Case Summary (G.R. No. 246419)
Ineligibility for Compromise under EO 44
EO 44 applies only to delinquent accounts or disputed assessments pending as of 31 December 1985, settled by payment of 30% of the basic tax assessed. PNOC’s liability for final withholding tax on interest from October 1984 to October 1986 was not entirely a delinquent account by that cutoff: much of the liability accrued after 31 December 1985. Revenue Regulations 17-86 define delinquent accounts as self-assessed taxes due on or before the cutoff, “whether or not a return was filed,” and delinquent deficiency assessments final by that date. PNOC’s tax emerged from BIR investigation and demand letters issued in August and October 1986, and thus was neither self-assessed nor final by 31 December 1985. Likewise, PNB’s failed-to-withhold liability did not qualify. Even assuming coverage, EO 44 required applications by 31 March 1987.
Invalidity of the Compromise Agreement
The compromise agreement executed on 22 June 1987 was void for lack of statutory basis. EO 44 was effective only until 31 March 1987 and contemplated settlement of liabilities pending as of 31 December 1985. Paragraph 2 of RMO 39-86 validly extended filings to 31 March 1987 but did not extend EO 44 itself. PNOC’s first two compromise offers (September and October 1986) proposed offset against National Power Corporation credits, a mode unsupported by EO 44. Its June 1987 offer finally matched EO 44 terms, but was submitted after the law’s effectivity lapsed. Commissioner Ong properly revoked the compromise as beyond legal authority, and the courts refused to disturb that discretionary revocation given its manifest conflict with EO 44 and public policy favoring full tax collection.
Finality of Tax Assessment and Prescription
The assessment initially issued to PNB on 8 October 1986 became final and unappealable when PNB failed to protest within 30 days. That assessment was enforceable without need for the 1991 demand letter. Under Section 203 of the Code, the BIR must assess and collect internal revenue taxes within three years after the return’s due date. PNB’s quarterly return for Q4 1985 was due 25 January 1986. The BIR’s right to collect prescribed by 24 January 1989; the subsequent garnishment action in 1991–
...continue readingCase Syllabus (G.R. No. 246419)
Facts
- On 24 June 1986 private respondent Tirso B. Savellano submitted a sworn statement to the Bureau of Internal Revenue (BIR) revealing that Philippine National Bank (PNB) had failed to withhold the 15% final tax on interest earnings from Philippine National Oil Company’s (PNOC) money placements, in violation of P.D. No. 1931.
- P.D. No. 1931 (effective 11 June 1984) removed all tax exemptions of government-owned and controlled corporations, thereby subjecting PNOC’s interest earnings to a final 15% tax.
- On 8 August 1986 the BIR demanded PNOC settle its tax liability for interest earnings totaling P385,961,580.82 (P303,343,765.32 basic tax plus P82,617,815.50 interest through 15 November 1986).
- PNOC offered on 25 September and again on 14 October 1986 to compromise its basic tax liability of P304,419,396.83 by setting it off against a P335,259,450.21 National Power Corporation refund claim—a proposal BIR deemed premature.
- On 8 October 1986 the BIR sent a demand letter to PNB (withholding agent) for P376,301,133.33 (P298,863,332.51 basic tax plus P77,455,580.72 interest) covering 15 October 1984 to 15 October 1986.
- PNOC, on 9 June 1987, renewed its offer—this time to pay P91,003,129.89 (30% of P303,343,766.29 basic tax) under E.O. No. 44; BIR Commissioner Bienvenido A. Tan accepted on 22 June 1987.
- PNOC paid P91,003,129.89 and PNB had already remitted P2,952,349.23, totaling P93,955,479.12; interest and penalties were condoned by compromise.
- Savellano received informera’s rewards totaling P14,093,321.89 (15% of the amount actually collected) in four installments through 1 December 1987.
- On 7 January 1988 Savellano demanded the balance of his reward—15% of the full assessment of P385,961,580.82 (P57,894,237.12) less P14,093,321.89, leaving P43,800,915.25 outstanding.
Procedural History
- BIR Commissioner Tan denied Savellano’s claim for the balance, explaining the compromise was lawful under E.O. No. 44, RMO 39-86 and RMO 4-87.
- On 24 March 1988 Savellano sought BIR reconsideration of the compromise.
- On 8 April 1988 Savellano filed a Petition for Review ad cautelam with the Court of Tax Appeals (CTA Case No. 4249) against the compromise, impleading PNOC and PNB.
- PNOC and PNB moved to dismiss for lack of CTA jurisdiction; BIR Commissioner Tan answered and filed a counterclaim.
- On 28 November 1988 the CTA denied the motions to dismiss; parties submitted evidence and memoranda.
- On 16 January 1991 new BIR Commissioner Jose U. Ong declared the compromise void and issued a demand letter to PNB for the deficiency withholding tax of P294,958,450.73.
- PNB protested on 11 April 1991; BIR denied the protest as filed out of time.
- On 28 May 1992 the CTA rendered judgment: compromise void; ordered enforcement of the 16 January 1991 assessment against PNB for P294,958,450.73; and directed paymen