4/27/2017 G.R.No.

167765

SECONDDIVISION
COMMISSIONER OF INTERNAL G.R.No.167765
REVENUE,
Petitioner,
Present:

QUISUMBING,J.,Chairperson,
CARPIOMORALES,
versus TINGA,
VELASCO,JR.,and
BRION,JJ.

FMFDEVELOPMENTCORPORATION, Promulgated:
Respondent.
June30,2008
xx

DECISION

QUISUMBING,J.:

[1] [2]
ForreviewoncertiorariistheDecision andResolution datedJanuary31,2005and
April 14, 2005, respectively, of the Court of Appeals in CA G.R. SP No. 79675, which
[3]
affirmedtheDecision datedMarch20,2003oftheCourtofTaxAppeals(CTA)inC.T.A.
CaseNo.6153.Ineffect,theCourtofAppealscancelledtheassessmentnoticeissuedbythe
Bureau of Internal Revenue (BIR) for the deficiency income and withholding taxes for the
taxable year 1995 of respondent FMF Development Corporation (FMF), a domestic
corporationorganizedandexistingunderPhilippinelaws.

Thefactsareasfollows:

On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable
year1995anddeclaredalossofP3,348,932.OnMay8,1996,however,itfiledanamended
returnanddeclaredalossofP2,826,541.TheBIRthensentFMFpreassessmentnotices,all
[4]
datedOctober6,1998,informingitofitsallegedtaxliabilities. FMFfiledaprotestagainst
thesenoticeswiththeBIRandrequestedforareconsideration/reinvestigation.

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OnJanuary22,1999,RevenueDistrictOfficer(RDO)RogelioZambarranoinformed
FMFthatthereinvestigationhadbeenreferredtoRevenueOfficerAlbertoFortaleza.Healso
advised FMF of the informal conference set on February 2, 1999 to allow it to present
evidencetodisputetheBIRassessments.

On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the

threeyearprescriptiveperiodfortheBIRtoassessinternalrevenuetaxes,henceextending
theassessmentperioduntilOctober31,1999.ThewaiverwasacceptedandsignedbyRDO
Zambarrano.

[5]
OnOctober18,1999,FMFreceivedamendedpreassessmentnotices datedOctober
6, 1999 from the BIR. FMF immediately filed a protest on November 3, 1999 but on the
sameday,itreceivedBIRsDemandLetterandAssessmentNoticeNo.3310048795dated
October25,1999reflectingFMFsallegeddeficiencytaxesandaccruedinterests,asfollows:
IncomeTaxAssessmentP1,608,015.50
CompromisePenaltyonIncomeTaxAssessment20,000.00
IncrementsonWithholdingTaxonCompensation184,132.26
CompromisePenaltyonIncrementsonWithholding
TaxonCompensation16,000.00
IncrementsonWithholdingTaxonManagementFees209,550.49
CompromisePenaltyonIncrementsonWithholdingTax
onManagementFees16,000.00
[6]
TOTALP2,053,698.25

OnNovember24,1999,FMFfiledaletterofprotestontheassessmentinvoking,interalia,
[7]
thedefenseofprescriptionbyreasonoftheinvalidityofthewaiver.Initsreply,theBIR
insisted that the waiver is valid because it was signed by the RDO, a duly authorized
representative of petitioner. It also ordered FMF to immediately settle its tax liabilities
otherwise, judicial action will be taken. Treating this as BIRs final decision, FMF filed a
petitionforreviewwiththeCTAchallengingthevalidityoftheassessment.

OnMarch20,2003,theCTAgrantedthepetitionandcancelledAssessmentNoticeNo.331
0048795becauseitwasalreadytimebarred.TheCTAruledthatthewaiverdidnotextend
thethreeyearprescriptiveperiodwithinwhichtheBIRcanmakeavalidassessmentbecause
itdidnotcomplywiththeprocedureslaiddowninRevenueMemorandumOrder(RMO)No.
[8]
2090. First,thewaiverdidnotstatethedatesofexecutionandacceptanceofthewaiver,
bythetaxpayerandtheBIR,respectivelythus,itcannotbedeterminedwithcertaintyifthe
waiverwasexecutedandacceptedwithintheprescribedperiod.Second,theCTAalsofound
that FMF was not furnished a copy of the waiver signed by RDO Zambarrano. Third, the
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CTA pointed out that since the case involves an amount of more than P1 million, and the
period to assess is not yet about to prescribe, the waiver should have been signed by the
[9]
CommissionerofInternalRevenue,andnotamereRDO. The Commissioner of Internal
Revenuefiledamotionforreconsideration,butitwasdenied.

