Philippine National Oil Company v. Commissioner of Internal Revenue
MODIFICATIONFacts
The Antecedents: Private respondent Tirso B. Savellano informed the Bureau of Internal Revenue (BIR) that the Philippine National Bank (PNB) had failed to withhold the 15% final tax on interest earnings from money placements of the Philippine National Oil Company (PNOC), in violation of Presidential Decree (P.D.) No. 1931 which withdrew tax exemptions for government-owned and controlled corporations (GOCCs). The BIR subsequently assessed PNOC and PNB for a total tax liability of P385,961,580.82. Procedural History: PNOC offered to compromise its tax liability under Executive Order (E.O.) No. 44. Then-BIR Commissioner Bienvenido A. Tan accepted the compromise, and a total of P93,955,479.12 was paid. Savellano received an informer's reward based on this compromised amount. However, Savellano contested the validity of the compromise, demanding the balance of his reward based on the full assessment. He filed a Petition for Review with the Court of Tax Appeals (CTA). Subsequently, the new BIR Commissioner, Jose U. Ong, declared the compromise agreement to be without legal basis and demanded payment of the deficiency tax from PNB. The CTA ruled in favor of Savellano, declaring the compromise void. The Court of Appeals (CA) affirmed the CTA's decision in two separate appeals filed by PNOC and PNB. The Petition: PNOC and PNB filed separate Petitions for Review on Certiorari with the Supreme Court, which were consolidated. They raised the following main arguments: (1) The CTA lacked jurisdiction over the controversy involving government instrumentalities (BIR and PNB), which should be administratively settled under P.D. No. 242; (2) The compromise agreement entered into under E.O. No. 44 was valid and could not be unilaterally annulled by the succeeding BIR Commissioner; and (3) Savellano was not entitled to an additional informer's reward.
Issue(s)
Whether the Court of Tax Appeals (CTA) has jurisdiction over the case. Whether the compromise agreement between the BIR and PNOC under E.O. No. 44 is valid. Whether the deficiency withholding tax assessment against PNB had become final and unappealable. Whether the defense of prescription bars the collection of the tax. Whether private respondent Savellano is entitled to additional informer's reward.
Ruling
WHEREFORE, the Petitions of PNOC and PNB are hereby DENIED. The Court AFFIRMS the assailed Decisions of the Court of Appeals, with modifications: (1) The compromise agreement is declared void; (2) The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable, and the BIR Commissioner is ordered to enforce collection of the balance of P294,958,450.73; and (3) Private respondent Savellano shall be paid the remainder of his informer’s reward, equivalent to 15% of the deficiency withholding tax collected.
Ratio Decidendi
On Issue 1 (Jurisdiction of the CTA): Yes, the CTA has jurisdiction. The Court held that Republic Act No. 1125, the law creating the CTA, is a special law dealing with a specific subject matter—tax disputes. In contrast, P.D. No. 242 is a general law concerning the administrative settlement of disputes among government agencies. Applying the rule of statutory construction generalia specialibus non derogant, the special law (R.A. 1125) prevails and constitutes an exception to the general law (P.D. No. 242). Therefore, tax disputes, even if solely among government entities, remain within the exclusive appellate jurisdiction of the CTA. Moreover, the case was not solely among government agencies as it involved private respondent Savellano, a private citizen whose rights were central to the controversy. On Issue 2 (Validity of the Compromise): No, the compromise agreement is without force and effect. E.O. No. 44 specifically authorized the compromise of a 'disputed assessment' or 'delinquent account' that was pending as of December 31, 1985. PNOC's tax liability did not meet this condition, as the BIR assessment was issued only on August 8, 1986. The liability could not be considered a 'delinquent account' from a 'self-assessed tax' because PNOC never voluntarily admitted its liability; it was discovered and assessed by the BIR following an informer's tip. Furthermore, even if the liability qualified, PNOC's formal offer to compromise under the terms of E.O. No. 44 was made on June 9, 1987, which was beyond the March 31, 1987 deadline for filing applications under the said E.O. The discretionary authority of the BIR Commissioner to compromise is not absolute and must be exercised within the parameters set by law. On Issue 3 (Finality of Assessment): Yes, the assessment had become final. The BIR issued an assessment against PNB for its withholding tax liability on October 8, 1986. PNB failed to protest this assessment within the 30-day period prescribed by regulations. Consequently, the assessment became final, unappealable, and could no longer be disputed. The demand letter issued by the new BIR Commissioner in 1991 was not a new assessment but merely a demand for payment of the balance of the 1986 assessment, which had already attained finality. On Issue 4 (Prescription): No, the collection is not barred by prescription. The Court ruled that the defense of prescription was deemed waived because PNOC and PNB never raised it in their pleadings before the BIR, CTA, or CA. The exception under the Rules of Court, where a court can dismiss a claim motu proprio on the ground of prescription, does not apply as the pleadings and evidence on record do not sufficiently show that the action is barred. Even assuming the issue could be considered, the Court found that the filing of the Amended Petition for Review by Savellano before the CTA on July 2, 1988 constituted a judicial action for collection, which stopped the running of the three-year prescriptive period for collection. At the very least, the pendency of the case before the courts suspended the running of the prescriptive period. On Issue 5 (Informer's Reward): Yes, Savellano is entitled to the additional reward. Section 316(1) of the 1977 NIRC granted an informer a reward equivalent to 15% of the revenues recovered or collected. The provision does not distinguish as to the manner of collection, whether voluntary or through summary remedies like garnishment. Applying the maxim Ubi lex non distinguit nec nos distinguere debemos (when the law does not distinguish, we should not distinguish), since the BIR had already collected the full deficiency tax of P294,958,450.73 from PNB via garnishment, Savellano is entitled to 15% of that amount as his reward.
Main Doctrine
The authority of the Commissioner of Internal Revenue (CIR) to compromise taxes under a special law like E.O. No. 44 is not absolute and is strictly construed. Such authority is confined to the specific conditions laid out, such as the requirement that the liability must be a 'delinquent account' or 'disputed assessment' pending as of a specific cut-off date. Furthermore, the special law creating the Court of Tax Appeals (R.A. No. 1125), which grants it exclusive appellate jurisdiction over decisions of the CIR, constitutes an exception to and prevails over a general law providing for administrative settlement of disputes between government agencies (P.D. No. 242), based on the principle of generalia specialibus non derogant.