Commissioner of Internal Revenue v. La Flor dela Isabela, Inc.
REITERATIONFacts
The Antecedents: Respondent La Flor dela Isabela, Inc. (La Flor) filed monthly returns for Expanded Withholding Tax (EWT) and Withholding Tax on Compensation (WTC) for calendar year 2005. La Flor executed three Waivers of the Statute of Limitations: September 3, 2008, February 16, 2009, and December 2, 2009. On November 20, 2009, La Flor received a Preliminary Assessment Notice for deficiency taxes for 2005. On January 7, 2010, La Flor received Formal Letters of Demand and Final Assessment Notices (FANs) dated December 17, 2009, for deficiency EWT and WTC, and penalties for late filing and payment for the taxable year 2005, totaling P6,835,994.76. Procedural History: La Flor protested the assessments. The Commissioner of Internal Revenue (CIR) issued a Final Decision on Disputed Assessment (FDDA). La Flor filed a petition for review before the Court of Tax Appeals (CTA) Third Division. The CTA Division ruled in favor of La Flor, cancelling the assessments, holding that they were barred by prescription and that the Waivers were invalid. The CIR's motion for reconsideration was denied. The CIR filed a Petition for Review before the CTA En Banc, which affirmed the CTA Division's decision. The CIR's motion for reconsideration was denied. Hence, the present petition for review on certiorari. The Petition: The CIR seeks to reverse the CTA En Banc's decision, arguing that Section 203 of the NIRC does not apply to withholding tax assessments, which it claims are penalties, and that even if it did, the assessments had not prescribed due to the valid Waivers. La Flor countered that the CIR's petition had procedural infirmities and that the assessments were indeed barred by prescription.
Issue(s)
WHETHER THE PRESCRIPTIVE PERIOD UNDER SECTION 203 OF THE NIRC APPLIES TO EWT AND WTC ASSESSMENTS; WHETHER LA FLOR'S EWT AND WTC ASSESSMENTS FOR 2005 WERE BARRED BY PRESCRIPTION.
Ruling
The petition is DENIED. The September 30, 2013 Decision and the February 10, 2014 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 951 are AFFIRMED.
Ratio Decidendi
On the applicability of Section 203 of the NIRC to EWT and WTC assessments: The Court held that withholding taxes are internal revenue taxes covered by Section 203 of the NIRC, which provides the ordinary prescriptive period for assessment and collection. The Court clarified that while withholding agents act as government agents for tax collection, the assessments for deficiency withholding taxes are not merely penalties but are deficiency internal revenue taxes aimed at collecting unpaid income taxes. The Court distinguished between deficiency tax assessments and penalties for failure to withhold, citing provisions of the NIRC that treat them as separate liabilities. The Court emphasized that the liability of the withholding agent is direct and independent, making them personally liable for the correct amount of tax that should have been withheld, and thus subject to deficiency assessments. The Court rejected the CIR's novel theory that Section 203 is inapplicable, citing jurisprudence that explains the withholding tax system and the nature of the liabilities arising from it. The Court noted that the "penalty" language in some cases referred to the dynamics of the system and not to the classification of the assessment itself. On whether La Flor's EWT and WTC assessments for 2005 were barred by prescription: The Court affirmed the CTA's finding that the assessments were barred by prescription because the Waivers executed by La Flor did not effectively extend the prescriptive period. The Court reiterated that waivers must strictly comply with Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) 05-01, which require specifying the nature and amount of the tax due. The Court found that the Waivers dated September 3, 2008, February 16, 2009, and December 2, 2009, failed to indicate the specific tax involved and the exact amount of the tax to be assessed or collected. Consequently, these Waivers were considered invalid and did not extend the prescriptive period under Section 203 of the NIRC. The Court found it immaterial whether the CTA correctly admitted them as evidence, as their invalidity would lead to the same conclusion: the assessments had prescribed.
Main Doctrine
Withholding taxes are internal revenue taxes covered by Section 203 of the National Internal Revenue Code (NIRC), and the prescriptive period for assessment applies. Waivers of the statute of limitations must strictly comply with Revenue Memorandum Order (RMO) No. 20-90, including specifying the nature and amount of the tax, to be valid.