Republic Of The Philippines v. Philippine Bank Of Commerce

DIZON, J.:

Appeal on purely questions of law taken by the State from the decision of the Court of First Instance of Manila rendered on October 8, 1962 in Civil Case No. 32137, ordering the Philippine Bank of Commerce - a domestic banking corporation, hereinafter referred to as the Bank - to pay the State the sum of P5,814.70 as 5% surcharge on the amount of P116,394.00, and the further sum of P6,977.64 representing 1% monthly interest thereon for a period of six months, or a total of P12,792.34, with costs. It appears that the Bank filed on February 27, 1951 its income tax return for the taxable year 1950 showing on its face no taxable income.ℒαwρhi৷ However, following verification thereof, on February 14, 1956 the State, thru the Collector of Internal Revenue, issued and served Income Tax Assessment Notice No. ACR-120114-55/50 on the Bank requiring it to pay on February 29, 1956 the sum of P116,294.00 as income tax on its income of P726,840.17 for the taxable year ending December 31, 1950.

As the Bank refused to pay the assessment the State instituted the present action in the lower court on March 21, 1957 to recover from it the aforesaid sum of P116,294.00 as tax due on the Bank's income for the taxable year ending December 31, 1950, and in addition 5% surcharge, 1% monthly interest and penalty from March 1, 1956 to the date of payment, and the costs of suit. The Bank contested the assessment, but before filing its answer, it paid on April 8, 1957 the income tax assessed (P116,294.00) but not the surcharge and interests demanded. Its answer filed on May 9, 1957 alleged payment of the sum of P116,294.00 and denied its liability for the 5% surcharge and the 1% monthly interest, on the ground that its war losses in the amount of P1,770,160.36 had already been allowed as lawful deduction from its income tax return for 1950 by the Collector of Internal Revenue pursuant to the ruling of the Secretary of Finance dated September 11, 1951, albeit this was subsequently reversed by the same office on account of another ruling of the Secretary of Finance of September 3, 1952.

The Bank pleaded further that the mistake or error of the government - left uncorrected, for a number of years - in allowing war losses as lawful deduction on income tax until such policy was reversed, should not prejudice taxpayer by requiring them to pay interest and other surcharges. On May 24, 1962 the parties submitted the case for decision on the basis of the following stipulation of facts: COME NOW the parties in the above-entitled case thru their respective counsel, and to this Honorable Court, respectfully submit the following stipulation of facts: 1. That plaintiff is a political entity with the judicial capacity to sue and may be served with legal processes at the Office of the Solicitor General, Department of Justice Building, Manila; while defendant is a domestic Corporation, organized and existing under the laws of the Republic of the Philippines and having its principal office at Plaza Sta.

Cruz, Manila. 2. That on February 27, 1951, the defendant filed with the plaintiff, thru the Bureau of Internal Revenue, its corporate income tax return for the year 1950, showing on the face thereof no taxable income, a copy of said return is hereby attached and submitted as Exhibit 'A' for plaintiff; 3.

That the said return of the defendant was verified by an examiner of the Bureau of Internal Revenue, who, in a report dated January 20, 1956 recommended the imposition of a deficiency tax in the sum, of P116,294.00, a copy of which report is hereto attached and submitted as Exhibit 'B' for plaintiff (composed of six pages annexed to the complaint); 4. That based on the report of the examiner mentioned in the preceding paragraph, the plaintiff, thru the Bureau of Internal Revenue, issued Income Tax Assessment Notice No. ACR-120114-55/50 dated February 14, 1956 requiring the defendant to pay not later than February 29, 1956 the sum of P116,294.00 as its income tax for 1950, a copy of which income tax assessment is hereby attached and submitted as Exhibit 'C' for plaintiff; 5. That in a letter dated February 17, 1955 (Should be 1956), the defendant, thru its Chief Accountant, acknowledged the receipt of the assessment notice above stated and requested the Collector of Internal Revenue for a copy of the examiner's report in this case, the original of said letter is hereby attached and submitted as Exhibit 'D' for plaintiff; 6.

