Philippine National Oil Company vs. Court of Appeals, G.R. No. 109976, April 26, 2005

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PHILIPPINE NATIONAL OIL COMPANY, Petitioner, versus THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and TIRSO SAVELLANO, Respondents.

G.R. Number one hundred twelve eight hundred April twenty-six, two thousand five PHILIPPINE NATIONAL BANK, Petitioner, versus THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANO and COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National Oil Company (PNOC) and the Philippine National Bank (PNB), assailing the decisions of the Court of Appeals in CA-G.R. S.P. Number two hundred ninety-five eight hundred thirty-three and CA-G.R. S.P. Number two hundred ninety-five two hundred sixty-six, respectively, which both affirmed the decision of the Court of Tax Appeals (CTA) in CTA Case Number four two four nine.

The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on twenty-four June nineteen eighty-six. Through his sworn statement, private respondent Savellano informed the BIR that PNB had failed to withhold the fifteen percent final tax on interest earnings and/or yields from the money placements of PNOC with the said bank, in violation of Presidential Decree Number one thousand nine hundred thirty-one. Presidential Decree Number one thousand nine hundred thirty-one, which took effect on eleven June nineteen eighty-four, withdrew all tax exemptions of government-owned and controlled corporations.

In a letter, dated eight August nineteen eighty-six, the BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold. PNOC wrote the BIR on twenty-five September nineteen eighty-six, and made an offer to compromise its tax liability, which it estimated to be in the sum of three hundred four million four hundred nineteen thousand three hundred ninety-six point eight three pesos, excluding interest and surcharges, as of thirty-one July nineteen eighty-six. PNOC proposed to set-off its tax liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then pending with the BIR, in the amount of three hundred thirty-five million two hundred fifty-nine thousand four hundred fifty point two one pesos. The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR.

On eight October nineteen eighty-six, the BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings and/or yields from PNOC's money placements with the bank, from fifteen October nineteen eighty-four to fifteen October nineteen eighty-six, in the total amount of three hundred seventy-six million three hundred one thousand one hundred thirty-three point three three pesos. On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB.

PNOC, in another letter, dated fourteen October nineteen eighty-six, reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCOR's pending claim for tax refund/credit. The BIR replied on eleven November nineteen eighty-six that the proposal for set-off was premature since NAPOCOR's claim was still under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of three hundred eighty-five million nine hundred sixty-one thousand five hundred eighty point eight two pesos, consisting of three hundred three million three hundred forty-three thousand seven hundred sixty-five point three two pesos final tax, plus eighty-two million six hundred seventeen thousand eight hundred fifteen point five pesos interest computed until fifteen November nineteen eighty-six.

On nine June nineteen eighty-seven, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC proposed a compromise by paying ninety-one million three thousand one hundred twenty-nine point eight nine pesos, representing thirty percent of the three hundred three million three hundred forty-three thousand seven hundred sixty-six point two nine pesos basic tax, in accordance with the provisions of Executive Order Number forty-four.

Then BIR Commissioner Bienvenido A. Tan, in a letter, dated twenty-two June nineteen eighty-seven, accepted the compromise. The BIR received a total tax payment on the interest earnings and/or yields from PNOC's money placements with PNB in the amount of ninety-three million nine hundred fifty-five thousand four hundred seventy-nine point one two pesos, broken down as follows:

Previous payment made by PNB. Add: Payment made by PNOC pursuant to the compromise agreement of June twenty-two, nineteen eighty-seven. Total tax payment

Private respondent Savellano, through four installments, was paid the informer's reward in the total amount of fourteen million ninety-three thousand three hundred twenty-one point eight nine pesos, representing fifteen percent of the ninety-three million nine hundred fifty-five thousand four hundred seventy-nine point one two pesos tax collected by the BIR from PNOC and PNB. He received the last installment on one December nineteen eighty-seven.

On seven January nineteen eighty-eight, private respondent Savellano, through his legal counsel, wrote the BIR to demand payment of the balance of his informer's reward, computed as follows:

BIR tax assessment. Final tax rate

Fifty-seven million eight hundred ninety-four thousand two hundred thirty-seven point one two pesos

Informer's reward due (BIR deficiency tax assessment multiplied by Final tax rate)

Less: Payment received by private respondent Savellano. Outstanding balance

BIR Commissioner Tan replied through a letter, dated eight March nineteen eighty-eight, that private respondent Savellano was already fully paid the informer's reward equivalent to fifteen percent of the amount of tax actually collected by the BIR pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that the compromise was in accordance with the provisions of Executive Order Number forty-four, Revenue Memorandum Order Number thirty-nine eighty-six, and Revenue Memorandum Order Number four eighty-seven.

Private respondent Savellano submitted another letter, dated twenty-four March nineteen eighty-eight, to BIR Commissioner Tan, seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter, private respondent Savellano questioned the legality of the compromise agreement entered into by the BIR and PNOC and claimed that the tax liability should have been collected in full.