OnappealtotheCourtofAppeals,thedecisionoftheCTAwasaffirmed.Sustaining
the findings of the CTA, the Court of Appeals held that the waiver did not strictly comply
withRMONo.2090.Thus,itnullifiedAssessmentNoticeNo.3310048795.Thefalloof
theCourtofAppealsdecisionreads:

WHEREFORE,findingtheinstantpetitionnotimpressedwithmerit,thesameisDENIED
DUECOURSEandisherebyDISMISSED.Nocosts.

[10]
SOORDERED.

TheCommissionerofInternalRevenuesoughtreconsideration,butitwasdenied.

Hencetheinstantpetition,raisingthefollowingissues:

I.
WHETHER OR NOT RESPONDENTS WAIVER OF THE STATUTE OF LIMITATIONS
WASVALIDLYEXECUTED.

II.
WHETHERO[R]NOTTHEPERIODTOASSESSHADPRESCRIBED.

III.
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY DISREGARDED
[11]
PETITIONERSSUBSTANTIVEARGUMENT.

Essentially, the present controversy deals with the validity of the waiver and whether it
validlyextendedtheoriginalthreeyearprescriptiveperiodsoastomakeAssessmentNotice
No.3310048795valid.Thebasicquestionstoberesolvedthereforeare:(1)Isthewaiver
valid?and(2)Didthethreeyearperiodtoassessinternalrevenuetaxesalreadyprescribe?

Petitioner contends that the waiver was validly executed mainly because it complied with
[12]
Section222(b) oftheNationalInternalRevenueCode(NIRC).Petitionerpointsoutthat
thewaiverwasinwriting,signedbythetaxpayerandtheCommissioner,andexecutedwithin
thethreeyearprescriptiveperiod.Petitioner also argues that the requirements in RMO No.
2090aremerelydirectorythus,theindicationofthedatesofexecutionandacceptanceof

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thewaiver,bythetaxpayerandtheBIR,respectively,arenotrequiredbylaw.Petitioneradds
thatthereisnoprovisioninRMONo.2090statingthatawaivermaybeinvalidatedupon
failure of the BIR to furnish the taxpayer a copy of the waiver. Further, it contends that
respondents execution of the waiver was a renunciation of its right to invoke prescription.
Petitioneralsoarguesthatthegovernmentcannotbeestoppedbythemistakescommittedby
itsrevenueofficerintheenforcementofRMONo.2090.

Ontheotherhand,respondentcountersthatthewaiverisvoidbecauseitdidnotcomplywith
RMO No. 2090. Respondent assails the waiver because (1) it was not signed by the
Commissioner despite the fact that the assessment involves an amount of more than P1
million(2)thereisnostateddateofacceptancebytheCommissionerorhisdulyauthorized
representativeand(3)itwasnotfurnishedacopyoftheBIRacceptedwaiver. Respondent
[13]
alsocitesPhilippineJournalists,Inc.v.CommissionerofInternalRevenue andcontends
that the procedures in RMO No. 2090 are mandatory in character, precisely to give full
effecttoSection222(b)oftheNIRC.Moreover,awaiverofthestatuteoflimitationsisnota
[14]
waiveroftherighttoinvokethedefenseofprescription.

Afterconsideringtheissuesandthesubmissionsofthepartiesinthelightofthefacts
ofthiscase,weareinagreementthatthepetitionlacksmerit.

[15]
Under Section 203 of the NIRC, internal revenue taxes must be assessed within
threeyearscountedfromtheperiodfixedbylawforthefilingofthetaxreturnortheactual
date of filing, whichever is later. This mandate governs the question of prescription of the
governments right to assess internal revenue taxes primarily to safeguard the interests of
taxpayersfromunreasonableinvestigation.Accordingly,thegovernmentmustassessinternal
revenuetaxesontimesoasnottoextendindefinitelytheperiodofassessmentanddeprive
thetaxpayeroftheassurancethatitwillnolongerbesubjectedtofurtherinvestigationfor
[16]
taxesaftertheexpirationofreasonableperiodoftime.