That on February 17, 1956, the defendant, thru its Executive Vice-President, likewise sent a letter to the Collector of Internal Revenue acknowledging the receipt of the income tax assessment and requested for the basis of said assessment, the original of said letter is attached hereto and submitted as Exhibit 'E' for plaintiff; 7. That on February 20, 1956, the defendant, thru its Chief Accountant, sent another letter to the Collector of Internal Revenue, which letter is attached hereto and submitted as Exhibit 'F' for plaintiff; 8. That on February 20, 1956, the Deputy Collector of Internal Revenue sent a letter to the defendant stating the basis of the assessment in this case, copy of which letter is hereto attached and submitted as Exhibit 'G' for plaintiff; 9.

That on February 29, 1956, defendant, thru its Head of the Legal Department, sent a letter to the Deputy Collector of Internal Revenue requesting reconsideration of the disallowance of the deduction claimed in its income tax return, and that a reinvestigation of the case be conducted, a copy of said letter is hereto attached and submitted as Exhibit 'H' for plaintiff; 10. That on March 8, 1956, the Deputy Collector of Internal Revenue sent a reply to the defendant's letter of February 29, 1956, a copy of which is hereto attached and submitted as Exhibit 'I' for plaintiff; 11. That on April 3, 1956, defendant, thru its Head of the Legal Department, sent a letter to the Deputy Collector of Internal Revenue requesting that action on the case be held in abeyance pending studies being made by the defendant on the same copy of which letter is hereto attached and submitted as Exhibit 'I' for defendant; 12.

That on April 14, 1956, defendant, thru counsel, sent a letter to the Collector of Internal Revenue, a copy of which is hereto attached and submitted as Exhibit '2' for defendant; 13. That in a letter dated September 18, 1956, plaintiff, thru the Collector of Internal Revenue, reiterated its demand for the taxes herein, a copy of which is hereto attached and submitted as Exhibit "J" for plaintiff; 14.

That on March 21, 1957, the complaint for the collection of the tax herein involved was filed by the plaintiff; 15. That on April 8, 1957, defendant paid the sum of P116,294.00, the basic income tax sought to be collected in this case, under Official Receipt No. 764075 issued on the same date; 16. That on May 9, 1957, defendant filed its answer in this case, alleging payment of the sum of P116,294.00, but denying that it is liable for the 5% surcharge and 1% monthly interest for late payment inasmuch as war losses were already allowed as lawful deductions from defendant's income tax return for 1950 by the Collector of Internal Revenue pursuant to the ruling of the Secretary of Finance dated September 11, 1951; 17.

That on September 5, 1960, defendant, thru counsel, wrote a letter to the Commissioner of Internal Revenue reiterating that it is not liable for the 5% surcharge and 1% monthly interest on the basic income tax assessed against it and requesting that the same be disregarded, copy of which letter is hereto attached and submitted as Exhibit '3' for defendant; 18. That in a letter dated October 6, 1960, a copy of which is hereto attached and submitted as Exhibit 'K' for plaintiff, the Commissioner of Internal Revenue denied the aforestated request of the defendant; 19. That under the provisions of BIR General Circular No. V-123 dated September 18, 1951, copy of which is hereto attached and submitted as Exhibit '4' for defendant, war losses suffered by property owners may be included as deductions from income tax returns for the year 1950; 20.

That the provisions of BIR General Circular No. V-123 were later revoked by the Secretary of Finance under BIR General Circular No. 139 dated August 30, 1952, a copy of which is hereby attached and submitted as Exhibit '5' for defendant; 21. That the amount sought to be collected by the plaintiff, for which defendant claims it is not liable, is: (a) 5% surcharge .................. P 6,814.70 (b) 1% monthly interest .......

15,118.22