On eight April nineteen eighty-eight, while the aforesaid Motion for Reconsideration was still pending with the BIR, private respondent Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case Number four two four nine. He claimed therein that BIR Commissioner Tan acted "with grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into a compromise agreement that resulted in "a gross and unconscionable diminution" of his reward. Private respondent Savellano prayed for the enforcement and collection of the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR Commissioner of the fifteen percent informer's reward on the total tax collected. He would later amend his Petition to implead PNOC and PNB as necessary and indispensable parties since they were parties to the compromise agreement.

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action against him, and that private respondent Savellano was already paid the informer's reward due him. Alleging that the Petition was baseless and malicious, BIR Commissioner Tan filed a counterclaim for exemplary damages against private respondent Savellano.

PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the case. In its Resolution, dated twenty-eight November nineteen eighty-eight, the CTA denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not appear to be indubitable.

After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the amended Petition. PNOC averred, among other things, that one it had no privity with private respondent Savellano; two the BIR Commissioner's discretionary act in entering into the compromise agreement had legal basis under E.O.

Number forty-four and RMO Number thirty-nine eighty-six and RMO Number four eighty-seven; and three the CTA had no jurisdiction to resolve the case against it. On the other hand, PNB asserted that one the CTA lacked jurisdiction over the case; and two the BIR Commissioner's decision to accept the compromise was discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts. PNOC and PNB later filed their amended Answer invoking an opinion of the Commission on Audit disallowing the payment by the BIR of informer's reward to private respondent Savellano.

The CTA, thereafter, ordered the parties to submit their evidence, to be followed by their respective Memoranda.

On twenty-third November nineteen ninety, private respondent Savellano, filed a Manifestation with Motion for Suspension of Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may soon be resolved. Both PNOC and PNB opposed the said Motion.

Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated sixteenth January nineteen ninety-one, demanded that PNB pay deficiency withholding tax on the interest earnings and/or yields from PNOC's money placements, in the amount of two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos, computed as follows:

Withholding tax, plus interest under the letter of four hundred eighty-five million nine hundred sixty-one thousand five hundred eighty point eight two pesos demand dated eleventh November nineteen eighty-six

Less: Amount paid under E.O. Number forty-four P ninety-one million three thousand one hundred twenty-nine point eight nine

Amount still due and collectible two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three

This BIR letter was received by PNB on sixth February nineteen ninety-one, and was protested by it through a letter, dated eleventh April nineteen ninety-one. The BIR denied PNB's protest on the ground that it was filed out of time and, thus, the assessment had already become final.

Private respondent Savellano, on twenty-second February nineteen ninety-one, filed an Omnibus Motion moving to withdraw his previous Motion for Suspension of Proceeding since BIR Commissioner Ong had finally resolved his Motion for Reconsideration, and submitting by way of supplemental offer of evidence one the letter of BIR Commissioner Ong, dated thirteenth February nineteen ninety-one, informing private respondent Savellano of the action on his Motion for Reconsideration; and two the demand-letter of BIR Commissioner Ong to PNB, dated sixteenth January nineteen ninety-one.

Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated second May nineteen ninety-one, resolved to allow private respondent Savellano to withdraw his previous Motion for Suspension of Proceeding and to admit the supplementary evidence being offered by the same party.

In its Order, dated third June nineteen ninety-one, the CTA considered the case submitted for decision as of the following day, fourth June nineteen ninety-one.

On eleventh June nineteen ninety-one, PNB appealed to the Department of Justice the BIR assessment, dated sixteenth January nineteen ninety-one, for deficiency withholding tax in the sum of two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos. PNB alleged that its appeal to the DOJ was sanctioned under P.D. Number two forty-two, which provided for the administrative settlement of disputes between government offices, agencies, and instrumentalities, including government-owned and controlled corporations.

Three days later, on fourteenth June nineteen ninety-one, PNB filed a Motion to Suspend Proceedings before the CTA since it had a pending appeal before the DOJ. On fourth July nineteen ninety-one, PNB filed with the CTA a Motion for Reconsideration of its Order, dated third June nineteen ninety-one, submitting the case for decision as of fourth June nineteen ninety-one, and prayed that the CTA hold its resolution of the case in view of PNB's appeal pending before the DOJ.

On seventeenth July nineteen ninety-one, PNB filed a Motion to Suspend the Collection of Tax by the BIR. It alleged that despite its request for reconsideration of the deficiency withholding tax assessment, dated sixteenth January nineteen ninety-one, BIR Commissioner Ong sent another letter, dated twenty-third April nineteen ninety-one, demanding payment of the two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos deficiency withholding tax on the interest earnings and/or yields from PNOC's money placements. The same letter informed PNB that this was the BIR Commissioner's final decision on the matter and that the BIR Commissioner was set to issue a warrant of distraint and/or levy against PNB's deposits with the Central Bank of the Philippines. PNB further alleged that the levy and distraint of PNB's deposits, unless restrained by the CTA, would cause great and irreparable prejudice not only to PNB, a government-owned and controlled corporation, but also to the Government itself.