AnexceptiontothethreeyearprescriptiveperiodontheassessmentoftaxesisSection222
(b)oftheNIRC,whichprovides:

xxxx

(b)IfbeforetheexpirationofthetimeprescribedinSection203fortheassessmentofthetax,
boththeCommissionerandthetaxpayerhaveagreedinwritingtoitsassessmentaftersuch
time,thetaxmaybeassessedwithintheperiodagreedupon.Theperiodsoagreeduponmay
be extended by subsequent written agreement made before the expiration of the period
previouslyagreedupon.
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xxxx

Theaboveprovisionauthorizestheextensionoftheoriginalthreeyearperiodbythe
executionofavalidwaiver,wherethetaxpayerandtheBIRagreedinwritingthattheperiod
toissueanassessmentandcollectthetaxesdueisextendedtoanagreedupondate.Under
RMO No. 2090, which implements Sections 203 and 222 (b), the following procedures
shouldbefollowed:

1.ThewaivermustbeintheformidentifiedasAnnexAhereof.

2.Thewaivershallbesignedbythetaxpayerhimselforhisdulyauthorizedrepresentative.In
thecaseofacorporation,thewaivermustbesignedbyanyofitsresponsibleofficials.

Soonafterthewaiverissignedbythetaxpayer,theCommissionerofInternalRevenueorthe
revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating
thattheBureauhasacceptedandagreedtothewaiver.Thedateofsuchacceptancebythe
Bureau should be indicated. Both the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the expiration of the period of prescription or
beforethelapseoftheperiodagreeduponincaseasubsequentagreementisexecuted.

3.Thefollowingrevenueofficialsareauthorizedtosignthewaiver.

A.IntheNationalOffice

xxxx

3.CommissionerFortaxcasesinvolvingmorethanP1M

B.IntheRegionalOffices

1. The Revenue District Officer with respect to tax cases still pending investigation
andtheperiodtoassessisabouttoprescriberegardlessofamount.

xxxx

4.Thewaivermustbeexecutedinthree(3)copies,theoriginalcopytobeattachedto
thedocketofthecase,thesecondcopyforthetaxpayerandthethirdcopyfortheOffice
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be
indicatedintheoriginalcopy.

5.Theforegoingproceduresshallbestrictlyfollowed.Anyrevenueofficialfoundnot
tohavecompliedwiththisOrderresultinginprescriptionoftherighttoassess/collectshallbe
administrativelydealtwith.(Emphasissupplied.)

Applying RMO No. 2090, the waiver in question here was defective and did not
validly extend the original threeyear prescriptive period. Firstly, it was not proven that
respondent was furnished a copy of the BIRaccepted waiver. Secondly, the waiver was
signed only by a revenue district officer, when it should have been signed by the
Commissioner as mandated by the NIRC and RMO No. 2090, considering that the case
involves an amount of more than P1 million, and the period to assess is not yet about to
prescribe.Lastly,itdidnotcontainthedateofacceptancebytheCommissionerofInternal
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Revenue,arequisitenecessarytodeterminewhetherthewaiverwasvalidlyacceptedbefore
theexpirationoftheoriginalthreeyearperiod.Bearinmindthatthewaiverinquestionisa
bilateralagreement,thusnecessitatingtheverysignaturesofboththeCommissionerandthe
[17]
taxpayertogivebirthtoavalidagreement.

PetitionercontendsthattheproceduresinRMONo.2090aremerelydirectoryandthat
theexecutionofawaiverwasarenunciationofrespondentsrighttoinvokeprescription.Wedo
not agree. RMO No. 2090 must be strictly followed. In Philippine Journalists, Inc. v.
[18]
Commissioner of Internal Revenue, we ruled that a waiver of the statute of limitations
undertheNIRC,toacertainextentbeingaderogationofthetaxpayersrighttosecurityagainst
prolonged and unscrupulous investigations, must be carefully and strictly construed. The
waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally, particularly where the language of the document is
[19]
equivocal. Notably, in this case, the waiver became unlimited in time because it did not
specifyadefinitedate,agreeduponbetweentheBIRandrespondent,withinwhichtheformer
mayassessandcollecttaxes.Italsohadnobindingeffectonrespondentbecausetherewasno
consentbytheCommissioner.Onthisbasis,noimpliedconsentcanbepresumed,norcanitbe
[20]
contendedthattheconcurrencetosuchwaiverisamereformality.

