Tax (FWT) for the taxable year 2000, totaling P84,868,390.16. EBCC protested the assessment and subsequently filed a Petition for Review with the Court of Tax Appeals (CTA) due to the CIR's inaction. During the pendency of the case, EBCC availed itself of the Tax Amnesty Program under Republic Act No. 9480, leading to the partial withdrawal and termination of the case concerning deficiency income tax and VAT. Procedural History: The CTA Second Division, after EBCC's availment of the tax amnesty, issued a resolution setting aside the assessments for deficiency income tax and VAT. Subsequently, the CTA Former Second Division rendered a decision partly granting EBCC's petition, cancelling the assessments for deficiency EWT and withholding tax on compensation, but affirming EBCC's liability for a reduced amount of deficiency FWT. Both parties appealed to the CTA En Banc. The CTA En Banc denied both appeals, sustaining the findings of the Former Second Division regarding the FWT assessment on interest payments from Ogden and the lack of sufficient evidence for remittances on syndicated loans. The CIR and EBCC then filed consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court. The Petition: These consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assail the January 30, 2012 Decision and April 17, 2012 Resolution of the CTA En Banc. The core issues revolve around whether the CIR made a judicial admission regarding EBCC's FWT remittance and whether EBCC is liable for deficiency FWT on interest payments from its loan with Ogden, considering the timing of when the obligation became due and demandable. The CIR argues that EBCC failed to prove payment and seeks retroactive application of Revenue Regulation No. 12-01, while EBCC contends it had no withholding obligation for the year 2000 and that the CIR's arguments raise factual issues improper for a Rule 45 petition.
Issue(s)
Whether the CTA En Banc erred in not recognizing the CIR's alleged judicial admission that she reduced her assessment for deficiency FWT for taxable year 2000. Whether EBCC is raising a question of fact before the Supreme Court. Whether EBCC is liable for deficiency final withholding tax for the year 2000. Whether Revenue Regulation No. 12-01 should be applied retroactively in this case.
Ruling
The Supreme Court denied the consolidated Petitions for Review on Certiorari, affirming the Decision and Resolution of the Court of Tax Appeals En Banc. The Court found no error in the CTA's rulings regarding EBCC's liability for deficiency final withholding tax.
Ratio Decidendi
On the alleged judicial admission: The Court held that the CIR made no judicial admission that EBCC remitted ₱2,842,630.20 as payment for its FWT for 2000. The alleged remittance was based on a Memorandum Report prepared by revenue officers prior to EBCC's petition before the CTA, and was not mentioned in the Joint Stipulations of Facts and Issues or the CIR's Answer. The CTA Former Second Division had already explained that the assessment was not outrightly deducted but was subject to examination of supporting documents. Out of the ₱2,520,117.76 deficiency FWT assessment on interest paid on syndicated loans in US Dollars, EBCC only substantiated FWT remittance in the total amount of ₱734,400.23, thus finding EBCC liable for a basic deficiency FWT of ₱1,785,717.53. The burden of proof to impugn the validity and correctness of a deficiency tax assessment lies with the taxpayer, and the person alleging payment bears the burden of proving it. On whether EBCC is raising a question of fact: The Court noted that EBCC's contention regarding the CIR's alleged judicial admission and the CIR's claim that EBCC omitted material facts or acted in bad faith are factual issues. However, the Court proceeded to rule on the merits of the case, implicitly finding that the issues presented, while touching on factual matters, were intertwined with legal questions that could be addressed. On EBCC's liability for deficiency final withholding tax for the year 2000: The Court affirmed the CTA En Banc's ruling that EBCC was not liable for deficiency FWT on interest payments arising from its loan with Ogden Power International Holdings, Inc. (Ogden) for taxable year 2000. This is because, according to Section 2.57.4 of Revenue Regulations No. 2-98, the obligation to withhold arises when income is paid or payable, and 'payable' refers to the date the obligation becomes due, demandable, or legally enforceable. The loan agreement clearly indicated that EBCC's liability for interest payment became due and demandable starting June 1, 2002. Therefore, the obligation to withhold only commenced on June 1, 2002, which was after the taxable year 2000, thus cancelling the assessment for deficiency FWT on these interest payments. On the retroactive application of RR No. 12-01: The Court found no reason for the retroactive application of RR No. 12-01. Firstly, this issue was never raised before the CTA, and issues not raised below cannot be pleaded for the first time on appeal. Secondly, allowing retroactive application would be a violation of due process. The Court also noted that even if the first payment were due on January 4, 2001, as claimed by the CIR, EBCC would still not be liable as the tax assessment pertained to taxable year 2000 and not 2001.
Main Doctrine
The Court affirmed the CTA En Banc's ruling that Edison (Bataan) Cogeneration Corporation (EBCC) was not liable for deficiency Final Withholding Tax (FWT) on interest payments arising from its loan with Ogden Power International Holdings, Inc. (Ogden) for taxable year 2000, as the obligation to withhold only commenced on June 1, 2002, which is after the taxable year in question. The Court also held that EBCC failed to substantiate its claim of remittance for FWT on interest payments on syndicated loans, thus upholding the deficiency assessment for that portion. Furthermore, the Court reiterated that issues not raised before the CTA cannot be raised for the first time on appeal, and that factual issues are generally not allowed in a Petition for Review on Certiorari under Rule 45.