Commissioner of Internal Revenue v. Commission on Elections
REITERATIONFacts
The Antecedents: In May 2008, the Commission on Elections (COMELEC) contracted Smartmatic Sahi Technology, Inc. (Smartmatic) and Avante International Technology, Inc. (Avante) for the lease of electronic voting machines for the Autonomous Region for Muslim Mindanao (ARMM) elections. The Commission on Elections (COMELEC) did not withhold Expanded Withholding Tax (EWT) on payments to these suppliers, relying on Section 12 of Republic Act (RA) No. 8436, which states that the procurement of election materials is 'free from taxes and import duties.' The Bureau of Internal Revenue (BIR) subsequently conducted an audit and issued a deficiency Expanded Withholding Tax (EWT) assessment for the year 2008, totaling approximately P30.6 million in basic tax plus interests and penalties. Procedural History: The Commission on Elections (COMELEC) protested the assessment, which the Commissioner of Internal Revenue (CIR) denied. On appeal, the Court of Tax Appeals (CTA) Second Division upheld the basic deficiency Expanded Withholding Tax (EWT) but ruled that the Commission on Elections (COMELEC) was not liable for deficiency interest under Section 247(b) of the Tax Code, which imposes such liability on the responsible officer. The Court of Tax Appeals (CTA) Division later issued an 'Amended Decision' to correct the dispositive portion to reflect only the basic tax. Both parties appealed to the Court of Tax Appeals (CTA) En Banc. The Court of Tax Appeals (CTA) En Banc dismissed the Commission on Elections' (COMELEC) petition because it failed to obtain the required five votes to reverse the Division, and denied the Commissioner of Internal Revenue's (CIR) petition for lack of merit. The Petition: The Commission on Elections (COMELEC) filed a Rule 45 petition (G.R. No. 247508) arguing it is exempt from all taxes relative to automated elections and that the Secretary of Justice, not the Court of Tax Appeals (CTA), had jurisdiction over the dispute per the PSALM v. CIR doctrine. The Commissioner of Internal Revenue (CIR) filed a separate petition (G.R. No. 244155) asserting that the Commission on Elections (COMELEC) should be held liable for deficiency interest because Section 247(b) does not apply to Constitutional Commissions.
Issue(s)
Whether the Court of Tax Appeals (CTA) has jurisdiction over a tax dispute between the Bureau of Internal Revenue (BIR) and the Commission on Elections (COMELEC), or if it must be settled administratively under Presidential Decree (PD) No. 242. Whether the Commission on Elections (COMELEC) was required to file a Motion for Reconsideration of the Court of Tax Appeals (CTA) Division's Amended Decision before appealing to the Court of Tax Appeals (CTA) En Banc. Whether the Commission on Elections (COMELEC) is exempt from the obligation to withhold Expanded Withholding Tax (EWT) on its lease payments to suppliers under Section 12 of Republic Act (RA) No. 8436. Whether the Commission on Elections (COMELEC) is liable for deficiency interest on the unpaid Expanded Withholding Tax (EWT).
Ruling
The Supreme Court DENIED both petitions. The Court of Tax Appeals (CTA) En Banc's Decision and Resolution were SET ASIDE, but the Commission on Elections (COMELEC) was ORDERED TO PAY the amount of P30,645,542.62 representing the deficiency basic Expanded Withholding Tax (EWT) for the taxable year 2008, without interest.
Ratio Decidendi
On Issue 1: The Supreme Court ruled that the Court of Tax Appeals (CTA) has exclusive appellate jurisdiction. Unlike the case of PSALM v. CIR, which involved executive agencies, the Commission on Elections (COMELEC) is a Constitutional Commission. Section 1 of Presidential Decree (PD) No. 242 and Section 66, Chapter 14, Book IV of Executive Order (EO) No. 292 explicitly exclude Constitutional Commissions from the administrative settlement procedure. Because the Commission on Elections (COMELEC) is independent of the executive branch, the President's power of control does not apply, and the dispute must be resolved by the Court of Tax Appeals (CTA) as provided in Section 4 of the Tax Code and Section 7 of Republic Act (RA) No. 9282. On Issue 2: The Court held that the Commission on Elections (COMELEC) properly appealed to the Court of Tax Appeals (CTA) En Banc without a prior Motion for Reconsideration of the Amended Decision. While Asiatrust Development Bank, Inc. v. CIR generally requires an MR for an 'Amended Decision,' that rule applies when the amendment is substantial or based on new evidence. In this case, the Amended Decision was a mere clarification or correction of the dispositive portion to align with the body of the original decision regarding the exclusion of interest. Since it was not a 'new' decision, a second Motion for Reconsideration was not required and would have been a prohibited pleading under the Revised Rules of the Court of Tax Appeals (RRCTA). On Issue 3: The Commission on Elections (COMELEC) is not exempt from withholding taxes. The Court emphasized that withholding tax is not an internal revenue tax imposed on the payor, but a method of collecting income tax from the payee (Smartmatic and Avante). The exemption in Section 12 of Republic Act (RA) No. 8436 refers to direct taxes and import duties on the equipment itself, not the income earned by the suppliers. As a withholding agent, the Commission on Elections' (COMELEC) liability is independent of its own tax status. Under Revenue Regulations (RR) No. 2-98, all government offices are constituted as withholding agents for income payments to taxable entities. On Issue 4: The Commission on Elections (COMELEC) is not liable for deficiency interest because the Commissioner of Internal Revenue (CIR) failed to timely challenge the original Court of Tax Appeals (CTA) Division ruling. The original Decision dated August 2, 2016, explicitly stated that the Commission on Elections (COMELEC) was not liable for interest under Section 247(b). The Commissioner of Internal Revenue (CIR) did not file a Motion for Reconsideration of that specific ruling at the first instance. Consequently, that portion of the decision became final and binding on the Commissioner of Internal Revenue (CIR), and he could not revive the issue in a motion directed at the Amended Decision.
Main Doctrine
Constitutional Commissions are expressly excluded from the coverage of Presidential Decree (PD) No. 242 and the Administrative Code of 1987 regarding the administrative settlement of disputes between government agencies. Consequently, tax disputes involving the Commission on Elections (COMELEC) fall under the exclusive appellate jurisdiction of the Court of Tax Appeals (CTA). Additionally, a tax exemption granted to a government entity for the 'procurement of equipment' does not exempt it from its duty as a withholding agent to deduct and remit taxes on income payments made to its suppliers, as the liability of a withholding agent is separate and distinct from the liability of the taxpayer.