Consequently, petitioner cannot rely on its invocation of the rule that the government
cannotbeestoppedbythemistakesofitsrevenueofficersintheenforcementofRMONo.2090
becausethelawonprescriptionshouldbeinterpretedinawayconducivetobringingaboutthe
beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commissionwhichrecommendedtheapprovalofthelaw.TotheGovernment,itstaxofficers
areobligedtoactpromptlyinthemakingofassessmentsothattaxpayers,afterthelapseofthe
periodofprescription,wouldhaveafeelingofsecurityagainstunscrupuloustaxagentswhowill
alwaystrytofindanexcusetoinspectthebooksoftaxpayers,nottodeterminethelattersreal
liability,buttotakeadvantageofapossibleopportunitytoharassevenlawabidingbusinessmen.
Withoutsuchlegaldefense,taxpayerswouldbeopenseasontoharassmentbyunscrupuloustax
[21]
agents.

In fine, Assessment Notice No. 3310048795 dated October 25, 1999, was issued
beyondthethreeyearprescriptiveperiod.The waiver was incomplete and defective and thus,
thethreeyearprescriptiveperiodwasnottollednorextendedandcontinuedtorununtilApril
15,1999.EvenifthethreeyearperiodbecountedfromMay8,1996,thedateoffilingofthe

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amended return, assuming the amended return was substantially different from the original
[22]
return,acasewhichaffectsthereckoningpointoftheprescriptiveperiod, still,thesubject
assessmentisdefinitelyconsideredtimebarred.

WHEREFORE,thepetitionisDENIEDforlackofmerit.TheassailedDecisionand
ResolutiondatedJanuary31,2005andApril14,2005,respectively,oftheCourtofAppealsin
CAG.R.SPNo.79675areherebyAFFIRMED.Nopronouncementastocosts.

SOORDERED.




LEONARDOA.QUISUMBING
AssociateJustice

WECONCUR:




CONCHITACARPIOMORALES
AssociateJustice

DANTEO.TINGA PRESBITEROJ.VELASCO,JR.
AssociateJustice AssociateJustice

ARTUROD.BRION
AssociateJustice


ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethe
casewasassignedtothewriteroftheopinionoftheCourtsDivision.


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LEONARDOA.QUISUMBING
AssociateJustice
Chairperson


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.





REYNATOS.PUNO
ChiefJustice

[1]
Rollo, pp. 5871. Penned by Associate Justice Mariano C. Del Castillo, with Associate Justices Romeo A. Brawner and
MagdangalM.DeLeonconcurring.
[2]
Id.at88.
[3]
Id.at179196.
[4]
Id.at5960.
DEFICIENCYINCOMETAX
NetIncomeperinvestigation(P2,826,541.00)
Add:UnallowableDeductions/AdditionalIncome
TotalExpensesP10,912,669.00
DisallowedPortionx81%
TotalAdjustments8,839,261.89
NetIncomeperinvestigationP6,012,720.89
Less:PersonalandAdditionalExemptions_____0
P6,012,720.89
IncomeTaxDue(35%)P2,104,452.00
Less:Amountalreadyassessed154,995.30
TOTALTAXDUE(excl.increments)P2,461,820.87

A. INCREMENTSONLATEPAYMENTOFWITHHOLDINGTAXONCOMPENSATION(dividendbonus
payable)

BasicTaxP304,891.10
25%surcharge(Sec.248)87,016.20
Interest(1/26/96to11/7/96)(Sec.249)+60,343.02
CompromisePenalty(Sec.254)16,000.00
TOTALP163,359.22
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B.INCREMENTSONLATEPAYMENTOFEXPANDEDWITHHOLDINGTAXONMANAGEMENTFEE
ManagementfeeperfinancialstatementP4,104,800.00
Less:Managementfeesubj.toEWT(1995)260,640.00
Mgmt.FeenotsubjecttoEWTuntil101596P3,844,160.00
BasicTax(10%)P384,416.00

25%surcharge(Sec.248)96,104.00
Interest(12696to101596)(Sec.249)69,942.35
CompromisePenalty(Sec.254)16,000.00
TotalP182,046.35