Pursuant to the Order of the CTA, during the hearing on nineteenth July nineteen ninety-one, the parties submitted their respective Memoranda on PNB's Motion to Suspend Proceedings.

On twentieth September nineteen ninety-one, private respondent Savellano filed another Omnibus Motion calling the attention of the CTA to the fact that the BIR already issued, on twelfth August nineteen ninety-one, a warrant of garnishment addressed to the Central Bank Governor and against PNB. In compliance with the said warrant, the Central Bank issued, on twenty-third August nineteen ninety-one, a debit advice against the demand deposit account of PNB with the Central Bank for the amount of two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos, with a corresponding transfer of the same amount to the demand deposit-in-trust of BIR with the Central Bank. Since the assessment had already been enforced, PNB's Motion to Suspend Proceedings became moot and academic. Private respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR to deposit with the CTA the amount of forty-four million two hundred forty-three thousand seven hundred sixty-seven pesos as his informer's reward, representing fifteen percent of the deficiency withholding tax collected.

Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion, dated twentieth September nineteen ninety-one, arguing that the DOJ already ordered the suspension of the collection of the tax deficiency. There was therefore no basis for private respondent Savellano's Motion as the same was premised on the erroneous assumption that the tax deficiency had been collected. When the DOJ denied the BIR Commissioner's Motion to Dismiss and required him to file his answer, the DOJ assumed jurisdiction over PNB's appeal, and the CTA should first suspend its proceedings to give the DOJ the opportunity to decide the validity and propriety of the tax assessment against PNB.

The CTA, on twenty-eighth May nineteen ninety-two, rendered its decision, wherein it upheld its jurisdiction and disposed of the case as follows:

WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and Philippine National Bank, on the other, as WITHOUT FORCE AND EFFECT;

The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January sixteen, nineteen ninety-one against Philippine National Bank which has become final and unappealable by collecting from Philippine National Bank the deficiency withholding tax, plus interest totalling two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos;

Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informer's reward based on fifteen percent of the deficiency withholding total tax collected in this case or forty-four million two hundred forty-three thousand seven hundred sixty-seven pesos subject to existing rules and regulations governing payment of reward to informers.

In a Resolution, dated sixteen November nineteen ninety-two, the CTA denied the Motions for Reconsideration filed by PNOC and PNB since they substantially raised the same issues in their previous pleadings and which had already been passed upon and resolved adversely against them.

PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision in CTA Case Number four two four nine, dated twenty-eight May nineteen ninety-two, and the CTA Resolution in the same case, dated sixteen November nineteen ninety-two. PNOC's appeal was docketed as CA-G.R. SP Number two nine five eight three, while PNB's appeal was CA-G.R. SP Number two nine five two six. In both cases, the Court of Appeals affirmed the decision of the CTA.

In the meantime, the Central Bank again issued on two September nineteen ninety-two a debit advice against the demand deposit account of PNB with the Central Bank for the amount of two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos, and on fifteen September nineteen ninety-two, credited the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines. On four November nineteen ninety-two, the Treasurer of the Republic issued a journal voucher transferring two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos to the account of the BIR. PNB, in turn, debited two hundred ninety-four million nine hundred fifty-eight thousand four hundred fifty point seven three pesos from the deposit account of PNOC with PNB.

PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying that the decisions of the Court of Appeals in CA-G.R. SP Number two nine five eight three and CA-G.R. SP Number two nine five two six, respectively, both affirming the decision of the CTA in CTA Case Number four two four nine, be reversed and set aside. These two Petitions were consolidated since they involved identical parties and factual background, and the resolution of related, if not exactly, the same issues.

In its Petition for Review, PNOC alleged the following errors committed by the Court of Appeals in CA-G.R. SP Number two nine five eight three:

One. The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the subject of a compromise under Executive Order Number forty-four; and

Two. The Court of Appeals erred in holding that Savellano is entitled to additional informer's reward.

PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R. SP Number two nine five two six, assigning the following errors:

One. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the controversy involving BIR and PNB (both government instrumentalities) regarding the new assessment of BIR against PNB;

Two. The respondent Court erred in not finding that the Court of Tax Appeals has no jurisdiction to question the compromise agreement entered into by the Commissioner of Internal Revenue; and

Three. The respondent Court erred in not ruling that the Commissioner of Internal Revenue cannot unilaterally annul tax compromises validly entered into by his predecessor.

The decisions of the Court of Appeals in CA-GR SP Number two nine five eight three and CA-G.R. SP Number two nine five two six, affirmed the decision of the CTA in CTA Case Number four two four nine. The resolution, therefore, of the assigned errors in the Court of Appeals' decisions essentially requires a review of the CTA decision itself.

In consolidating the present Petitions, this Court finds that PNOC and PNB are basically questioning the One. Jurisdiction of the CTA in CTA Case Number four two four nine; Two. Declaration by the CTA that the compromise agreement was without force and effect; Three. Finding of the CTA that the deficiency withholding tax assessment against PNB had already become final and unappealable and, thus, enforceable; and Four. Order of the CTA directing payment of additional informer's reward to private respondent Savellano.