INCREMENTSDUE(A+B)P345,405.57
[5]
Id.at6162.
NetIncomeperInvestigation(P2,826,541.00)
Add:Adjustments/Disallowances
ManagementFeesNotnecessary(Sec.29)4,104,800.00
EmployeeBenefitsunsupported(Sec.29)58,611.55
SalariesandWagesNoEWT(Sec.29)1,059,118.50
WithholdingTaxunaccounted(Sec.28)348,813.13
CashOverdraftunaccounted(Sec.28)254,853.96
TransportationExp.unaccounted(Sec.28)22,390.16
RepresentationExp.unaccounted(Sec.29)14,772.59
MiscellaneousExp.unsupported(Sec.29)69,404.65
5,932,764.44

NetTaxableIncomeP3,106,223.44

IncomeTaxDueThereonP1,087,178.20
LessTaxCredit/Paid154,995.30
IncomeTaxDueThereon(excluding
increments)P932,182.90

A.IncrementsonLatePaymentofWithholdingTaxonCompensation(dividendbonuspayable)

BasicP304,891.10

25%surcharge(Sec.248)87,016.20
Interest(1/26/96to11/7/96)(Sec.249)60,343.02
CompromisePenalty(Sec.254)16,000.00
TotalP163,359.22

B.IncrementsonLatePaymentofExpandedWithholdingTaxonManagementFee

ManagementFeeperfinancialStatementP4,104,800.00
Less:ManagementFeesubj.toEWT(1995)260,640.00
Difference(Mgmt.feesubj.toEWTuntil101596)P3,844,160.00
BasicTax(P3,844,160.00x10%)P384,416.00
25%Surcharge(Sec.248)96,104.00
Interest(1296to101596)(Sec.249)69,942.35
CompromisePenalty(Sec.254)16,000.00
TotalP182,046.35

TOTALINCREMENTSONLATEPAYMENTS(A+B)P345,405.57
[6]
Id.at63.
[7]
Id.at6364.
NullityoftheAssessmentNoticeforwantoflegalorfactualbasis:
a)Thatthetaxpayerwasnotinformedinwritingofthelawandfactsonwhichtheassessmentwasbased
b)The[BIR]erredindisallowingbusinessexpensesasdeductions(managementfees,cashoverdraft,salaries,etc.)
c)Thatwithholdingtaxshouldonlybeuponactualpaymentofcompensationandnotuponitsaccrualand
d)Thatthewithholdingtaxonmanagementfeespaidtoanothercorporation(i.e.,IPCP)shouldbeonly5%andnot
10%.

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[8]
SUBJECT:PROPEREXECUTIONOFTHEWAIVEROFTHESTATUTEOFLIMITATIONSUNDERTHENATIONAL
INTERNALREVENUECODE,datedApril4,1990.
[9]
Rollo,pp.191195.
[10]
Id.at70.
[11]
Id.at606.
[12]
Section222.ExceptionsastoPeriodofLimitationofAssessmentandCollectionofTaxes.
xxxx
(b)IfbeforetheexpirationofthetimeprescribedinSection203fortheassessmentofthetax,boththeCommissionerandthe
taxpayerhaveagreedinwritingtoitsassessmentaftersuchtime,thetaxmaybeassessedwithintheperiodagreedupon.The
period so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previouslyagreedupon.
xxxx
[13]
G.R.No.162852,December16,2004,447SCRA214.
[14]
Id.at224225,227.
[15]
Section203.PeriodofLimitationUponAssessmentandCollection.ExceptasprovidedinSection222,internal revenue
taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no
proceedingincourtwithoutassessmentforthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuchperiod:
Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)year period shall be
countedfromthedaythereturnwasfiled.(Emphasissupplied.)
[16]
SeePhilippineJournalists,Inc.v.CommissionerofInternalRevenue,supranote13,at225.
[17]
Id.at228229.
[18]
Supranote13.
[19]
Id.at227.
[20]
Id.at229,citingCommissionerofInternalRevenuev.CourtofAppeals,G.R.No.115712,February25,1999,303SCRA
614,620622.
[21]
SeeRepublicofthePhils.v.Ablaza,108Phil.1105,1108(1960).
[22]
SeeB.ABAN,LAWOFBASICTAXATIONINTHEPHILIPPINES271(Rev.Ed.,2001),citingCommissionerofInternal
Revenuev.PhoenixAssuranceCo.,Ltd.,No.L19727,May20,1965,14SCRA52,59.

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